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Lodi City Council aims to borrow $1.2 million to deal with cuts
The Lodi City Council veered away from cutting more city employees and services Wednesday night, and instead will borrow $1.2 million to deal with state cuts.
In a 3-2 vote, the council decided it will first try to join other cities in borrowing from investors through a bond. If that does not work, the backup plan will be to borrow the money from the PCE Settlement Fund, which currently has $16 million in it.
Councilman Bob Johnson and Councilwoman Susan Hitchcock voted against because they said they needed to see what cuts could be made in the city's budget before they could vote on whether to borrow or not.
In the staff report, a third option was an acrossthe-board cut from every department, including 14 layoffs.
The state is borrowing almost $2 billion from cities and counties to finance its deficit with the promise that it will pay the local agencies back with interest in June 30, 2013.
The state is borrowing Lodi's property tax money from the General Fund, which provides services like police, fire, parks, animal shelter and library.
The cuts are on top of reductions the city made back in June. When the council passed its yearly budget, it planned for a $2.4 million decrease in General Fund revenue. The city cut mainly through employee concessions, which included furloughs, eliminating overtime and reducing staff through two-year retirement credits.
Mayor Larry Hansen said he does not want to reduce expenses because the city's services have already been greatly reduced.
"I'm not inclined to want to reduce positions in any department," Mayor Larry Hansen said. "We need to take a deep breath and give us time to see the impacts of the people we have already eliminated."
Councilwoman JoAnne Mounce said she would not be willing to look at any cuts because there could be some more hard decisions during the city's mid-year budget adjustments.
The city will participate with other cities to issue bonds securitizing the future payments made by the state. The city should receive the money from the bonds in December, and then the state would be responsible for paying back the bonds as well as any interest up to 8 percent.
City staff said they did not recommend this option to the council because there are many uncertainties surrounding the bonds, including the requirements and whether investors will buy them.
The main advantage is the city will not be on the hook if the state defaults on the bonds because the state is required to pay investors back, according to a staff report.
"If the state goes sideways, we have no stake in that game anymore," Mounce said. "If we borrow from any of (the city's) different revenue sources, we are at risk for that money."
If investors do not buy the bonds, the next step will be to borrow from the PCE Settlement fund.
City staff favored borrowing internally from the settlement fund or from the Electric Utility reserve because the city would earn additional interest when the state pays back the money, and it would not have to worry about the uncertainties associated with the bonds.
Out of the $16 million in the PCE fund, $8 million is unrestricted funds. The city is estimated to need $2 million of that money during the next three years, so the city could borrow from the remaining $6 million.
Because rating agencies are constantly monitoring the Electric Utility, Hitchcock said she did not favor borrowing from the utility's $12.6 million reserve. She said the rating agencies might think the city is not willing to protect its utility.
Johnson agreed that the city has to be wary of borrowing from the utility.
"You have to tread lightly with raising this question with the rating agencies. I think it puts up a red flag," he said.
Johnson said it is important for the council to remember that the state could also take the city's gas tax. The city receives more than $1 million from that, and it funds about one-third of the streets and maintenance department's budget.
He said he could not support borrowing money without receiving a list of the expenses the city could cut.
"Before I can make a decision on how to get out of this mess, I need to see a realistic cut list," he said.
Hitchcock asked city staff to still bring back a report of some items the council could consider cutting, including employee cell phones and some part-time staff.
Contact reporter Maggie Creamer at maggiec@lodinews.com or read her blog at www.lodinews.com/blog/citybuzz.
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Reader Feedback
Observer wrote on Aug 25, 2009 1:49 PM:
edumacation wrote on Aug 23, 2009 9:14 AM:
joanne wrote on Aug 22, 2009 10:53 AM:
Times will be tough, but, you have a city council that has proven their fiscal responsibility. Five years ago we had $144 thousand in General Fund reserve. As a result of the hard work of your city council, we now have over 3 million in reserves. I doubt any of the city council would be willing to turn back now. Myself included.
