Finance
South Pasadena faces budget delays amid mounting tensions and financial concerns
![South Pasadena faces budget delays amid mounting tensions and financial concerns South Pasadena faces budget delays amid mounting tensions and financial concerns](https://www.pasadenastarnews.com/wp-content/uploads/2024/07/PAS-L-BUDGET-ADOPTION-0727-01-SR-1.jpg?w=1024&h=683)
The meeting was only one-third of the way through, but the exasperation in the air was palpable.
“There’s a level of frustration that’s happening throughout the room, and I don’t mean just up here, I think it’s everybody,” said South Pasadena Councilmember Janet Braun, who serves as the City Council’s liaison to the city’s Finance Commission.
Braun’s comments at this week’s Finance Commission meeting came as tensions continue to mount over the proposed fiscal year ’24-’25 budget, which the South Pasadena City Council is set to adopt next Wednesday, July 31.
Despite efforts to finalize the financial document, its adoption has already been delayed by about a month after city officials expressed concerns about discrepancies on June 27.
While the Finance Commission meetings are meant to solve these issues, recent events suggest the budget may face further delays, adding to uncertainties about the city’s financial outlook after it narrowly avoided a $3.7 million deficit.
“Based on an impasse between the Finance Commission and the Finance Director during its two commission meetings on July 16th and July 23rd, I am not sure if the Finance Director can close the gap,” Mayor Evelyn Zneimer said in an email on Thursday, July 25.
Zneimer expressed concerns about the “true numbers of the revenues and expenditures,” noting that the Finance Department has not reconciled the city’s monthly bank statements since February 2024.
“If the Council is not satisfied with the explanation from the Finance Director and the Finance Commission does not recommend adoption, then we might have to postpone the July 31st meeting to the next regular council meeting,” she said.
South Pasadena Finance Director John Downs announced his retirement in April but was brought back on a temporary basis to finalize the FY 24-25 budget, city officials said.
When reached by the phone on Thursday, July 25, Downs, citing a busy schedule, declined the interview at the time. However, during the Tuesday, July 23, Finance Commission meeting, Downs defended his approach. He also said the staff will present an updated budget document to the City Council next week.
“That will be presented to both of you at the time,” he told the commissioners. “Everyone here has received a copy of the punch list, so everybody has a list of the punch list, those things will be incorporated into the document.”
But the commissioners expressed concerns that they won’t have a copy of the budget report before next week’s meeting.
“My assumption was that these working sessions last week and this week would be included in a revised document. John was working under a different set of assumptions. I’m glad it finally came out,” Finance Commission Chair Peter Giulioni Jr. said.
According to the proposed FY 24-25 budget, as of July 1, 2024, the general fund balance is estimated to be $22 million. For FY 24-25, the city expects to receive $41.2 million in revenue and spend $39.9 million.
South Pasadena has faced a tumultuous year, beginning with budgetary missteps that included a projected $3.7 million deficit.
During a joint City Council and Finance Commission meeting on Feb. 21, a third-party consultant, NHA Advisors, LLC, estimated that the city’s expenses would outpace its general fund revenues over the next five years, with deficits ranging from $1.8 million this fiscal year to $3.9 million in FY 28-29.
In response to this dire forecast, Braun recommended forming an ad hoc committee “to address the immediate financial and operational situation.”
According to her, the city’s financial problems began even earlier with the City Council’s adoption of the FY 23-24 budget in June 2023, which included a $2 million deficit.
That budget was approved on the condition that the Finance Commission would work with staff to understand the negative fund balances and provide a five-year projection, she said. The City Council received this projection on Feb. 21, along with a mid-year budget report.
“Accompanying that report was the mid-year budget report, which projects not the $2 million deficit originally approved and on which the five-year projections were built, but maybe that is incorrect, I’ve learned,” Braun said. “But an actual deficit for the current year of $3.7 million. We have been delivered a financial nuclear bomb.”
She also criticized what she described as “the staff’s resistance to work with the Finance Commission over the past several months, despite the direction from the City Council last June.”
Following Braun’s alarming assessment, the ad hoc committee was formed. It consisted of Zneimer, Braun, Giulioni, and Finance Commission Vice Chair Sheila Rossi.
However, this committee was nearly dissolved after complaints from former Finance Commissioner Ed Elsner, who argued that the committee violated Brown Act because its discussion and formation were not listed on the Feb. 21 meeting agenda.
During a meeting on March 20, Councilmember Jon Primuth argued that the committee “had a very strong political agenda.” Councimember Michael A. Cacciotti described the committee as “a duplicative body” and “a waste of time, a waste of our resources”.
