Monday, June 15, 2009

Unarmed Robbery

From the Fresno Bee

Looks like the state is stealing from counties because the state cannot get its fiscal act together.

State may borrow millions from Fresno, Clovis
Published online on Sunday, Jun. 14, 2009
By Marc Benjamin / The Fresno Bee

Clovis may have to borrow from its own city funds to save jobs and keep its reserve intact for emergencies.

The state is considering borrowing $2 billion in property tax revenue from cities and counties -- a projected $9.24 million from Fresno and $1.66 million from Clovis -- to help close its budget gap.

With the state's financial noose tightening, cities are considering ways to find money to replace what could be lost. The city's building and equipment reserve and self- insurance funds are being targeted by Clovis officials, said Robert Woolley, the city's finance director.

He said they city already has tapped its self-insurance revenue to work on the city's landfill.

The possibility of borrowing likely will be discussed when the Clovis City Council holds budget hearings tonight.

Other issues to be discussed today will be ways to reduce a $5.3 million shortfall because of falling property- and sales-tax revenue.

The city is seeking 5.74% in concessions from employees, city administration and council members beginning July 1 to avoid layoffs.

The city also is proposing an early-retirement incentive for public safety employees to avert eight possible layoffs.

If the state does take property tax revenue, borrowing will reduce the need for more layoffs.

The city has about $3 million in emergency reserves, but that money -- about 6% of the city's general fund -- needs to be kept available if there is an emergency, such as a larger than expected need for police or firefighter overtime or other one-time emergency costs.

"It's hard to say what we are going to do, whether we are going to have to make more drastic cuts," said Clovis Mayor Harry Armstrong, a League of California Cities board member. "It doesn't look good. Everyone is trying to pull a genie out of the bottle."

Fresno is in the same boat, proposing $26.8 million in cuts this year and next year to make up for a $21.2 million revenue decline since last year, said Renena Smith, Fresno's budget director.

Fresno Police Officers Association members are considering giving up a 2% salary increase for the fiscal year that begins July 1. Members also would have to accrue more than twice as many holiday hours before they could cash them in for pay.

"We will have to do borrowing of some sort," Smith said. "We have actually planned for that, but the loss of cash is not going to help our situation any."

Fresno's cuts take into account the revenue decline, costs for retirement contributions and money for borrowing to pay for loans if the state takes property tax revenue.

"It's a similar approach many cities are evaluating as the state looks to take billions of dollars to finance its deficit," said Michael Coleman, a financial adviser with the League of California Cities. "If [cities] have other funds they can borrow from on a short-term basis and feel confident those funds can be re-paid, then that's a perfectly reasonable thing to do."

And property taxes are not the only item on the table for the state. Another $1.6 billion of money used for street maintenance and construction could be tapped, too, Coleman said.

If Clovis borrows from itself, the plan is to return money at an interest rate the city would have received if the money remained invested.

That interest rate would be lower than going to a lender, City Manager Kathy Millison said.

Another option may be available, allowing communities to pool property tax revenues through a state agency in exchange for an up-front payment from a lender that would take a percentage, Coleman said.

In 2005, during another state financial crisis, cities faced losses in vehicle- license funding. Under a statewide authority, cities were given 92% of the money up front and investors took the risk that the state would pay back 100% of the amount plus interest.

Coleman said times are different now and investors may not be inclined to bank on California's ability to pay that money back with interest.

With the state's bond rating taking a beating, Coleman said creditors have their doubts. Even if they do agree to a similar program, lenders may offer less than 92% of the amount.

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