State Senator Sobel – who in 2009 sought and was granted a $30,000 interest-free, non-recourse loan from the City of Hollywood to renovate 5,000 square feet of office space for her use – has suddenly expressed great concern with the City’s finances. She’s requested that the State of Florida audit Hollywood’s finances and her request has been granted.
“Sobel appeared at a meeting of the Joint Legislative Auditing Committee in the Capitol to ask for the audit, citing the city’s declaration of a state of “financial urgency,” a recent 11 percent property tax increase, lucrative pension and health benefits for city employees and overly optimistic revenue projections.
Sobel questioned the work of Munilytics, an Illinois-based financial consulting firm hired by the city. She also questioned the city’s administrative set up, which she said separates the city’s budget and finance departments, resulting in accountability problems.” excerpt from Miami Herald, Oct. 3, 2011
Senator Sobel appears not to have understood the Munilytics report she questions. She states as one of her concerns a problem the City corrected months ago after Munilytics raised it — the need to separate budget from finance functions. Since the Munilytics report was issued in mid-June, the City has gone to great lengths to put its financial house in order.
It will be interesting to see what State oversight can bring to Hollywood’s financial situation. Let’s hope it will be helpful. We suggest the State auditors begin by reviewing the 2009 loan made to Sen. Sobel herself for office renovations — an expenditure category that does not appear to be allowed State Senators for their district offices. The solution reached was to categorize her loan payments as “rent.”
Despite this fiction, the bottom line here is that the City has allowed the Senator to repay the $30,000 renovation loan over time, while excusing her from paying any rent for the use of City office space. The rent forgone could have provided a City employee salary.
We opposed this transaction back in 2009. In part we wrote:
We think it is fiscally irresponsible for the City Commission to commit $30,000 taxpayer dollars for office renovation in these harsh economic times. Many Hollywood residents have lost their jobs, and even their homes. Which of them would not welcome a four-year no-interest $30,000 loan from the city?
Link to full Balance Sheet 2009 post.
HOLLYWOOD SPECIAL ELECTION – IMPORTANT – SAVE JOBS!
WHAT: Pension Referendum
WHEN: Tuesday, Sept. 13, 2011
This is no time for voter apathy. Our city has a budget crisis that could lead to bankruptcy. As a partial solution, the referendum proposes reducing future pension benefits for members of each of the three unions in city government: General Employees, Police, and Firefighters. These reductions would save the City some $8.5 million and set the City on a more sustainable course for the future.
Note: the referendum would not touch any pension benefits employees have earned to date; only future benefits would be subject to new rules if the referendum passes.
We are voting YES on all three referendum questions. We believe a YES vote will save jobs, maybe hundreds of them in the long run. It will also prevent astronomical tax and fee increases in the years to come for both residents and businesses.
Think about it. The City is strapped for money. The unions have cited as cause of this budget failure a number of wasteful, unwise expenditures the City Commission has made — and we agree with most of these (WiFi, water tower decor, mega developer incentives, excessive severance package for former city manager, etc.). We’ve spoken out against WiFi and excessive developer incentives for years, not just after the fact but before these spending decisions were even made.
More unwise expenditures the unions don’t mention are the excessive pension concessions to the unions themselves. We’ve spoken out against these, too, for years. They’ve been a major contributor to the City’s financial meltdown. Hollywood’s pension costs have skyrocketed about $30 million in just eight years Look at the trend line:
This situation cannot continue without huge tax and fee increases in years to come. And who are we asking to pay these taxes and fees? New census data show that almost half of Hollywood households are designated “low-income,” and foreclosure rates here are three times more than nationally.
If the referendum is defeated and savings can’t be achieved from reducing pension costs, the City says it will have to cut salaries and lay off workers to achieve the necessary savings for the coming fiscal year. Salaries were already cut significantly earlier this year so this would be a double whammy. Reducing future retirement benefits seems the better course to us but if the unions don’t agree, voter approval is required and that’s why we have the upcoming referendum. This referendum gives voters a direct voice in how the City will handle the current budget disaster: (1) pension reform, or (2) no pension reform and more salary cuts, employee layoffs, and service cutbacks instead, not only now but in future years also.
Infuriating and disheartening as reducing retirement benefits can be, we still think the unions would be wise to reach a negotiated settlement with the City rather than pinning their hopes on defeating the referendum. The unions may well succeed at sinking the referendum. Then what? Wouldn’t the subsequent shift to salary cuts and pink slips be worse for the rank and file than a less costly retirement plan?
