Riverside will start a new fiscal year Monday, July 1, with a balanced budget and without major cuts — but officials expect lots of red ink soon after that.
While the city will spend more general fund money in the 2019-20 year than it brings in, this will be the second year of the two-year budget the Riverside City Council passed in June 2018, and the $1.2 million surplus for the year that ends this week balances out the $1.2 million deficit for the coming year.
The bigger concern, officials noted last year and reiterated as they passed this budget Tuesday, June 18, is what happens at the end of 2021, 2022 and 2023.
If nothing changes, that’s when deficits — largely connected to booming obligations to the California Public Employees’ Retirement System — will start eating away at the city’s reserves, which officials aspire to keep above 20% of the year’s spending.
Reserves are projected to equal 20.1% of expenditures in June 2020, 13.9% in June 2021 and 6.4% in June 2022. As 2022-23 goes on, projections have the city becoming “insolvent,” with almost $7.5 million more in bills than there is money to pay for it, said Edward Enriquez, Riverside’s chief financial officer.
“We have some significant challenges ahead of us,” Enriquez said. “And if we don’t take additional corrective (measures) — which we have been doing this last year (with) a lot of new initiatives — we do have a lot of challenges ahead of us.”
The budget, which includes no significant cuts, passed 5-1 with Councilman Mike Soubirous dissenting. Councilman Chris Mac Arthur was absent.
“I think it’s going to take some very hard discussion to try to figure out how we’re going to either fix this or reverse the trend,” Soubirous said. “This is all assuming the economy doesn’t take a dump and start going south for us and that everything stays status quo. Should housing values drop significantly, that red will be bleeding a whole lot more.”
Other councilmen, though they supported the budget, called out past spending they said was wasteful.
“We’ve got to stop spending money we don’t have,” Councilman Chuck Conder said. “We’re spending money like a drunken sailor.”
Conder pointed particularly to the new main library, which is under construction now on Fairmount Boulevard. It’s projected to cost more than $43 million, but Conder expects it to cost $60 million and said it was “a want, not a need.”
City Manager Al Zelinka said managers are working hard on what he calls the CalPERS challenge before asking for cuts.
Hiring has slowed and pension costs are looked at closely, he said. Riverside has set up a website to educate the community on city efforts to address its unfunded pension liability and to seek input from the public.
The projected cost of providing retirement benefits for current and future retirees was $531.6 million more than the resources the city has to pay it, according to a 2018 city report.
Cities across the state are facing similar unfunded pension liabilities, in part because the California Public Employees’ Retirement System received lower investment returns during the Great Recession than it had anticipated.
Adding revenues is another key part of the equation, Zelinka said.
“Facilitating investment for the city is super important,” he said. “It never goes as fast as you want it to, but everyone is focused on it.”