Loading...
HomeMy WebLinkAbout07-24-2012 Jt. Spe Mtg MinutesCity of San Bernardino 300 North "D" Street San Bernardino, CA 92418 http://www.sbcity.org MINUTES Mayor Patrick J. Morris Council Members Virginia Marquez Robert D. Jenkins John Valdivia Fred Shorett Chas A. Kelley Rikke Van Johnson Wendy J. McCammack JOINT SPECIAL MEETING OF THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO ACTING AS THE SUCCESSOR AGENCY TO THE REDEVELOPMENT AGENCY MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO ACTING AS THE SUCCESSOR HOUSING AGENCY TO THE REDEVELOPMENT AGENCY AND MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO ACTING AS THE HOUSING AUTHORITY JULY 24, 2012 COUNCIL CHAMBERS The joint special meeting of the Mayor and Common Council of the City of San Bernardino was called to order by Mayor Patrick J. Morris at 5:08 p.m., Tuesday, July 24, 2012, in the Council Chambers, 300 North "D" Street, San Bernardino, California. Roll Call Attendee Name Title Status Arrived Virginia Marquez Council Member, Ward 1 Present 5:00 p.m. Robert D. Jenkins Council Member, Ward 2 Present 5:00 p.m. John Valdivia Council Member, Ward 3 Present 5:00 p.m. Fred Shorett Council Member, Ward 4 Present 5:00 p.m. Chas A. Kelley Council Member, Ward 5 Present 5:00 p.m. Rikke Van Johnson Council Member, Ward 6 Present 5:00 p.m. Wendy J. McCammack Council Member, Ward 7 Present 5:00 p.m. Patrick J. Morris Mayor Present 5:00 p.m. .lames F. Penman City Attorney Present 5:00 p.m. Georgeann "Gigi" Hanna City Clerk Present 5:00 p.m. Andrea Travis -Miller City Manager Present 5:00 p.m. Mayor and Common Council of the City ojSan Bernardino Page l Printed 1111412012 Special Meeting Minutes July 24, 2012 l . Closed Session - Pursuant to Government Code Section(s): A. Conference with legal counsel - existing litigation - pursuant to Government Code Section 54956.9(a). B. Conference with legal counsel - anticipated litigation - significant exposure to litigation - pursuant to subdivision (b) (1), (2), (3) (A-F) of Government Code Section 54956.9. C. Conference with legal counsel - anticipated litigation - initiation of litigation - pursuant to subdivision (c) of Government Code Section 54956.9. D. Closed Session - personnel - pursuant to Government Code Section 54957. E. Closed session with Chief of Police on matters posing a threat to the security of public buildings or threat to the public's right of access to public services or public facilities - pursuant to Government Code Section 54957. F. Conference with labor negotiator - pursuant to Government Code Section 54957.6. G. Conference with real property negotiator - pursuant to Government Code Section 54956.8. © City Attorney Penman announced that the following items would be discussed in closed session: Under Agenda Item No. I C, initiation of litigation: the bankruptcy; and Under Agenda Item No. 1F, conference with labor negotiator. Pledge of Allegiance The pledge of allegiance was led by Mayor Patrick J. Morris. 2. Staff Reports 2A. City Manaaer Discuss and Take Possible Action on Proposed Pendency Plan Including Recommendations for Various Actions Related to the City's Proposed FY 2012/13 Budget. Mayor Morris stated that the Council has received a fiscal emergency operating plan which is intended to allow the City to meet its obligations and pay employees so it can continue to deliver critical City services for the next two months through the month of September. However, it is not a plan for a sustainable balanced budget for this fiscal year —that will come in 30 days when the City Manager brings forward a balanced O budget in the form of a Chapter 9 Bankruptcy Pendency Plan. When approved by this City Council, that Pendency Plan will serve as the City's budget until the bankruptcy court approves a long-term plan of adjustment. The plan of adjustment is intended to be a comprehensive plan, financially and organizationally, that restructures our City and sets us on a course to solvency and healthy operations. Mayor and Common Council of the City of San Bernardino Page 2 Printed 1111412012 Special Meeting Minutes July 24, 2012 During the next 30 days, staff will work to prepare the Pendency Plan that will focus the City's limited financial resources on sustaining basic service delivery, addressing contractual obligations, and establishing a fair compensation structure so the City can retain quality employees to provide needed public services. The Pendency Plan must balance expected revenues against expenditures through an essential restructuring of the organization and service delivery required to reduce expenditures by about 30 percent. The City Manager's proposed Pendency Plan will be posted on the City's website, and it will also be available at City Hall. He encouraged residents to get a copy and to share their thoughts in writing, by e-mail, or in person at future Council meetings. Andrea Travis -Miller, Acting City Manager, stated that as the Mayor indicated, this is a fiscal emergency operating plan for the period of July 2012 through September 2012 and is necessitated by the fact that we have a significant cash flow issue. She stated that staff is in the process of developing a Pendency Plan, which the City will operate under during the bankruptcy proceedings. The Pendency Plan will be reviewed by the City Council and public input will be taken throughout this process, but this is a plan to get us through the next couple of months given our dire cash flow situation. As the Council is aware, the proposed or preliminary budget for fiscal year 2012/13 included a general fund budget of approximately $166 million. They took the prior year's budget and added the additional costs related to salary and benefits for employees and kept all the operating expenses at a bare bones minimum, so the proposed operating budget for this year is a baseline budget. She stated that they anticipate revenues of about $120 million, so that clearly we have a structural deficit with respect to this year's budget. Mrs. Travis -Miller stated that several attachments were included in the backup. Attachment A is a summary of revenues over the last 16 years since 1998 that is provided for Council background edification; Attachment B is the baseline