Budget and Water Crisis Leaves City on Edge of Precipice

pinkerton-steve

When the new council was elected last June and they replaced Mayor Don Saylor eventually with Dan Wolk, it appeared that the city was about to turn the corner after nearly a decade of irresponsible and wasteful fiscal policy.

Indeed, there have been moments of success, but those moments have been almost entirely derailed by the current divisive water policy, along with huge errors made by the last council on the last round of employee bargaining that have only recently come to light.

Thus, it becomes clear that, despite some very clear and important successes, the legacy of the new city council, and in particular the leadership of Mayor Joe Krovoza, is on the line right now.  We are in crisis mode and the crisis is coming in multiple forms.

The city has been very admittedly transfixed with the issue of water.  We were expecting, possibly by yesterday evening, to know whether the referendum has qualified, but apparently that will not happen now until Monday.

The water project is a huge mess right now.  The city and the JPA have put on the best possible face, they clearly believe they have to proceed but, make no mistake, this is going to be a huge problem for the next seven months.

There is likely to be a referendum.  Ernie Head is also pushing an initiative that a lot of people think is illegal and goes too far, but others are making noises to put a more modest “Measure J for Water” initiative on the ballot that would augment the very flawed Prop 218 process.

What will come of this is hard to know.  The community is clearly divided.  The Mayor has told me repeatedly he needs to find a way to bring folks together, but I have yet to see anything that bears any resemblance of a plan to that effect.

One opportunity to do that was squandered as councilmembers largely appointed people who support their positions on the water issue to a citizen oversight committee, that could otherwise have been the genesis of some shared understanding and common goal.

The problem, as we have laid out repeatedly here, is that in this economic crisis, people are hurting and this will further hurt the economy.

The council on Tuesday will not only work to codify that committee, but also will receive an update on the current Design, Build, Operate RFP (request for proposal).  This issue has fallen a bit off the radar, but that process is a mess, as well, with two companies being considered in the DBO package as operators that have very questionable backgrounds.  One of them is facing a federal indictment and the other has had scores of failed projects, as we laid out last month.

The city and consultants believe this is less than a huge issue, and they believe that the DBO process will protect the cities against costs overruns and other incompetence by the operators.  I am less than assured on this front.

Water has dominated the radar since September 6, but there are other huge issues as well.  The city’s economy continues to slump, and more businesses have gone belly up or have left.  This is perhaps punctuated with the loss of Borders, which will be replaced by Whole Foods, another grocer.

The economic uncertainty adds to the anguish of the budget by threatening to drive down sales tax revenues even further.

Last week’s Public Employee Relations Board (PERB) ruling is perhaps one of the biggest blows the city could have received.  We have talked a great deal about this already this week, but this is not a small occurrence.  It threatens to undermine the entire plan.

Already the city was behind in implementing the first $2.5 million in cuts to what will eventually surpass $7 million that the city is projected to have to pay in increased PERS (Public Employees’ Retirement System) and OPEB (other Post-Employment Benefits) costs.

Increasingly, that $2.5 million appears likely to come from layoffs and service costs – the exact thing that the city wanted to avoid.

Unfortunately, the city has been and apparently remains its own worst enemy.  The PERB hit, which will be $800,000 according to Mr. Rifkin’s estimate, only adds to the problem and worse yet, was entirely of the city’s own doing and avoidable.

This is just my own opinion, but I truly believe the impasse was an overcompensation for the fact that the city had not bargained hard enough with the first bargaining group, the firefighters.  They got criticized for not going far enough and not cutting a tough enough deal.

In an effort to show fortitude, city staff, fearing political pressure in the upcoming elections, panicked and pushed council to make huge errors that we will only now really come to understand.

With the next round of MOUs coming up, a new council and a new city manager, the city was poised to fix some of the problems.  Now they will likely have to deal with an even more emboldened and angry employee base.

Employee groups were already angered by the council, showing up in huge numbers in June to protest the proposed $2.5 million in cuts.  150 city employees came out on a very hot June evening and stayed until the wee hours of the morning.  That was already a burgeoning crisis, and the ruling by PERB will only add fuel to that fire.

