ROADMAP to Expense Reductions – “Repairing the Structural Deficit During the June 2 Meeting it became obvious that the city needs to raise revenue and/or reduce expenses. The Alternative 1 Forecast with no hotel and no sewer loan repayment requires $810,000 in revenues or reduced expenditure.
REVENUES
I have written extensively in a past (March 25) Public Comment about revenue ideas. Below is a brief summary of the ideas expressed by NHA and presented at the March 2023 meeting which are summarized here.
Increase Property Tax
Reportedly the city gets 19.7% of property tax revenue collected by the county. An increase to 21.7% would bring in roughly $390,000 more dollars. Sebastopol is too small to absorb all of the “overhead” costs from the county and the state. The County took away our downtown hotel and at least $200,000 in TOT tax to establish Elderberry commons We are now hosting three permanent supportive housing projects and absorbing the public safety costs associated with those projects. We also have more low-income housing per capita than any other city. (Woodmark, Burbank, Elderberry, Park Village Burbank Senior Housing,Gravenstein Commons. These projects are exempt from property taxes. Lost property tax from these properties totals almost $100,000. Also, ADUs have no impact fees. There is precedent for small cities to negotiate higher shares. East Palo Alto reportedly gets 33% to ensure it was financially viable. We need to enlist our Supervisor in the cause to increase our property tax rather than take it for a pet EIFD project
TOT tax
Sebastopol is currently at 12%. Healdsburg has the highest at 14%. Petaluma and Sonoma are at 10% and Santa Rosa is at 9%.
Raising the TOT to 14% would raise approximately $80,000 per year (NHA). More when the new hotel opens.
UUT – Utility User Tax
Currently set at 3.75%. The voters approved maintaining that rate and lifting the sunset clause. Santa Rosa has a 5% rate. This would raise $230,000(NHA) per year Parcel Tax
NHA calculated in 2023 that a $290 parcel tax would raise $790,000(NHA) in annual revenues. A parcel tax would be more acceptable to voters if it was clearly designated to improve the city and its quality of life.
Next Step: TOT & UUT tax increase = $310,000 in new revenue The TOT tax may be the easiest. It is charging tourists not citizens. It will offset any negotiated split to get one or both hotel projects moving and when the hotels open revenue will come to the city more quickly and at higher levels.
The UUT tax is one that most probably don’t even know they pay.
The parcel tax would be a more difficult sell. You have gone to the well too many times for streets. I have suggested separating parks and rec as a separate district, combining it with the Sebastopol Commons idea and using a parcel tax to fund it. This would give control of the parks and recreational attractions to those who use them through their own board, which would be attractive. People might pay more taxes if they know it will make the city more fun for them and their families. Separating the parks maintenance ($656,000) and CIP($3.6MM), Senior Center ($57,655), Community Center ($147,059) and Ives pool ($259,483-less $85,000 from swimming club). This moves up to $1MM in expense and $3.6MM in CIP to the Parks and Rec district to be funded by fees and parcel tax.
EXPENSE REDUCTIONS
A review of the budget identified expenditure in most departments that does not appear to be central to the goals of the city. Some suggestions will require more work, but the potential represented here for up to $988,000 in savings makes the effort worthwhile.
Below are some areas that seem to be opportunities for reductions Dues and Subscriptions
Currently the city has 26 organization dues and subscriptions totaling $9,747. This does not include the administrative cost of keeping all of these paid. It also does not include staff time spent reading all the materials from each organization. Even though Sebastopol views itself as very cosmopolitan, membership in international organizations seems like nice to have and easy opportunities for cuts. I took a shot at a rationale for cutting and saved 15%. Keep the 15% goal and let staff prioritize.
Senior Center and Community Center
Council three years ago directed both these organizations to reach financial independence.
The Senior center as a non-profit brings in $950,000 in revenue and has $1.4MM in assets.
Arguably they are better off financially than the city. The agreement with them should be modified to make them responsible for all maintenance and PW labor costs.
The Community Center lists revenue for 2024 (in 990) as $134,000. Program revenue is listed as $40,204. Clearly as of 2024 they are not financially independent. Either staff or council members were assigned to work with them two years ago. Suggest assigning 1/3 of the current cost to them for next year $14,500. 1/3 the following year and all costs in three years.
Liability Insurance
Even though we are in an insurance pool the city is spending $997,679 on liability insurance. The city cannot afford this cost. It has been increasing double digits every year.
The increases may be due to risk/claims ($1MM fraud loss?) or just that we have too much coverage. Set a goal of $100,000 savings and see what decreases in coverage or co-pay would be required. The city probably has sufficient assets to self-insure for part of any loss.
