Swearengin Administration Proposes Fiscal Sustainability Policy To Address Short- and Long-Term Budget Challenges

FRESNO – Saying that the City of Fresno is in severe financial distress that requires immediate action, Mayor Ashley Swearengin and City Manager Mark Scott today outlined a Fiscal Sustainability Policy that details a comprehensive series of actions required to meet both short-term cash flow challenges and address long-term structural budget issues.

Mayor Swearengin said the City’s fiscal sustainability requires funding core services first, eliminating all negative fund balances, and restoring at least minimal emergency and maintenance/replacement reserves within 10 years. The proposed policy is intended as a framework seeking to accomplish four outcomes:

  • Setting a course to restore the City’s overall financial health and credit rating;
  • Achieving spending and minimum financial reserve targets;
  • Adopting employment compensation policy changes to be negotiated as employee contracts are opened for negotiations; and
  • Directing immediate actions seeking to match expenditures to revenues and identifying options for savings in employee compensation and other costs.

The administration will present a workshop on the policy at the March 22 meeting of Fresno City Council and will ask Council to adopt the policy at its March 29 meeting.

“This proposal recognizes the reality that despite the fact that we have made a series of hard decisions over the past three-plus years, we have no choice but to take definitive action to make fundamental, structural changes to our operations if the City is to achieve fiscal sustainability,” Mayor Swearengin said. “This policy lays the foundation for a 10-year plan to bring the City of Fresno back to fiscal health.”

Mayor Swearengin said the City already has addressed nearly $100 million in budget shortfalls resulting from declining revenues and increased expenses and reduced the City-wide workforce by 22 percent since 2009. However, the City still faces a $2.1 million year-end deficit in Fiscal Year 2012 and a projected $65.8 million deficit in five years if additional actions are not taken. All three credit rating agencies have downgraded the City by three levels, citing lack of cash reserves and negative fund balances, poor prospects for the Valley economy, and lack of employee compensation concessions.

“Despite every effort to reduce our costs through layoffs and reductions to service levels, we simply cannot cut service levels deeper without jeopardizing the community’s health, safety and welfare,” Mayor Swearengin said. “It appears impossible to pay our future bills and operate in a cost-efficient, sustainable manner without help from our employee bargaining groups.”

Scott said the average compensation per employee has gone up 10 percent since 2009 and, when adding retirement and health benefits costs, the expense per employee has risen 25 percent over the same period. Employee costs account for 80 percent of the City’s General Fund, he said.

Because of the sheer magnitude of employee compensation costs, Mayor Swearengin and Scott said that efforts must be taken immediately to meet and confer with employee groups to study options and make meaningful cost reductions.

According to Mayor Swearengin and Scott, employee bargaining groups should anticipate negotiations on salaries, salary premiums, the length of bargaining agreements, medical benefits, retirement benefits, leave accumulations and any other changes appropriate to achieve fiscal sustainability while maintaining essential city services.

They added that other actions included in the proposal are:

  • Conducting a public review of City financial records and immediate cash flow projections to provide complete transparency for the public and interested stakeholders. City Manager Scott will be scheduling one or more workshop meetings to present facts concerning the City’s financial situation. Employee bargaining groups will be encouraged to involve their financial/accounting consultants and advisors to participate;
  • Evaluating all options to reducing costs of health and welfare benefits. City staff will comprehensively scrutinize all health care obligations to ensure they are sustainable, prudent and consistent with community standards. The evaluation will include an analysis of the Fresno City Employees Health and Welfare Trust to determine whether alternatives exist to provide fair and sustainable benefits. The evaluation will be completed by May 1 and will be presented to City Council at a public meeting;
  • Evaluating all options to reducing retirement costs. The City will immediately initiative a review of all pension obligations to determine what legally may be modified to reduce costs.
  • Reducing paid leave balances. According to the proposal, the accumulation of leave balances includes future cost commitments that pose a significant and unfunded burden on the City’s General Fund. The City will develop a City-wide program for leave that reduces long-term liabilities and is rational, sustainable and consistent with community standards.
  • Directing the City Manager to contact labor representatives and request “meet and confer.” The City Manager will request that labor groups re-open their existing Memorandum of Understanding (MOU) or, for labor groups whose MOUs will soon expire, begin negotiations now on a successor MOU. The City Manager will report to Council within 30 days about the bargaining groups’ response to the request.

The fiscal management policy will continue to follow established policies such as the Better Business Act, Labor-Management Act, and the Reserve Management Act. It also includes adopting fee increases that full cover costs for fee-based services and providing budget allocations for basic maintenance and replacement of equipment and property.

# # #