Analysis: City Comments Show the Extent of Denial on the Budget Crisis

If an article in the Davis Enterprise posted on Saturday is at all accurate, it shows the extent to which the city has not taken this crisis seriously.

People need to understand that the city is probably facing another $7 million in cuts in the next two to three years.  But if the cuts of $6 million, nearly 10 percent of the general fund have indeed been “superficial” then we should all be appalled at the amount of waste in the system.

In fairness, I think the term “superficial” refers to the fact that most of the cuts have been done without laying off current employees.  Instead, the city was able to delete about 43 positions in the last three years.

In the past, we have pointed out that this kind of cutting produces an uneven structure in government, as we are cutting by convenience rather than lack of need.  That means that the city has hastily undergone reorganization without a true assessment of what positions are needed to provide the services we most need, and which to cut.

The next alarming statement is phrased and attributed to Interim City Manager Paul Navazio: “Revenues continue to lag and major cuts cannot be put off forever.”

This illustrates several major problems in the city’s approach.  First, from the start we have underestimated the extent to which revenues will be down.  Just two years ago, there was a fight to move revenue projections off the positive scope.  That fight got them to neutral when in fact the city lost revenue.

Moreover, we have tried to take half-measures to balance the budget rather than major reorganization.  Looking at the initial wave of cuts, we had furloughs, short-staffs and other cost-cutting measures that would work fine if the downturn were temporary, but realistically we are looking at five years, which is more or less permanent.

Now, for the first time, the city is signaling the obvious: “There will be layoffs and cuts to city programs and services in the new budget year and they will affect more people and be felt more deeply than in previous years, he said.”

Last week we went through the numbers here, and we are talking, in the next two to three years, about finding millions of dollars to fill the loss of revenue and increases in costs for retirement benefits.  Perhaps as much as $7 million, which means we will be cutting over a five-year period about $13 million from our budget.  That amounts to the school district.

The fact is, we knew in 2008 that this was coming.  We had the new contracts, mainly in 2009 and 2010, but failed to address this in an adequate way.  Now we are finally going to get serious?

There is good news in here – the city is starting to take this seriously.

The Enterprise reports, “Navazio said he plans to recommend up to $650,000 in other cuts to free up cash for ‘priority unmet needs,’ such as street and facilities maintenance.”

We have been talking about the unmet needs crisis for years, we have been talking about the lack of money for street and facilities maintenance for three years now.  We reported last year that the city would have to dip into the general fund or our streets would collapse.  We also know that $650,000 is not nearly enough to keep up even with current repairs, so we will actually be falling further behind, but less so than we would have without the shift in money.

And there is more.

“The budget also will identify about $1.6 million in contingencies — cuts that may need to be implemented after the budget is adopted, depending on state-level budget decisions, Navazio said. Included in the contingencies is a net loss of about $1.4 million that will result if the state moves forward with eliminating local redevelopment agencies, he said.”

I think that is less likely now, but the city certainly has to be proactive about it.

Not mentioned here are the increased costs of pensions and retirement health care.  Over the next three years that will eat up somewhere between $3 and $5 million of the budget.  That is the minimum.

The city is starting out the budget cycle in the red, about $750,000.  That amount will have to be closed.  But the problems get worse from there.

Increased costs to pensions will likely eat up another $2 to $3 million that the city will have to find money to cover.

That number does not reflect the amount the city will have to pay to close the unfunded retiree health care liability.

But the most serious problems are not even on the city’s general plan budget.  The surface water project is going to lead to a series of rate increases that will eventually take the yearly water rate from just over $400 to $1333 per year.

That is about a $900 increase, which is about 4.5 times greater than the school’s parcel tax.

But there is even more, as next year the city will have to pass a parks tax again or face another couple of million in the hole.

Better late than never of course, but none of this is very surprising.  What has changed is that the city is realizing it can no longer balance the budget based on rosy projections and false hopes.

The new councilmembers, and I will include Dan Wolk in that group, need to remember that the primary reason they were elected was to deal with the budget. 

As we have argued in so doing, we need new and stronger leadership from within the city offices.  We need to hire a good city manager and a new HR Director that can do the tough work.

This is the moment that will define this city council.  Will they take clear and positive steps towards addressing the problem or will they continue the legacy of cover up and fooling ourselves about the nature of the problems we face?  Tuesday will go a good way toward determining which direction we go.

—David M. Greenwald reporting