Budget numbers don't lie - or do they?

Three council members want to declare a fiscal emergency and put a sales tax on the March ballot to solve the city's budget woes, but two others doubt the numbers provided by city staff

According to budget numbers developed by city staff, Sebastopol is in a dire financial position: $1.67 million in the hole this year (and drawing down reserves to meet basic operating expenses). Bankruptcy looms just a few short years away, unless there’s a serious course correction.

A quick snapshot of the problem can be seen in this table of end-of-year reserves. (Note: The reserve situation would be worse if it hadn’t been for a $1.6 million one-time infusion of COVID money this year.)

At last week’s council meeting, the council unanimously called for a special meeting on Nov. 14 to discuss whether to declare a fiscal emergency and put a half-percent sales tax or a parcel tax on the March 2024 ballot. The clock is ticking on this because ballot information has to be developed and submitted to the Sonoma County Registrar of Voters by Dec. 8.

Here’s the problem: it was evident from the previous meeting that the council didn’t have the votes to do any of the above—and nothing had changed a week later when the special meeting rolled around.

The council is currently deadlocked: three council members—Mayor Neysa Hinton, Vice Mayor Diana Rich, and Councilmember Stephen Zollman—say that the city is in a fiscal emergency and support putting a half percent sales tax on the March ballot (or a parcel tax as a fallback).

Two other council members—Sandra Maurer and Jill McLewis—oppose this plan. Both have questioned the numbers in the budget.

Trust in the numbers (or not)

McLewis has been concerned with a number of errors that have appeared in the budget and in presentations, which has made her uncertain. “I’m not denying that we likely have financial issues,” she said, “but I don’t have faith in all these numbers…I can’t vote on something that I don’t feel solid in.”

Maurer, who over the months has shown a remarkable head for detail, said she had reservations because she thinks the city has “chronically underestimated revenues” for years, while overestimating expenses, making the city’s financial position look much worse than it actually is.

“So in 2018-19, the revenues were underpredicted by $1.5 million; in 2019-20 the revenue was underpredicted by $2.2 million, and this is before the one time COVID grants,” she said. “I'm telling you this because the definition of a fiscal emergency says we have to look at the facts to determine that there is an actual emergency. So, in 2020-21, it was $1.7 million underpredicted revenue; in 2021- 22, it’s 1.4 million, and last year, thanks to the $1.6 COVID grant, it was underpredicted by $2.8 million, which is leaving us currently with 44% reserves. I cannot honestly look at that and say this is a fiscal emergency situation.” (Note: That 44% is a start-of-year reserve. Financial Director Ana Kwong said she expects that reserve to be at 27.4% by the end of the year.)

“I appreciate that these estimates are conservative,” Maurer continued, “but I think they're ultra conservative. And I think it creates a certain narrative—the city has got this narrative going that we’re in a dire fiscal crisis and yet when I added up from 2016 to 2024, what I’m seeing in the last seven years is that there’s been a deficit of $200,000 roughly. That’s really different than all these millions of dollars that were projected.”

Maurer, who just recently joined the council’s budget committee, admits that she is new to budgeting on this level and has a lot to learn, but she also feels like she needs to get answers to her observations before moving forward with either a declaration of a financial emergency or putting a taxation measure on the ballot.

She also opposed putting a tax measure on the March ballot because she doesn’t want to compete with the Sonoma County Fire District sales tax measure. Fire fighters from the fire district have appeared before the council several times this year, begging the city not to put a competing tax measure on the ballot. Advocates of a Sebastopol tax measure point out that there are some 300,000 registered voters in Sonoma County and only 5,600 registered voters in Sebastopol, a number they say is unlikely to make a difference in the outcome of a countywide race.

Zollman and Rich were not convinced by Maurer’s and McLewis’s concerns.

“From a fiduciary point of view, I feel like we need to trust the experts,” Zollman said. “You might not like the experts, but I happen to find the fact that based upon their years of examining the data, presenting the different budget figures to different budget committees, that I can rely on staff. We went through the budget process with them. We went line item by line item, and all their explanations of why they were suggesting this or not suggesting that, all made sense. So I'm at a point where I definitely need to exercise my fiduciary duty and my fiduciary duty as I understand it is that we cannot wait, that we have to go in March. Putting this off…is dangerous. That'll mean we consider something in the fall, which means we won't get anything until the next year, which is 2025 which is actually 18 months away from when we fall off the cliff. Seriously. So I am not about waiting. I'm not about hoping.”

He said the time for asking such fundamental questions about the budget was earlier in the year when the budget was being formulated.

Vice Mayor Rich also begged her colleagues to listen to city staff on this issue.

“I am completely convinced that we are facing a fiscal emergency,” Rich said. “While I appreciate Councilmember Maurer’s deep dive, I’ve done that too—and I've done it for years. I know these numbers, and I actually have checked in with our administrative services director to double check my numbers and have conversations with her. I think that’s a very important step for all of us in order to make sure that we coordinate with staff.”

“I am confident in the analysis that we have from our staff and from the experts that we have paid valuable money to to provide reports to us,” she continued. “I am not going to be persuaded by—despite the fact that I'm impressed by an individual who speaks to us after a long night of examining numbers—I'm not going to be persuaded by individuals and I don't think any of us should. I've done all sorts of analysis, but I would not expect my city council colleagues here to rely on my analysis. I would ask the city council members here to rely on staff and to rely on what we have heard from them…Yes, we’re in a fiscal emergency and we have very little time to stabilize ourselves.”

Councilmember McLewis took umbrage at Councilmember Rich’s comments and accused Rich of gaslighting her. Rich, obviously taken aback, apologized if something she had said made McLewis feel that way.

Squabbling aside, Mayor Hinton said, “We have to do something.”

Hinton then proposed the compromise of putting a sales tax on the November ballot.

“I could wait if I thought we had a plan,” she said.

Maurer immediately shot this down as “premature,” though she later said she appreciated the gesture at compromise. Maurer said she might be willing to consider a November tax after she saw the results of the election on the Fire District tax in March.

Keeping score

Mayor Hinton had organized the special council meeting into three parts:

• A vote on decision to ask staff to prepare a declaration of a fiscal emergency for consideration at the next meeeting. That passed on a simple majority 3-2 vote earlier in the evening.

• A vote to put a sales tax measure for the March 2024 ballot (which required a four-fifths vote of the council.) That also went down to defeat on a 3-2 vote.

• And finally, a vote to put a parcel tax measure on the March 2024 ballot, which would have required only a simple majority on the council—and therefore likely would have passed, but it never came to a vote.

The Mayor noticed that the meeting had gone past the witching hour of 10:30 pm—after which it requires a unanimous vote of the council to continue. The vote was 4 to 1, with McLewis declining to continue.

The drama continues at the Nov. 21 city council meeting. See the agenda and supporting documentation for that meeting here.