For a long time, the city was in need of new leadership at the top of its ranks.  It has that opportunity in Steve Pinkerton.  Mr. Pinkerton’s contract is a problem, and another huge miscalculation by this council that will make things far more difficult for them.

But, putting that issue aside, there is still an opportunity.  This is not Mr. Pinkerton’s mess and so he has a freer rein in attempting to fix it.  But time is short and his attention is divided.

The city has needed someone to clean house for some time and this is the moment to do it – but will Mr. Pinkerton have the will and guts to pull the trigger?

Make no mistake, if the council gets the labor contracts and compensation wrong, they are looking at a fiscal crisis.  They are looking at mass layoffs.  They are looking at massive service cuts.  And they are looking at an angry mass of people.

Add the two situations together and it is not entirely outlandish to speculate that this is the critical moment that the city and this council face, and if they blink, we are on the brink of disaster.

So the question is really, how will future Davis historians look at the current council – lost opportunity?  Disaster?  Or a body that in its darkest moments was able to rise to the occasion to help unify and lead us.

At some point, the buck has to stop somewhere, we just don’t know where.

—David M. Greenwald reporting

Author

  • David Greenwald

    Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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Categories:

Budget/Fiscal

74 comments

  1. [quote]One opportunity to do that was squandered as councilmembers, largely appointed people who support their position on water to a citizen oversight committee that could have been the genesis of some shared understanding and common goal.[/quote]

    How was “one opportunity squandered” by these appointments? Why do you assume the advisory committee cannot be the “genesis of some shared understanding and common goal”? It seems to me you are condemning this group before it has even had a chance to meet; and because it does not have on it people you personally deemed appropriate, but that would have done everything in their power to destroy any hope of consensus.

  2. [quote]This is just my own opinion, but I truly believe the impasse was an overcompensation for the fact that the city had not bargained hard enough with the first bargaining group, the firefighters. They got criticized for not going far enough and not cutting a tough enough detail.[/quote]

    What does this have to do with the fact that it appears the city did not follow the letter of the law?

  3. [i]”…the genesis of some shared understanding and common goal.”
    [/i]
    I haven’t heard anything from the opponents of the water project that is likely to lead to this. What do you have in mind? There aren’t really that many options.

  4. “Why do you assume the advisory committee cannot be the “genesis of some shared understanding and common goal”? “

    I don’t assume that, it’s my belief largely based on its one-sided composition.

  5. “What does this have to do with the fact that it appears the city did not follow the letter of the law? “

    It would appear that was the motivation for not following the law – or so says I.

  6. Don: I fail to see why the onus is simply on the opponents of teh water project. If anything the onus should be on the proponents of the water project who ar seeking to change the status quo and raise rates. Nevertheless, I think this illustrates the exact problem we face here – there is a huge divide in this community. I can address it personally by voting no on the water project and convincing others to do so, and that will force the council to do things differently. I would hope not to go that far however.

  7. That is the argument you and others have been making for some time that I don’t think opponents ascribe to.

    But, if that is the case, then the onus is on the proponents to mitigate the impact of their policies lest we further cripple the economy and put people out of their homes. Make no mistake, I don’t think most opponents see that they have the onus that you ascribe to them, and that would have to be part of coming to the table because there is a huge divide here.

  8. Like I have been saying, the bus is going over the waterfall. You’ve got the CC majority sitting on top, singing “Merrily, Merrily, Life is But a Dream.” They are living in the old days, sort of a California Dreaming, that business as usual is OK, and that the residents are going to continue supporting these huge boondogles like giving away $500,000 of the sales tax increase of 2004 to the firefighters in 2005; the Target, which sucking money out of the local economy and hurting existing small Davis business in the downtown; huge raises and pension benefits, all championed by Steve Souza and Don Saylor; sucking grant money to pay staff positions for doing an unnecessary EIR for the changes to a few blocks of 5th St; the surface water project; the DACHA deal where staff and the City Attorney worked night and day to practically give away those low-income homes to some residents; the impasse mess and now a Labor Board ruling that makes our wonderul little city government look like a bunch of yo-yos who cannot shoot straight; and of course, the water debacle where those same city leaders are trying their best, guided every step of the way by water consultants who are being paid to tell the city to do the project, and of course, to use those same consultants to help design and build it, and certainly, to advise on its’ operation.

