The CAFR (pronounced kaffer) the Comprehensive Annual Financial Report,) I look forward to is as prior generations looked forward to the Sears Catalog showing up on the doorstep. The CAFR is a mere 200 pages.
I’ve reviewed CAFR’s for years, especially when I was on the Finance Audit Committee. Every municipality and special district in California needs to produce a CAFR. All CAFR’s follow a common ordering of content information. Basically, it’s a P&L for municipalities, and a balance sheet showing where individual funds balances live. The main fund is the General Fund… the most dynamic as it reflects the major inflows (tax revenues) and outflows (salaries).
In general, the numbers for 2016 look good. Good, but the financial increases of this past year are not necessarily repeatable. The big economic risk are unfunded pension liabilities. The current net pension liability is $38,880,957.
What are the implications of being a ‘company town’?
During the past 10 years the composition of the top 10 employers has changed. (CAFR Page 185). Today, 56% of employees work for two leading firms: Facebook and Intuit. Six of the 2007 top 10 firms are no longer here. I don’t see Facebook going anywhere for a while, but I do see them expanding elsewhere. Intuit can easily move. Intuit is somewhat of an aging financial company dependent on annual renewals and not necessarily deriving new products.
Facebook is such a huge component of employees, property tax and future construction in Menlo Park. Are we using them as ‘The Bank of Facebook’ and not questioning whether they assert undue influence on items on approval of projects?
A recent example is a proposal to subsidize the hiring up to 17 additional police officers to service the east side. Ray Mueller - the lone dissenter - is correct in deferring this decision.
If and when the city cannot say no a major major employer and tax generator, we have become a company town, not Tree City.
Principal employers
The proposed police funding by Facebook is a suspect idea because it creates long term liability obligation for the city, and its need has yet to be demonstrated. I agree with Councilmember Ray Mueller. It is unfortunate that he couldn’t persuade at least one more council member.
Considering the top property tax payers in the city (CAFR Page 179): Facebook is currently the largest property tax payer (The top ten payers has changed over 10 years). Ten years ago the top property tax payer was Sun, who coincidentally occupied the current Facebook campus, whose value at the time was almost $100,000,000 more than the current property (That results in about $1,000,000 in property tax).
It would help if the city identified the parcel locations and parcel numbers of the top 10 payers so that we're comparing like properties on the 10-year comparison.
Principal property tax payers
Another important trend is the evaporation of significant sales tax generators. Our Hotel Occupancy Taxes has supplanted sales tax as a revenue source and indicator of economic health. Anemic sales tax growth, or just basic decline, is not good. The CAFR comments:
“Property taxes, sales tax, transient occupancy tax, licenses and permits, and intergovernmental led the way, accounting for the vast majority of the revenue growth. Sales tax revenues continued to decline with the loss of a major sales tax generator in mid-2015.” (CAFR Page 18). This is bit of a misstatement. You can’t say that ‘sales tax’ accounts for revenue growth when it declined over $1,000,000. Period. There’s no pretty way to say we are hosed on sales tax component, and our zoning plans haven’t made sales tax … either though retail sale or by domiciling sales tax producing corporate headquarters here, are achievable. We have are losing that battle.
“While in an enviable financial position, the City cannot rest on its laurels.” The image of Menlo Park staff, and council, sitting on their collective laurels is indeed a poetic image.
Tax Trends
There should be a side document to the CAFR supplementing information excluded from the CAFR. Additional information is available, and should be made public in perhaps a parallel document. This could include changes in traffic delay “Level of Service” metrics; Employee salaries; total hours sick and or absent; and employment agreement (along with expiration dates).
Update: 3/6/2017: I just located data on the city web site enumerating contracts (other than employee) on the city web site. However, it hasn't been updated since January 2016.
See it here.
Another area is the number of claims against the city, and outstanding litigation. The CFAR merely mentions:
“20. LITIGATION
The City is a defendant in a number of lawsuits which have arisen in the normal course of business. While substantial damages are alleged in some of these actions, their outcome cannot be predicted with certainty. In the opinion of the City Attorney, most of these actions, when finally adjudicated, will not have a material adverse effect on the financial condition of the City.“
That’s generally a true statement, but there are occasionally significant cases arising from city council policies that have potential significant costs and or consequences. Corporate annual financial reports identify important cases. This is public information such as open case of East Palo Alto suit for approving office growth without sufficient low income housing. In a recent similar case the City had to pay the plaintiff’s expenses, in addition to any housing contributions make the problem go away. Does the city paying off such cases encourage their filing?
