There are a few things missing in the debate about Half Moon Bay's 2023 budget that is playing out in the pages of this paper: about $200 million of them.
What's missing is the value of critical city infrastructure assets that are not shown on the balance sheets of Half Moon Bay and Coastside County Water District (water for city residents). This is because assets are recorded at prices from decades ago, further reduced by “depreciation.”
For example, at June 30, 2021, Half Moon Bay showed $4.6 million in sewer enterprise assets. At the same time, the city has 35 miles of sewer pipes costing $2 million per mile (thus, $70 million), and about a 60 percent share of the expenses of Sewer Authority Mid-coastside, which has about $150 million in assets at current replacement cost. This accounting is not illegal, and Half Moon Bay is not alone in this predicament. It is however, dangerously unsustainable because it leads to failing to accumulate the reserves necessary to sustain those assets. And "sustainability" means "forever."
An analysis of only 20 San Mateo County public works entities showed a deficiency of $2.5 billion in reserves needed to replenish assets without borrowing. Half Moon Bay has $49 million of that deficiency, and CCWD has another $36 million. And borrowing is more dangerous than ever, because it adds to the cost of every asset purchased: at 4 percent it added 73 percent; with recent increases in rates, it now adds 95 percent; at 7 percent debt will add 140 percent.
Yet increasing debt is the path Half Moon Bay is on, because it has less than 18 percent of the reserves required. And that analysis is generous; a detailed
review of the sewer asset inventory would likely place Half Moon Bay, today, in the same condition as Pacifica, which has 4.2 percent of required sewer reserves. Half Moon Bay has about $160 million in sewer asset replacement costs and about $8 million in reserves, not to mention city storm drains and CCWD.
Further, California construction cost inflation was over 13 percent in 2021 and was 24.5 percent from last April to this. More than ever, accumulating reserves is critical to the sustainability of Half Moon Bay, and of our entire society. Yet the Half Moon Bay budget projects deficit spending and declining reserves. This is not just unsustainable, it is potentially ruinous to the city as we know it.
Burdened with both inflation and added borrowing costs, Half Moon Bay will no longer be "affordable" for future generations. The only paths forward will be bankruptcy and declining property values, or gentrification — because at least gentrification might pay for itself.
What to do? Any city budget must break even while accumulating reserves toward the necessary levels for sustainable asset replenishment. Every city purchase and initiative must begin with a fiscal sustainability analysis for the life cycle of the asset or program, and those figures must be blended into an integrated financial model of the city going forward for as many years as the decisions taken will last.
But more than improved financial analysis is required. The essence of what is missing is will power. Elected officials who look good spending money on libraries and lawsuits (and soon, parks?) are doing lasting damage to the city. If the leadership of the city won't manage sustainably, then Half Moon Bay voters will have to find leadership that will — or live somewhere else.
Gregg Dieguez lives in Montara.