This week I'd like to share a piece written by Escondido City Treasurer, Doug Shultz. He shares his thoughts and vision of how the City can address the budget shortfall we are facing.
Possible solutions to city’s revenue deficit
By Doug Shultz, Escondido City Treasurer
The Escondido City Council is considering putting a revenue measure or proposing an increase in sales tax on the ballot this November. This information is an impartial, non-partisan presentation of the facts as they are today. It is intended to lay out these facts on what could be proposed, their impacts and lay out a few ideas I have spoken to staff and council about as possible solutions. This is an attempt to honor my campaign promise of full transparency.
First, a brief background. The reason we have a massive deficit in Escondido is due to the City’s obligations to CalPERS. While one could certainly argue that previous councils didn’t do enough to prepare for this debt obligation, it is my opinion that it was virtually impossible to predict just how large of a deficit would be created from CalPERS lowering the discount rate.
The discount rate is the assumed rate of return CalPERS will earn on their investment portfolio on an annual basis. Back in the '90s, CalPERS modeled what the rate of return would be using the portfolio returns at the time. While hindsight is always 20/20, it’s clear these figures were over-estimated.
With the reality of what we see in the world today, CalPERS lowered this assumed rate of return down to 6.8% per year from 7.5% per year, thereby creating this debt obligation. It is important to understand that our deficit was not caused by mismanagement of Escondido or some grievous error that was made by someone within the city. Rather, our deficit comes from being forced to pay the CalPERS pension obligations because the estimations first used in the 90’s were too high. Here is a graphic representation from the finance department of exactly where we stand currently:
I am a “numbers guy.” When I look at issues, regardless of politics, and see where we can generate revenue, I feel it is one of my responsibilities as your City Treasurer, to present possible solutions to a problem when I see a problem exists. I have heard various solutions on the CalPERS issue, but upon closer examination...