In a letter addressed to Mayor Tom Butt and members of the City Council, Richmond City Manager Bill Lindsay defended the city’s financial position, saying a well-circulated Los Angeles Times article regarding pension is wrong to suggest Richmond is headed toward bankruptcy. We were alerted to the city manager’s response via Mayor Butt’s e-forum newsletter.
by Richmond City Manager Bill Lindsay
In a recent article on pension costs that appeared in the Los Angeles Times (“Cutting jobs, street repairs, library books to keep up with pension costs”, Feb. 6, 2017), the ominous sub-headline read, “Generous retirement benefits for public safety employees could help push the Bay Area city of Richmond into bankruptcy.” The issue of municipal pensions, including escalating costs, the need for reforms, proper management of the CalPERS system, and other related topics have been discussed and written about a great deal over the past several years, and, especially, in recent weeks. But, to my knowledge, never has the word “bankruptcy” been used to describe the effect of pension costs on the City of Richmond, and, frankly, it is inaccurate, irresponsible, and reckless to do so now. In this context, I thought it important to provide a comment on the referenced article – not about pensions and the effect of escalating costs on California municipalities, but about bankruptcy.
Persons, business entities, or municipalities are bankrupt when they “become insolvent,” that is when they are “unable to pay debts as they fall due in the usual course of business” (Webster’s definition). Municipal bankruptcies are rare, but there have been several recent cases of California cities seeking protection under bankruptcy laws. However, at no time during my tenure at the City of Richmond, including during the past recession when the City experienced a 35% drop in property tax revenues over a two-year period, was there ever any discussion of bankruptcy, and there is no such discussion now. Even during the most difficult periods, Richmond has always been true to its financial obligations “in the usual course of business.” These financial obligations have included pension costs, and, even as these costs increase, this will not change.
The key to this, of course, is to continue to adopt a balanced budget. Quite simply, if the City Council continues to adopt a balance budget, and revenues are monitored and expenditures are controlled on an ongoing basis, there will be funds to meet all of our financial obligations. To this point, it should be noted that the City of Richmond has experienced a small operating surplus during the past two years, and is on pace to have a balanced operating performance for FY 2016-17. It will be important for such financial operating performance to continue in future years.
For financial flexibility, and as a backstop for unforeseen events, it is important to bring the City’s cash reserves back up to levels established by previous City Council policy. Planned liquidity events over the next several years, including one-time revenue associated with property sales, will help with this, but these revenues are not necessary to meet current obligations, nor are the expected revenues from these transactions included in the City’s budget.
As has been well documented, pension costs will undoubtedly rise significantly during the coming years. That, however, does not change the underlying policy of adopting a balanced operating budget, and continuing to increase cash reserves. Richmond is a community of many needs, and budget allocation decisions are always difficult ones for the City Council, but retirement charges from the Public Employee Retirement System (PERS) are, and will continue to be, non-negotiable budget items, as are all municipal debts owed by the City of Richmond. Rising pension costs will make budgeting more difficult in Richmond, but that is no different than it will be for the State of California, or for any other California city that is a member of PERS.
In sum, I acknowledge the underlying premise of the recent Los Angeles Times article: Escalating retirement costs (and not just for public safety employees) will cause fiscal stress for PERS member agencies. That is a fact that cannot be ignored. However, fiscal stress does not equate with insolvency. To suggest that it does for Richmond crosses the journalistic line from fact to falsehood.
Please feel free to contact me if you have any questions or require any additional information.