South Tahoe budgets improved, but challenges remain
June 25, 2014
Five-year budget forecasts showing millions of dollars in general fund deficits are a thing of the past for South Lake Tahoe, but the city is operating on tight margins and still faces major financial challenges.
Chief among them, according to city officials reviewing budget projections this week, are unsustainable health insurance costs, including the cost of providing health insurance for some city retirees and their families, and the challenge of finding ways to grow the local economy.
Several years ago, South Lake Tahoe faced projected annual deficits ranging from $3 million to $5 million. Officials addressed those grim projections in large part by cutting almost one-third of the city workforce, City Manager Nancy Kerry said.
Budget projections now show the city's roughly $32 million general fund to be mostly balanced, at least with no raises on the horizon for city employees and modest 1 to 2 percent growth forecast for property, sales and tourist lodging taxes. The general fund pays for core operations such as police and fire and still faces small but growing annual deficits of about $226,000 starting in 2017.
City officials attribute the deficits to higher than expected growth in CalPERS contributions; new debt service for projects such as Harrison Avenue and the Linear Park; and the loss of about $200,000 per year in revenue from a paid parking program voters opted to scrap in June's primary election.
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South Lake Tahoe's health care costs are estimated to total $44 million over the 10 years from 2009 to 2018. That includes costs for two groups, both about 400 people in size. One group includes the city's 165 employees and their dependents; the other includes city retirees and their dependents.
The city let one retiring employee with a medical condition stay on its health care plan about 25 years ago and later opened the option to all retiring employees and their dependents — a decision that has come back to haunt city officials as medical costs continue to rise. Employees who retired with 25 or more years of service pay nothing toward their premiums.
About half of the city's annual health care expenditures go to pay for health care for retirees and dependents. The program was ended for dependents of retired city employees hired after 2001 and ended altogether for people hired after 2008. That limited future costs, but also created a series of unequal benefit packages.
"This can of a mess was just kicked down the road," Kerry said. "In the last 15 years we've spent about $18 million on this benefit."
City officials recently started enforcing a longstanding provision that requires retirees to join Medicare at age 65. That provision went unenforced for years and is now saving several hundred thousand dollars per year in health care costs, Kerry said.
The city is seeking more health care savings to free up money to invest in the community. Negotiations are ongoing.
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After laying off one-third of its workforce, South Lake Tahoe can't cut its way to a balanced budget anymore and must put a main focus on fostering economic development to build the tax base, Kerry said.
Officials are proposing a Community Economic Development Task Force with business owners, real estate professionals, financial advisors and other stakeholders working out strategies to encourage private investment and reduce red tape for projects.
The city has about $1.2 million available over and above its 25 percent target for general fund reserves and might spend some of that money on recreation amenities to try to spur the economy. Members of the South Lake Tahoe City Council seemed to support that idea this week, but must refine their plans and anticipate reaching out to the public for help.
Some priority projects could be done in short order. Others would likely take years to design, finance and complete.
Smaller projects include a bike park at Bijou Community Park and new hookups and upgrades at Campground by the Lake. Larger projects include an estimated $4 million Regan Beach upgrade, an estimated $13 million recreation center renovation and an estimated $22 million project to build an outdoor amphitheater and music hall.
The hope is that more recreation amenities and an improved local economy would generate more tax revenues for the city to start tackling an extensive backlog of deferred maintenance left on hold for years.
According to past conversations about an asset management plan the city is creating, that backlog includes an estimated $26 million needed for 120 miles of failing city streets, $6 million needed for 43 aging city buildings, $17 million needed for 31.5 miles of stormwater pipes and more than $2.5 million needed to care for an aging 260-vehicle fleet.