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Dear Portola Valley Town Council members, Interim Town Manager, Finance Director, Town Attorney, Finance Committee, and other interested parties, As I’m sure you are aware, over the past couple weeks information has emerged from the Finance Department indicating that our financial situation is much worse than expected. I’d like to call your attention to a few items which may not already be on your radar. 1) In your 6/12/2024 meeting where you adopted a Preliminary 2024-25 Budget, the General Fund balance was expected to be $5.4M at the beginning of the fiscal year on 7/1/2024. Now, the Finance Director is estimating that the General Fund balance was $1.58M on 7/1/2024. This is a shocking drop of $3.86M, and it has thrown the town into a financial crisis. While it was always known that the $5.4M estimate might come down somewhat as finances were reconciled, and it’s likewise known that the $1.58M estimate might increase a bit, the magnitude of the change seems far beyond expectations. You should ask the Finance Director to explain how the General Fund balance estimate was revised down by almost $4M (a 70% reduction) within the span of a few months. And frankly I think you need to make sure it’s not a mistake. 2) Assuming the Finance Director’s estimates of the General Fund balance are correct, Portola Valley may become insolvent within a year. I would not rely on the Finance Director’s estimate that we will end this fiscal year with $694k in the General Fund, as that could easily be off given the trend over the past couple of years. There is a real risk that insolvency will force Portola Valley to disincorporate and become part of unincorporated San Mateo County.
I made this chart using the financial numbers presented in the 10/1/2024 Finance Committee meeting. It highlights the large deficits we have experienced since 2021, and the General Fund balance dropping at a precipitous rate. We are on the brink. 3) Per the 10/1/2024 Finance Committee meeting, you will need to declare a Fiscal Emergency by December, 2024, so that we can get a revenue enhancing measure on a special election ballot in March, 2025. The deadline for defining the ballot measure may also be before the end of this year. I would point out that after this week you only have 4 more regular meetings scheduled this year. As such, you can’t wait for back and forth with the Finance Committee, you need to take steps to at least initiate the Fiscal Emergency step immediately.
4) You previously tasked the Finance Committee with evaluating revenue enhancing options to resolve our structural deficit, a job which is even more critical now. However, given the recent material change in our financial position, we should also urgently explore emergency nearer term measures. You should reach out to San Mateo County and any other relevant agencies immediately to inquire about our ability to obtain emergency loans or similar support. For example, in other municipal bankruptcies (Vallejo, Stockton, San Bernardino) the county stepped in to assist with vital services such as sheriff and fire. The goal would be to buy more time to develop robust long term solutions.
Regards,
Ronny Krashinsky
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