Park Village
The city runs its own, slightly off the grid, affordable housing project. There are PW costs as well as a management contract with West County Community Health. Presumably there is rental income being collected by West County, why are they not responsible for maintenance costs as well?
This project needs to be accounted for as a department with all expenses consolidated. If there is revenue for the city that should be here also. The goal should be to operate with a slight budget surplus that can be applied to capital projects needed in the future. (Note: a consultant for the city on the SVdP project showed how HUD Housing Choice Vouchers would provide near market rate rental income to Gravenstein Commons and pay all operating expenses). We need someone to look at this operation in that light. Is it possible the West County does and makes a profit off this endeavor.
Building
The State apparently has a new law that we have to eliminate any decorative – nonfunctional landscaping not in parks. Cut this cost by 50%. Two options to eliminate this – use the existing budget for plants and put in drought resistant plants and rock and/or make this the first project for Administrations $4,000 investment in SB90 Annual Filing project. (Turf grass sounds awful).
Parking Lot
There is a charge in the budget for EV charging station. There is no related revenue. Is the city subsidizing people who can afford EVs? At the time this was installed there were no EV chargers in Sebastopol. Now there is a substantial Tesla charging station in the Lucky parking lot and another at Pacific Market.
Do a business review of this operation and either end it or find a way to create sufficient revenue to cover the costs – maybe even a profit? Maybe the city can sell it to a private company and pay for a new Vac Truck with the proceeds.
City Bill Utilities
The city uses nearly $400,000 in city water. I can’t even begin to sort out how the city is paying for water and 30% of the cost is actually city expenses. Recommend cutting water use by 10% and/or pursuing lower rates for all customers to provide savings. Climate Action Committee should conduct and audit and provide recommendations to city staff.
Streets Maintenance
The Tree lighting and downtown beautification should be funded from the Downtown Business Fund. This is a savings to the General Fund.
There is a charge for a share of a new skid steer. PW does not currently have a skid steer. It just bought a second backhoe which has a similar purpose. If it is due to increased demand for fixing potholes in the streets then it should be funded 100% from streets.
Suggest purchasing used, since it may be of less use as it was never available before? Also suggest total purchase cost comes from the Vehicle Fund and not the Enterprise or General Fund. Of course, rental is another option while you wait for other revenue enhancements and cost reductions to take place. Maybe buy one next year if the budget is balanced.
Police
The idea of $90,000 (I heard it is more like $120,000) to pick up and care for 20 animals a year is unacceptable. Goal should be $45,000. Suggest cutting West County Homeless coordinator this year. The city is not financially sound enough to consider a bailout to West County. Heart is now “permanent” and actually reports on successes which West County could not do.
Planning
For much of this year all positions in Planning have been vacant. With perhaps the highest workload in recent history you are estimating $650,291 in expense for FY25-26. The budget for 27-28 is $131,000 more. You are estimating 25-26 expenses for contract workers at $219,930 and salaries and benefits of $298,000. For FY26-27 you are increasing salaries and benefits from $298,000 to $624,000. It appears that you can save $135,000 with a blended use of employees and contractors the same as you did this year. Propose freeze salaries and benefits at FY25-26 levels and contract support at similar cost for next year.
Conduct a careful analysis of the option of contracting this service rather than filling vacancies. A contracting firm can attract better talent and use them more efficiently as they can work on other projects when Sebastopol demands are reduced. When demands spike they can adjust staffing much more easily than the city can. They don’t pay CalPERS retirement costs and probably get their benefit package for less as well. They have experts at various tasks that can be assigned as needed and get work done more quickly instead of Sebastopol trying to reinvent the wheel.
Administration/Finance
The GFOA award is paying $1,000 to congratulate yourself. Unnecessary. Credit card/bank fees need to be offset by revenue. Set a surcharge on credit card use to offset the bank fees. Everyone does it. Cost allocation plan should be abandoned.
There are no labor negotiations scheduled this year – remove the $10,000 cost.
Evaluate the Cal OPPS and Job posting costs. You pay a recruiter for every position, and they likely also pay for these services. How many employees were hired from one of these jobs sites? If these sites work, then keep the cost and cut all recruiting costs in the departments.
‘Teams Calling License” is a Microsoft product that allows phone calls on computer.
Sounds nice but not essential as you are paying a high cost for cell phone and land line. If you want to add Teams Calling, then cut one of the others. Better yet, wait for a better year to experiment.
Assistant City Manager/City Clerk
The city needs to cut costs, and the number 1 place is the City Clerk position. Past city council wanted to reward Mary for her hard work and loyalty. They were also giving Larry a big raise at the time and wanted to be fair to Mary. They combined an imaginary Assistant City Manager position with City Clerk and raised the salary with the rationale it was for two positions. Combining City Manager with City Attorney may have saved some compensation cost which they could also spend on the new Assistant City Manager Position. Today those conditions do not exist.
