BALANCE SHEET BLOG – HOLLYWOOD, FL


Balance Sheet In The Crosshairs
March 25, 2013, 10:35 AM
Filed under: Budget, City Staff, Taxes

A comment submitted last week by Hollywood resident Jeff Brodeur rails against the City’s treatment of our employees (salary cuts, pension cuts, outsourcing, lack of overtime pay, and more).  He deplores the departure of valued staff for better jobs elsewhere “because they are overworked, underpaid, and not appreciated” here in Hollywood.

His comment also nails the Balance Sheet as a “mouthpiece” for the City, an about-face from what he saw as our former role of challenging the City. His entire statement can be found here.

We agree the current state of our City is distressing.  City employees have been subjected to abrupt salary reductions and pension cuts.  In addition Hollywood has way too many dilapidated buildings and litter strewn, pot-holed streets. The City’s infrastructure is badly in need of repair or replacement.  But it’s one thing to rail against these conditions and another to come up with solutions.  The fact is the City has very little money.  Why?

City Finances

The compromised financial situation the City finds itself in today was foreseeable years before the economic downturn.  A long state of official denial and refusal to take hard steps on pensions in past years brought us to the huge and ongoing painful consequences of Financial Urgency in 2011.  The Balance Sheet’s efforts to sound the alarm about this looming problem started back in 2004 and continued right up to the point of Financial Urgency in 2011. Our record on these issues is summarized in the attached document:  Balance Sheet History With Cartoons

To say that the Balance Sheet has changed from critic to mouthpiece is to ignore both our record and the fact that the City has changed from years of denial, possibly ignorance, about the consequences of its actions.

By 2011, the City had overspent its budget in mid-year.  Then, there was no choice but to take hard steps to address the problems that the Balance Sheet had been urging the City to fix for at least eight years.  Had the City done so earlier, the results today would be far less painful.  However, there’s no way to go back and do things differently.  Hollywood is now in the process of digging the City out of a huge self-made financial hole.  The necessity of digging out is obvious to anyone who has paid close attention

The hard truth is that without significant increases in property taxes and fees, the General Fund is inadequate  to substantially improve employee salaries and pensions at this time. Additional ways to increase the General Fund in future years include  proposed development such as the Walmart Shopping Center at 441, suing for the WiFi shortfall guarantee if that’s the only way to get it, and possibly either capping the Beach CRA or removing the Diplomat from its boundaries if future beach development would allow such a change.

Some have suggested borrowing from the City’s Water and Sewer Enterprise Fund to make up for salary and pension cuts.  As many of us know, Hollywood residents already pay disproportionately high water and sewer fees and we don’t hear anyone offering to pay more. Note:  The City recently did borrow $2 million from the Water and Sewer Fund to purchase and outfit police vehicles.  This money is supposed to be repaid with interest.  We view this transaction as a highly questionable practice. The City normally would have bought these vehicles with a lease-purchase agreement — a form of financing now unavailable to the City because of its low fund balance.

Other Matters

Mr. Brodeur also criticized the Balance Sheet for ignoring “inconvenient facts” by not disclosing the returns of the Police and Fire pension funds.  Both of these funds post investment returns on their websites for all to see.  We did review them before writing our article.  It is important to understand that one year’s returns do not stand in isolation.  For example, the Police Pension Fund earned about 17% this year, and about 2% last year. A great many more really good years would be required to significantly reduce the City’s pension obligations that the City Commission was still voting to increase as late as 2010.

While  Mr. Brodeur’s comment raises important issues for Hollywood, we object strenuously to his charge that the Balance Sheet heaps “more garbage on the men and women that protect us every day.”  Everyone agrees that our City employees are hard working professionals and we all deplore the current situation that has caused them so much hardship. They are victims of more than a decade of overly generous promises that the City is unable to keep.

Finally, Mr. Brodeur correctly notes that the Balance Sheet does not cover many important City issues that residents should be informed about.  We are such a small volunteer operation that there is no way our coverage could be comprehensive, nor have we ever claimed it to be.  We would welcome Mr. Brodeur and any other residents so inclined to try their hand at their own blog, researching and writing about City issues of concern to them.  A clear analysis of difficult issues can be a force for progress.




City Budget Squeeze
March 15, 2013, 3:28 PM
Filed under: Budget, City Staff, Residents, Taxes

A recent budget workshop for City Commissioners demonstrated that the City is recovering from its 2011 financial meltdown. Nonetheless, property tax revenues are cautiously projected to remain more or less flat for several years to come. (We’ll be watching for City staff’s mid-year revenue projections expected later this month for any significant changes in the forecast.) The City has stated its commitment to improving City employee salaries and benefits insofar as the budget can support it – a little at a time.

