At last night’s council meeting, Finance Director Paul Navazio looked toward an aggressive cost savings plan as the city faces an immediate deficit, a longer-term structural deficit, and an impending problem of unfunded liabilities for health care and pensions.
Despite the rosey picture that City Manager Bill Emlen attempted to play at the outset, these projections may actually represent a best-case scenario as became clear as the conversation and discussion progressed.
However, as comments by Councilmember Sue Greenwald made clear, Mr. Navazio’s budget may be vastly understating the nature of the problem.
The first problem, as Mr. Navazio appeared to acknowledge, he underestimated the amount the city will have to pay for PERS contributions. Councilmember Greenwald suggested that may make his assumptions off by quite a bit. This will bear further scrutiny, but the basic problem is that it underestimates the amount PERS contributions will go up by several orders of magnitude.
The second problem has to do with the $42 million in unfunded mandates that will come due in the next twelve years for retiree medical benefits. The city’s proposal does not close the gap there, in fact, it widens the gap meaning that it will be a larger problem in the upcoming years.
As John Munn from the Yolo County taxpayers association pointed out, the revenues in the future assume a renewal of the sales tax and parks tax. Mr. Munn as well as former Mayor Jerry Adler suggested that this should not be taken for granted. Two weeks ago, Councilmember Lamar Heystek suggested if the city did not deal with some of its employee contracts in a reasonable fashion that it would lead him to oppose renewals of those taxes.
Moreover, the city remains heavily reliant on auto dealerships for tax revenue, should those auto dealerships continue to struggle and go under, the city could be facing a huge calamity.
Thus the city appears to be facing a deficit in the three million range for 09-10 which is downward revised with proposed expenditure cuts down to about $2.69 million for 09-10 and $2.51 million for 2010-11.
But are they really? Has the city in some ways papered over its larger problems with short term solutions and taking items such as the unfunded liability and unmet needs off the books? Has it relied on rosey assumptions to make the crisis seem less severe?
As we discussed in the case with the school district the pessimistic assumptions may actually under some circumstances be viewed as best-case scenarios.
Mr. Navazio admits that the budget forecasts are highly volatile and sensitive to key assumptions. On the revenue side these include property tax growth rate, sales tax growth rate, vehicle license fee payments from the state, and potential longer-term state budget impacts. On the expenditure site the personnel costs remain a huge variable as they will depend on labor negotiations that are pending. Moreover there are the unknowns of the health insurance cost and the CalPERS retirement contribution rates.
Each one percent change in the property tax growth rate changes the revenues by $95,000, the sales rate changes growth rates by $85,000, VLF by $48,000. On the expenditure side, the salary assumptions are $187,000 per one percent change, health insurance is $40,000 and PERS is $50,000. To put this into context, imagine if his assumptions are off by say 5%, we could be talking nearly one-half million on the revenue side.
There are also tricky aspects to the budget. For instance it looks like one furlough day per month by all employees could save the city $1 million from the general fund. That sounds promising until one recognizes that public safety is roughly 60% of the general fund payroll and it seems unlikely you would ask a police officer or fire fighter to take a day off. Revising that to exclude public safety, means one day of furlough is only $400,000 in savings. Not much in savings, but to the average worker, a chunk of their salary.
On the other hand, targeted budget reductions might be more fruitful as a 3-5 percent reduction in police and fire coupled with a 7 to 10% reduction in the other departments could produce between two and three million dollars in savings.
The staff report looks at the impact of four tiers for savings.
Tier 1 would reduce spending by $1 million or 5.50 FTE. That would include a 33% reduction in the OMbudsman contract, a reduction in the City Attorney Contract, a deltion of a secretary position, a parking enforcement officer, a conversion of the police records specialist, and a deletion of a vacant police officer position.
Tier 2 would cut another nearly half million or 3.25 FTE. That includes a downgrade of the vacant Deputy City Clerk position, closing recreational programs, delition of a fire captain, among other things.
Tier 3 would also cut another half million or 1.25 FTE. It would reduce the ombudsman contract by two-thirds which would essentially eliminate his position, eliminate teen drop in-hours, civic arts program, reduce the Fourth of July Event, reduce code enforment to half-time, among other things.
Finally tier 4 would achieve an additional half million or 3.75 FTE. That would eliminate the Fourth of July Event, close the Fire BUsiness office, delete a fire fighter and a police officer, shut-off 200 streetlights, and close the community pool.