We believe defeating pension reform will cause much more hardship on the employees than approving it, especially those at the lower end of the pay scale who need every dollar of their salary to make ends meet today. The City has provided each union leader the amount of savings that would have to come from pay cuts and/or lay-offs should the referendum fail. We have copies of this information. If you’d like to see it, let us know and we’ll send it to you.
To see the exact ballot language and more information about what is being proposed, visit the city’s website at this link.
If you wish to vote by absentee ballot and have not yet requested the ballot for this election, you must contact the Supervisor of Elections Office immediately. The absentee ballot request form may be filled out online from the SOE website at this link. Or request it by phone 954-357-7055.
Be sure to vote. This is no time for voter apathy in Hollywood.
Financial Troubles in Hollywood
My candle burns at both ends. It will not last the night; But ah, my foes, and oh, my friends – It gives a lovely light.
Edna St. Vincent Millay
Shocking financial revelations about city finances have alarmed Hollywood residents, business owners, and employees alike. The city’s unchecked borrowing and spending that began years ago has run its course: reserves are long gone and red ink is spread across the budget. The city’s funds are so low that it no longer has access to the debt markets. Should we have hurricane damage, instead of borrowing money for cleanup costs pending FEMA payback, the city will have to find the funds somewhere in its own budget. While many other Broward cities have millions of dollars in reserve accounts, Hollywood has saved nothing for a rainy day.
The big question now is whether Hollywood voters will approve restructuring city employee pensions. A pension referendum is in the works for mid-September unless the unions ratify pension reductions before then, which seems unlikely. The main problem here is that city commissions for years, right up until this year, have promised employees pension benefits way beyond what the city can afford. One of the most burdensome is a city guarantee of 6% (in some cases 8%) interest on public safety retiree accounts for 15 years after retirement.
The Interim City Manager pulls no punches. She says the city will have to “operate under a very different business model moving forward if we don’t accomplish pension reform and savings. Where else can you get a guarantee of 6% return on your money …with the City underwriting the amount even when the market tanks? We have been solving our financial problems by increasing borrowing rather than cutting costs and we can no longer afford it.”
The “very different business model” would likely entail the outsourcing of basic city services and massive layoffs of employees. The unions have taken the position that the city is using scare tactics to cut salaries and pensions. We’ve been watching city budget decisions for years and have written about these problems many times. In 2009, we noted the investment return on the firefighters pension assets was only .86%. The city’s contribution that year was $9.1 million, up from $7.6 million the previous year. When the market tanks and pension investments are down, the city is obligated to make up the difference. Already we have many more firefighter retirees than we do active firefighters. An arrangement like this is clearly unsustainable.
In short, combined with the economy, our elected officials have brought Hollywood to a financial crisis. Problems of this magnitude do not spring up over night. We’ve had a slow build-up, year after year, for at least a decade, with one irresponsible decision following another, the cumulative impact slowly building to today’s crisis point.
Why have our elected officials, with the support of the city manager, year after year continued to approve more and more benefit increases? For more than a decade, the police and fire unions have worked hard to elect commissioners who would vote for this largesse. Their off-duty members would leaflet the large condo buildings the night before the election, using building access that was not available to candidates they did not support. While benefit increases were a political calculation for many of our elected officials through the years, others seemed unaware of the fiscal impact of their decisions and not even curious about it.
As we see it, there are four separate areas that need our attention if the city is to move beyond this crisis: (1) management changes, (2) city elections, (3) taxpayer rate hikes, and (4) employee salary and benefit cuts.
Management
The long-time budget director and city manager have both left. We have a new Finance Director who is working hard to correct the budget errors of the past. The search for a new city manager is under way and the Interim City Manager seems determined not to perpetuate errors of the past. In short, the necessary management changes have occurred or are in the works.
Elections
City elections will be held in November 2012, little more than a year away. This election will mark the transition to staggered four-year terms, so that in the future only half the commission will be up for election at the same time. This transition is causing the commissioners from Districts 1, 3, and 5 to have an initial six-year term.
Voters will need to work much harder than in the past to get qualified people elected to public office. We must be able to count on our commissioners more than ever to set reasonable policies and spend taxpayer money prudently. We can’t continue past practices that have contributed to the present crisis. No longer can we afford a commission that lavishes money on supporters and converts loans to grants. 2012 is the year to work on electing a qualified city commission. This means citizens will have to roll up their sleeves, recruit, and support knowledgeable, high-caliber candidates. No more electorate sitting on the sidelines as so many have done so often in past city elections.