    I am thinking we need an independent audit of how the last 15 years of water project money has been spent.

    Our CC may be “California Dreaming,” but the rest of us are not. Time to throw some cold water on our elected leaders.

  9. Mayor Joe: You were sand-bagged by the City Attorney at your first meeting, with the contractual errors in the ZipCar contract. It’s rapidly falling apart. You can show you are a leader by: asking for an independant attorney to review the City Attorney’s involvement with DACHA and her advice and handling of the labor negotiations that resulted in the $850K award against the city; repealing the surface water rate ordinance at the December 6th CC meeting; setting up a process to solve the questions concerning the supply of water (your Advisory Committee is only going to endorse the current project, given the biased appointments and only 3 members whom might question the project); and cutting the CIty budget so it is balanced in a long-term, sustainable way.

    Mayor Joe and CC: You are looking at losing the Parks Tax in June. The CC and senior staff now lack credibility on a range of subjects. For example, why should any of us believe any of you on any subject concerning city finances, when we were definitely lied to concerning the water rates? Three of you are attorneys, and you know that once the court catches one side lying to the court, those parties and attorneys are doomed in any further legal matters before that judge.

    Also, we were lied to back in 2004 when 5 CC members (me included) put that 1/2 cent sales trax increase on the ballot, it passed overwhelmingly, and instead of spending those funds on parks and programs that were listed in the staff reports, and the city informational brochures sent to the voters (oh yes, we have it all in a file, to be pulled out soon as campaign exhibits if needed), the Saylor-led CC majority promptly gave it all — every red cent — to unnecessary raises to the Fire Department staff.

    All of these things tie in to this Vanguard article’s theme that the city is on the edge, and it is going to take the strong leadership of the Mayor and City Manager to save things before June.

  10. BTW, to all city employees: I want to be very clear that I do not hold any of those high raises or pensions or benefits against any of you. It’s your union leaders’ jobs to ask, and it’s the CC and City Manager’s jobs to decide what the city can afford, and then reach a fair deal. If the unions got the better deals for their members, then Bless them, and shame on the CC for approving what may lead to a city bankruptcy next year or the year after.

  11. [url]I want to be very clear that I do not hold any of those high raises or pensions or benefits against any of you. It’s your union leaders’ jobs to ask, [/url]

    Right. Just like it’s the bank’s jobs to make mortgages.

    Occupy the Unions.

  12. [i]”The PERB hit, which will be $800,000 according to Mr. Rifkin’s estimate, only adds to the problem and worse yet, was entirely of the city’s own doing and avoidable.”[/i]

    Yesterday evening, Paul Navazio told me, “We haven’t run the detailed calc for the DCEA restoration, but our estimate is closer to $500,000, not counting the interest (7%) penalty …”

    Hopefully Paul’s number is closer to the actual debt than mine. I didn’t ask Paul how he arrived at his estimate. Here is how I arrived at mine.

    The city’s staff report of May 25, 2010 stated that the reforms in the imposed contract, compared with the status quo of the old contract, would save the city $507,000 in one fiscal year: [quote] The provisions of the City’s “last, best, final” contract proposal would yield budgetary [b]all-funds savings of $507,000[/b] and General Fund savings of $203,000 in the current fiscal year. [/quote] If you divide $507,000 by 12, you get $42,250/month in savings. That is the “payment” amount. To calculate the principal owed, just multiply 18 x $42,250 = $760,500.

    To figure the interest owed, you have to consider how long each payment has been earning interest. The first payment has been earning interest for 18 months. The second for 17 months. The third for 16 months and so on.

    The interest rate for a month’s interest is 7% divided by 12 = 0.5833%.

    When you run the interest and principal for each of the 18 payments, you get a total of $804,070. (If you assume that the interest is only earned at the end of each period, then you get a slightly lower total, $799,407.) Therefore, the interest is $804,070 – $$760,500 = $43,570.

    What seems to be at issue is the original claim by staff that the savings from the new contract would be an “all-funds savings of $507,000” per year. Staff may have been exaggerating that number, by counting some things as “savings” in the new contract which were already provisions in the old contract.

