By C. Jayden Smith
A proposed plan help pay down the city’s unfunded pension liability by using 33% of the city’s tax revenue from local hotel stays took a step forward last week.
In a 3-2 vote, the council directed staff to come back and present the information necessary to vote on changing the city’s Fiscal Policy, which prevents General Fund revenue such as TOT from directly funding a specific expenditure line item.
Mayor Pro Tem Chris Duncan and Councilmember Kathy Ward opposed the motion.
“If we don’t address this pension liability immediately, pretty soon, we’re going to look like the federal government,” Mayor Gene James said of the city’s nearly $50 million liability. “And that is, our debt is going to exceed our budget.”
James’ initial motion to initiate a policy change and direct staff to spend one out of three dollars from TOT revenue on pension reduction failed without Councilmember Laura Ferguson’s presence during the agenda item.
Councilmember Steve Knoblock was James’ only support in the 2-2 stalemate, which resulted in no action. However, after Councilmember Laura Ferguson arrived, Knoblock brought back the discussion, allowing the council to vote on the matter again.
Knoblock had agendized the council’s discussion of how to use the city’s $3 million budgeted in Fiscal Year 2022-2023 revenue from TOT collections—a rate of 10% on all overnight lodging stays within the city.
TOT revenues are currently considered general taxes to spend at the council’s discretion, and indirectly fund costs related to seasonal tourism such as police services and overtime, seasonal lifeguard staffing, and trolley operations.
Knoblock said his initial idea was to direct city staff to increase tourism revenue by allocating a portion of TOT funds toward attracting more visitors, before realizing he’d rather spend the revenue on paying down the city’s pension liability.
“I wanted this to be a discussion of how we do it, what we do, and why we do it,” said Knoblock. “I’m kind of changing my direction a little bit from an advertising campaign, per se, to focusing on pension reduction.”
While Duncan recognized the importance of paying down debt, he said he did not favor “hamstringing” the council’s flexibility to send General Fund money wherever necessary. He added that discussions of earmarking funds should be done during the usual, holistic budgeting process.
Ward mentioned the city’s stance on tourism as listed within the General Plan, and that city efforts centered more on addressing and maintaining quality-of-life issues enough to where outsiders recognized San Clemente as an enjoyable place to visit.
“I would be against trying to reconstitute anything that hasn’t already been talked about in the four years (prior) of how we do economic development,” Ward said. “We’re supposed to be focusing on our action sports industry and things like that, but we aren’t supposed to be focusing on tourism, per se.”
She added that she wouldn’t support diverting funds from the TOT resources that support emergency services, which are especially crucial during the high-occupancy summer months.
Instead of moving all $3 million to address the pension liability, Mayor Gene James favored establishing a year-over-year practice.
“I don’t think it’s unreasonable to come up with a policy to take at least one out of three of those (TOT) dollars and put them into paying down our $50 million unfunded liability,” James said.
Financial Services Officer Jake Rahn confirmed Ward’s assumption that such a policy discussion would be held during the upcoming annual Long Term Financial Plan update around February 2023.
However, James felt the issue was urgent enough to address immediately and explained to the audience that the city would be more at risk if its liability grew. Given the liability’s connection to the stock market that has dropped about 20% in 2022, the liability could increase by that same figure, according to James.
With that, James motioned to direct staff to allocate a third of the TOT revenue toward paying down the city’s pension liability. Ward issued a substitute motion against earmarking TOT funds, stating that the pension issue was not the main focus of their discussion, which unfairly didn’t allow staff to properly prepare the council.
“We don’t have any totals in front of us; we have no idea what we’re voting on (or) how it’s going to affect anything down the line,” she said, adding: “We can’t make an educated vote on this, because it’s not before us.”
Ward’s motion failed by resulting in a draw, with Duncan voting with her and James and Knoblock opposed.
C. Jayden Smith
C. Jayden Smith graduated from Dana Hills High in 2018 before pursuing a Bachelor’s degree in digital and broadcast journalism from the University of North Texas. After graduating in December 2020, he reported for the Salina Journal in Salina, Kansas. Jayden loves college football and bothering his black lab named Shadow.