All eyes in the past few weeks have been on the current budget crisis in the state of California. There are many good reasons for that as the state figured to try to balance part of the budget on the backs of local government. Fortunately, unlike the past, local government proved to be effective lobbyists and put enough pressure on state legislators to win back some of the worst cuts.
At the same time, the city has had to close an immediate 3.5 million dollar deficit. We have spent a good deal of time detailing that deal and criticizing it for looking at the budget in terms of a short-term budget shortfall rather than dealing with the longer term structural issues. The state of California, for what it’s worth, now faces similar criticism.
In the past we have looked at the rate of growth in the city of Davis for both salaries, pensions and retirement health. These are the real issues we face as a city and these are things that needed to be addressed in the budget process and also during the course of contract negotiations. In some ways it is unfortunate that we had only a $3.5 million budget deficit because it failed to force us to deal with the real problems and fix the structural ones. Then again, the state had a more urgent situation but was structurally precluded from dealing with more permanent problems of an antiquated revenue system and a political system that is unresponsive to crisis and unaccountable to the voters.
We need to lay this out in terms all can understand. In 2000-01, the city of Davis paid $18 million in employees salaries. By 2007-08 that number rose to $27.4 million. That’s roughly a 50% increase over just 8 years. That’s actually the smallest increase. Over that same time, employee health benefits nearly doubled and retirement pensions increased more than six fold.
In 2000-01, granted during a time when PERS was superfunded, the city paid less than a million in pension contributions. By 2011-12 that number will reach $8 million. And that might be a conservative estimate.
In terms of retirement health care, the city faces a $42 million unfunded liability which means that we have committed so far to paying out $42 million to retirees in health care that we have not allocated from the budget.
This past Tuesday, Mayor Pro Tem Saylor angrily complained about the state’s raiding of local funds:
“I think it’s interesting to think that we spent six to eight months and found a way to balance it tenuously and painfully with a $3.4 million reduction.”
Today in the Sacramento Bee, Mr. Saylor has an Op-Ed arguing that the state must respect, not raid local funds. In part he said:
“State lawmakers once again resorted to gimmickry to give the appearance of a sound fiscal plan for California instead of making responsible choices to actually balance the budget.”
I cannot think of a more ironic complaint. I would argue that over the course of his tenure as City Councilmember in Davis, he has often done the same with Davis’ budget. We are claiming a balanced budget in the city of Davis, when in fact, we are sitting on a ticking time bomb. A time bomb that likely will not go off during Mr. Saylor’s tenure.
He continues along the same lines as he did on Tuesday:
“Transparency is lacking in this budget proposal. The Big Five held secret meetings, unlike our City Council, which held all of our budget discussions in public.”
Again this is somewhat ironic because while it is true that the budget hearings were done in public view, the most important component to them, contract negotiations, where the most important issues will be decided are not only occurring behind closed doors, but will be completed after the budget has been approved and declared balanced. How likely will it be that once the contracts are sign, the city will have to go through and find more money to cut from the budget?
The bigger issue of course remains not the one year budget in Davis, but the longer term picture.
The news is actually getting worse. Calpers announced that it has lost nearly $60 billion in the financial markets over the last year. At this point, they have enough money to make payments to retirees for several years, but at the same time, local governments are strapped for cash right now and cannot make increased payments to help shore up the pensions that they promised their employees.
The New York Times reported on July 23, 2009 that the new head of investments, Joseph Dear believes he can fix the problem. His solution is to embrace high-risk investments in the hope of yielding higher returns. Calpers has smoothed the rate increases over a thirty year period in hopes of mitigating the potential one-year hit on cities and other local jurisdictions. The idea is that over the long term, they can make up for a one-year hit by simply performing at historic rates.
But here’s the kicker, “he wants to load up on many of the very assets that have been responsible for the fund’s recent plunge”–pouring billions into private equity and hedge funds. Junk bonds and California real estate also are on his list.
“Private investments, he asserts, will over the long haul outperform stocks by three percentage points a year, and that is necessary to keep Calpers on track to returning its goal of 7.75 percent annual returns.”
So basically if he is able to increase Calpers investment performance many of the problems will disappear, if not Calpers may end up in an even bigger financial squeeze than it is today.
And if Calpers ends up in that kind of squeeze, guess who is bailing them out–that’s right the cities and local jurisdictions that promised their employees 3% at 50 for public safety employees and 2.5% at 55 for everyone else. Under Mr. Saylor’s watch we have seen our pension commitments skyrocket. Under Mr. Saylor’s watch we saw a 36% pay increase for firefighters.
When Mr. Saylor was elected in 2004, we paid out just under $2 million in contributions to PERS. That is roughly at the historic rate from 1990 to 2004. In fact, it was actually less than what we paid out from 1993 to 1996. During Mr. Saylor’s terms, our pension contributions will have quadrupled from $2 million to $8 million during the years 2004 to 2012. And the crisis at PERS is about to make that potentially a lot worse.
