Sometimes I think that’s how government leaders deal with budgeting.

The more I look at federal, state, and local budgets that can run hundreds of pages, I wonder if they really understand all those darn numbers to make tough decisions.

After writing several times about U.S. budget deficits and the national debt that just crossed the $40 trillion mark, it seemed worthwhile to look into the City of Santa Barbara’s budget.  

The city’s budget is available online as an interactive digital tool and, as then-President George W. Bush said, it’s got a lot of numbers in it, with more than 230 pages of information.

So, I decided to get some help better understanding the budget and important issues by meeting with finance director Keith DeMartini.

DeMartini oversees all financial operations of the city, including budget preparation/management, treasury and cashiering functions, investment management, utility billing and business licensing, accounting operations, payroll, purchasing and more.

His knowledge about our city’s finances was impressive and his openness in sharing was refreshing, especially given the complicated nature of an adopted budget totaling approximately $720 million.

I began my conversation with DeMartini with a question I used often with clients: “What keeps you up at night worrying”?

His answer came quickly: “The next disaster.”

DeMartini talked about concerns about natural disasters like wildfires, floods, earthquakes, recessions and even another pandemic.

He noted that the city had just closed out the budgetary impact of the 2017 Thomas Fire.  More important, the city’s general fund reserve was now at just 12%, compared to a 25% target.

Concerns about federal disaster aid cutbacks and even delays in getting help dealing with a major disaster should worry us all.

DeMartini explained that the 25% reserve target is intended to cover city spending for three months if needed. That is quite similar to recommendations financial advisers give to individuals.

But with just a 12% reserve, the city would only have enough money to cover its spending for about six weeks. Not much of a cushion.

DeMartini noted that about three-quarters of the general fund goes to city employees’ salaries and benefits — with pension costs consuming much of revenue growth, making it difficult to quickly reduce expenditures during a crisis.

I did some digging to better understand why the city does not have sufficient reserves, and the answer was simple: We spend more than we take in.

Santa Barbara’s general fund has run operating deficits in each of the four fiscal years from 2024 through the 2027 budget, with the city’s own forecasts showing the gap widening based on Finance Department data.

This chart clearly shows the problem:

One budget item that caught my attention was employee pensions. Employees and the city both contribute to pensions with funds invested by CalPERS.

Pension math is complicated, but basics are not. Benefit levels, investment returns and life expectancy all have an impact on pension funding requirements.

Better than assumed investment returns help, poor returns hurt. Higher salaries and longer life expectancies increase costs.

Actuaries determine funding requirements, so the city doesn’t have much real control over this big part of the budget.

The city plans have about a $400 million unfunded liability, the estimated shortfall in meeting future benefit obligations.

The city is required to try to “catch up” to improve funding status and is making additional annual contributions of about $40 million above current annual funding requirements.

Both DeMartini and City Councilman Eric Friedman noted that the city also put away an extra $2 million into a pension trust not long ago to help alleviate the shortfall. But we have a long way to go to fill a $400 million gap.

Keep in mind that as salaries rise, so, too, do pension funding requirements. And while markets have delivered very nice returns in recent years, history would argue the need to expect downturns that in turn would increase pension funding requirements.

CalPERS saw returns of -4.9% for the fiscal year ending June 30, 2008, which was followed by a much steeper decline of -23.4% (or -24%) for the 2008-2009 fiscal year during the height of the global financial crisis.

I asked DeMartini about ways to improve the budget. We talked about combinations of expense control and economic growth that both can help — but that require vision and tough choices.

DeMartini caught my attention when he noted that Santa Barbara residents are used to getting “white-glove services.”

Those services are expensive. We need to decide what level of government service Santa Barbara can sustainably afford when we are not even prepared to deal with a potential disaster.

If “the next disaster” is what keeps our finance director up at night, perhaps it should keep the rest of us paying attention to the city’s balance sheet as well.

There are lots of numbers, but they’ve got to add up.