SOLANA BEACH — In a press release explaining why they didn’t participate in an Oct. 8 forum, three of six candidates vying for three City Council seats said they didn’t think the event would allow them “to delve into the poor financial decisions made by (incumbent Lesa) Heebner during her eight years on the City Council.”
“We simply asked for assurances that topics like the (city’s) finances, traffic circulation and business regulations be discussed,” said Paul Frankel, who issued the release with Vickie Driver and Daniel Powell.
Driver, Frankel and Powell state in the document there are “a number of signs of fiscal distress at the city that many residents may not even be aware of.”
They claim the general fund “has run deficits for three out of the last four years,” causing “reserves to decline by more than 35 percent.”
“To meet its ballooning pension obligations last year, the city had to borrow from its Sanitation Fund,” the release states. “The annual payment to the pension fund has grown largely because of a sweetheart pension deal approved by Heebner in 2005.”
Driver accuses Heebner of touting pension reform in 2011. “(B)ut what no one ever talks about is the fact that the reform was needed because of her own actions a few years before,” Driver said. “The fact is, our council gave away the store, and now (we’re) all paying the price.”
The candidates also claim city litigation costs “have increased a whopping 5,000 percent since 2008 consuming $500,000 per year.”
“Not true,” Heebner said of the allegations. “They are thoroughly inaccurate. One year we had a deficit but there was also a national downturn in the economy.
“We were facing a $700,000 deficit (in fiscal year 2010-11) after we had already cut $1 million from the budget,” she said. “We made more cuts and took $300,000 from reserves. The following year we were facing another deficit but the departments shaved and shaved and shaved, found more cuts and we didn’t have to dip into the reserves.
“Reserves are for a rainy day,” she said. “We had a rainy day.”
A comparison between the general fund reserve in 2008 ($10,051,850) and 2011 ($6,533,026) shows a reduction of approximately 35 percent.
But that was caused by a shift of funds that ties in with money borrowed from sanitation, according to Heebner and City Manager David Ott, who crafted the finance plan he said could save the city nearly $1 million in interest payments during a 12-year period.
In 2003, the California Public Employees Retirement System, or CalPERS, required all member agencies with fewer than 100 employees to be combined into a risk-sharing pool to reduce the volatility of employer contribution rates.
Since CalPERS requires cities to have fully funded pension liabilities, side funds were created to account for the difference between the funded status of the pool and that of the each city’s individual plan.
They were amortized for a fixed term at a fixed interest rate of 7.75 percent. As of June 30, 2011, Solana Beach owed CalPERS about $3.1 million plus an estimated $1.3 million in interest over 12 years.
At the same time there was about $10.1 million in the sanitation fund, invested in the Local Agency Investment Fund, earning about a half percent interest.
In 2011, council members agreed to use $3.1 million from sanitation to pay off the CalPERS side funds and avoid the 7.75 percent interest.
That money is reported as a long-term receivable for sanitation.
Ott said government accounting standards required the city to put an equal amount in a liability fund, so $3.1 million, or about 35 percent, was taken from the general fund reserves in 2011 to meet that mandate. That money, which is earning about 2.25 percent interest from the city rather than the half percent from LAIF, is being used to pay back sanitation.
The $400,000 annual payment that was going to CalPERs is now going back to the general reserve fund.
Ott noted the projected general fund reserve balance for the fiscal year that ended June 30 is $7,072,257, about $400,000 more than the previous year.
Ott said the city could have used general fund reserves to pay off the side funds. “But we didn’t think that was prudent,” he said. “What if we actually needed the money?”
He said in an emergency, however, the city still has access to the funds.
Heebner said she has no idea what “sweetheart pension deal” her opponents are referring to.
Ott said in 2005, before he became city manager, council members increased the pensions for the city’s miscellaneous and safety employees to align with formulas used by other nearby jurisdictions.
“Solana Beach was one of only about three cities in the county that was not offering 3 percent at 50,” Ott said. “They were offering 3 percent at 55. It wasn’t a large increase. They were offering the least-enhanced plan at the time and it was mostly about recruitment. It wasn’t going to cost a lot more.”
According to an Aug. 24, 2005, staff report, the renegotiated contract would result in “a significant cost savings over the long run.”
Ott said he considers it “just a little bit of a stretch” to say litigation costs have increased 5,000 percent since 2008.”
Litigation cost the city around $450,000 annually from 2007-2009 and increased to approximately $815,000 and $1.1 million, respectively, during the past two years.
Heebner and Ott said the spike is primarily because of a lawsuit filed against the city by a property owner who claimed sewer pipes that service Solana Beach homes above a lot he purchased were leaking into the hillside soil, making it impossible for him to build a home on the site.
The judgment was in favor of Solana Beach.
“If the city had not prevailed the payout costs would have exceeded $2 million,” Ott said. “In addition, we are now seeking reimbursement of a majority of those costs from our pool insurance provider.”
“If someone sues you, you have to defend yourself,” Heebner said.
With the election less than a month away, Driver, Frankel and Powell said they would still like to debate Heebner, Peter Zahn and Dave Zito “on a level playing field so that Solana Beach voters can make an informed choice about the priorities and qualifications of their next City Council.”