“A nation of sheep will beget a government of wolves.”
Current Overall Financial Health of the City
Facts: Over the last twenty fiscal years (2003 -2022) PVE has experienced the following economic and demographic trends:
Population has decreased by 7%. In the last 10 years, the only other South Bay City to experience a population shrinkage is Rolling Hills.
Revenue from “Regular” Property Tax (excluding the Safety Parcel Tax which has been in place for over 40 years) has increased by an average of 5% per year. Due to the limits of Prop 13 on increasing taxes for existing homeowners, the increase has been driven primarily by sales – and subsequent reassessments - of existing properties and very limited development of new parcels.
Revenue from the Safety Parcel Tax has increased by 4% annually if we exclude fiscal years 2018 and 2019 when Measure D failed and before Measure E was enacted.
US Inflation has averaged 2.5%; however, inflation for Calendar YTD 2022 is already tracking at over 9%.
Measure E (currently funding 20% of the City’s annual budget) will expire in FY 2027-2028.
In a nutshell, “Cash Security” is the City’s overarching financial priority. A good way to look at this is in the format of a Cash or Funds Flow Statement. This important component of the financial statements breaks down the Sources and Uses of cash for an organization, whether private entity or public agency, such as a city.
Following are actual and potential sources & uses of funding for the City of PVE:
I. Sources (Actual & Potential)
A. Revenues (with estimated annual % of total):
1. Property taxes
a. Regular Property Tax =40%
b. Safety Parcel Tax = 20%
2. Other Taxes (Sales, Franchise, etc.) = 10%
3. Other Agencies (Federal, State, County) = 15%
4. Other (Concessions, Fines, Fees & Permits, etc.) = 15%
B. Investments. Due to very conservative restrictions on allowed investments, returns are modest. US Treasuries are a good proxy. By law and policy, the City is required to maintain 6 months’ expenses (roughly $10M) in liquid assets, that is, investments that can be cashed-in on short notice for immediate needs. Given there is approximately a $30M balance in the City’s portfolio, this leaves approximately $20M that can be invested for periods up to 5 years, in government agency funds, CDs or very highly rated corporate fixed income securities. This is approximately one year’s expenses for the City.
C. External Financing
CalPERS – We may not love it due to its unpredictability, but it is a guaranteed source of funding as long as we pay the minimums required.
Municipal Bonds
D. Philanthropy & Volunteer Contributions – examples:
Peninsula Education Foundation (PVE)
PVE Foundation
Neighborhood Watch
City Commissions & Committees
City Council!
E. Development
Residential
Commercial
II. Uses
A. Safety - Organizations
Fire
Police
B. Safety - Other
Fire Mitigation
Flood Mitigation
Earthquake Mitigation
Street & Road Maintenance
Ensuring reliability of Utilities & Critical Services – (Power, Water, Sewer, Telecomms/Internet)
C. Debt Service – CalPERS/Other if applicable
D. Quality of Life (QOL)
Historic Preservation (landscaping, original 1920’s architecture, original structures & sites)
Open Space & Parklands (upkeep & maintenance)
Parking & Traffic Mitigation (some of the latter exacerbated due to development in our neighboring cities.)
View Preservation
Limited Population Density
Reliable Internet & Cell Service
Critter Control (Coyotes & Peafowl)
Quiet
Beautification & Improvements
Maintenance of other City Services (management, permitting, enforcement, communications & outreach)
III. Unmet Needs & Other Challenges (not addressed above)
A. Inflation???
B. Eroding Infrastructure – threat to safety as well as QOL
C. Pension Debt – Unpredictability of CalPERS results
Future Financial Condition of the City
The latest version of the Long Term Financial Forecast, presented at the June 6, 2022 City Council Budget Workshop and attached here, shows our forecasted revenues falling short of projected expenses beginning in 2024, long before Measure E expires (FY 27-28). By FY 30-31, there will be an accumulated shortfall of roughly $18M. This analysis excludes further investment, i.e., beyond the current FY, toward paying down our pension obligations, shoring up our infrastructure or mitigating our fire risk through parklands maintenance, needless to say, toward improving services or beautification of City owned land. See especially the line highlighted in orange: cells 141h to 141s.