Richmond Mayor Tom Butt delivered a healthy dose of optimism in his State of the City address on Tuesday, touting the city’s record low unemployment rate, improving financial situation, its recent rebound in home-building, and news the city has resumed talks with UC Berkeley on a development plan for the Richmond Field Station.
But the mayor warned that increasing costs, particularly to public employee pensions, will require the city to maintain “fiscal discipline” and to continue to explore revenue-generating ideas in the coming years.
“Like most California cities, our most serious looming fiscal challenge is growing cost of pensions,” Butt said.
Since 2015, Butt’s first year as mayor, the city has financially rebounded, with its bond ratings and budget reserves both experiencing increases. Over the last year, the city has seen a 9.7-percent increase growth in sales and property tax revenue.
“This fiscal year, 2017-’18, we adopted most sustainable budget in recent history,” Butt said, adding the financial forecast shows “a growing fund balance” that will allow the city to pay toward its unfunded liability and other postemployment benefits (OPEB).
The good news, however, is tempered by financial challenges ahead. The city’s total cost of all pensions and benefits increased by 45-percent in the last five years and now makes up just over 30-percent of the city’s general expenditures. Looking ahead, most California cities expect their spending on public employee pensions to climb by at least 50 percent over six years, according to a report by the League of California Cities. That will make it more difficult for cities to fund basic city services such as parks and public safety.
“The trajectory is unsustainable,” Butt said. “Even though we have fewer city employees, our total expenses for salaries, wages and pensions continue to climb.”
The rise in costs is driven in large part by fee hikes imposed by the California Public Employees’ Retirement System (CalPERS).
“The primary driver of the increases are the growing CalPERS costs as CalPERS tries to get ahead of their unfunded liabilities based on unrealistic projections of investment returns,” Butt said.
In the last decade, “by necessity,” the mayor said, the city has seen its workforce reduced by a quarter, from 962 to the current 721. Further reductions to city staff would negatively affect service levels, according to City Manager Bill Lindsay.
Along with fiscal discipline, the mayor recommended vetting several revenue-generating ideas, including possibly imposing a storm water management and litter fee, increasing cannabis business tax revenue and revisiting proposals for a soda tax and real-estate transfer tax.
“We hope that property taxes, sales taxes and utility user taxes continue to grow, but these have been proven to be unpredictable over the past years,” Butt said.
While a bi-annual community survey done since 2007 reveals a “dramatic increase” in quality of living in Richmond, the city continues to face usual challenges. The same survey revealed residents are most concerned, in this order, with reducing crime, improving street paving conditions, improving environmental quality, addressing blighted properties and improving park conditions.
Housing creation also remains a major topic moving forward, Butt added.
“Everyone agrees we need more housing, and affordable rents,” Mayor Butt said.
After a decade-long drought, hundreds of new housing units are under construction in Richmond, and over 1,000 are in various stages of entitlement, Mayor Butt said. Those new developments must either build affordable housing or pay into a fund that will go toward construction of affordable housing, he said.
In January, the mayor met with UC Berkeley chancellor and learned the university is again moving to develop new commercial real estate opportunities on their property known as the Richmond Field Station.
“Only thing off the table [for the UC Berkeley project] is housing,” Butt said, but he added there is plenty of opportunity for adding housing surrounding the area.
More details on the project will be revealed in the coming year, he said.
To view the mayor’s full speech, including presentation slides, click here.