The Swarm

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October 14, 2008
City treasurer to council: Get ready for "painful reality"

City Treasurer Russ Fehr will deliver a bleak report to the city council on Sacramento's finances tonight. You can find his report here 105_2265.JPGon the council's web site.

In the report, Fehr notes that property values in the city  "have declined by more than $10 billion" in the last three years.

He says that rating agencies have lowered the rating on several of the city's bond issues because of problems with insurers. He warns against additional borrowing, because it would lower the city's AA rating further. At the same time, the city will need to increase contributions to its employee retirement system because earnings in the stock market will be "significantly below actuarial targets."

The bottom line, says Fehr: "Spending must fall below income and the difference applied to debt reduction and increasing savings...Adapting to these constraints is critical and will continue to be a painful reality...for years to come."

UPDATE: The ever-active Steve Maviglio, campaign manager for Kevin Johnson, just released a memo putting his spin on the city's financial troubles. Read it on the jump. 

To:          Reporters

From:    Steve Maviglio

Re:         Heather Fargo's Deficit of Leadership


When the City Treasurer gives a budget wake up call to the Mayor and City Council today, Mayor Fargo will try to pin all the blame on national economic conditions - ignoring the City Treasurer's comments in his report noting that sales tax and property tax declines began back in 2006.

 Fargo's comments are a stunning reversal of her comments from last Monday's debate, when she said the deficit was "gone" and Sacramento's budget problems were "fixed."

 Interviewer: Mayor Fargo, which is the city's first priority:  Closing the budget deficit, or keeping up the, the ranks of police officers and fire fighters?

 Fargo: Oh I actually think it's both.  Um, and what I would say is that we had a $58 million dollar deficit.  It's gone...  Now we have fixed that problem in large part because we had a reserve, and we, we let very few employees go. We did a voluntary separation program, let very few employees go [...]   (KCRA debate, 10/6/08)

 The truth is that Mayor Fargo has proved seriously deficient in providing leadership to keep Sacramento on sound financial footing.  When other cities were tightening their belts in anticipation of economic uncertainty, she did nothing to prepare the city. In fact, the city budget grew. In addition, she was absent during key votes and presentations on the budget, when mayoral leadership was needed (Fargo says she does not schedule important agenda items while absent; Sacrament Bee, February 24, 2008).

 The following chart shows the increase in positions in city government during the Fargo years. Note the continue hike during the 06-07 and 07-08 years - when the national economy was already slowing down and the foreclosure crisis was beginning to erupt.


Total FTE

# change

% change

# positions in PD

# change

% change























































The following are some highlights of the warning signs Fargo failed to address:


 June 13:                               2006-07 Budget Highlights:

City Budget: The entire city budget is $991.9 million (FY2007/08, p.9), an increase of $204 million from the previous year (FY2005/06 Approved Budget, p. 9).

 General Fund: General fund budget is $400.7 million, an increase of $72.7 million from 2005/06 (FY2006/07 Approved Budget, p. 9; FY2005/06 Approved Budget, p. 14).

 Full-Time Equivalent Employees: Approved budget shows an increase of 106.41 Full-Time Equivalent (FTE) employees (FY2006/07 Approved Budget, p. 25).[1]



 May 15:                                The City of Sacramento predicts a budget deficit of $4.5 million for the 2007/08 fiscal year tied to lower collections of supplemental, property, and utility use taxes (Sacramento Bee).

During council session, Fargo says, "I know we have a modest deficit that we're hoping to correct" (City Council Meeting). 


June 12:                               In a follow-up City Council meeting at which the final budget resolution is adopted, Fargo says she is pleased with progress and promises to monitor things closely:


"Ok.  We have heard it all, believe it or not.  Um, and I think we've done a pretty good job this year with the budget and I'm pleased were making the progress we are. And that we are actually making some significant changes even in some rough financial times, and I think as long as we really monitor it closely and when you come back to us after the summer, I guess, with some real options so we can get closer to where we need to be and not so far apart, that would be great."

                Mayor Fargo, City Council Meeting

                (emphasis added)


Russell Fehr, Finance Director for the City of Sacramento, tells Fargo that the city's budget outlook hinges on the performance of the real-estate market over the summer.