budget that was proposed by the departments; and Attachments C through E address how we propose to operate over the next few months. Mrs. Travis -Miller stated that the Pendency Plan will attempt to balance revenues with proposed expenditures and will result in a restructuring of the organization of about 30 percent. This is intended to not only cover proposed expenditures, but also begin to help build some kind of reserve. Ultimately, we will be responsible for preparing a plan of adjustment for the bankruptcy court's approval, and that plan of adjustment will require that we not only deal with our structural deficit problem, but that we begin to rebuild reserves and ensure that we're setting aside the money needed for all of our long term liabilities. Jason Simpson, Finance Director, presented highlights of the Fiscal Emergency Operating Plan. He stated that the general fund revenue projections for FY 2012/13 are at $120 million. The preliminary budget has a projected operating shortfall of approximately $45.8 million before transfers; however, this preliminary budget does not O address providing for reserves or our current negative cash balance in the general fund. During the fiscal year, given the status quo budget that we have right now and all the cost increases that have been rolled back in, and projecting that if we do nothing, we'll be negative approximately $59 million in cash. Over the last four years the City has Mayor and Common Council ofthe City of San Bernardino Page 3 Printed 1111412012 Special Meeting Minutes July 24, 2012 negotiated reductions in compensation, City employees have contributed back to the City, City employees have been laid off, and there has been borrowing from restricted monies to help finance the operations. The City has exhausted its reserves. We have sold assets and we have reduced non -essential services to avoid essential service cuts. Despite taking all the steps that the City has taken to date, costs continue to outpace revenue due to increased operational expenses, continued decline in property tax revenues as a result of continued drops in property values, and the slow recovery of sales tax in this economy. At this point the City does not have reserves to draw upon and the continued sale of assets will not solve the problem. The City is currently cash insolvent. The estimated $45.8 million gap cannot be closed with one-time revenues or any other approaches to budget balancing. This City has no resources to close the gap. The City must create a plan to emerge from this fiscal crisis that is truly sustainable with reliable ongoing revenues to cover operational costs that are needed, both direct and indirect, and also provide for sufficient reserves to weather economic uncertainty, any revenue fluctuations, or if any emergency spending is required. There are many reasons for the City's financial condition, but perhaps this community has been more severely hit than a lot of other communities due to the issues such as increased crime rates, poverty and unemployment. Staff is identifying and drafting a plan to help address the underlying problems in the community and problems that give rise to the financial crisis. Still there is a tremendous amount of analysis that remains and needs to be completed and corrective actions will determine what the next steps are going to be. © The City is drafting a plan that will be brought forward that will reduce costs through realignment of the organization with the goal of presenting a balanced budget for the Council's consideration in the coming weeks. The actions that the City has taken to date have not been sufficient and require further reductions in order to address the issues facing us right now. The goal is to be able to adopt a balanced budget that complies with both the Charter and the State Constitution. Staff has committed countless hours already identifying and remedying issues in their financial reporting; however, there is still a review of certain accounts that remain. To continue to resolve these issues, the City has engaged professionals in legal and auditing, and we currently have a certified public accountant that is reviewing and validating financial information, identifying and resolving issues, and helping staff to develop alternatives for the Council's consideration over the coming weeks. Currently there are audits of the CDBG program by the Department of Housing and Urban Development (HUD), and any EDA funding is being audited by the State Department of Finance. It is also anticipated that other agencies may initiate audits of other federal and state grant awards to the City. City staff welcomes these reviews and looks forward to the findings to help bring the City's financial house in order. The City remains committed to continue to identify and solve these issues recognized by any source in a timely manner. As previously discussed, the City's general fund is responsible for paying pretty much all the operating costs of the City. For core services such as Police, Fire, Public Works, Parks and Recreation, and Libraries, we have been using restricted funds to help finance those © operations, but given the fact that our reserves are depleted and that our estimated fiscal year 2012/13 budget is unbalanced at this point, there is risk that we won't be able to repay those restricted funds in compliance with state law. Mayor and Common Council ofthe City of San Bernardino Page 4 Printed 1111412011 Special Meeting Minutes July 24, 2012 As far as what's included in the preliminary budget, the estimated appropriations are $166.2 million. It represents a baseline budget, and it is a continuation of the status quo of our budget for the last fiscal year; however, we have included projected increases and pension costs and retiree medical costs as well as other services and supplies that must be purchased by the City to maintain the current level of service. The estimates in the preliminary budget assume the restoration of all the employee concessions that have been provided before, and many of those have expired. They do not include any cost of living adjustments or any other compensation increases. Attachment B is the preliminary budget in a tabular format. It shows $120 