The Vanguard is disturbed at the proposed cuts to the Ombudsman position. Any cut would likely result in the current Ombudsman leaving. As it is, his contract is insufficient to do any kind of major investigation such as the one performed for the Grand Jury report. Are these cuts, which would amount to $20,000 to $40,000 necessary or are they political retribution for the Ombudsman’s work on the Grand Jury report? One has to wonder given the problems in this city that led to the creation of the position.
Interestingly the Police Chief would prefer to keep the Ombudsman as he finds that position serve a useful to both the department and the community.
The other problem that the Vanguard has is with the street maintenance contract and a growing budget gap. It is currently funded at the $810,000 baseline level. However, the current funding level is insufficient and it leads to the deterioation of street conditions (Navazio’s words on the powerpoint). The funding to address the current backlog would require an increase to $2.8 million per year and full-fudning to maintain the desired pavement index is in excess of $3 million per year.
This brings me to mention the safety problems at Fifth Street that are creating a number of vehicle accidents.
The fire department represents a sizable portion of the general fund budget. In fact, public safety as a whole represents nearly 60% of it. We are also reluctant to cut into that out of a perceived fear that it would lead to putting the public at visk. But right now, the unmet needs in terms of road repairs and the safety issues at fifth street are doing exactly that. The difference is that they do not have a powerful employee group pumping money into city council elections and pressing for these repairs. However, the lack of road work could put the public in every bit as much jeopardy
The city may be dealing with the short range budget issues, but the longer range issues need to be addressed namely the unmet needs, unfunded liabilities, and the pension contributions. These suggest the budget crisis is far worse than the city is letting on.
—David M. Greenwald reporting
I do not understand why there are so many options. The City Manager is responsible for this “business” and he should be developing a plan of action. What does he think should be done?
Most of the cuts seem to be quite painless. Are the furloughs unpaid days or can employees take vacation on those days? A 5%-10% temporary salary reduction would accomplish the same thing and cover everyone.Salaries could be reinstated when sales tax revenue returns to prior levels.
I think that the problem is that these proposed cuts won’t solve the problem. The cuts will hurt the employees but the banking crisis and health care costs are so high that CALPERS won’t have the money to pay for the benefits. That means that the City will have to pay for all the employees retirement costs.
Based on what CalPERS reported in January, the payments from the City of Davis to PERS for pensions will increase by $2.4 million a year beginning in July, 2011. However, since January, the market portfolio of PERS has declined substantially, and so it is not unlikely that the increased pension payments will increase to about $3.6 million. These increases are not apt to be one time increases. They will probably be permanent and growing.
At the discussion last night, Sue Greenwald said (under the assumption that the increase will [i]only[/i] be $2.5 million) that $1 million of that will come directly out of the general fund, another $1.5 million out of other funds. Please correct me if I misunderstood, but I don’t think the staff’s projected budget cuts account for this massive increase in expense.
There are some solutions to the problems the city faces. However, none of them includes keeping the same plans we have with PERS for pensions or retiree medical. If those are not substantially altered, the workforce of the city in the next few years is going to decline by somewhere between 1/3 and 1/2, if I understand things correctly.
I was listening to a radio interview with a health economist from Princeton, talking about Obama’s proposed reforms in health insurance. A great point the economist made — prompting me to think about the DJUSD teachers and a lot of city employees who are likely to be fired — is that because we have this ridiculous employer-based health care coverage system, all those folks who will be laid off are not just going to be jobless and out of a regular paycheck, they will (in most cases) be without health care insurance.
My strong belief — this holds for the schools and the city — is that we should do whatever it takes to avoid layoffs. Except if someone is doing a job which really is unnecessary (or can be outsourced at a substantial savings), it’s unfair to make a minority of the employees take a 100% loss of salary and benefits, so that the rest of the employees can keep 100% of their salaries, overtime, pensions, benefits, etc. Much more equitable, in my mind, is to reduce the salaries for all, decrease the pensions, and get rid of the frills (like retiree medical care), so that for the long term, all the needed employees can stay employed. (I know… I know… saying all of that makes me a troglodyte who is somehow anti-labor.)
The only way any of that is going to happen is if the city council gets serious in the new labor contracts. (They are meeting again this Friday with the labor reps.) It is not the responsibility of Bill Emlen or Melissa Chaney to hammer out deals that the city can afford for the long term. That is the responsibility of the city council, and only the city council should be held accountable for whatever they approve.
That is the responsibility of the city council, and only the city council should be held accountable for whatever they approve.