I am available to speak with you at 747-0381. "
joanne wrote on Aug 22, 2009 10:53 AM:
I will first say I appreciate the headlines, but the sentinel is trying to sell papers.
The city is not going out to borrow a ton on money with high interest rates just to balance the budget.
The State is borrowing your property state dollars from the city rather then balancing their own budget. By law, they must pay us back. They have three years to do so. In the meantime, the city must continue to have cash flow.
The League of California Cities are recommending that all California cities participate in a bond which will be somewhat like selling our State Receivables with no risk or cost to the city. We have done something similar before. We have until December to do this.
If this plan does not work, the city does have other options. None will be pleasant. Most likely there will be heavy cuts, once again, to personnel. "
flyguide wrote on Aug 21, 2009 7:38 PM:
lodidian wrote on Aug 20, 2009 5:30 PM:
JoAnne Mounce explained that even though the bond issue is not finalized, there is no risk for the city and no reason not to participate. If the bond idea fails the city still has options. In my view, the recommendation made by our two highly compensated city employees was not the best option. It seems the council agrees as they voted in favor of Ms Mounce's ideas.
Once again, Ms. Mounce,shows her leadership skills. "
ameriCAN wrote on Aug 20, 2009 5:08 PM:
ameriCAN wrote on Aug 20, 2009 3:45 PM:
Whoa Nellie! wrote on Aug 20, 2009 2:02 PM:
mp wrote on Aug 20, 2009 1:49 PM:
And wrong! If you people believe everything you read, you are worse than city hall. "
mp wrote on Aug 20, 2009 1:46 PM:
edumacation wrote on Aug 20, 2009 1:16 PM:
1) Pass a whistleblower protection rule to protect city workers who squeal on the fraud, waste and abuse that they see daily, and
2) Give an award based on the hard dollar tax savings for ending the alleged and found abuse. You will see the rats scurry from the ship.
If city workers don't want an alert system like this, I can guess one reason why. Protecting the staus quo on waste and abuse keeps some bureaucrats in the green. Why aren't we doing something about it? "
edumacation wrote on Aug 20, 2009 1:09 PM:
Well, maybe its time voters place all politicians on a real probation, until the next election---and you can all go out to work for your money, instead of leeching off the system.
Last year. we bid farewell to our "first" MILLION DOLLAR school superintendent--DURING A FISCAL crisis, people were getting laid off. Today, we "have no money", but the song is the same.
Voters will never forget the lying, no matter how much sugar you put on poison---it's still poison.
Ms. Mounce, I usually support your decisions, but this one belongs in the garbage pail. STINKO.
Facts: There are more Lodi
voters than the small number of city workers who will vote against you for disturbing their TAXPAYER paid pity party. You know better!
Do the right thing. Cut slackers and waste to save out tax money. "
lodidian wrote on Aug 20, 2009 11:52 AM:
I am mad at the state for granting Lodi and other cities so much of our state income taxes in the form of "grant money". I am mad at the cities for competing with one another for state (county and federal) grant monies then spending these monies on "make work", and "frill" projects.
It seems to me, the state would not need to take city money if the state would eliminate the wasteful grant money give aways.
I think our city council could put Lodi on the map by refusing to compete for grant monies for frill projects such as boat ramps, upgrades for the grapebowl, the fire truck the state gave us recently etc.etc.
It seems to me all governments, city, county, state, and federal believe that grant money is not real money and it is good to spend it freely as it creates jobs. This is crazy! "
mp wrote on Aug 20, 2009 10:18 AM:
If anyone is not being fiscally responsible, then is would the state. Compared to other cities, Lodi has done a good job of staying on top on the problems with the economy. "
flyguide wrote on Aug 20, 2009 9:15 AM:
flyguide wrote on Aug 20, 2009 9:13 AM:
flyguide wrote on Aug 20, 2009 9:08 AM:
max stanfield wrote on Aug 20, 2009 8:23 AM:
edumacation wrote on Aug 20, 2009 8:20 AM:
It's time to trim the hedges and weeds in our city government. A few layoffs of non-essential clock watchers will only increase efficiency and decrease costs. "
Comments on this story are now closed.