Working against our strapped City’s potential salary and service improvements, however, is litigation spawned by the City’s two Pension Boards.  The Police Pension Board and the Firefighter Pension Board are City Boards whose purpose and members are listed on the City’s website along with those of the 17 other City Boards (African-American Advisory Board, Historic Preservation Board, Education Advisory Board, Green Team, etc.).  But unlike the other City Boards, the two Pension Boards have the power conferred by State statute to sue and be sued.

After Hollywood voters approved the Pension Referendum in September 2011, the trustees of each Pension Board voted unanimously to sue the City in an effort to overturn the pension changes that resulted from the Referendum.

Each Pension Board pays its administrative expenses including legal fees from the pension fund it administers. Every year the pension plan’s actuary examines the plan’s financial obligations and tells the City how much it must pay into the plan.  The plan will be short whatever amount was spent on legal fees and the City will have to make that up. So when these Boards sue the City, the City pays not only its own legal fees but those of the Boards as well.

Last December, the City won a Motion to Dismiss the two Pension Board suits (now consolidated), but the judge’s ruling allows the Boards to correct their pleadings and start over. This litigation between the Pension Boards and the City is at an early stage. But already the combined legal fees of the two Pension Boards come to nearly $400,000 with the City having spent about $60,000 on its own defense.

With the City on the hook for both sides’ legal fees — an amount that seemingly will reach the millions at the rate this litigation is moving -– the City’s ability to improve employee salaries and city services is lessened.  Such a result is harmful to both Hollywood employees and Hollywood residents.

Separate from the Pension Board litigation, the Unions are seeking to have the pension changes invalidated as a violation of their collective bargaining agreements. These actions, which began in the courts, are now being adjudicated in the State’s Public Employees Relations Commission (PERC).

So far the only winners in the Pension Board litigation are the private law firms engaged in the Pension Boards’ lawsuits. We urge the Pension Boards to drop these costly unproductive suits.

As for the Unions, we can only hope that all three City Unions will enter into negotiations with the City in a mutual effort both to rebuild trust and to work out creative and sustainable salary/benefit structures that will help all their members. Only then can we move forward together to create a sound footing for a more prosperous, successful Hollywood.



Pension Reform
July 2, 2012, 12:52 PM
Filed under: Budget, City Commission, City Staff, Taxes

Editors’ Note:  Long-time Hollywood resident Larry Legg has sent us the following letter.  We believe that it warrants serious attention by the City Commission and City staff.  Residents, too, need to understand these issues. We are grateful to Larry for sharing his expertise on a difficult subject that affects us all.

Dear Balance Sheet,

I have been a CPA and business advisor for about 27 years now, 20 years of which were spent auditing government and not-for-profit entities.  I am also a life-long student of economics and politics, although you will never catch me running for office.  I’m not Republican or Democrat, nor a Tea Partier, but attempt to look at the world around us in an independent and objective manner, in light of the underlying economics.  Your blog has helped me better understand the difficulties that our city faces today.  There is one issue, however, that should not be swept under the carpet, and that is pension reform.  I know this is cliché, but the giant Gorilla is still in the room and, although only 800 pounds now, he’s still going to mess some things up!

After having observed a lengthy blogger debate on pension reform, and having studied much of the relevant evidential materials – including but not limited to comments on both sides of the issue, citywide financial audits, pension audits, actuarial reports, 2012 budget analysis, national municipal bankruptcies cases, etc. – I am convinced that, no matter who has to pay the tab, our city is still at a moderate to high level of risk of bankruptcy and/or austerity measures.  Pensioners have a legitimate argument, particularly with respect to “Legacy Costs and Liabilities.”  It is difficult to believe that any employer could breach such a promise, and I’m sure the courts are beginning to decide this very issue all over the country.  The debate appears to be in the hands of the judiciary at this point, so let’s all keep our eyes on the cases that are being filed in this alarming nationwide trend.  Many of your bloggers appear to be bogged down in the details due to their own special interests (which I fully understand), so they fail or refuse to see the big picture “from 30 thousand feet” so to speak.

The Facts:

The following are some highlights of my research on Hollywood’s citywide finances:

Assets as of last fiscal audit, September 30, 2011 $ 727 million
Liabilities Recorded on Books  (553) million
Liabilities Not Recorded on Books (Unfunded Pension costs)  (350) million
Liabilities Not Recorded on Books (Unfunded Healthcare costs)  (433) million
Citywide Net Deficit in Fund Balance – Adjusted Net Assets  (609) million
  • Unfunded pension liability is net of $66 million in downward adjustments related to the referendum, and as per the most recent actuarial reports and city staff.  This is a real debt that does not get recorded on the City’s books.  In addition to this debt, the City has an actuarial “unfunded” liability to legacy employees for their lifetime healthcare benefits of $433 million as per the most recent certified audit.