The city needs a city clerk. It cannot afford an Assistant City Manager. Healdsburg is the only city on the State Controller website with an Assistant City Manager. They are a larger city, have a more stable budget and have a larger staff to justify an additional senior manager. Sebastopol does not.
The latest data from the State Controller Website (as reported by the cities) is for 2024. In that year Sebastopol paid the highest compensation for City Clerk. The amount was $120,000 more than any other city. Sebastopol was the only city to have a combined Assistant Manager/City Manager.
For the current year the budget proposal is for $309,403. This is still $87,000 (39%) more than the average for the county. These are wages for 2024 so inflation (3.5%) would increase the average to $246,327, still $63,000 more than the average.
Given the financial situation we should be recruiting a basic city clerk with total compensation no more than the average. If Cloverdale and Sonoma are our comparator Sebastopol is now budgeting $100,000 more than they pay.
Propose reducing target total compensation by $90,000 and eliminating the $5,000 to recruit an Assistant City Manager. There is still $5,000 to recruit a City Clerk in the budget.
Legal
Legal fees seem very high. The initial contract for Alex was $140,000. It appears if Alex is General Legal Support that amount has tripled ($343,750+ Enterprise costs). At the time $140,000 was an estimate and the City Council (Mostly D. Rich) was concerned that if everyone on staff and city council asked Alex questions the cost would rise very quickly.
Good prediction. No apparent controls in place.
When we saw the $600,000 budget for legal a couple of years ago, we were told it was the ACLU lawsuit. Now we see that Personnel matters ($150,000), and general legal advice ($343,750) were 2/3 of that increased cost. Difficult to know what is going on but high legal costs are symptoms, and you need someone to assess the situation, identify the root cause of these costs and address them. The city cannot afford $600,000 in legal costs.
Start by freezing General legal costs at last year’s amount. Prioritize tasks assigned to Alex.
City Manager
Overall, the City Manager budget is significantly lower than FY24-25 when the position was last fully staffed. However, it does have a bit of slush. The Holly Hansen Special project is showing up every year. This should come to council if in fact there is a special project needed. Savings $10,000
City Council
The City Council budget, like others has room for tightening. $5,000 for a consultant for goal setting is not a real expense. $1,000 or plaques and business cards seem excessive given plaques are also budgeted in office supplies.
Summary All Savings and Revenue
The combined potential for savings totals $895,455.
Revenue opportunities could further address the budget gap with $300,000 in new revenues. New revenue combined with expense reductions would total nearly $1.2MM in budget improvements. This addresses the structural deficit and leaves a small surplus.
Unfortunately, this surplus is only about 1/3-1/2 of the amount being overpaid by rate payers so there is more work to be done.
Some of the biggest savings come from outsourcing planning. This is a once in a lifetime opportunity. You already have done it in a year where planning is in peak demand with new development. You don’t have to lay anyone off. The Union will be upset but, the alternative is to lay people off, freeze wage increases or cut benefits. The Union might be ok. When that development activity returns to baseline, a fully staffed department will become a cost you can’t afford. Outsourcing allows scaling. The agreement can have provisions for someone onsite to assist the City Manager in dealing with businesses and developers and the Planning Commission. Hopefully, council will direct the City Manager to explore the opportunity fully.
INCREASING JOB SATISFACTION
In my company we had the problems of expenses continually increasing faster than revenues. Department heads made passionate pleas for more headcount and then more money to pay for resources to support the new headcount. Our President recognized this as the “King” syndrome. Every Department head had a “kingdom” and felt like their success was measured by growing the Kingdom. The culture changed when leadership recognized and rewarded departments that did more with less.
Just asking employees to do less is not a formula for success. You have to give them the tools to understand where they can improve. Time Tracking was critical. Once employees discovered where they were spending their time they felt like they understood what they had to change.
A huge part of the problem was “boss induced” time. Staff meetings, handling something the boss didn’t want to handle. Writing reports for the boss. These tasks were not aligned with the priorities and once everyone realized how much time was involved behavior changed from top to bottom in the organization.
Everyone believes they are overworked. In our work it turned out that by tracking time, focusing on priorities and ceasing or spending less time on lower priorities the overworked feeling disappeared. The ability to do what is important increases satisfaction.
Recognition for accomplishing change made the work more satisfying. Staff also became much more disciplined with department expenses the next year.
The next step in our approach was to teach about how to document processes and identify ways to make work more efficient and effective. Have to walk before we can run. Also need data to understand processes. Do the time tracking first.
Changing culture is difficult but important to achieving a higher performing organization.