million in revenues and $166 million in proposed expenditures. The key assumption is that Ca1PERS costs are driven by the state's actuarial reports and those costs have been adjusted here. Under the plan, the assumption is that Ca1PERS will earn 7%: percent interest on our investments and the actual return for this last year was only 1 percent. Staff expects this to further compound our pension cost issues in the foreseeable future. There are also increases in salaries essentially as a result of having to absorb costs now related to safety personnel that were paid for by grants in the past. Changes in safety grant funding have occurred since the preparation of the budget documents. The impact of these changes will be addressed later in the report. Employee health care costs are flat as it is assumed the City's contribution level will not change. There is risk that future labor negotiations or court rulings could result in higher City costs. Retiree health costs continue to rise. The June 30, 2009 actuarial report © assumes annual growth averaging eight to nine percent over the next five years. The major risks are higher growth and medical premiums and a higher number of retirees sooner than projected. Currently our net debt and equipment lease costs are projected at $5.1 million. Key revenue assumptions pursuant to our revenue budget's attached property tax will increase by approximately four percent primarily due to the fact that the State has eliminated Redevelopment Agencies and the City will be receiving a pass - through payment of a portion of the increment that used to go to the Redevelopment Agency. Proposition 13 will continue to hold down property tax growth on valuations so as the economy starts to recover we'll recover, but it's limited to two percent of what the value is. We relied on our sales tax and property tax consultants for our revenue numbers in terms of both the sales tax and property tax in the report. There is no growth projected for the utility user's tax as increased utility costs, which would generate more revenue, are negated by increased user conservation and cost saving measures. Business Registration fees are expected to grow by four percent in 2012/13, one percent the following year, and another one percent the year after that. Staff is using newer technology to compare, review and ensure that we are receiving all the funds that we should be receiving. Staff has also initiated five utility user tax audits against five of the larger carriers and those results should be seen in the coming months. Attachment D is a five-year projection with no significant actions deviating from the baseline budget. C) Mrs. Travis -Miller advised that a revised version of Attachment E, "City of San Bernardino, Selected Monthly Cash Flow Analysis, Measures to Manage Cash Flow," was being distributed to the Council and would also be posted on the City's website. Mayor and Common Council of the City of San Bernardino Page 5 Printed 1111412012 Special Meeting Minutes July 24, 2012 Michael Busch, President of Urban Futures, discussed the City's long term liabilities. He stated that like most municipal corporations, the City of San Bernardino does have outstanding debt, both in the form of bonded indebtedness as well as capital and operating leases. The City has debt in several areas: the general fund, the former Economic Development Agency, and also with some of its enterprise operations, specifically, it's waste operation. Mr. Busch stated that he was going to focus primarily on two areas: 1) City debt obligations; and 2) EDA debt obligations —only because the City is now the Successor Agency. In total, the City's total bonded indebtedness is about $55.9 million. A majority of that, about $50 million, was issued in 2005 for pension obligation bonds. In 2005 to 2007, many municipal corporations issued pension bonds for the same reason that Jason had mentioned about the PERS plans. PERS makes assumptions on unfunded liabilities and the cash on hand that it will earn 7'/4 percent interest. When they bill annually for pension costs and unfunded liabilities, they add 7'/4 percent interest to that cost. When the pension bonds were issued they were issued at a lower rate than 7%z or 71/4 percent. At that moment in time it was a savings to your pension costs, and in previous reports that have been presented, it shows that pension costs dropped one year, but unfortunately they went back up. The reason they went back up is the result of those funds being deposited with Ca1PERS, and Ca1PERS losing money in the stock market. The City's capital still remains with Ca1PERS, unfortunately it is worth less. As a result of that, costs have come back up and San Bernardino is like many organizations throughout the state of California that have had that affect. Annually, that pension cost for those bonds specifically is about $3.4 million. And it will © increase by some percentage because pension bonds increase annually based on other factors similar to pensions plans —they have built in a cost of living inflator, and your pension costs will go up annually equal to that inflator. This City also has outstanding capital leases of about $7.2 million with annual debt payments of about $1.5 million due to a new software system for $5 million. In addition to the City's bonded and lease indebtedness, there are also unfunded liabilities of about $296 million. A majority of this is unfunded pension liabilities of about $195 million, retiree medical benefits of $61 million, compensation for absences of $20 million, and general liability and worker's compensation totaling $20 million. Again, these costs are pretty common for most municipal corporations and San Bernardino's pension obligations are fairly in line for a community of its size and given the recent market struggles that Ca1PERS has had. As Mr. Simpson had mentioned, this last rate of return was at one percent. The effect that will have on this organization is that rates will continue to go up annually. Every year the costs go up two or three percent, and despite what you do in your organization, they are making up for losses in previous years. The one percent reporting of investment returns reported last week will