Short of cash, wealthy San Francisco suburb declares fiscal emergency

Measure gives officials in the affluent enclave the power to expedite a referendum on new fees to boost revenue

PUBLISHED : Tuesday, 11 July, 2017, 4:17pm
UPDATED : Tuesday, 11 July, 2017, 7:58pm

The San Francisco suburb of Moraga seems as far as one could get from the financial pressures that have battered big cities like Detroit or Chicago. The price of a typical home has soared to more than US$1.2 million, it is not drowning in debt and there are even free summer concerts.

But on June 28, the 17,000-resident town authorised a declaration of fiscal emergency, a step California cities can take before bankruptcy. In this case, it gives officials in the affluent enclave the power to expedite a referendum on new fees to boost its revenue, which has been restrained by a lacklustre retail base and property-tax limits the state enacted almost 40 years ago.

“We just don’t have enough revenue to take us through the future for many more years before we would really be in some of the situations other cities are, where they are laying off mass numbers of employees or declaring bankruptcy,” town manager Robert Priebe said in an interview.

The community, where the median family income is US$169,000 a year, illustrates an irony for some at the centre of the California’s latest economic boom. While real estate prices have surged, the local tax collections have not necessarily followed the same trajectory because of Proposition 13, the 1978 ballot measure that keeps homeowners’ tax bills from rising by more than inflation or 2 per cent a year. As a result, local government revenues are growing more slowly than the rest of the US, according to a state analysis, leaving some seeking other ways to raise money.

We are not going to lay off half of our employees and have the quality of life of all of our citizens really be impacted
Robert Priebe , town manager, Moraga

In Moraga, where the council discussed establishing a poet laureate position before approving the fiscal distress declaration, lowering headcount is not the first priority. The town’s US$8.5 million budget this year authorises about 36 full-time workers. Members instead opted to reduce services such as park maintenance in the community about 20 miles east of San Francisco.

“We are not willing to hurt the public first,” Priebe said. “We are not going to lay off half of our employees and have the quality of life of all of our citizens really be impacted.”

Moraga’s declaration hasn’t affected its standing on Wall Street. Its US$7.7 million in outstanding debt is rated “AA+”, second highest by Standard and Poor’s Global Ratings. One of its bonds due April 2029 was valued on July 5 at 0.85 percentage point more than benchmark debt, little changed from the 0.82 percentage point seen on the day of the fiscal emergency declaration. That spread stood at 1.16 percentage point at 2016 year-end, according to data compiled by Bloomberg.

The squeeze on Moraga stems in part from two infrastructure failures: the damage to a bridge in April and a sinkhole that became such a civic event that residents threw it a sarcastic birthday celebration. Though officials are hoping for state and federal reimbursements, the cost to fix both depleted its savings, leaving the city vulnerable to another emergency. The general fund, boosted modestly with this year’s anticipated US$46,217 surplus, has about US$1.6 million in reserves.

The fiscal emergency declaration allows Moraga to put any revenue-raising measure on the ballot when it wants instead of waiting for a regularly scheduled election. Options being mulled include proposing a flat fee on property or a utility tax, Priebe said. The town will poll residents by phone to see what is preferable.

Moraga should look to cut personnel expenses first, said Seth Freeman, an unsuccessful council candidate and the only resident to speak about the issue at the board meeting. He criticised the council’s decision to award raises to employees two weeks before issuing the emergency declaration.

“I am concerned that the simple solution would be to raise taxes than to address some of the issues under the control of the town manager,” Freeman said in an interview. “The compensation for a small town is unaffordable.”

Priebe said the town’s costs are low compared to others in the county and that it must remain competitive. “If we offered no raises, we would lose people.”