Next Maria Kachadoorian, Director of Finance/Treasurer, spoke about her new Five Year Financial Report for 2009-2013. (Video) One of the reasons we are spending more than we are taking in and have a deficit is because the financial department over-estimated revenue while expenses continued to grow.
Ms. K wants to avoid this in the future by making these three basic assumptions the basis of the five-year report and estimating income very conservatively.
The first expense she discussed was health care, which it is estimated will go up 10% for year based on past performance. This is 6.8% of the budget.
Next she discussed retirement benefits. CalPERS has been successful at stabilizing costs. The city did incur some added cost with early retirement, golden handshakes used to help balance last year's budget and the first quarter of this year.
The funded status is around 80%, which is considered good. This is 15.5% of the city's budget.
There is an unfunded liability in Health Benefits for retirees. All retirees are allowed to continue in the city's health plan. Some Council members questioned this and it was pointed out that the matter would be back for further discussion.
The Major Revenues slide shows that property tax is beginning to overtake sales tax. Since this is a source with less fluctuation in the long-term it will be a good thing. Sales tax is being estimated as increasing at a very conservative 2% per year. The consultant thought that 3% was conservative, but Ms. K wants to avoid past mistakes and take an even more conservative estimate. Councilman McCann objected. He felt an increase should not be predicted. She pointed out that a large percentage of our sales tax comes from cross border shoppers. He felt relying upon them was a mistake.
This was her last slide. The top figures show how the deficits will grow each year if something is not done to cut expenses.
The city manager insists the budget will be balanced. In which case the deficits will decrease, and by 2011-2012 the budget will show a small surplus.