Mr. Dear is rolling the dice with our money. But of course, Councilmember Saylor has an Op-ed in the Sacramento Bee decrying the fiscal policies that will put us in far more serious long-term budget problems than the short-term raid on our monies. Of course the league of cities has 130 cities signed on to file a lawsuit against PERS. Of course counties and others have agreed to join on. None of that has happened.
The problem is that cities, counties and others cannot do this in part because the reason the pension system is in the mess that it is, is only in part due to the collapse of the stock market and investments and has a lot to do with the fact that virtually every other jurisdiction in the state made the same sorts of irresponsible and unsustainable decisions that Davis did. As much as Councilmember Saylor looks like an easy target for this, he does not stand alone either on his own council or in this state.
The scary thing is that we have not found a clear path out of this yet. We have rolled the dice on our future and hope for the best.
However, let us not let Mr. Saylor and his colleagues on the council majority Mayor Ruth Asmundson and Councilmember Stephen Souza off the hook because they have the power to fix some of this right now with a good strong showing in the budget negotiations. However, we all know that is not going to happen. We will have a 3-2 vote to approve the new contracts that will make some cuts but do nothing to address the long term structural issues of this city. I do not have to even sit down in the closed door meeting to have figured that part out.
So yes Mr. Saylor can grandstand at city council about the horrible state, he can take it to the Sacramento Bee with an op-ed, but he cannot escape the fact that the things that were under his control, he has failed to address.
—David M. Greenwald reporting
Another Saylor bashing session – how predictable.
If Calpers had simply placed the contributions from various public agencies “in a mattress,'” would they now have a bigger fund to draw from (since there would not be any losses)? What would you David suggest they invest the funds in?
Don Saylor: “State lawmakers once again resorted to gimmickry to give the appearance of a sound fiscal plan for California instead of making responsible choices to actually balance the budget.”
And Paul Navazio didn’t resort to budget gimmickery, when he put things like unfunded liabilities for city employee salaries/benefits and road repairs in the “unmet needs” category, then declared a “balanced budget” for Don Saylor’s re-election campaign? Don Saylor criticizing the state lawmakers for resorting to gimmickry is the pot calling the kettle black!
What would you David suggest they invest the funds in?”
How about being honest about the fact that they had gotten away with risky investments in the past and that based on it cities had promised more and more money to employees and at some point it was going to be unsustainable rather than trying to shoot for the moon and probably make it far worse?
And who’s kidding who: For the record, unfunded liabilities was never part of the unmet needs, that’s a whole different beast.
“If Calpers had simply placed the contributions from various public agencies “in a mattress,'” would they now have a bigger fund to draw from (since there would not be any losses)? What would you David suggest they invest the funds in?”
When the City of Davis was not paying any contributions to CALPERS, money should have been set aside for the down times, rather than carrying out a policy of spending every last dime without taking into account there would invariably be lean years ahead – a “rainy day fund”.
I know you mean well, but you don’t seem to understand what has happened here. The city couldn’t set aside money then, because the policies were not established yet to make them have to pay a good deal more than they are now.
PERS was superfunded in 2000. But the difference between than and what the city normally paid was maybe a million. However in 2000, the city agreed to go to 3% at 50 for fire, the next year for police. In 2007-08 for the rest of employees. Employer contributions began to surge in 2004.
There was really no point at which they could “plan” for this. The problem was not a matter of planning, it was a matter of policies.
Papa Jon: Doesn’t Saylor deserve to be slammed here. Two weeks ago, DPD had a story on Garamendi. People accused him of grandstanding. Isn’t that what Saylor is doing and to make matters worse, he is hypocritical in terms of his own record on city fiscal issues???
Let’s see here, Lamar and Sue = The Force”
Don, Steve, and Ruth = “The Dark Side”
Sorry, the reality of city politics is a bit more complicated.
All you do is bash Saylor. Saylor’s a better leader than your buddy Lamar, but you are always swooning over Lamar. So predictable.
You can’t defend Saylor here.
I read the Bee and almost spilled by coffee laughing at Saylor’s hypocritical article. Then I log on and read the Vanguard and you are ahead of the “game” played by a local “slick politician” who may fool some but definitely not all readers and voters.
Don Saylor continues to tout his stance which is that we don’t have a budget problem, but facts are facts. We have a problem and his lack of leadership is to blame.
I don’t see your article as Saylor bashing David. I see your article as clarifying all of the crap that we are dealt by Don Saylor. He is nothing more than a slick politician who will stop at nothing to get ahead. He doesn’t care about sound fiscal policy that protects our city he only cares about what’s in it for Don and what will help him get to the next step on his political ladder.
You are wise Vanguard and you’ve got his game. Thank you for reporting on this.
