Discretionary spending for councilmembers raises questions

“Inside City Hall” Column of Inside the City Magazine – July 2013

Back to the Future – Discretionary spending for councilmembers raises questions

By Craig Powell

What was so disappointing about this year’s city budget deliberations was the complete absence of bold thinking, creative solutions or different (hopefully smarter) ways of doing business. It was as if the city’s big push to nail down an arena subsidy deal in March had exhausted its capacity to adopt new solutions to serious city problems. Instead, the city council went “small,” cravenly snatching $391,500 of the city’s general fund to almost double funding for each councilmember’s individual discretionary spending account, increasing funding from $55,000 to $98,500 each—a cash grab made much easier by the $27 million annual sales tax hike voters approved in November (Measure U). Is this what Sacramento voters voted for?

Eye on Sacramento calls them “slush funds,” while Jon Coupal of the Howard Jarvis Taxpayers Association labels them “incumbent protection accounts.” Why? Because councilmembers have a long history of handing out such dollars to influential community groups, burnishing their reputations as politicians (or Santas) who “care” and who can “deliver the goods,” even if the goods in this case come out of the pockets of hardworking (or not working at all) city taxpayers. With two and perhaps three councilmembers preparing primary runs for state assembly next year, these funds give them an opportunity to buy a little goodwill and build positive name ID.

At a council meeting on the city budget last month, North Natomas councilwoman Angelique Ashby fairly bristled at the suggestion that such accounts are slush funds, citing her own use of such funds to buy uniforms for Little Leaguers. “These kids can’t vote,” she exclaimed. But their parents probably do.

The same night, a group of parents from Del Paso Heights flat-out begged the council to fund a Ceasefire anti-gang program in their part of town, similar to one operated by the city in the high-crime neighborhoods of southeast Sacramento. The anti-gang program has had significant success in a number of U.S. cities. While the results in south Sacramento have been mixed, parents and neighborhoods are desperate for the help (and hope) that Ceasefire offers.

So, on the same night the council decided to supercharge their own discretionary funds (on a 6-3 vote, with Kevin McCarty, Jay Schenirer and Allen Warren dissenting), the council rejected the bid for $499,000 of funding for a Ceasefire program in Del Paso Heights. Ashby, the co-architect with Bonnie Pannell of the plan to increase funding for council accounts, told the worried parents to hit up each of the nine councilmembers for money from their accounts to cobble together the money needed for a Ceasefire program. The Del Paso Heights parents were not mollified.

Sacramento Bee reporter Ryan Lillis did a sampling of nearby cities and counties and found that the discretionary funds controlled by Sacramento councilmembers were completely out of whack with the amounts handed over to other elected officials in the region—a major disparity that existed even before our councilmembers chose to raise their individual funding. “Sacramento County, with a general fund budget five times greater than the city’s, sets aside a total of $100,000 for its five supervisors to split,” Lillis found.

City manager John Shirey is projecting that general fund deficits will rise steadily from $12 million next year to $15 million three years hence. But the real fiscal cliff comes in 2019, when the city’s PERS pension bill is expected to increase by $17 million and the Measure U sales tax hike expires, blowing a further $27 million hole in the general fund (not counting any general fund taps that might be required to cover the city’s estimated $250 million of arena bond debt, which the city hopes to pay off with city parking revenue and hotel tax).

Eye on Sacramento, a big critic of the discretionary accounts, issued a statement acknowledging “that many councilmembers have used such funds responsibly and in a manner that provides tangible benefits to the community. But in too many cases they have not. The problem with unaccountable spending by councilmembers is that the ‘bad’ spending by some members undermines public trust in the council as a whole.”

It was not always thus. Twenty years ago, before council discretionary accounts were created, the city council used to parcel out small grants to nonprofit groups through an application process, with councilmembers supporting various grant applications, staff reviewing the proposals and the council as whole, in full view of the public and the media, approving the funding. Eventually, grant recipients were asked to sign contracts and city staff monitored payouts to assure that funds were being used as promised. When the monitoring program began, several grant applicants dropped out of the program, a sign that some nonprofits didn’t wanted to be hassled with city oversight.

Under the rein of former city manager Bill Edgar (during his first stint as city manager from 1993 to 1999, not his more recent interim gig), the city’s grant program was abandoned and councilmembers gave themselves direct control over pools of cash.

There is one question, however, that no one seems to be asking: Are discretionary spending accounts for councilmembers legal? Under the Sacramento city charter, the city council is given exclusive power to spend city funds. Is the city council’s assignment of spending power to individual councilmembers an illegal delegation of the council’s spending power under the city charter? Perhaps. It’s an interesting legal question that may receive increasing scrutiny, particularly in a town of almost 20,000 lawyers, many of whom are underemployed. (Woe unto us all.)

