City Manager Delivers State of the City Address

Here are some of the highlights from the speech.

“It has been a difficult year, we’re going to cover the budget in a few minutes.  I think we’re all aware that the basic fundamental underpinnings of the way local governments and state government has been set up over the years, particularly in California where we got used to the decades after World War II as the state populated and we saw the growth and infrastructure and such, this thing was funded by ever-increasing property taxes, sales taxes that go along with increased population, and everyone thought that was going to on and on and on.  Obviously with the multiple bursts and bubbles that we’ve seen over the last ten years, it’s changed everything.

It has affected us.  We’re having to make a lot of adjustments.  Government tends to adjust a little slower than the private sector.“

He started with some of what he considered to be the positive news for the city.

First, he told the audience that Trader Joe is indeed coming to Davis.

“One of the questions I frequently get in my job is when is Trader Joe’s coming to Davis.  I’m always sort of evasive in my answer, we think they’re coming, they say they’re coming.  We can tell you now, they are coming.

What I’ve been told is that they’re coming and they hope to open by October of this year.  That may be optimistic, but I’m going to start positive today…  We are trying to fast-track their building permits.  We’re doing everything we can to make sure that we seal this deal and bring Trader Joe’s to Davis.

This is one of the few issues that we haven’t had a lot of blow-back like we typically see with issues in Davis.  Trader Joe’s is seen as widely accepted.  Although there are always folks that have potential concerns.  Overall I think this will be a positive for the city.“

He gave a quick update on a couple of other projects.

First he spoke about DeLano’s, the grocery store that will be coming to West Lake Shopping Center in West Davis.  He mentioned the hang up about the ABC, but announced that it had been resolved.

“Want to make clear what’s happening with DeLano’s right now is that they are opening on January 15 all looks good.  The only issue that’s come up is with the Alcohol Beverage Control License–basically their ability to sell alcohol at their facility.  ABC informed us in December that they needed to get an ABC permit.  So we’ve been going through that process.  If any of you have ever dealt with DMV on issues with cars, ABC is about the same…  The Planning Commission [Wednesday] night is going to be acting on one of the archaic terms that they use–the public convenience and necessity permit for selling alcoholic beverages at the DeLano’s, and I see no roadblock there…  Despite some of the turbulence that I’ve heard the last few days, as far as we know that’s full speed ahead.“

He mentioned Target.

“As you all know Target is open today.  What I’m hearing from the Target reps is that sales are actually exceeding expectations.  I realize that there are issues with Target relative to impacts in town.  We’re continuing to monitor that… trying to see what we can do to mitigate issues that occur with that.  But overall, the Target opening has been successful.

There are other pads out there for other commercial businesses that would be associated with that center.  We have not seen any definitive activity out there given the economy.  There’s been a real retraction in terms of retail businesses.  We have had some inquiry from businesses that we don’t think the community would necessarily embrace.  We’ve been pretty clear with Target that we want to make sure that we get businesses in the Target Center that enhance our overall diversity of retail uses in the community.  We’re going to hold out, particularly in this bad economy, rather than falling for the temptation to let just whatever go in, we’re not doing that.  I suspect it will be a couple of years before we see any new uses at the Target facility.“

He also spoke about the Bicycle Hall of Fame.

“The Bicycle Museum, that process has been underway for quite some time.  Council a couple of years ago, established as one of their goals, to bring a bike museum to downtown.  That has come together in the last two years.   Once again there is an amazing group of volunteers behind that, working with city staff and that is becoming a reality.  We anticipate that the facility will be open at the 3rd and B Building in late spring depending on how things work out as well as we will have the Amgen Race coming through Davis again.   That is now planned for May this year, rather than February.  A lot of you were there last year and the February weather is a little erratic and unfortunately in a dry year we had the wettest day the day that the Amgen race was here.  So hopefully this year in May we’ll have better weather.

Once again we’re trying to build on our reputation of being a bicycle capital.“

Finally he spoke briefly about Mishka Cafe.

“Finally I wanted to mention the Mishka Cafe project associated with the Varsity Theater and Hunt Boyer.  That project now has building permits in.  That’s a 3800 square foot restaurant as well as the relocation of the Tank House from the current location to out near the corner of the Hunt Boyer Facility.“

Those, according to Mr. Emlen, are projects that are underway now and his view proceeding well in otherwise difficult times.  “There is some things to be optimistic about.”

He then went into an introduction into the city’s fiscal climate and budget.  He showed that the current general fund budget is around $36 million down from about $40 million a few years ago.

“You can see the retraction, what’s been occurring with our general fund.  That’s been relatively abrupt last year when we saw some significant decreases in the sales and property tax revenues.

The city has seven departments.  We have an employee population of 445 budgeted, but we only have filled 421 positions and that’s obviously a defensive move by us in anticipation of potential future revenue shortfalls.“

He showed the city’s population at 66,000 which has remained relatively steady the last few years after rapid growth in the 1990s until the early 2000s.

“Since then I think that what we’re seeing is the maturing of the community for now.“

He attributed some of that to the economy and some of that to specific growth control policies including Measure J.