have that effect basically prolonging that increase, and it will steadily increase again in the years to come. In addition to that liability, the City has about 1,700 retirees, and 335 of those receive medical benefits. That number will likely grow because the City currently has 300 additional employees that are eligible to retire, which means they are over 50 years old and have more than 5 years of service in CalPERS. Currently the organization is paying © about $600,000 a year for those benefits for retirees. What you're paying currently is the obligation you have today. You're not paying for the obligation of the individuals currently in your organization that are scheduled to retire, including the 300 that are eligible today, and all the other individuals that will retire in the future. As a result, you Mayor and Common Council ofthe City of San Bernardino Page 6 Printed 1111412012 Special Meeting Minutes July 24, 2012 have an unfunded liability in your health care pension plan of about $61 million and this number will grow as your retirees grow. Like many cities throughout the State of California, the City of San Bernardino elected to take over responsibilities of the EDA through the Successor Agency, through ABX1 26, and this resulted in significant changes not only in the way that the City will operate, but also in its responsibilities. There has been recent legislation, AB 1484, that basically requires the EDA to perform different reporting tasks that also present some risk to the City. Specifically, if the Successor Agency and its oversight board do not meet specific timeline requirements, the risk of meeting those requirements fall back on the City itself, where they will start to withhold sales tax or other measures from the City. Obviously, when the City elected to become the Successor Agency, that was not known. It is fairly new legislation so it's important to keep in mind that those obligations are there. Mr. Busch stated that the City has met all the timelines and he anticipates that it will continue to do that, but it is something to keep in mind. Overall, I think it's important to note that despite the City's negative cash balance, the City does hold cash. It has cash, but unfortunately it's not in the general fund. There's about $17 million that's held in all funds including the former EDA. The issue that they are talking about tonight is specific to the general fund and its inability to continue to operate basic day-to-day operations as well as the services that are presented in the carryover budget from the previous year. Mr. Simpson stated that the proposed fiscal emergency operating plan is for July through September and it will provide an opportunity for the City to continue to operate while it prepares to file the Chapter 9 petition in court. Attachment E illustrates in a tabular format a lot of the actions that staff is requesting to make during this time period in order for this to occur. The first measure they are taking is that they are going to be deferring debt and lease payments due in the first quarter in the amount of approximately $3.5 to $3.6 million until some later date. Debt and lease payments include payments on pension bonds and infrastructure bank loans and also deferring the upcoming payment to New World, which is due in August, to a later time. Current vacancies will generate approximately half a million dollars in salaries plus all the related benefits to those costs will be realized right now, and not having to pay those will help the cash flow. The continuation of the concessions is necessary in order to achieve maintaining the cash balances where they are at in order to continue operating while we come up with a plan. Mr. Simpson stated that they are also deferring retiree health annual required contributions into the trust and making adjustments to some of the maintenance and operation accounts for meetings and conferences and education and training, essentially freezing these expenditures for the first quarter. The City did receive a distribution of assets by the County through the ABX1 26 process of approximately $700,000. We are also going to achieve some cost savings in the internal service funds and we believe we can defer approximately 20 percent a month for the next three months. Essentially, this provides enough cash to not make the cash position worse in the general fund, but to maintain it where it's at right now until we come up with a longer -term plan. © Unfortunately, all the measures that were taken are just for three months —they do not provide for a balanced budget and they are not sustainable. It's critical that we make decisions in the next 60 days in order to make it through the rest of the fiscal year and in order to maintain operations. City staff is preparing the Pendency Plan, which essentially will serve as the budget for the court until we can come up with a longer term plan of Mayor and Common Council of the City of San Bernardino Page 7 Printed 1111412012 Special Meeting Minutes July 24, 2012 adjustment, which will be our long-term budget. Over the next 30 days, we're going to focus our efforts on developing that plan with the goal of sustaining our basic service delivery, addressing any contractual obligations, and trying to establish a fair compensation structure so the City can retain employees to provide these essential services. Essentially, the Pendency Plan will have to balance anticipated revenues with planned expenditures, and at this time staff is estimating that roughly 30 percent of the preliminary budget will need to be cut in order to achieve that. Mrs. Travis -Miller stated that this is just a short-term solution —it is not a long-term solution. We ultimately will have to do a comprehensive restructuring, but this allows us to operate for a few months so we can develop those plans and get before a bankruptcy court, so these things that we're deferring ultimately will have to be paid in some fashion. She stated that she wanted to point out just two of them. Continuing the employee concessions that were agreed to by various units, and that's something that our employees have been willing to come forward and do, provides a tremendous amount of savings; and during this