 

Your bloggers have properly enumerated the many wasteful projects Commissioners have spent our hard-earned tax dollars on for the past three decades.  This spending, I concur, must stop.  No more developer handouts, no more capital expenditures on non-essential infrastructure, etc…the list goes on and on.  For obvious reasons, city employees’ heads are in the sand regarding an expense item that currently makes up about 21 percent of Hollywood’s operating budget – i.e., pension expense.  There will be no winners in this process, unfortunately, so it’s easy to see why people naturally shy away from the subject.  The pain will be even worse if the City is forced to seek protection under the U.S. Bankruptcy Code.  The hard, cold economic facts and circumstances will drive the outcome:

  •  $609 million deficit in Net Assets;
  • Pension Expense that constitutes 21 percent of total revenues;
  • Unfunded pension liability of $350 million (approximately 50% funded) – severely underfunded according to most experts;
  • Unfunded Post Employment Healthcare Benefits of $433 million;
  • Pension expense as a percent of gross salaries is between 36% and 81%, depending upon which department, which is far above national averages;
  • Overly optimistic actuarial assumptions about returns – currently 7 percent.  That should be reduced to the “new normal”, which many economist and analysts (and astute private sector investors) agree is about 5 – 6 percent;
  • Weak stock market performances;
  • Weak investment returns on pension assets, compared to the broad market, unmanaged averages;
  • Declining Property Values; and
  • Aging Infrastructure

Our City’s current finances are not too different from several recent Chapter 9 municipal bankruptcy filings.

Opinion:

My advice to Commissioners and Future Commissioners:

  1. Honor Legacy costs.  I think that even in bankruptcy court the judges will lean toward such a requirement.  Keep an eye on these cases.
  1. Do not make promises you cannot keep.  The stock and bond markets are unpredictable. And you, your accountants, your actuaries, economists, and investment advisors can never accurately calculate how much money to set aside for some variable defined benefit, ad-infinitum into the future.  And, no organization in the world – whether for-profit, not-for-profit, or governmental – can afford 21 percent of its revenues in pension expense – period.
  1. Employ a contributory, 401(k) type plan like most organizations in this day and age – i.e., a defined contribution plan.
  1. Urge retired employees to push for further pension reform.  They need to understand that it is in their best interest to help devise a solution to this problem before their livelihoods are in jeopardy.
  1. Quit spending money on almost everything except for critical infrastructure and routine operations for a few years.  We need to get back on our financial feet.  That would include a complete moratorium on new hires for an indefinite period of time.
  1. Review the entire way of doing business, perhaps by way of an “Operational Audit”, and make changes.  Change is good, so long as it’s economical.
  1. Forget about your own pocket books and about getting re-elected when making decisions that affect 143,000 citizens and taxpayers – it’s your duty to do so.
  1. Stop caving to special interests.  They don’t run the city, “We The People” do, supposedly through YOU, our elected officials.
  1. Don’t raise the millage rate; it’s already one of the highest in the county.  Property owners have already paid an inordinate amount of money for taxes, and I don’t think they can bear further increases.

As always, I invite comments and questions.

Sincerely,

Larry Legg, CPA



Neighborhoods Challenge
November 9, 2011, 12:34 PM
Filed under: Neighborhoods, Taxes

Hollywood’s Great Neighborhoods Challenge

Our City’s economic decline is visible everywhere.  City staff has pondered how we can accomplish dramatic and positive change, given the City’s very limited financial resources.  That’s where the Great Neighborhoods Challenge comes in — a 120 day city-wide property improvement contest, with cash prizes, that begins December 1, 2011.

It’s a collaborative effort among the City, residents, business owners, and organizations with an interest in working together to make all Hollywood neighborhoods better. For purposes of this contest, Hollywood is divided into 15 geographic areas that cover the entire city. The Challenge has both a private and a public property component.

Private Property Challenge

The City has launched this four-month Challenge to inspire property owners to take a fresh look at their home or business to see what exterior improvements would spruce up the property.  Not only individual homes, but also condos and other multifamily buildings as well as businesses are eligible to enter the Challenge.  Tenants, also, may participate, provided their landlord agrees.   Perhaps a fresh coat of paint is in order, or the landscaping needs attention. What about cleaning out that carport, or removing that broken-down fence? What can you do to add some curb appeal to your property?  Only exterior improvements visible from the public right of way are eligible.

