As I started to write this article, I thought I would be writing something “more technical”, but as I began thinking this through, I realized there’s nothing “extra technical” about budgeting out of bankruptcy – no different than any of us do every budget cycle.  It was really more of a human interest story – kind of a peek “behind the curtain” into the City of San Bernardino…which is what I got to do when I joined the City of San Bernardino in April of 2016.

Since then, I’ve done two budgets for the City…the first, FY 2016/17, was completed in about five weeks just after I started, while trying to get a foothold in the world in which I had just entered.  Then for the FY 2017/18 budget, which was largely a rollover budget, we completed it as we simultaneously pushed the “done” button on bankruptcy.  Effective June 15, 2017, we were out and I had my next budget!  But what was next…

Speaking budgetarily, “next” meant hitting the “restart” as we made decisions about developing the operating budget for FY 2018/19.  Through the bankruptcy, the City reinvented itself in many significant ways.  The Fire Department was annexed into the County Fire District.  The City now avoids a significant annual cost for providing fire service.  But it comes with complicated property tax agreements that drain all of the ad valorem based property taxes and one-third of the VLF in-lieu dollars as well.  Additionally, the Refuse operation was sold to a local service provider.  Healthy upfront revenues were generated that funded much of the “one time” costs associated with the bankruptcy process; and the annual revenue stream from franchise fees was going to grow substantially, as well as other specialized revenues that address residual obligations.

Both key restructuring strategies were very helpful to breathe new fiscal life into the challenges facing the City.  But when I dug deeper, I also discovered these two significant operations that were no longer a City responsibility, had also historically absorbed a significant share of the allocated fixed costs for things like the IT department.  Those costs, largely unchanged, now had to be shared over a smaller operational base.  This offset some of the restructuring revenues discussed above.  Additionally, while the PERS obligation for the Fire Department would not get any larger because it was annexed to the County Fire District, the unfunded component stayed with the City, and a smaller, leaner City organization will have to carry that cost until fully funded in the future.  Though accounted for in the long term financial model, this cost is ever-changing as PERS continues to ratchet up our rates via their actuarial processes.

Now as we face the beginning of the development of the FY 2018/19 budget, with bankruptcy essentially in our rear view mirror, a balanced “rollover” budget can NOT be the goal.  The City of San Bernardino has huge unfunded needs – both deferred operational and capital costs that must be met as we move forward – and again, balanced budgets for the current service level will not get the job done.

As we have strategized about how we must approach the new budget development process, we found that the only solution is to go back to square one and rebuild the baseline budget from the ground up.  We realized we don’t know what our “new” baseline budget ought to be for the organizational structure that is the new City of San Bernardino.  So on Thursday, December 14^th, with strong support from the City Manager’s Office, we told the city departments that they were going to have to justify/support/explain the dollars in each account with thorough explanations that will satisfy the City Manager’s rigorous review of that detail.  My summary comment to them was “This is going to be a lot of work!!”

At the end of the day, San Bernardino, like many other cities, may very well have to explore additional revenue solutions to meet the challenges the future holds.  But one thing was obvious as we considered the future conversations with our citizens on this issue.  We have to be able to look them in the eye and confidently assert that we have scoured through all of our expenditure activity to find the places where we can avoid costs – either inefficiencies, duplications, programs no longer aligned with City Council’s goal, etc.  That is what the FY 2018/19 budget development process for the City of San Bernardino is going to look like.

Our hope, and probably expectation, is that based on our roughly $120 million General Fund operating budget, we will be able to identify 3-4%, or $4 or $5 million that can be reprogrammed to other, higher priorities.  That will become the initial funding available to explore new opportunities or expand existing services aligned with City Council priorities.

If successful, this will be a very good year for the City of San Bernardino.  There is so much to do, but the City is staffed with good folks ready to move forward to write a new storyline for the City.  Between the five years of recession, followed by the five year bankruptcy process, it’s been a long and difficult road.  But there are good things ahead for the City of San Bernardino.  Managing  the budget development process for the FY 2018/19 operating budget in this exceptionally detailed, “zero-based” manner will well-serve the Mayor and City Council and, we trust, provide some initial resources to get this municipal train moving down the tracks!