The legislature is in a financial mess but so is our city of Davis. Get your house in order first councilman Don Saylor before you go telling the California legislature how to run their house.
Ann
Don Saylor invites this criticism, due to his “do as I say, not as I do” approach to city fiscal policy. On the fundamental matter of fiscal responsibility Don is anything but a practitioner of “leadership by example.” He has an unabashed need to tell the state in his Op-Ed what to do all the while practicing just the opposite here as a councilmember. That is blatant hypocrisy and grandstanding.
But let us not forget that Don Saylor could not do it on his own. The council majority of Asmundson, Saylor and Souza have contributed mightily to our city’s fiscal mess, especially with regards to the overly generous and unsustainable salaries, benefits and retirements that they have approved in the past six years, with the worst example being the Davis Firefighters.
“Saylor’s a better leader than your buddy Lamar”
Really? How so. Saylor was ready to approve the budget from staff sight unseen. Lamar took the budget issue, presented an alternative and actually got his colleagues to change things. Saylor even tipped his cap to Lamar, as did Souza. Who exhibited leadership on this issue? Certainly not Saylor.
Here’s the op-ed: [url]http://www.sacbee.com/740/story/2054687.html[/url]
I agree with everything Don Saylor says in this opinion piece.
The situation in Davis is certainly not unique. Cities all over the state are grappling with this fiscal crisis, and counties are in even worse straits. Whatever problems may have been caused at the local level by failing to recognize the magnitude of the current economic crisis, there is no question that the state is making it worse.
No one said they disagreed with what Saylor had to say. The problem that some of us have is that Don says one thing in a statewide venue but does another thing when it comes time for him to vote at home. That is the issue here–not whether we agree with him, but whether or not he’s being a hypocrite and to use your term, grandstanding. I find it interesting that you were willing to admonish Garamendi but not Saylor.
I see little point in singling out Don Saylor for criticism on this issue. I don’t know of any instance of a city council member voting against the city budget in the last 8 years, except one ‘no’ vote in 2003 by Mike Harrington after he proposed a 10% cut — which failed for lack of a second.
So every city council member, but one, bears responsibility for the current state of the city’s finances. Not just Don Saylor.
The budget approved this year was a compromise. Lamar presented a workable alternative, and the council moved in his direction. I’m sure nobody is totally happy, because that is the nature of compromise. I do credit Lamar and Sue for their efforts to address these fiscal problems. But Sue voted for all the prior budgets (or was absent) as far back as I checked (2002). From my vantage point of 35 years here, I would say that this emphasis on fiscal conservatism in Davis is rather new.
Employee negotiations are always, to my knowledge, held in private. If David is suggesting public employee labor negotiations should be held in public, that would certainly be news. I’m not sure what “a good strong showing in the budget negotiations” means. A 10% pay cut across the board, as Mike suggested in 2003?
Garamendi didn’t propose any alternative to President Yadof’s budget. He simply voted against it and made a speech. For all their differences, I’m going to assume our council members read the budget and deliberate from informed positions. They take policy positions and act on them. Garamendi didn’t do that. That’s the difference.
[quote]I don’t know of any instance of a city council member voting against the city budget in the last 8 years[/quote]This year’s budget passed on a 3-2 vote.
Yes, of course. Prior to this year was my point. Significant discussion and dissension about the budget has been very rare, at least as far as I can recall and in a quick review of the minutes from the last few years. Rich, can you remember any time the council has given the budget extensive discussion? I really think the burden of these expanding unfunded liabilities has only become apparent in the last couple of years, and became a critical issue when the economy tanked. I see no reason to single out one council member on this issue.
I know that many on this blog are hostile to Don Saylor. I think that sometimes leads to a lack of proportion.
“The city couldn’t set aside money then, because the policies were not established yet to make them have to pay a good deal more than they are now.
PERS was superfunded in 2000. But the difference between than and what the city normally paid was maybe a million. However in 2000, the city agreed to go to 3% at 50 for fire, the next year for police. In 2007-08 for the rest of employees. Employer contributions began to surge in 2004.
There was really no point at which they could “plan” for this. The problem was not a matter of planning, it was a matter of policies.”
Point taken, and I agree with you. However, if every year they had set aside even that small amount, say a million as you suggest, it could have helped some! But the “policy” the city tends to take, is spend every last dime, with no contingency plan if things go downhill.
“I know that many on this blog are hostile to Don Saylor. I think that sometimes leads to a lack of proportion.”
Paul Navazio conveniently placed the unfunded liabilities of employee salaries/benefits/pensions and road repairs in the “unmet need” category, waved his magic wand, and declared a “balanced budget”. This occurred right before incumbent Saylor/Souza’s run for re-election. For Saylor to turn around and chastise the state gov’t for “budgeting gimmickery” is the pot calling the kettle black, plain and simple. Had Saylor said just about anything else that was a bit more nuanced or a bit more politically savvy, I might agree w your position. But Saylor’s blatant hypocrisy is just too on point here to be ignored.