short-term time period, we will still have to negotiate agreements with our employee groups, but the employees have willingly come forward and agreed to continue those concessions so that we have opportunities to work through these issues. The other thing is deferring the Annually Required Contribution (ARC) for retiree health in the first quarter. She stated that she wanted to assure the Council and current retirees that that will not impact their health benefits in the short term so they still will have coverage during this time period; however, they may need to make decisions at some point in the future related to that. © Staff is in the process of preparing the Pendency Plan. It will be presented to the Council for approval after community input and then ultimately to the bankruptcy court and will serve as our budget during that process and then we will be required to prepare the plan of adjustment. Public Comments: Mike Potter, San Bernardino, CA Larry Sharp, Redlands, CA David Baker, San Bernardino, CA Steve Rouchleau, City employee and resident Warner Hodgdon, San Bernardino, CA Kenneth Kilpatrick, San Bernardino, CA Deanna Adams, San Bernardino, CA Joe Arnett, San Bernardino, CA Jim Smith, San Bernardino, CA Charles Greenwood, City employee and resident Paul Flores, International Union of Operating Engineers representing the City's general unit employees Roxanne Williams, San Bernardino, CA Katrina Menell, San Bernardino, CA Tim Prince, San Bernardino, CA Roger Henderson, San Bernardino, CA Council Member Kelley stated that he would like the economic strategic plan to be formulated or at least brought into the full plan. If we don't have an economic strategic plan, we're not going to have the incoming revenues to do the things that we need to do Mayor and Common Council ofthe City of San Bernardino Page 8 Printed 1111412012 Special Meeting Minutes July 24, 2012 as a City. He noted that the City Manager's office would be holding an employee forum on Wednesday at 5:30 p.m. in the Council Chambers. He encouraged all employees to attend so they can hear exactly how this current situation is going to affect them individually. Mrs. Travis Miller stated that with respect to the economic development strategic plan, they will attempt to include much of that in the Pendency Plan, but the Pendency Plan needs to be presented to the Council so they can begin to digest that information and take action on it within a very short time period —probably within the next 30 days. That ultimately will be prepared for the court once the Council approves it and then the court will allow us to operate within those constraints during the pendency of the bankruptcy. Certainly there are elements of that strategic plan that need to be included, but what we're dealing with today is the fact that we anticipate for the next fiscal year our revenues to be $120 million. I agree with the necessity for this Council and community to have long- term strategic plans and a vision for this City. I think it's one of the things that have been problematic, but those things will have a long-term effect on the overall budget and will be included in a longer term plan of adjustment the bankruptcy court ultimately will approve. Mr. Kelley stated that what he was hearing was that the City Manager concurs that an economic strategic plan is important. Mrs. Travis -Miller answered in the affirmative; however, she stated that she did not believe he would see that in the next 30 days, nor will it have an immediate effect on the budget he will see before him. Mr. Kelley asked if staff could include in the Pendency Plan a rainy day fund, the ability for reserves, and an account to pay out vacation and sick time. Mrs. Travis -Miller stated that the Pendency Plan will attempt to balance the structural deficit and will acknowledge the fact that we have funds, that we do need to fund those things for long-term solvency of the organization, but as we begin to fund those things, it will then require deeper cuts to this organization. She stated that her intent was to present a balanced budget that not only balances the costs for services we are providing to the community with the revenues that are available to us and then include some beginnings of reserve funds and accounts for retiree benefits. Modest levels in the first year, and then they will recommend even further additions to those accounts as the Council moves forward. Discussion ensued regarding the rates being charged by Ca1PERS. Council Member Shorett clarified that we've got to get through the next two months, we've got to balance the 2012/13 budget, and then we've got to have a plan that's supported by the bankruptcy court. Mrs. Travis -Miller stated that that was correct and she would just add one thing. This is really an interim measure because we really have two issues —we have a structural problem and we also have a cash flow issue, and we will try to make sure that we are educating at every opportunity. This is really a plan to deal with the immediate cash flow Mayor and Common Council ofthe City of San Bernardino Page 9 Printed 1111412012 Special Meeting Minutes July 24, 2012 issue where we have to meet payroll and obligations. We will then have that interim Pendency Plan, which is the budget that we're going to utilize to operate during the pendency of the bankruptcy proceedings, and then the long-term plan of adjustment is the plan that the court will approve to let us get out of bankruptcy to make sure that this organization has made the structural changes and reorganized so we can continue to provide quality services to our community and that we have those kinds of things in place that Councilman Kelley referred to such as rainy day funds, reserve accounts, and that we're funding our retiree benefit programs and funding all of our long-term obligations so that we don't end up in bankruptcy in the future. She stated that all of the things they have asked the Council to do like deferring payments are all things that would have to be dealt with in the bankruptcy proceedings. Those debt obligations would be extended and they would probably add the timeframe onto the end, so the obligations would not go away, they are just requesting authorization