Meanwhile, the council approved a more expensive spending plan for Measure U tax receipts over the budget objections of the city manager. Councilmembers were (understandably) frustrated by the relatively paltry number of new cops that Shirey’s plan for spending Measure U money would buy and approved additional cop hiring that would spend more than projected future Measure U revenues, setting up the city to overspend future Measure U revenues (“deficit by design”).

Why did the city manager lowball the hiring of new cops in his proposed budget, given the $27 million flood of fresh tax revenue under Measure U? He did it to maintain pressure on the Sacramento Police Officers Association to agree to a new labor contract that would require its members to contribute the full “employee’s share” of their own PERS pensions, amounting to 9 percent of salary. Unlike other city employees, city cops currently pay nothing toward their pensions. The city pays both the 30 percent employer’s share and the 9 percent employee’s share of pension costs. If the city is successful in securing the 9 percent pension contribution from cops, it would hire an additional 56 sworn officers under Shirey’s budget plan.

But the negotiations with the SPOA are not going so well. A one-day session with an impartial mediator in mid-June did not lead to a deal, leaving the city council with what was thought to be two options: Stick with the city manager’s plan to keep the pressure on the SPOA by going slow on the hiring of new cops or force the city’s contract dispute with the SPOA into “winner-take-all” binding arbitration. The council majority, knowing that negotiations with the SPOA were going nowhere fast, opted for a third choice: Hire additional cops now even if the action puts the city on a glide path to future deficits in Measure U spending. Did the council’s move undercut the city manager’s negotiation posture with the SPOA by taking pressure off city cops to contribute toward their own pension costs? Almost certainly.

So city costs will be higher, the city now faces a projected Measure U spending deficit, city cops still don’t contribute a dime toward their own pensions and city leaders once again flinched before forcing the politically juiced SPOA into binding arbitration while knee-capping the city manager’s negotiating posture with Sacramento’s most powerful union. The council also broke two of its earlier Measure U promises: not to use Measure U money to fill structural deficits (half of this year’s $8.9 million deficit was filled with Measure U funds) and to set aside some Measure U funds in a reserve to lessen the impact of Measure U’s expiration in six years. (Zero was set aside.) The good news is that the city will have an increased number of cops on the beat next year, but at a much heavier than necessary cost to taxpayers.

While city councilmembers focused on overspending Measure U money and enlarging their discretionary accounts, they missed the chance to adopt solutions to problems that just aren’t going away, such as:

  • The city’s $440 million unfunded liability for retiree heath costs, which is increasing at a pace of $30 million annually (an annual expense that is not considered part of the general fund deficit under the city’s obsolete cash basis of accounting).
  • Controlling the city’s rapidly rising costs of providing health care for current city employees. (Several U.S. cities are considering shifting health coverage for its employees to Obamacare’s public exchange option to reduce costs.)
  • Inefficiencies in the operation of the city’s tradition-bound fire department, including high overtime costs, excessive staffing of fire vehicles and a failure to fully adapt to its new dominant role: handling city ambulance calls. (The city, in its entire history, has never hired a fire chief from outside of its own fire department.)
  • Assessing opportunities to improve services and lower costs by outsourcing basic park maintenance (following up on last year’s move to outsource all city golf course maintenance) or allowing private trash firms to compete for residential garbage service, a move proposed by the Fresno city council with the hope of lowering garbage rates while increasing city franchise revenues, but recently killed by a close referendum vote backed by city unions.

Then there is the issue of the ongoing building moratorium in flood-prone Natomas that is strangling growth and job creation in the area. The downtown railyards project is pretty much stalled, as is the endlessly delayed Docks project to develop Sacramento’s waterfront. Meanwhile, West Sacramento races ahead to develop its Sacramento River waterfront.

There are also rumbles that the city’s planned upgrade of our water and sewer infrastructure, to be financed with the issuance of $2 billion of city revenue bonds over the next 15 years, is starting to cost more than originally projected. Will the city stick with its original financing plan, borrow even more or shift sooner than expected to a lower cost, pay-as-you-go financing plan?

These are big questions involving big, important issues. With all of these big issues facing us, what are the priorities of our city government? Current city staffing offers us a clue. Since becoming city manager almost two years ago, Shirey has cut the number of assistant city managers who directly report to him from four to just one, John Dangberg. Dangberg has but one job assignment: overseeing the building of a new downtown arena.

Craig Powell is a local attorney, businessman, community activist and president of Eye on Sacramento, a civic watchdog and policy group. Powell also chaired the campaign opposing Measure U. He can be reached at craig@eyeonsacramento.org or 718-3030. To read EOS’s report on the arena proposal, go to eyeonsacramento.org.

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