He then went into the budget and covered a number of things relating to it.

“We have seen, as I mentioned retraction.“

He then took a step back and compared Davis to other communities.

“One of the advantages that we have, is that I think the council a couple of years ago started to take a look at some of the structural issues for our budget and make adjustments systematically over the last few years.  So when we looked at the budget this year, we were faced with a 3.4 million dollar deficit, which we have closed that gap.

When you look at what’s going on in the communities around us, the Woodlands and the West Sacs, some of the deficits are much larger than what we face, particularly the percentage of their general fund budgets.  Part of that I think is because of some of the efforts that have been made over the years to try to control our budget.

Secondly, I think it has to do with the fact that we aren’t a city that is dependent on growth at this stage of our evolution.  Cities like West Sac are ever-dependent on ever-increasing housing supplies, values that go on with that.  They really got hit hard because a lot of folks bought new houses at the peak of the market and then saw those values plummet and that has effected property tax revenue significantly.“

He looked the property tax trend line.

“The city property tax… you can see that we’ve been on an ever-increasing plain upward to almost ten million dollars a few years ago and now we’ve basically started to slide with a little bit slower pace upward or even at an even pace.  We’re projecting this year that we’ll have a 2.8% increase in property tax revenue.  That’s significantly less than the go-go days of a few years ago when we were looking at 10 to 15 percent increases in the property tax baseline.  We had a lot of development going on and just the general spike in home values that were occurring in the community.  That is a big factor for us.  I’ll get to employee compensation issue and you’ll see what that slowdown does for our budget.”

Next he looked at city sales tax revenues.

“What this shows is basically we peaked out in 07-08 and little bit in 05-06 at about $9 million.  We’ve since seen a lit bit over a million dollar reduction in our sales tax.  I can tell you where most of that is coming from.  Most of that is coming from autosales.  We’ve seen a significant slowdown in autosales in the last few years.  What’s particularly important for us, this came up when we were debating whether Target was the right thing or wrong thing for the community, we were always concerned that our sales tax base was too dependent on autosales and what that would mean if there was a big reversal.  We are now experiencing that to some degree.  We’re hoping that over the coming quarter that the “cash for clunkers” and other things are going to bolster it a lit bit, but clearly one of the factors that is creating our shortfall is the decrease in sales tax.

In most categories we’ve seen drops.  The only categories I could find some positives was in mortuary sales, which I’m not sure how that works, a little bit with the business to business.  The other positive was with alcohol sales, I’m not sure if there’s a correlation with our times.  The business to business is one that I’m hoping in the future we’ll see more and more of.  That has to do with some of the new uses we’re getting in our industrial park and sales of large product items between businesses.  That’s one I certainly think we can build on in the future.  There is some positive out there, but not as much as we would like.”

He talked more about the autosales and the reliance of the city budget on them, he said that he has heard of some of the dealers some positive reports lately that there are some signs of improvement.

“I suspect that basically we’re looking at a number of years before–maybe we’ll never get back to where it was because it was probably unrealistic in the first place.  The economy sort of peaked out.”

He then went on to talk about state shifts in funding as a major impact on our budget.  He talked about the fact that this isn’t a recent phenomenon. 

“We’ve basically lost over the years from what we would have gotten from property taxes because of ERAF shifts and other things, basically the state of California is taking property taxes away from the city at about a clip of $2.9 million per year.  That’s been going on for a number of years.  We’ve calculated that we’ve lost overall about $29 million in that period of time.  This year, the state shifted another $1.3 million in addition to this.  We were able to cover that through some unique financing provisions that they provided so that we can stay whole.  But they also are shifting about $3.2 million of our redevelopment dollars this year which is another big hit.  Some of the projects that we would like to do, such as the 3rd and 4th, E and F parking structure and retail complex.  That is a project that has been put off since that money has been delayed to us for a period of time.  This is a big issue for us in terms of trying to survive.”

He moved on to how the city is dealing with employee compensation.

“There’s been much talk about how much the compensation system has effected the city’s budget over the years.  I have to say that this is one of those thorny issues.  I think it’s an important issue to be debating publicly.  It’s one that sometimes, I think some of the information gets out there in ways that is less than accurate.

This slide shows the distribution of our employee salaries…  You see that yes we do have our share of folks who make on the higher end of the salary range, but we also make our share of folks that don’t.”

One note I will make is that the slide he showed specifically addressed the issue of those who make over $100K in salary and attempted to show that only a small minority of employees make over that threshold.  However, it only looked at salary, not overtime and not total compensation, and so it skews the actual hit to the taxpayer.

“It’s one of those things, I think you look at what’s happened over the last ten to fifteen years, we did see a tremendous amount of competition over the years for employees–particularly in police but also in other trades as well.  That has pushed the salaries up and I think a lot of those cities have sort of realized that in fact we’re kind of working against each other in terms of pushing salaries and benefits and all of that beyond what is probably sustainable.

We are now working on a number of fronts to try to address those type of issues.”