this evening to defer dealing with those obligations so that we have the cash flow to deal with our other obligations and ensure that we can continue to provide services to our residents. Council Member Marquez stated that employees want to be reassured that their retirement pensions will not be affected. Employees need to know the truth because they need to make plans. Perhaps in the future we could have a separate workshop on how to update resumes. Mrs. Travis -Miller stated that staff will meet with employees tomorrow and will give them the information they have to date. She stated that they will be very open with them because she is sure there are a lot of questions that they really don't have answers to right now, but will tell them that that's the case and assure them that she's going to get them the information as quickly as she can and get that back to them. As this Council is presented with the Pendency Plan and we understand what the specific impacts are to employees, then their goal will be to not only deal with workshops about updating resumes, but also to provide any type of outplacement services or assistance that can be provided to them. Council Member Johnson stated that in 2009 we went through a similar exercise and at that time we reduced our workforce by about 300 people and we placed some revenue enhancement measures on the table, none of which have been acted upon. We do have to look at some revenue enhancements in the plan that you bring back and I hope those are included in the Pendency Plan when you bring that back as well. Mrs. Travis -Miller stated that one of the things she heard from the Council at the last meeting was that they may be willing to revisit the list of potential revenue enhancement options they were given in February. She stated that she did plan to bring that back to the Council and get concurrence on the ones they would like staff to pursue. It probably would not be written into the plan because she could not count on those as budget measures that would help deal with the structural problem. oCouncil Member Valdivia asked if the Council was being asked to vote on Attachment B. Mrs. Travis -Miller stated that Attachment B is really the baseline budget and it was provided to the Council because it serves as kind of the foundation for what the structural Mayor and Common Council ofthe City of San Bernardino Page 10 Printed 1111412012 Special Meeting Minutes July 24, 2012 deficit is projected to be for the upcoming year. What you're really voting on is Attachment E, which are those things that she has asked for permission to defer during the next three months to give us the cash to be able to deal with our obligations. Attachment B is important, but it's really more important as we begin to discuss the Pendency Plan and the proposed cuts. Mr. Valdivia clarified that Attachment B is a fluid document, it's a working document, and we're not voting on that tonight. Mrs. Travis -Miller answered in the affirmative. She stated that these documents may in fact change slightly because we are still going through some assumptions to make sure that Attachment B is really the best document in terms of the cost model we want to begin with. Mr. Valdivia asked if it was fair to say that Attachment B would then ultimately be part of the Pendency Plan. Mrs. Travis -Miller answered in the affirmative. She stated that it's kind of the starting point for the Pendency Plan and then from that we will propose various reductions. Mr. Valdivia asked why we were going to wait three to four months if we can save 30 percent now. Mrs. Travis -Miller stated that we are not waiting three or four months. Staff is preparing the Pendency Plan now and rather than just making knee jerk cuts, we're trying to make strategic proposals so that the Council can consider them. This gives us just a couple of months for you to make that decision and for us to begin to implement those because some of those adjustments will take a period of time to implement. This just gives us the cash flow. Mr. Valdivia clarified that they will not have a continuing resolution if they were to pass this tonight. Mrs. Travis -Miller stated that we will still have a continuing resolution, but instead of being one -twelfth of the prior fiscal year's operating, it will be a continuing resolution that establishes certain funding levels based on this model. Mr. Valdivia clarified that Attachment E does not reflect the 30 percent cuts. Mrs. Travis -Miller stated that what the Council was seeing in Attachment E is not cuts — it is a request for authority to defer certain things. We're holding certain positions vacant and we're deferring certain payments just to give us the cash flow to be able to meet the obligations as this Council has approved them in the past. The Pendency Plan will come before the Council and you will have an opportunity to comment on it. Part of the reason why you see this as kind of a three-month emergency plan is because I wanted to make sure that you have time to send this back to research certain things, to identify other cuts that you'd like staff to consider, maybe reconsider some of the things they have proposed. It's a very dynamic process that may take some time to get through and that's why they have developed kind of a three-month model. Mayor and Common Council of the City of San Bernardino Page I Printed 11/1412012 Special Meeting Minutes July 24, 2012 Mr. Valdivia asked how the three month plan coincided with the plan to file bankruptcy by August 15. Mr. Penman stated that the bankruptcy court requires us to have a budget going in and this will probably be the budget for the first month or two when we go in to meet that requirement. The amount of money to be deferred in terms of payments by your action tonight, if you vote to do so, will supplement the City's income to enable the City to pay the employees' salaries through September. Without this action and without the concurrent action of filing for Chapter 9 protection, there will not be sufficient funds. I believe the amount of money that we're deferring is $12 million, and that $12 million together with the Chapter 9 protection will enable us to meet payroll for everybody in the City including