The City Council subsequently voted 3-2 against reauthorizing the committee, with Primuth, Cacciotti and Councilmember Jack Donovan voting against reauthorizing, Zneimer and Braun voting in favor.
But public concern over the deficit projections grew, prompting the City Council to reinstate the committee on May 1. The panel decided that the committee would be resurrected after July 1, by which time the FY 24-25 would’ve been adopted.
Nevertheless, that plan also fell short.
While the City Council had hoped to adopt the FY 24-25 budget before the current fiscal year ends on June 30. However, during a June 27 meeting, the panel, citing discrepancies in the numbers in the financial report, voted to go with the Finance Commission’s recommendation to delay the budget adoption.
Instead, the panel approved a resolution of continuing appropriations, authorizing the city to use appropriations for ongoing projects for 60 days or until the adoption of the budget, whichever comes first.
Using continuing appropriations could lead to administrative inefficiencies, restricted financial management and uncertainty for long-term planning, according to a staff report. However, the pros of this method are that it could help avoid government shutdown, maintains the status quo and provides more time for budget negotiations.
According to a staff report, the proposed FY 24-25 budget is balanced and shows a projected surplus. In addition, the previously projected $3.7 million deficit was mitigated by the discovery of unused funds.
But there are several problems with the proposed budget, Rossi said in a recent interview.
“I don’t really have a lot of trust in the numbers that are in the budget, because we still haven’t received the third quarter financials,” she said. “They gave us the third quarter summary, but it turns out that they haven’t finished their bank reconciliations for February. “
Rossi also expressed concerns that the revenue projections in the proposed budget are overstated by $700,000 to $900,000 based on the projections from two third party consultants the city hired.
Meanwhile, the city has hired LSL finance consultants to help with back-office accounting and reconcile the bank statements, the mayor said.
“Hopefully LSL could clarify the true numbers so that by August 21, we might be able to adopt the budget subject to any conditions that the Council might impose,” she said. “But then I have the other four Councilmembers to weigh in on the situation and I don’t know where they stand. So everything will depend on how the meeting will go on July 31.”
The city has also been dealing with a string of staff departures, which culminated in the stepping down of former City Manager Arminé Chaparyan on June 24. She received a lump-sum severance benefit in the amount of $307,500, $1,727.10 of unused management leave and a cash payment for all properly accrued and unused vacation time.
On Friday, July 26, the City Council approved a resolution appointing Donald Penman to serve as interim manager. Penman previously served as city manager for the cites of Arcadia, San Fernando and Baldwin Park.
He will start on Monday, July 29.
Rossi said “nothing is at stake” if the City Council doesn’t passes the budget next week.
But one thing was expected: A long night.
“The best we can do is to create a punch list and that we all need to bring our pajamas and cots on the evening of the 31st, that it’s going to be an extraordinarily long evening, if we are going to ask the City Council to either reject or accept each line item that we’re discussing right now,” Giulioni said.
Originally Published:
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Finance
AI is too ‘sociopathic’ to give financial advice, MIT researchers say
![AI is too ‘sociopathic’ to give financial advice, MIT researchers say AI is too ‘sociopathic’ to give financial advice, MIT researchers say](https://www.hindustantimes.com/ht-img/img/2024/09/01/1600x900/g10ee2927bd1b59344fa4cb9c147526f1af27470e845d2d89_1725164118945_1725164119177.jpg)
The problem with AI in the context of it being used as a financial advisor is that it is “inherently sociopathic,” according to a Business Insider article which cited an MIT research report.
Also Read: Japan wants its hardworking citizens to try a 4-day workweek due to labor shortage
Why is AI sociopathic?
While human financial advisors give clients recommendations using a behavioral lens, since people don’t always make rational or unbiased financial decisions, AI can easily argue on both sides of an argument because neither side has any weight to it.
How is AI used by financial advisors at the moment?
Nearly 40% of human financial advisors use generative-AI tools for the job, according to a report from data-analytics firm Escalent, which added that this was mostly for boosting productivity, generating content, and for marketing functions.
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Examples include Canadian startup Conquest Planning using a financial-planning software with an AI architecture known as a blackboard system for storing information about tax rules, cash-flow mechanics, retirement-account structures, fiduciary rules, and more, according to the article, which added that another example would be Los Angeles-based wealth manager Arynton Hardy, who uses AI regularly to save time on data entry, portfolio monitoring, and other back-office tasks.
How can AI be made more useful for giving financial advice?
A method to make AI more empathetic to the client is by making it ask simple questions like “How are you doing?” before dispensing personalized financial advice, according to Andrew Lo, a professor of finance at the MIT Sloan School of Management and the director of the Laboratory for Financial Engineering, who co-authored the report.
