Guest Column: What to do about Gilroy’s rising debt?

City Council

With the budget crisis facing Gilroy, one thing is evident, the status quo is not going to cut it anymore. Changes in how government delivers service and what those services costs are going to happen whether or not you like it or not. That is just a simple fact of economics; we are living in a time of limited resources with huge unfunded liabilities created by overly generous salaries and pension benefits made to public employees and mounting costs of repairing our aging infrastructure.
Gilroy finds itself in this predicament because of the decisions made in the past, be it for too generous employee compensation and benefits, or instituting a pattern of development that has created an excessive amount of infrastructure with huge long term liabilities. Our leaders should have recognized that the liabilities that they created would be much more than what taxes could reasonably support.
Now that the unfunded liabilities, including pensions and street repairs, have become so large that they can’t be ignored, we appear hogtied and the only solution offered was to kick the can down the road for a few more years. Solutions to the city’s budget predicament are not going to be found in some paid consultant’s report, nor is it going to be possible to raise local taxes enough to offset the looming avalanche of deferred liabilities.
California citizens are already burdened with tax rates far exceeding most of the country. Nor is it possible to grow our way out of this by building more sprawling development adding even more infrastructure that we won’t be able to maintain in exchange for short term payments for development permits and impact fees.
Even if it were possible to have aggressive tax increases, the rate of failure would only be slowed, not reversed. We now find ourselves serving infrastructure and public employees, who were supposed to serve us.
While there are no easy answers the rising unfunded pension liabilities for those employees who have retired, changes in current employee retirement benefits and salaries are going to have to be made. The system is just not sustainable.
As for building our way out, that’s like a “Growth Ponzi Scheme,” in the words of
Chuck Mahron, the founder of an organization called Strong Towns.
“In return for this ‘growth,’ the local government agrees to assume the long term obligation to maintain the infrastructure and provide service to the property. While cash flow may be positive in the early years, the exchange of a near-term cash benefit for a long term obligation ultimately results in a negative cash flow when the maintenance bill comes due.”
Yes, Gilroy has collectively made more promises than it can keep, It’s not even close. If the city
operated on accrual accounting where you account for long term liabilities — instead of a cash basis – -Gilroy would be declared bankrupt already.
Going forward the financial picture is not any better. If everything stayed exactly the same in the next five years the $25M of current budget reserves would be completely depleted, according to the city’s budget director.
I think the city council should immediately pass a resolution stating that economic development is its top priority.
It should: 1. Reallocate funding from other departments for the effort; 2. Prioritize goals for economic strategy; 3. Provide adequate budget for economic development; 4. Spice up the Chamber of Commerce and Tourism Board to help; 5. Commit to leading the effort and selling the vision to the residents.
We need leadership at City Hall willing to do the hard work and not rely on easy money that is rapidly disappearing.

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