Police and Fire so everybody shows up for work. If we just did the Chapter 9, we might not be able to do that in time to get enough deferred to make payroll, and if we just did the deferrals and didn't do Chapter 9 we clearly wouldn't have enough. It's a race to the courthouse whether we're going to get there before we run out of money, and as indicated by the City Manager, this plan does not make cuts —it just authorizes deferral of payments. Once we get into bankruptcy court, there will be stays on payments and there will be relief from some of the things that you're being asked to take action on tonight, but the City Manager can't do that on her own, and instead of doing what it appears may have been done in the past, she's doing the appropriate thing by coming to the Council and asking for permission to do these things rather than doing them administratively and risk being in violation of some statutes. Mayor Morris stated that the bankruptcy Pendency Plan that will come forward before this Council in approximately 30 days will contain those cuts that we need to make to convince the court that we're serious about balancing our budget. That is to be the balanced budget for the remainder of the fiscal year. Mrs. Travis -Miller stated that as employees leave it does have an effect on our cash flow because they have payouts. Certainly we want to honor those commitments that we've made to our employees and all of our vendors, but that also has an impact on our cash flow and that's why it's important that we defer these things now so that we can continue to meet payroll, make those employee payouts available as people are making their decisions to either separate from our organization or retire, and continue to provide some basic levels of service to our community. Mr. Johnson asked if department heads have come up with some proposals to save money right now. Mrs. Travis -Miller stated that they have been having discussions not only at the department head level but throughout their various organizations and those proposals will all be included as part of the Pendency Plan. We're working with those now because we have a large number to come up with and then we'll come back before you. Mr. Kelley asked staff to seriously consider monetizing cell phone towers. Mrs. Travis -Miller stated that one of the challenges that we are going to face is that our responsibility is still to provide quality services to our community so we have to balance Mayor and Common Council ojthe City of San Bernardino Page 12 Printed 1111412012 Special Meeting Minutes July 24, 2012 our service delivery programs and the costs related to those with our need to have good quality employees that provide those services. We are a service -oriented organization so we have to look carefully at all those things and that's why it's important that we begin to provide some structural balance to our budget so that we can make good decisions about how we deal with our employees. With respect to assets, as we go through the bankruptcy process we'll have to deal with each asset a little differently and monetizing may have some impact, but it may also have some impacts in bankruptcy, so we'll be advising you on that as we broach those subjects. Mrs. McCammack suggested that a central location be created on the City's website where all information regarding the bankruptcy can be posted. Mrs. Travis -Miller stated that they are in the process now of creating a Chapter 9 area of the website and they hope to get that up as quickly as possible, with an area where people can make both anonymous comments or comments with their names. Motion: Approve the Fiscal Emergency Operating Plan for the period July 2012 to September 2012, to enable the City to continue to operate and provide essential services to the community while it prepares and files for protection under Chapter 9. RESULT: ADOPTED [UNANIMOUS] �•/ MOVER: Fred Shorett, Council Member, Ward 4 SECONDER: Rikke Van Johnson, Council Member, Ward 6 AYES: Marquez, Jenkins, Valdivia, Shorett, Kelley, Johnson, McCammack Council Member Shorett made a motion, seconded by Council Member Marquez, to go forward with a ballot measure to repeal Charter Section 186. Mr. Penman stated that the Brown Act does require, and the City is still following it regardless of the legislature's actions, that an item be posted on the agenda 72 hours in advance before it can be acted upon unless the need to take action arose after the agenda was posted. The Charter is the City's constitution and any amendment to the Charter should be properly placed on the agenda and the public given 72 hours' notice that it is going to be on the agenda. If a motion were made and passed this evening, that motion could rather easily be set aside in court as having been done in violation of the Brown Act's agenda requirements. The legislature last week repealed certain sections of the Brown Act dealing with agendas. The League of California Cities has recommended that all cities continue to follow it and our office will have a resolution on the agenda on August 6, 2012, encouraging the Council to adopt it to continue recognizing the Brown Act because the Brown Act is the State's Open Meeting Law and this is certainly, as the League has pointed out, not the time to be bending those rules. Mayor and Common Council of the City of San Bernardino Page 13 Printed 1111412012 Special Meeting Minutes r July 24, 2012 In Stockton, when they went into bankruptcy, they had to come up with an average of salaries for their police and firefighters. Charter Section 186 already does that and it doesn't always raise the salaries, in fact for the last two years, some positions in the Fire Union have had decreases as the result of Charter Section 186. Charter Section 186 prevents us from ever having the highest paid police and firefighters, and it also prevents us from ever having the lowest paid police and firefighters, and our police and firefighters have the average pay. Mr. Shorett stated that having the inability to set salaries for any group of employees is taking away the responsibility that we have as a City to manage it fiscally responsibly. I have confidence that we would pay a fair wage, but as was mentioned