Declaration of Fiscal Emergency: What It Is, What It Isn't, and Why

[first in a series]

The Town's Declaration of Fiscal Emergency that sparked an epic megathread on Nextdoor, articles in the Chronicle, Bloomberg and elsewhere, and served as the impetus for many of us to raise our heads and ask "what's going on here?" merits further examination and discussion. So, here we go with article #1 in a series.

You may be surprised to learn that a declaration of fiscal emergency is not an absolute determination or conclusion about financial viability. It is a legal term that enables the town to undertake a variety of actions it otherwise could not. Some important notes:

  • The true and objective financial condition of the town is less important than the unanimous decision by the Town Council that there is a fiscal emergency

  • A declaration of fiscal emergency allows for special elections and potentially lower voting thresholds for tax increases

  • A declaration of fiscal emergency allows for the renegotiation of labor and other contracts

  • Virtually every declaration of fiscal emergency during the past decade we have researched was preceded by significant cost reduction efforts (such as renegotiating contracts and reorganizations)

The "declaration of fiscal emergency" under which the town is now operating isn't necessarily - and shouldn't be confused with - an actual financial crisis or emergency (i.e. imminent bankruptcy).

In fact, The town leadership repeatedly has stated our budget is balanced, we are not going bankrupt, and the declaration was intended to "alert residents". That could have been accomplished with a simple, less drastic, and non-legal communication, but here we are.

"Fiscal" in this context means financial. The Town's financial situation is a result of long-term, historical decisions and financial management. That historical financial management includes an abundance of discretionary spending over time, failing to save for infrastructure replacement and instead spending available monies whenever available, and other unfortunate instances of waste and neglect.

The word "emergency," means sudden, unforeseen or unexpected events. While the two large natural disasters* (sinkhole, Canyon bridge) were indeed unforeseen and unexpected and were transportation emergencies, they are not the cause(s) of the Town's current financial situation as it is being presented by Town Hall. This is particularly so when considering that 88% of all costs are being reimbursed by the federal government and the Canyon Road Bridge damage appears to be the result of EBMUD landslides for which they ultimately should be held responsible.

*some debate exists about whether these were truly unavoidable "natural disasters," since a new, permanent Canyon Rd Bridge was approved and funding made available in 2013, and was to have been completed by 2016. The sinkhole area itself was identified as a priority focus area years ago, with spot repairs accomplished just a couple of years ago.

Conclusions:

  • The declaration of fiscal emergency under the pretext of "natural disasters" is a convenient way to cleanse itself of responsibility for financial decisions by blaming the lack of planning and saving on external factors (sinkhole and bridge); the reality of the Town's financial situation is that longstanding discretionary spending and instances of waste (both still unaddressed) got us here, and

  • 88% of costs for the sinkhole and bridge repairs will be reimbursed by the federal government, so cash outlays are temporary, and

  • As we noted last month in this article, there has been no recovery plan developed or articulated, and

  • Given the town's intent to proceed with an early 2018 tax initiative that is permissible without declaring a fiscal emergency, there appears to be no remaining legal or practical reason to continue the declaration of fiscal emergency unless the town intends to renegotiate contracts, and

  • Absent that intent (Town Hall has consistently stated they do not intend to renegotiate anything), the only reason remaining for the declaration of fiscal emergency to stay in place is as a FUD strategy to market increased taxes on residents.

Why?


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