2007-08 Budget Highlights:


City Budget: The approved city budget is $972.5 million, a decrease of $19.4 million from the previous year (FY2007/08 p. 9; FY2006-07 p. 9).


General Fund: General Fund Budget increase of $30.5 million (FY2006/07 Approved Budget, p.13; FY2007/08 Approved Budget, p.13).


Full-Time Equivalent Employees: The approved budget shows an increase of 72.2 FTEs (FY2007/08, p. 69). The difference in approved FTEs in FY2006/07 and FY2007/08 is 164.27 FTEs (Ibid.).[2] 



July 1:                                    2007/08 Fiscal Year begins.


July 13:                                 Sacramento Business Journal reports on a study issued by the  Gregory Group "showing that the region's new-home sales in the second quarter fell by 42 percent compared with the same period last year, and 33 percent lower from the previous quarter" (Sacramento Business Journal).


July 17:                                 In a sign that Central Valley cities are facing declining revenues, the Chico City Council begins brainstorming on how to reduce the city's $56 million deficit projected in their 10-year financial plan.

According to Chico's city manager, the impetus behind the deficit is "flattening" revenues (Chico Enterprise Record).


October 18:                        The National League of Cities releases their annual report on "City Fiscal Conditions" for 2007 and warns of "the coming impact of the decline in the real estate market [...] ongoing spending pressures [...] inflationary factors that will continue to reduce the purchasing power of city revenues [...] [and that] Cities are faced with a property tax conundrum" (Note: State leagues occupy a position within the National League, and Mayor Fargo is the First Vice President for the League of California Cities).


October 27:                        The US Conference of Mayors releases a report warning of worsening mortgage crisis (Reuters). (Note: Fargo is on the advisory board for the US Conference of Mayors).

 The Global Insight report forecast U.S. homeowners would see property values fall by $1.2 trillion in 2008, with almost half of those overall losses coming in California. California property values are expected to drop by 16 percent in 2008, the report said, costing the most populous state almost $3 billion in property taxes.



 October 30:                        During the City of Sacramento's FY2007/08 Budget Status Report, Fargo tells the City Council that Sacramento is expecting a $45-$55 million budget deficit:


We're looking at a $45-$55 million dollar deficit, which is larger than we have had to deal with since, I believe, the mid-90's when we had a $50 million deficit at one point. I don't want to fault staff at all for not having seen this coming because, as you know, a lot of people were kind of surprised.  I think we knew there was going to be a shortfall.  I just think we didn't realize how deep it was going to be. Clearly it's very deep and we don't see a real quick turnaround on this, at least I don't yet.

Mayor Fargo, City Council Meeting

October 30, 2008 (emphasis added)



October 31:                        Fargo tells the Sacramento Bee "We'll still be able to do about 90 percent of what we do; we're staying in business."




January 23:                         According to the Sacramento Bee, the City Council has their first meeting to discuss Sacramento's worsening fiscal picture.  City departments are asked to think of ways to cut 10%-20% from their budgets.  Fargo is absent, on travel to Washington, DC (Sacramento Bee).

 "We have a fairly serious and deteriorating budget situation," says City Finance Director Russell Fehr. According to the Bee, Fehr told council members that budget shortfalls resulting from greater expenditures to revenue ratios are expected to continue over the next five years.

February 28:                       City officials announce plans to cut 9% of the city's workforce to avoid "massive layoffs." Fire Chief Ray Jones says it is possible that some fire stations may not be fully staffed.  Assistant City Manager Gus Vina, says it is "inevitable" that city services will be affected (Sacramento Bee, March 1, 2008).



March 12:                            According to the Sacramento Bee, "[Fargo] would be surprised if the cuts to police and fire services ended up that severe."


[1] These are all employees by department.  Not just those covered under the general fund. This is after the 2005/06 budget was amended.

[2] These are all employees by department.  Not just those covered under the general fund. This is after budgets were amended.  Except when we discuss approved budget FTEs.

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About The Swarm

The Swarm is written by members of The Sacramento Bee's editorial board. They meet daily and are separate from the newsroom. Views included here are those of individual writers, and do not necessarily reflect those of a majority of the board or the positions expressed in The Bee's editorials.

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