earlier, we have some 400 employees in the City of San Bernardino that are making over $100,000 a year, and I don't know the exact number but I would be very willing to bet that the number is probably somewhere in the range of 98 to 99 percent of those employees that don't live in the City. Of those 400 employees, many of them are in public safety. Our citizens need to know that that's $40 million a year going outside the City of San Bernardino and not being spent, sales tax not being collected, homes not being lived in, and utility taxes not being paid. Mr. Penman stated that before we had Charter Section 186 our police and firefighters were not paid a fair wage and the Charter was enacted and Section 186 has been voted on two or three times since it was first enacted and the voters have continued to support it. It's the voters that put in 186. I understand what you're saying and I respectfully disagree with you having been here for many years and having seen what other cities have gone through with labor unrest, blue flu, and job actions. We've never gone through that here and the reason we haven't is because we have a fair formula for establishing pay for our police officers and our firefighters. As far as them not living here, we have a lot of peace officers who live in San Bernardino. The reason police officers don't live in the city they police is because it is very dangerous for police officers to live in the city where they police. It is a common occurrence for police officers anymore not to live in the city that they police, but we have many police officers living in this city and they spend their money here, they shop here, they buy gas here, they pay taxes here, just as our police officers do in other areas. Mr. Kelley asked how much an election would cost. City Clerk Hanna stated that an election would cost $90,000 to $120,000, and while it would be an election for the City, it would be part of the overall Countywide election. Substitute Motion: To table the matter. Mayor and Common Council of the City of San Bernardino Page 14 Printed 1111412012 Special Meeting Minutes July 24, 2012 RESULT: TABLED 15 TO 21 MOVER: John Valdivia, Council Member, Ward 3 SECONDER: Chas A. Kelley, Council Member, Ward 5 AYES: Jenkins, Valdivia, Kelley, Johnson, McCammack NAYS: Virginia Marquez, Fred Shorett 3. Public Comments Dennis Kazarian, Paramount, CA, President of Pacific Palms Mobile Home Park and Glen Air Mobile Home Park, stated that they originally financed with HUD and the corporations now have the ability to refinance their loans with HUD to a lower interest rate with a new subordination agreement. He stated that the refinance is only for the purpose of the interest rate. The current rate is 7 percent and the new rate is an anticipated 4 percent. They can't pull any money out of the refinance except for purposes of repairs that are needed in the park and serious repairs are needed. On May 14, 2012, the San Bernardino Oversight Board voted to recommend approval of the subordination of the City as the Successor Agency to the Redevelopment Agency. He asked the Council to put the matter on the agenda and approve or concur with the committee. Mike Potter, San Bernardino, CA, spoke against pension spiking. He stated that he emailed the two council members who voted no on fiscal emergency and Chapter 9 bankruptcy and has yet to hear back from them. He stated that he has heard grumblings of possible tax increases and hoped that that was the last thing they would consider. The City of San Bernardino is already a quarter percent higher than the surrounding communities in sales tax. We need to figure out how to get more businesses to make San Bernardino their home. Maybe we could give them a tax break for the first few years. If they haven't already, maybe the Council members could talk to some of the local business owners to see why they call San Bernardino their home. Draymond Crawford, City employee, stated that we do need a strong public safety element in this City, but you have to find out if you can afford it. We can cut everything in the book, but if we keep doing the same thing over and over again, we're not going to get ahead, we're just going to sit here and tread water until the next economic crisis comes along. We have to make a plan to bring revenue into the City. Warner Hodgdon, San Bernardino, CA, spoke about the percentage of retirement and the age of retirement going from 55 to 50; and he stated that the Mayor and his son should step down. Stephen N. Johns, City employee, stated that he was finding it increasingly difficult to believe that the City Council that was here in 2009 had no idea about the borrowing from restricted funds. He found an interoffice memo to City Manager Mark Weinberg, dated February 11, 2009, from John Wilson, Senior Assistant City Attorney, regarding the City borrowing from enterprise funds. He spoke about an allegation of a $3.5 million deficit in Integrated Waste and he asked what happened to the sewer funds that the constituents have paid a direct fee for. Mayor and Common Council of the City of San Bernardino Page 15 Printed 1111412012 Special Meeting Minutes July 24, 2012 Jessica Farrell, City employee, stated that she appreciated the optimism of Council Members Jenkins and McCammack; said that the financial plan raised some red flags for her; encouraged the Council to examine the numbers closely; and asked that they review the New World Financial System. Jerry Moya, San Bernardino, CA, stated that people need to start voting to prevent this situation from happening again. Roger Henderson, San Bernardino, CA, stated that it was time for the City to say no to more spending; stated that the City could not afford to lose a fireman or a policeman; and stated that Code Enforcement is very important for this City. 4. Adjournment The meeting adjourned at 8:42 p.m. The next joint regular meeting of the Mayor and Common Council and the Mayor and Common Council Acting as the Successor Agency to the Redevelopment Agency is scheduled for 1:30 p.m., Monday, August 6, 2012. GEORGEANN "GIGI" 14ANNA City Clerk BY i D Linda Sutherland Deputy City Clerk Mayor and Common Council of the City of San Bernardino Page 16 Printed 1111412012