Taxpayers
An urgent need to raise Hollywood’s fund balance before the city’s credit is further downgraded has propelled the commission to propose hefty tax and fee hikes for the fiscal year that begins October 1, 2011. Although not finally approved, and subject to mandatory public hearings in September, the proposal is to raise the millage to 7.4479 (9% increase over last year). Combined with the 2004 General Obligation Bond levy of .4449, our total Hollywood tax rate would be 7.8928. This will be one of the very highest in Broward County. In addition, the city will raise the annual fire fee from $159 to $189. The proposed millage increase plus the fire fee increase represent 11% more than last year. Without question, residents and businesses will pay significantly more.
Employees
Even harder hit than residents are the city employees. They have already received pay cuts ranging from 7.5% to 12.5%. These lower salaries will be the “new normal” for the foreseeable future. In addition, as mentioned above, the commission is poised to freeze employee pensions as of September 30, 2011 and offer reduced pension benefits thereafter. If the unions don’t agree to the pension changes, the city can implement them only with voter approval in the September special referendum.
What Next?
All concerned taxpayers should pay attention to what city government is saying and doing in the days and weeks ahead. Union negotiations are expected to intensify and we hope they can be successful. If not, we will have the pension referendum. From burning the candle at both ends for a decade, we’re down to a pile of hot wax.
Before he resigned, former City Manager Cameron Benson retained the firm Munilytics to examine the City’s budget predictions and make recommendations for improvements. The initial findings released on June 13 noted at least two “incorrect or poorly calculated” revenue estimates, “glaring errors” in the five-year budget forecast, use of “only very limited” forecasting techniques, lack of any revenue forecasting policies, totally inadequate staff reporting, and more.
Because the precariousness of the City’s finances affects us all, we have summarized and also quoted from the report at some length in this post. Excerpts from Munilytics Initial Findings on Revenue Forecasting follow:
BUDGET STATUS REPORTS
Munilytics notes that staff should be making a monthly status report to the Commission including which departments are over budget, which revenues are over or under estimates, and whether the City will finish in the black or red. In addition, the report should be presented at a Commission meeting, not just emailed to the elected officials. Munilytics notes that it “is one thing to write a report and send it out. It is quite another to stand and deliver it and defend it.”
Hollywood’s practice until earlier this month has been to prepare a mid-year financial report and email it to the Commission. Critical of this practice, Munilytics states:
We think the Commission has a right to be piqued about the delay in notification of some of the budget problems that have developed.”
Had management been preparing proper reports, Munilytics points out that “the Fire Special Assessment shortfall, apparently an error in calculation, would have been known in mid-October. Property tax shortfalls would have been seen as early as mid-January. State share revenue shortfalls would have been worrisome as early as December.” Instead, these problems were not discovered until mid-year report presented to the Commission in May
STAFF ORGANIZATION FAULTY
Munilytics criticizes the City’s staff organization, noting that until a few weeks ago:
“[T]he budget operations were separated from the finance operations. The Office of Budget and Procurement Services was a special office under the City Manager’s department and had very little interaction with the Department of Financial Services. Two distinct departments with two different directors were responsible for the City’s financial operation with the result that no one individual was ultimately responsible for the financial management of the City.”
Earlier this month, the Budget Department was folded under the Finance Director, a change Mujnilytics applauds.
In conclusion, Munilytics states:
“The revenue forecasting concerns facing the City need to be addressed and they can be easily corrected, but they are but one part of what should be a financial plan that has policies and goals that are concrete, measurable, and reportable. A good financial plan will … help the City identify where the weaknesses lie and how specifically they can be changed. …[I]t will take continued determination to regain solid financial footing.”
EDITORS COMMENTS
Obviously, the budget-management deficiencies that caused the pot to boil over last month must be corrected, but the task cannot be accomplished overnight. We expect that the Interim City Manager, the Finance Director, and other staff will be moving as swiftly and carefully as possible to put in place the necessary budget controls and planning that will eventually clean up the mess. Meanwhile, the financial squeeze will impact us all.
A final word about the Finance Director. The Munilytics report pays tribute to Matt Lalla, the City’s Finance Director. We do, also. Mr. Lalla has been on the job less than a year and became immediately embroiled in a sea of water billing problems not of his making (caused by a complex new rate structure and the failed Wi-Fi project). And now he must find a way to rectify a legacy of serious budget deficiencies that management has allowed to pile up for years. Mr. Lalla deserves the gratitude of us all.
May 22, 2011
Like the prophets of old, Commissioner Furr has been warning of Hollywood’s impending budget failure for years, his detailed analyses falling on deaf ears. Instead of addressing the budget’s growing structural imbalance, the City Manager found short-term ways each year to balance the budget, all the while digging a deeper hole down the road. As a result, the City is now facing the need for drastic steps to solve a financial crisis.