The AI could also use audio or video from the client to identify emotional cues, like stress or fear, in their voice or facial expressions, he added.
“We think we’re about two or three years away before we can demonstrate a piece of software that by SEC regulatory guidelines will satisfy fiduciary duty,” the article quoted him as saying.
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Finance
Harris's proposed unrealized capital gains tax is unlikely to pass: CIO
Unrealized capital gains tax proposals may be floating back into the zeitgeist as the Harris presidential campaign marches on, but for some, the noise around it is much ado about nothing.
“I don’t think this unrealized thing is going to have much momentum because it is a very onerous process to come up with those numbers,” Raymond James chief investment officer Larry Adam told Yahoo Finance Executive Editor Brian Sozzi on Yahoo Finance’s Opening Bid podcast (see video above or listen here).
“You start putting biases of what you think [something] is worth versus the reality,” said Adam. “That becomes a very difficult equation to really put into a place.”
We’ve seen unrealized capital gains tax proposals before, but they’ve met plenty of resistance.
Most recently, the Biden administration proposed an unrealized capital gains tax for those with a net worth of over $100 million. The proposal could affect more than 10,600 people in the US, according to estimates.
But, unlike a capital gains tax, which is imposed on a sold item, deploying an unrealized capital gains tax is a trickier move.
Stifel chief Washington strategist Brian Gardner said in a recent client note that under an unrealized capital gains tax system, “ranking illiquid assets would not only be complicated but controversial,” adding that there would also need to be a way to provide taxpayers with “rebates for future losses.”
While analysts scratch their heads about the subject, an unrealized capital gains tax also has plenty of tomato throwers. Donald Trump called it “beyond socialism,” telling a crowd of small-business owners, “You will be forced to sell your restaurant immediately.”
Trump’s onetime US Commerce Secretary, Wilbur Ross, concurred.
“Frankly, I think it’s a ridiculous proposal,” Ross said on Opening Bid.
Tesla (TSLA) CEO Elon Musk also had negative statements to share on the topic, proclaiming an unrealized capital gains tax would lead to “bread lines and ugly shoes.”
While Trump and Musk might deliver their messages to pack a wallop and make voters think, concerns aren’t necessarily unfounded.
Raymond James’s Adam has considered tax proposals made by both candidates, and thinks that regardless of the administration in office, higher taxes could impact households by almost $2,000. “[It] could be a big impact and a drag on the economy,” he said.
Both Harris and Trump face challenges given the expiration of a significant portion of the 2017 tax cuts at the end of 2025. Trump has proposed an additional extension of provisions from 2017 and potentially more tax cuts.
Harris proposed expanding the child tax credit and supported no increase in the capital gains tax, while taxing those making over $400,000 annually more.
While the presidential race is anyone’s game at this point, Adam isn’t that worried about an unrealized capital gains tax and the potential market losses. “[There’s] a low probability of it passing,” he said. “It’s pretty hard to mark to market every single year for your taxes.”
Three times each week, Yahoo Finance Executive Editor Brian Sozzi fields insight-filled conversations and chats with the biggest names in business and markets on Opening Bid. You can find more episodes on our video hub or watch on your preferred streaming service.
In the below Opening Bid episode, former Trump nominee to the Federal Reserve Judy Shelton shares her outlook for the economy.
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Finance
Insider Sale: President Brian Hole Sells Shares of Willis Lease Finance Corp (WLFC)
On August 30, 2024, President Brian Hole sold 1,187 shares of Willis Lease Finance Corp (NASDAQ:WLFC), as reported in a recent SEC Filing. Following this transaction, the insider now owns 96,589 shares of the company.
Willis Lease Finance Corp specializes in the leasing of spare commercial aircraft engines, aircraft, and other aircraft-related equipment to airlines, aircraft engine manufacturers, and maintenance, repair, and overhaul providers worldwide.
Over the past year, Brian Hole has engaged in multiple transactions involving the company’s stock, selling a total of 24,570 shares and purchasing none. This recent sale is part of a broader trend observed within the company, where there have been 82 insider sells and no insider buys over the past year.
Shares of Willis Lease Finance Corp were priced at $106.17 on the day of the transaction. The company currently holds a market cap of approximately $772.655 million. The price-earnings ratio stands at 8.41, which is below the industry median of 17.98.
According to the GF Value, the intrinsic value estimate for Willis Lease Finance Corp is $63.35 per share, making the stock significantly overvalued with a price-to-GF-Value ratio of 1.68.
The GF Value is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates provided by Morningstar analysts.
This sale by the insider might be of interest to current and potential investors, providing insight into insider confidence and valuation perspectives at Willis Lease Finance Corp.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
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