Is Paso Robles in ‘financial ruin’ with a $43 million budget deficit? Here’s a Reality Check
In recent weeks, the city of Paso Robles has come under fire from critics who say it faced as much as a $43 million budget shortfall.
On Oct. 23, Cal Coast News reporter Karen Velie said on Dave Congalton’s Hometown Radio show on KVEC that the city of Paso Robles is in “financial ruin.”
She cited an alleged $43 million deficit in this year’s initial draft budget and told listeners that the city had to take $13 million from its reserves and cut services to straighten out its finances.
Velie said the city’s alleged financial issues have escalated since city manager Ty Lewis took office in 2021. Velie is one of several people Lewis has accused of conspiring to oust him as city manager, according to documents obtained by The Tribune.
“In the last three years since Ty has been in office, it went from a balanced budget — this last proposed budget for the city was $43 million in the red,” Velie said on air. “The city is in financial straits.”
A similar claim was mentioned by Councilmember Chris Bausch — another person accused of conspiring to remove Lewis — in an October article published in the Paso Robles Daily News, in which Bausch endorsed City Council candidates Michael Rivera and Linda George.
Bausch alleged a $42 million deficit in the city’s preliminary budget.
“With a $42 million deficit in the draft budget, difficult decisions needed to be made,” Bausch wrote. “Through clever maneuvering by the talented Administrative Services Director Mr. Ryan Cornell, the city deferred nearly $30 million of needed services and projects. Another $13 million was pulled from general fund reserves to attain a ‘balanced budget.’ These budget issues began in 2022. The current $30 million shortfall cannot be deferred for long.”
Are the allegations true and is the city in financial trouble? Or is the city in healthy financial shape with its books balanced?
The Tribune looked into the issue as part of its Reality Check series.
What Paso Robles says about the supposed budget deficit
According to city officials, the claims of a deficit are unfounded.
“There is no deficit. We’re not anticipating a deficit,” interim city manager Chris Huot told The Tribune. “Revenues have slowed slightly post-COVID, but that’s not something that’s unique to the city. That’s happening across the country. We’re still in a very solid fiscal footing.”
The city’s operating budget, approved in June, shows that Paso Robles is not spending in excess of its revenues. The city maintains healthy reserves at a mandated 30% or more of its 10-year revenue trend.
But during the budget deliberation process, city officials did identify more needs in the community than incoming revenues can cover.
The majority of these outstanding needs are one-time maintenance requests, some of which have been deferred since as far back as the 2008 recession, city manager Ty Lewis said during an April City Council meeting.
Lewis and other city officials presented the numbers to council to inform them about the city’s needs a plan for the future, knowing that not all the projects could be pursued immediately.
“There’s maintenance throughout the city that is just, you know, the can has been kicked down the road a few times,” Lewis told councilmembers in April. “I thought it was important for the community and for the council to know — one of the questions that I had is how much have we deferred and when are we going to get to it? Is there a plan for that?”
In June, the City Council approved the use of surplus reserve funds — a little over $4 million — to offset some of the deferred maintenance costs.
“That’s essentially like you having a savings account, and you tap into it to maybe do some work on your house, and you still have savings in there for whatever other emergencies may come,” Huot told The Tribune.
City officials did defer maintenance needs and spread projects out across several years — a practice that is universal across most cities, school districts and local governments. Huot compared the prioritization of certain capital projects over others to owning a home.
“If you think about your house ... you would like to remodel your bathroom. It may be old, but if your sinks are working and your toilets working and your showers working, it’s still functional,” Huot told The Tribune. “But you may need to replace your roof because you’ve got holes in your roof. Which one are you going to put money toward first? Probably the roof. And so those are the types of decisions we have to make.”
Where the claims came from
The Tribune reached out to Councilmember Chris Bausch about his and Velie’s similar claims.
He said via email that his $42 million and $13 million figures originated from a preliminary budget document provided to council during a spring meeting.
Bausch directed The Tribune toward the “Total Revenues” and “Total Uses” columns of the citywide budget schedule, which show $127.7 million in revenues versus $169.82 million in expenditures, resulting in an apparent $42 million deficit.
When asked about this, city officials told The Tribune that that interpretation of the budget ignores context.
Paso Robles’ operating expenditures are covered primarily by general fund revenues, while capital projects are funded by special revenue funds, accrued from things like development impact fees or federal allocations.
These funds are used for large, one-time projects and are only used when they’ve accrued enough money to fund a project, showing an apparent deficit. The funds are then replenished as money continues to accrue.
Each fund has its own reserve balance and those monies are used to supplement expenditures — a practice that is common for cities and should not raise any red flags, Cornell explained.
In this instance, the special revenue reserve money does not appear in the “Total Revenues” column, creating the appearance of a shortfall. But the city does have the money for those expenditures and it is accounted for.
According to Cornell, about $42 million in special revenue fund reserves were used in this situation, bringing the reserves down to under $70 million.
“Typically, budget deficits are reserved for when operating expenditures exceed operating revenues, which, to reiterate, isn’t the case here,” Cornell told The Tribune via email.
Both Cornell and Huot also denied the accusation that finances have gone downhill since Lewis was hired as city manager.
When asked where to find the $13 million figure in the budget documents, Bausch told The Tribune that it was presented to council in an update prior to budget adoption.
City officials could not identify where the $13 million figure originated and confirmed that only $4.1 million was pulled from general fund reserves, bringing the reserve account down to just above the mandated 30% threshold.
Bausch confirmed to The Tribune that city officials ultimately presented a balanced budget to council in June, thanks to “deft maneuvering” by Cornell. Bausch spoke positively of the city’s financial officers.
“Ryan always gets the numbers right,” Bausch told The Tribune at Tuesday’s City Council meeting. “Always.”
The latest two-year budget was approved by council on a 4-1 vote, with Bausch dissenting.
This story was originally published November 21, 2024 at 10:00 AM.
CORRECTION: This story has been updated to clarify that critics’ claims of a $43 million deficit referred to Paso Robles’ draft budget, not the one that was ultimately approved.
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