At last week’s City Commission meeting, the City Manager called on his Finance Director and his Budget Director to present the bad news. This is what we learned, only some of which was reported in the mainstream media.
The City began the current fiscal year last October with a fund balance of $9.16 million in the General Fund. But midway through the year, this balance had fallen to about $.6 million, a completely untenable level. Accordingly, the City Commission adopted a staff-recommended budget resolution transferring to a special reserve account about $2 million from a wide range of city accounts. By this action, they raised the fund balance to $2.6 million which is about 1.6% of General Fund revenues. This is far from sufficient.
The Finance Director told the Commission that Hollywood has promised to maintain a minimum 5% fund balance in connection with its loans from the First Florida Financing Commission. At l.6%, we are about $5.5 million short of the minimum requirement, he said.
The danger here is that Hollywood’s bond rating will be further downgraded, raising the City’s cost to borrow funds. One downgrade already occurred about three months ago. In explanation, Fitch said it lowered Hollywood’s rating in part because of high and growing annual pension costs. See Fitch Downgrades Hollywood.
The Finance Director explained that this year’s shortfall did not occur over night because the seeds were sown some 15 years ago. While the long-ago cause is true, it is also true, though he didn’t mention it, that steps could have been taken each year thereafter to lessen the problem, as Commissioner Furr’s lone voice has advocated over the last eight years or so. Unfortunately for us all, the City Manager, instead of reinforcing Commissioner Furr’s concerns, has recommended short-term solutions each year that have greatly compounded the City’s current and long-term budget woes.
In short, staff inflated revenue projections beyond reasonable expectations for the current fiscal year, resulting in today’s $7.35 million shortfall. Adding to the problem, expenditures are $1.2 million over budget. The red ink details are clear on a spreadsheet (pdf file) the Finance Director provided last week to the elected officials.
Compounding this mid-year problem is a projected $25 million budget shortfall for the next fiscal year which begins October 1. Given such a dire financial picture, the City Commission unanimously voted last week to invoke Financial Urgency as authorized by FL Stat 447.4095 — not only for next year, but for the balance of this year also. This statute sets up a process for changing union contracts when a financial emergency exists. First, the parties must negotiate for 14 days. If no agreement is reached within that time, a collective bargaining impasse will be deemed to exist, triggering the appointment of a special magistrate, hearings, and more, as unions challenge and the City defends its need for benefit reductions. The impasse process is regulated by State law, FL Stat 447.403.
This is a highly stressful time for City employees and a difficult one for our elected officials as well. In short, our City is in a crisis and we must pay attention to how this has happened, how it could or should have been prevented, and changes that are needed.
April 23, 2011
Fees for City Services: Hidden Tax
We’ve recently learned that the City has used for other purposes many millions of dollars Hollywood residents have been paying for water, sewer, and curbside trash pickup and recycling. In short, we are over-paying for these services and the excess money is being used to balance the city budget.
For example, in each of the three most recent fiscal years, over-charging for water and sewer allowed the City to take over $6.7 million annually out of the Public Utilities Enterprise Fund, placing it instead in the General Fund. Fees we paid for curbside trash pickup and recycling have also been removed from the Sanitation Enterprise Fund to beef up the General Fund, just under $1.5 million this year, and more in prior years
We’ve been thinking about the use of the Enterprise Funds as a means to subsidize and balance the City budget. First, what is an enterprise fund? In government accounting, a fund that provides services to the public for a fee that makes the entity self-supporting. Hollywood has five such funds: public utilities, sanitation, stormwater, golf, and parking.
We understand that Florida law does not prohibit such transfers from Enterprise Funds. But we ask ourselves if this is a prudent and logical budgeting method, is it fair, and finally, is it ethical? We conclude that the answer to all these questions is “no.”
We are burdening water users, for example, with an inflated cost in order to camouflage the real true financial straits of the city. This means financially struggling homeowners may have their water shut off for failure to pay what amounts to an invisible tax that inflates the cost of the water they use. This situation not only violates the basic principle of open, transparent government, but creates an unfair and hidden method of taxation.
Political expediency can no longer be tolerated in lieu of factual accounting. Inflation of the water and sanitation costs to accommodate budget failures is something we also cannot tolerate.
The City’s revenues face additional erosion for the next several years because of the economic climate. This is not good news. But we believe that citizens are entitled to a factual statement of the true budget shortfall and how much of an increase in the millage rate along with cuts in employee benefits will accommodate revenues for at least the next three years.
Thousands of other US cities have similar if not worse situations. The economic downturn just hastened the inevitable. This is not shameful, but it will be so if city management and our elected officials continue to ignore the inevitable.
