Chamber to city: Clean house first

Council has to rein in runaway costs before voters will support a sales-tax hike, report says

FRANK FORESOME<br>The Chico Chamber of Commerce has some cold, hard data and tough advice to offer the City Council on how to balance its out-of-whack budget. At a press conference Friday (Dec. 14), CEO Jim Goodwin holds a copy of the chamber’s detailed report on the budget. Joining him (from left) are incoming chamber board Chairman Mark Sorensen, outgoing Chairman Rick Colletti and chamber consultant Shelton Enochs.

The Chico Chamber of Commerce has some cold, hard data and tough advice to offer the City Council on how to balance its out-of-whack budget. At a press conference Friday (Dec. 14), CEO Jim Goodwin holds a copy of the chamber’s detailed report on the budget. Joining him (from left) are incoming chamber board Chairman Mark Sorensen, outgoing Chairman Rick Colletti and chamber consultant Shelton Enochs.

Photo By Robert Speer

Another tax hit?
Former City Manager Fred Davis warns that, in addition to flat sales-tax revenues, the city may have to endure a drop in property-tax revenues in the coming years, as houses purchased in the real-estate boom years of 2003-05 get reassessed downward because of declining values.

Chico’s business community has a message for the City Council: Don’t try to raise the sales tax to solve the city’s budget problems. We won’t support you, and neither will voters.

The reason? Because in recent years the city has done a poor job of keeping expenses in line with revenues, and people know it. They expect the city to work harder to rein in costs before they’re asked to pay more in taxes.

This was the word the Chico Chamber of Commerce sent to the council last Friday (Dec. 14), when it held a press conference to release the results of a three-month investigation of city finances by its Budget Review Task Force. The timing was apt: The council was scheduled to begin its first round of budget cuts on Tuesday to deal with a projected long-term shortfall of at least $56 million. (See “Funding for library, arts, groups saved” for a report on the meeting.)

The chamber’s detailed, 18-page report was a group project, but most of the considerable research was done by former Chico Mayor (and former Oroville City Manager) Shelton Enochs, who drew praise from chamber CEO Jim Goodwin for his expertise and thoroughness. The choice of Enochs, who was part of the progressive wing of the City Council during the 1980s, added credibility to Goodwin’s statement that the task force had gone into the project with an open mind.

What Enochs and the task force found was that, over the past decade, the city has increased its compensation, especially for police officers and firefighters, at a rate far exceeding the growth in the Consumer Price Index, the city’s population and, most important, its general-fund revenues.

Salaries and benefits have gone up by a whopping 161 percent, while the CPI has increased by just 34 percent, the population by 43.5 percent, and general-fund revenues by 112 percent. The report characterizes the compensation increases as “excessive” compared to private-sector compensation levels and notes they are unsustainable based on revenue forecasts.

In addition, they have taken “a disproportionate amount of growth in revenues away from other services, which are now suffering the consequences. … The city should never enter into an MOU [memorandum of understanding, or labor agreement] that cannot be supported with foreseeable revenues,” the report advised.

In fact, that’s just what the City Council did this year, when it agreed to a six-year contract with firefighters that gives them a 27 percent salary increase. The chamber is hopeful, Goodwin said, that when firefighters understand the seriousness of the city’s financial picture, they will opt to reopen negotiations with the city.

Councilman Scott Gruendl, who sits on the Finance Committee, shares that hope. He notes that the city is entering negotiations on a new, five-year contract with the Chico Police Officers Association, and he thinks the firefighters might be willing to reopen. “I don’t think it’s a done deal,” he said in a phone interview. “We have lots of leverage.”

Both the police and fire departments are understaffed, and it’s only going to get worse as the city grows. Nobody wants that, including the employees. But Gruendl still thinks a sales-tax hike will be needed, and that the unions will have a role to play is getting voters to approve it.

“If we went down the sales-tax route,” he said, “we’d have to say to the unions, ‘We need your help if we’re going to get the sales tax [increase] across [with voters].”

Mayor Andy Holcombe agrees that the chamber “may be right” about the lack of voter support for a tax hike right now, but he thinks that could change. “I would like to think it would pass if there were a proper voter-education campaign,” he said in a phone interview. “We’re not there yet.”

In the meantime, Holcombe said, the community needs to determine what levels of service it wants. If it wants to maintain current levels—or increase them—it will need to pay for it, and a quarter-cent or half-cent increase in the sales tax, now 7.25 percent, would go a long way toward doing that.

“I think the sales tax will be a needed tool if the city wants to keep the level of services it has now,” the mayor said.

City sales tax revenues, which have been increasing for years, were flat in 2006-07, the result of “leakage” to neighboring cities and the Internet. The chamber report argues that, before it even considers raising the sales tax, the City Council first needs to take steps to increase sales-tax revenue by encouraging growth in the retail sector. Its recent adoption of an economic development strategy “is an important positive step,” it states.

The city also should bring in an outside “professional management firm to evaluate its practices” with the goal of making it more efficient and focused on core missions. There may be practical ways to save money—through privatization of some services, for example—that the city’s current structure precludes.

Interviewed by phone, former City Manager Fred Davis, who served on the chamber task force, said a consultant team could help the city to take a hard look at how it provides services, especially police and fire services, by examining staffing levels, hours worked, wages, shift lengths, number of fire stations and standards of service.

“Do we need so many fire stations?” he asked. “The response-time standard is now four minutes; what if it went to five minutes?”

Davis said he was “flabbergasted” by the firefighters’ new contract. “I don’t understand why the council entered into this new agreement with the firefighters when they knew they didn’t have the money.”

Holcombe explained that the council thought the deal was a win for the city because, for the first time, it provides a stable, predictable arrangement not tied to the ups and downs of city revenues.

“I think we did drive a hard bargain,” he said. “We got away from the floating figures of the past. But clearly that’s not enough in terms of the community’s attitude.”

Holcombe, like other members of the council, says that employee compensation needs to be competitive to attract good people, and that Chico’s compensation levels are comparable to other cities'.

That “comparability” theory hasn’t been tested, however. Asked how many applicants the city typically gets for an open firefighter position, Gruendl replied, “upwards of 60 to 80. That’s a lot. There’s room to work there.”

The chamber agrees. Noting that “the applicant pool … has been strong,” it argues that “compensation rates do not need to continue their acceleration in order to support strong application activity.”

As the chamber report notes, “many residents of the city choose to live in Chico knowing they could make more money in other communities that are less attractive. It is reasonable to assume that public employees would come to the same conclusion.”

Chico’s financial situation isn’t unique, Gruendl said. Other municipalities are facing similar imbalances due to high compensation levels. Employee unions are good at comparing notes with their colleagues in other cities, he explained, adding that city governments need to do likewise.

On the other hand, he said, “this shouldn’t be a race to the bottom.” Strong public-sector compensation levels encourage better private-sector levels, he said.

In any event, both Holcombe and Gruendl are in fundamental agreement with the Chamber of Commerce when it comes to a sales-tax increase—at least for now. They know the council has to demonstrate a determination to pursue other remedies first.

And the chamber isn’t necessarily opposed to the notion of a sales-tax increase down the road. “If the expenses issue is dealt with,” Goodwin explained in a phone interview, “it might be appropriate to revisit the [tax-hike] issue.

Right now, though, given the city’s failure “to handle its resources in the most effective manner, we can’t have confidence it will handle additional money any better.”