He then moved on to talk about our retirement system.

“I will not deny that public employees’ retirement system is very generous.  It’s evolved over the years.  It cracks me up when I see folks trying to pin it on any one public entity or public agency or council.  The reality is that the whole system evolved over around two and a half decades.  Some of the benefits became quite costly particularly in the public safety area.”

Here he showed a graph showing the average retirement age and benefits public safety versus non-public safety received.

“This gives you a little bit of an idea of some of the realities that we saw when we went back and looked at our current retirees and what they make.  You can see the actual salaries that they are getting and the age that they’re retiring.  The ages are higher than sometimes is publicized [note the public safety was 51.5 instead of 50 and the non-public safety 57.1 instead of 55] and secondly the salaries are less.  I will also for purposes of accuracy say that this will probably change over the next five years as we see some of the folks retiring out now.  These numbers will go up.  There’s no denying that.

That’s been one of the focuses of the city council as we’ve been dealing with our labor folks over the last year now, talking about the system that we have, the fact that it really has evolved to the point where it unsustainable and working with them to try to come up with a more sustainable system.  Many of you probably saw the contract that came out with the fire union recently.  You’ll see another contract in the next two weeks with our management group.  If you look at the focus of those contracts and where we’re heading with those, basically it’s cost avoidable particularly on the retirement side.  We’re trying to cap out how much we’re going to contribute to things like public employees retirement system (PERS) as well as controlling the retiree medical benefit costs that we have right now.

The city council was very deliberate last year when they developed some principles of the negotiations for this set of contracts.  I think they were also trying to set a threshold for and principles that transcend this contract and future contracts because it’s going to take a number of years to make the adjustments to the system that we’ve had in a way that is fair to the employees and also fair to the public that pay the taxes that fund the services provided.  It’s easy to get into this as sort of a divisive issue.  I think it’s one that constructive debate and discussion is important.  I know that we’ve been engaged in that very much so through the process and we will continue to do so in the next few months.

We have additional negotiations coming up with our police officers, their contract ends in July.  We would expect to see at the same type of things in their contract as we’re looking at the current groups we’re working on now.”

He jumped to two big infrastructure projects since he was running out of time.

“One is the surface water project… the city is working with the city of Woodland, we actually have a joint powers authority…  We are working with them to basically bring surface water to Davis.  Why is that important?  I think most folks who are out there recognize that using groundwater from the groundwater aquifer forever and ever is not going to happen.  It’s just not sustainable.

We’re reading reports right now in the San Joaquin Valley where aquifers are failing.  We don’t want to get to the point where we’re basically not able to pump enough water to serve the residents of the community.  Councils over a twenty year period now have been working to bring surface water to the city which involves piping water from the Sacramento River and bringing it to our area through a water treatment plant up in Woodland, a joint effort.  On that point, I also want to say joint efforts between governmental entities are one of the trends that I think we’re going to see in the upcoming years because resources are scarce and we have to combine resources.  That’s an example of one of those.

Another project that’s out there is the waste water treatment plant upgrade.  The issue there is the waste water that we currently discharge into the delta is not of the level that the state water quality control board deems is adequate.  We are under order to improve our wastewater treatment.  That process has been underway for awhile as well.  We are continuing to look at options, the council has been very deliberate on that one knowing that the costs of these two projects is significant.  We’re working with other potential partners out there trying to minimize those costs and we’ll see how that one continues to play out.”

He concluded by calling this a year of transition on the budget issue.

“We have maintained the level of reserves in the city budget at about $5 million or 15% despite all of the bad stuff that’s been going on.   That tells you that the city is not going broke, but we have things looming out there that could certainly further stress our budget which is why I think the council has been proactive in trying to deal with the employee compensation, whether its retirement, retiree medical as well, are all things we are proactively working on right now.  I do think that the next budget that we have we will probably see more structural changes we’re going to have to look at.  We simply cannot continue to sustain some of the levels we have plus priorities change over time.  We have mentioned the sustainability efforts that we have going on and we may have to transition some functions to others as those priorities change over the years.

One of things we are looking at right now is whether we are going to share the resources with UCD Fire Department as a way to save money.”

He then took a few questions one of my favorite comments was at one point he mentioned he had “a critic,” that he saw his “critic” around, and then something about everyone having a critic.  I asked him later who that was referring to but he dodged the question.

We will probably be responding to some of the points he made more thoroughly later in the week or this weekend.  What is interesting to me is that while he acknowledged some of the problems, and some of the points of contention, he seemed to attempt to downplay a lot of them and minimize their severity on the one hand while suggesting that the city and the city council were addressing the points on the other.  Of course he rarely offered details and the audience was obviously one that probably is not all that aware of some of the debates that have gone on or the other side of the story so to speak.

Two quick comments.  First, I find it interesting that the City Manager rather than the Mayor was asked to give to the speech.  Second, it seemed he was only allowed about 25 minutes to speak and was rushed at the end.  The Chamber spent a lot of time on promotions that could have been used on this rather important speech.

—David M. Greenwald reporting