Enter the contest, make the improvements between December 1, 2011 and April 1, 2012, and you may win a prize.  Thirteen prizes will be awarded to the winners in each participating geographic area that submits a minimum of 25 improved properties ($2500, $1000, and $500 as first, second, and third prize, plus $100 gift cards for ten honorable mention winners). The prize money is coming from the City’s Tree Fund (or from the CRA if a winner’s property lies within CRA boundaries). As a Challenge participant you’ll get to know your neighbors, improve the look of your neighborhood, and help raise its property values, as well as having a shot at the prize money.

Prior to December 1, each of the 15 areas will be organizing a Neighborhood Action Committee (NAC)  to coordinate the Challenge and line up at least the 25  participants the NAC needs to enter the contest.  Hopefully more than the minimum will participate in order to achieve a greater impact in the neighborhood.   Until the NACs are organized,  you can express your interest in participating and/or get more information about the Great Neighborhoods Challenge by calling the City of Hollywood’s Community Development Department at 954-921-3381 or visiting its website.

Public Property Challenge

Each NAC that achieves the minimum 25 improved privately owned properties is also eligible to submit a design for improvements to a publicly owned space in its neighborhood.  The Public Space Challenge has three or four winners city-wide.  The City will do the work on the winning designs.

The rules for the Great Neighborhoods Challenge and much more information about the contest is available on the Department of Community Development’s website.




Pension Referendum – Sept. 13
September 5, 2011, 9:24 PM
Filed under: Budget, City Staff, Elections, Taxes

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.



Hidden Taxes
May 1, 2011, 12:21 AM
Filed under: Taxes, Water-Sewer-Sanitation

Slush Funds?

In response to our April 24, 2011 post on the City’s use of enterprise funds to balance the budget, the City’s Finance Director, Matt Lalla, wrote to Commissioner Blattner, justifying the practice.

While the practice is not uncommon, as Mr. Lalla states, we do not believe it is justifiable for a well-managed city. Both views are posted below. You decide.

Matt Lalla
Finance Director
City of Hollywood

This version of the “Balance Sheet” newsletter is, in my opinion, a little misleading. The amounts transferred out of the City’s enterprise funds to the General Fund represent payments for Administrative Service Charges and Payments in Lieu of Taxes (PILOTs).

These payments are imposed on the City’s enterprise funds in order to reflect the true and complete cost of these operations. These payments are made to recapture General Fund support services provided to enterprise operations in the form of: general management (from the City Manager’s office), legal services, accounting, payroll, human resources, risk management, bond financing, cash management, etc.

In addition, these payments have been reviewed and accepted by the City’s auditors and do not reflect some sort of accounting that is less than factual (as implied in the newsletter).

If the City did not recapture the cost of such support services, then the City’s taxpayers, through the General Fund, would be subsidizing the rates imposed by the City’s enterprise operations. This situation would certainly be deemed unfair for City residents.

As I am sure you are aware, the recent water and sewer rate increases have nothing to do with administrative service charges or PILOTs. Recent (and future) water and sewer rate increases are necessary to support the Public Utilities capital improvement program in order to replace an aging infrastructure and comply with regulatory mandates.

FYI, these types of charges are not unique to Hollywood and are a common practice in most jurisdictions….

Balance Sheet

Mr. Lalla simply amplifies the techniques by which the city has balanced our budgets for years. The question is whether diverting water-sewer-garbage fees is the best method to raise the funds necessary to run the city.

The use of enterprise funds in this manner creates a burden on those least able to pay and prevents those more able to pay from taking a tax deduction. (Real property taxes are an itemized deduction on the federal income tax form. User fees are not.)

Let’s look at the Payments in Lieu of Taxes (Mr. Lalla’s PILOTs). Agreed that the water, sewer, and public works facilities sit on city owned land and do not pay property tax. If we’re going to charge them a payment in lieu of taxes, why don’t we charge parks and rec for all of the buildings and fields on city land?–or for that matter any other facility on a city owned parcel. The obvious answer is that enterprise funds differ because they are cash generators of income that can be raided.

Let’s take a quick glance at the Administrative Service Charges made against these funds. Each enterprise fund has its own budget and most conceivable administrative costs are covered in its operating budget. Why then should the General Fund remove millions from the enterprise funds for unspecified “administrative costs.” Double dipping?

Mr. Lalla states as justification only what is legal and convenient, but not what a prudent well-managed city would do. Isn’t it time to eliminate old practices that merely disguise the problems instead of trying to justify their continuance?

Instead of raiding the enterprise funds, the City should supplement the General Fund through better bargaining and streamlining operations. Any shortfall should then be covered by raising the millage rate.

Comments Off on Hidden Taxes


User Fees: Hidden Tax
April 23, 2011, 10:03 PM
Filed under: Budget, Taxes, Water-Sewer-Sanitation

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.

Comments Off on User Fees: Hidden Tax