“Paul Navazio conveniently placed the unfunded liabilities of employee salaries/benefits/pensions and road repairs in the “unmet need” category, waved his magic wand, and declared a “balanced budget”.”
You are conflating the terms unfunded liabilities and unmet needs. These are actually two separate categories. Unmet needs include capital improvement projects and road repairs among other needs. Unfunded liabilities are different, they are obligations we have made in the future, that we have not funded today and will have to pay for in the future.
Along the same lines Anon, you say we should have put aside a million. I don’t agree that we could have done that. I don’t think we really understood in 2004 and 2005 where this was going. And frankly putting aside a million wouldn’t have done much. The big problem is that we have again made obligations that we will have to pay for in the future. Our benefits are becoming an unfunded liability. What we need to do right now is reform the pension system because otherwise we will be paying $12 to $15 million per year just for pensions. THere is no amount of millions that we might have put aside that would brace against that kind of increase over a decade.
DPD, thanks for the clarification about the “unmet needs” category, altho my point about Don Saylor is still the same. The city of Davis has certainly used plenty of “gimmickry” in its budgeting process, to make Don Saylors commment the height of hypocrisy.
I agree, I just wanted you to be accurate in your discussion.
[quote]Rich, can you remember any time the council has given the budget extensive discussion?[/quote]No, I think you’re right that this year is distinct. However, it was pretty clear last year — as David and Anon point out above — that we were already in trouble last year, before the economy tanked, in that we were unable to fund $3 million in normal road and sidewalk maintenance costs. [quote]I really think the burden of these expanding unfunded liabilities has only become apparent in the last couple of years, and became a critical issue when the economy tanked.[/quote] I started writing about them in 2005 when I learned about the changed GASB regulations. It was then I realized we had built up a huge future expense for retiree medical.
Technically, the only unfunded liability* is retiree medical — now somewhere around $42 million.
We fund through CalPERS all employee pensions. However, as David stated above, it’s dubious, as rates keep rising for CalPERS, that we will continue to have enough money to keep making our obligations to CalPERS. [quote]I see no reason to single out one council member on this issue.[/quote]I generally agree with you, there. However, it should be noted that the structural problems we have with our budget are due to unsustainable labor contracts. And of all members now on the council, no one has been a greater advocate for “business as usual” with regard to labor as has Don Saylor. Don’s commentary has suggested that reforming labor contracts is “an attack on city workers.”
Even worse, he has taken thousands of dollars in campaign contributions from the firefighters and then turned around and carried their water to make sure they get paid high wages (a 36% salary increase in 2005!!!) with benefits and other provisions that we cannot afford over the long haul.
Equally so, he insisted in 2008, when running for re-election, that the council had balanced the budget. In point of fact, the budget was not in balance, as we did not have enough revenues (prior to the crash) to conduct ordinary city business.
——
*There are other unfunded liabilities, including deferred maintenance on the streets and trees and some buildings and so on. However, these liabilities, I believe, are not included on a balance sheet, and thus don’t meet the technical requirements of the term.
Don Shor,
I would just like to say that I argued and voted against, in closed session, the last firefighters contract wich brought total compensation for rank and file firefighters to around $150,000 a person today. (Ted Puntillo, who was Mayor for the month, took the item out of order when I had gone to the bathroom because he didn’t want to give me the opportunity to vote against it in public. He will verify this.)
I voted against lowering the age of full retirement for management and professional non-public safety employees to age 55.
I have made numerous motions and argued very hard in closed session during prior labor negotiations (I can’t discussion current closed sessions) to hire a professional labor negotiator instead of using city staff, and for many, many losing positions that would have put us on a sustainable course.
Ultimately, we have to vote for a budget. Like that State, we need a budget to operate. I fought and lost. A budget isn’t like a development; we don’t have the option of not having one, so to vote against a budget would be merely obstructionist. At least that is the way I have interpreted action on the final budget, after pulling out all stops to try to achieve sustainability but failing to get a majority.
Thanks, Sue, I appreciate your explanation, and your ongoing participation on this blog.
Sue Greenwald: “Ultimately, we have to vote for a budget. Like that State, we need a budget to operate. I fought and lost. A budget isn’t like a development; we don’t have the option of not having one, so to vote against a budget would be merely obstructionist. At least that is the way I have interpreted action on the final budget, after pulling out all stops to try to achieve sustainability but failing to get a majority.”
Sue, I agree with your efforts to head off fiscal trouble and very much respect you for it – but you should have stood up and voted “no”. I very much doubt anyone would see it as “obstructionist”. They certainly wouldn’t now. Vote a “hell no” next time!