Sure, the City Council has the ultimate responsibility. But, when the Board (council) hires a CEO (City Manager) to run the ship I think the expectation is that the manager needs to do more than just steer the ship. The ship has to stay above water throughout the long voyage. The City Manager must provide significant insight into the direction of labor negotiation.
One problem is that there are too many short focused people involved. City Councils come and go and many cities have made the city manager a short term position. Everyone wants to be viewed as the nice guy to the employees, knowing they will not be there long enough to really held accountable.
The taxpayers end up holding the bag and the bag gets heavier every year.
“Tier 1 would reduce spending by $1 million or 5.50 FTE. That would include a 33% reduction in the OMbudsman contract, a reduction in the City Attorney Contract, a deltion of a secretary position, a parking enforcement officer, a conversion of the police records specialist, and a deletion of a vacant police officer position.”
These “Tier 1” cuts are just a drop in the bucket. How is deleting a parking officer and PRS (police office assistant) going to save REAL money? How about going after the big fish by deleting or downgrading MANAGEMENT? Davis PD used to have 1 Chief, 2 Captains, and 3 Lieutenants in their command structure. Now they have 1 Chief, 1 Assistant Chief ($132K), 1 Captain ($122K), and 4 Lieutenants ($102K). They also recently added a “Community Services Sergeant” ($82K). Davis PD has MANAGEMENT BLOAT, only to be eclipsed by Davis FD’s “$100K Club” firefighters…
On the same note as above, perhaps the City could consider reconsolidating the Community Services Department and Parks & General Services Departments back into one department (the former Parks & Community Services Department). Do we really need the management and administrative overhead of TWO departments? And some “parks” and “public works” services could probably be contracted out to private firms for a lot less (think about the savings in medical and retirement benefits)! This is the same model being used by newer cities like Citrus Heights, Elk Grove, and Rancho Cordova, larger incorporated cities that have fewer City employees than Davis.
as a city employee and a highly compensated manager (by Davis standards, not compared to my peers in other city’s) I find it ironic that in bad times we cannot get enough well qualified people to even apply for our positions – now that the economy is hurting everyone makes it sound like government employees are being over compensated and are the problem…
“My strong belief — this holds for the schools and the city — is that we should do whatever it takes to avoid layoffs. Except if someone is doing a job which really is unnecessary (or can be outsourced at a substantial savings), it’s unfair to make a minority of the employees take a 100% loss of salary and benefits, so that the rest of the employees can keep 100% of their salaries, overtime, pensions, benefits, etc. Much more equitable, in my mind, is to reduce the salaries for all, decrease the pensions, and get rid of the frills (like retiree medical care), so that for the long term, all the needed employees can stay employed. (I know… I know… saying all of that makes me a troglodyte who is somehow anti-labor.)
The only way any of that is going to happen is if the city council gets serious in the new labor contracts. (They are meeting again this Friday with the labor reps.) It is not the responsibility of Bill Emlen or Melissa Chaney to hammer out deals that the city can afford for the long term. That is the responsibility of the city council, and only the city council should be held accountable for whatever they approve.”
Rarely do I agree w Rich Rifkin, but in this case I do. Laying off people is a recipe for disaster, and is happening as we speak. More and more folks are being laid off, cannot make their mortgage payments, and are being foreclosed on. It becomes a vicious cycle. We need to keep people employed if at all possible – and those employees collectively need to share the pain of a cost reduction. If employees don’t pull together, they may find themselves the next ones pink-slipped.
[i]”Rarely do I agree w Rich Rifkin, but in this case I do.”[/i]
I notice you start every post with this same refrain, Anon…
Don’t know who you are(anon @ 1142pm on 3/11/09)but you are RIGHT ON! Nice goin’ Landy-man, way to keep the old bloated management structure alive and well. Go back to Seattle, please. WE spend more than a MILLION DOLLARS on Admin. costs for this podunk PD!! Fire Pierce immediately(grow a pair Billy or Landy and just do it..) and Hyde should have taken Pierson with him when he fled for Antioch…that’s just two and its more than $250,000 in salary savings. Pretty easy when you actually go looking for folks who DO nothing and are responsible for ZIP!
The cuts are not enough. The Legislative Analyst’s Office says that the State budget is over-spending by $8 billion right now. Who knows how much this will be by the time of the May revise?
http://lao.ca.gov/2009/bud/feb_overview/feb_overview_031309.pdf