Chico – Election Year Spin

By Mark Sorensen:

WARNING: Election Year Spin.

I apologize, this is long and complicated to explain, but I felt obligated to do so.

First, it is important to know the difference between deficit and debt.

During the LWV forum I heard the talking point that the city is 2/3rd of the way to (something) related to its past accumulation of debt, but no explanation was offered.

The recent Chico-ER on-line chats enable us to better understand the spin: Because the city blew through $20.5 in deficit spending 2007-2012 and we have GF deficit of $7.8 million, the claim is that the city is 2/3 to some sort of a resolution. Or 3/4 according to Lupe Arim-Law, merely because our recognized General Fund debt is “Only” $7.8 million. As if a $7.8 million debt is OK.

Folks, this is exactly the sort of distortion and hiding the facts that got us into this problem.

They leave out the decimation of the general fund operating surplus, emergency reserve (was $5 million) and the depletion of a long list of liability, equipment, building maintenance and other maintenance and replacement accounts, and that the city burned through $20.5 million in cash. That cash is GONE. And NONE of this has anything to do with the loss of redevelopment. 

In addition to the loss of the General Fund surplus, and emptying of the Reserve Fund, the exact fund by fund detail of deficit spending is linked to at the bottom of this blog entry:

http://www.norcalblogs.com/bored/2013/05/17/city-chico-burning-cash/

And that does not include a LONG list of deficits incurred in the way of deferred of maintenance of city infrastructure, computer systems, police & fire dispatch system, radio system, and so many other things, all to maintain payroll and benefits costs that in reality could not be maintained, and were not sustainable.

The $15 million dollar number referenced below merely relates to the amount of actual fund deficits that existed solely in city enterprise funds that needed to be paid back from the General Fund, can not be used to compare  as it is presented, and merely serves the goal of confusing today’s situation.

The fact is that the the City of Chico burned through more than $20 million in deficit spending from 2007-2012, was quickly running out of operating cash** and came dangerously close to insolvency (which would have been a FAR larger and painful mess had it not been averted).

**Business owners and many others understand the concept of running out of operating cash. But it has been discouraging to see how many people could not fathom this happening to our great city, nor fathom the serious consequences if it had been allowed to occur.

Let’s compare recent responses to the Chico ER on-line chat for greater clarity:.

http://live.chicoer.com/Event/Council_Candidates_Chat_-_Scott_Gruendl

• We’ll start off with a question that came via email: There seemed to be very different opinions on where this city stands financially.  Have the deficits been eliminated and are we now on a sound financial path?
• by ChicoER12:01 PM yesterday

Scott Gruendl:

• We started with a projected deficit of over $20 million. Then in the last fiscal year the deficit was pegged at over $15 million and we instituted a plan to pay $1.5 million a year for at least 10 years as well as moved all debt into our financial statements for full transparency. Today, the debt is at about $7.8 million, we will not have to make annual payments of more than $800,000 and we may be fully recovered within a few years, less than a third of the time expected. In other words, we are in full recovery and I am very confident that our financial position will continue to improve and it will not be a detriment to the overall progress of the entire community.
• by scott_gruendl12:02 PM yesterday

http://live.chicoer.com/Event/Council_Candidates_Chat_-_Lupe_Arim-Law

• We’ll start off with a question that came via email: There seemed to be very different opinions on where this city stands financially.  Have the deficits been eliminated and are we now on a sound financial path?
• by ChicoEROctober 2 at 12:01 PM

Lupe Arim-Law:

• My understanding is that the deficits are not eliminated but we’re 3/4 of our way there. I have a meeting later today with the City Manager along with other candidates and I will confirm that. However, I do believe that we have turned the corner and are on the right path.
• by lupe.arim.lawOctober 2 at 12:03 PM

http://live.chicoer.com/Event/Council_Candidates_Chat_-_Mark_Sorensen

• Here’s a question submitted by a reader before the chat: There seemed to be very different opinions on where this city stands financially. Have the deficits been eliminated and are we now on a sound financial path?
• by ChicoEROctober 1 at 12:12

Mark Sorensen:

• Deficits vs debts….
• by Mark SorensenOctober 1 at 12:13 PM
• Through late but massive belt tightening we believe that we have eliminated the former $4+ million per year in deficit spending. Up front and in the open we have a $7.8 million general fund debt to back fill, which will take many years and puts the city into a very delicate operational situation of needing to balance the General Fund (GF) each year (no room for error or surprises).
• by Mark SorensenOctober 1 at 12:13 PM
• We no longer have the financial cushions of a GF fund reserve or an “emergency reserve”, the piggy bank is broken. But in addition, many other reserve accounts were depleted. Things such as vehicle replacement, technology replacement, major building maintenance, and liability reserve accounts were depleted by many millions of dollars during the financial charade. It will take a decade or more to bring ALL of these reserve funds back to health…. All that said, we are on a sound financial path. Plenty of hard work and attention to detail is ahead to keep the city on that path.
• by Mark SorensenOctober 1 at 12:13 PM

In addition to the loss of the General Fund surplus, and emptying of the Reserve Fund, the exact detail is linked to at the bottom of this blog entry:

http://www.norcalblogs.com/bored/2013/05/17/city-chico-burning-cash/