  13. [i]”I truly believe the impasse was an overcompensation for the fact that the city had not bargained hard enough with the first bargaining group, the firefighters. They got criticized for not going far enough and not cutting a tough enough deal.”[/i]

    It should be pointed out that the so-called “hard-line” reforms imposed on DCEA were no different than the reforms mutually agreed to in the PASEA contract, the Management Contract or the Dept. Heads contract. It is false history to state that everything the City did not get out of Local 3494 it needed or wanted to get out of DCEA. The fact is it got PASEA and others (and later the police, sworn and non-sworn) to agree to changes that DCEA and by a unanimous vote its members rejected.

    For whatever reason, the DCEA union leadership and the members of the DCEA responded differently than those other bargaining units did to the same requests of the City. To me, that says a lot more about the people in DCEA than it does about the City’s position.

    That said, I have two sources telling me that at least one of the pro-fire union members of the council* had very harsh, negative things to say about the PERB leadership behind closed doors, and perhaps it was that attitude of disrespect which made agreement more difficult with DCEA.

    *The pro-fire union member of the CC was obviously not Sue Greenwald, though she is the member of the council that [i]the DCEA attacked in its case with PERB[/i]. In response to the DCEA attack on Sue, PERB found she was correct in her position and actions. I should add that I have spoken with Sue about this, and she would not reveal or discuss with me anything which was said in closed session. She did agree that the PERB report was favorable to her and her actions in this matter.

  14. Oops. I need to correct this: “… very harsh, negative things to say about [u]the PERB leadership[/u] behind closed doors.”

    That should read, “… very harsh, negative things to say about [u]the DCEA leadership[/u] behind closed doors.”

  15. [quote]Don Shor: David, there are technical and regulatory arguments compelling the surface project. The onus is on the opponents to address those.

    DMG: That is the argument you and others have been making for some time that I don’t think opponents ascribe to. [/quote]

    Nevertheless, those technical and regulatory arguments that compel the surface water project have to be dealt with. The new water regulations are not going away, and neither are the MANDATORY FINES… To pretend otherwise is foolish…

  16. [quote]BTW, to all city employees: I want to be very clear that I do not hold any of those high raises or pensions or benefits against any of you.[/quote]

    Michael, this is an exaggerated generalization. Not “all city employees” got high these things. Believe what you will but your opinion would benefit from taking a closer look.

  17. [quote]Hopefully Paul’s number is closer to the actual debt than mine. I didn’t ask Paul how he arrived at his estimate. Here is how I arrived at mine. [/quote]

    Rich,
    No offense as I honestly don’t pose this to you as an attack; but you quite often present figures and calculations. So I’m genuinely curious to know if you have a background in accounting and/or finance.

  18. “Nevertheless, those technical and regulatory arguments that compel the surface water project have to be dealt with. The new water regulations are not going away, and neither are the MANDATORY FINES… To pretend otherwise is foolish…”

    We shall see. But the flip side is also true as to impacts and the fact that the voters can effectively block any rate increase if they are so inclined. Your seeming refusal to look at that side of the equation, leads to my skepticism.

  19. All the following information is derived from either a Public Records Act request or from documents on file with the court.

    The Council should investigate the City Attorney and City staff and look at how they lent $4 million in public funds to DACHA and what due diligence was used. It would appear from documentation that the City Attorney and City staff knew that there was no legal quorum for the DACHA board and DACHA membership to vote on borrowing $4 million loan of public funds.

    In fact, City staff (Foster or Cochran) attended at least three official DACHA meetings where the topic on the agenda was (October 3, 2007 minutes), “Stephanie (President) discussed suspension of Bylaws Section 4.6 which states members cannot vote if they are behind payments. Suspension would allow everyone to vote.

    Neither the City Attorney (Steiner) nor City staff (Cochran/Foster? Ayala-Garcia) informed the City Council of concerns they had about DACHA as a borrower. Neither did any of their staff report let the City Council know that the votes by the DACHA board and membership were conduced by ineligible legal bodies. Or that the loan documents for $4 million of public funds were signed by ineligible officers of DACHA.

    The City Attorney had the next board of DACHA vote a second time to confirm the loan. Even though City staff were likely aware that the new board was also composed of ineligible members.

    City staff and City Attorney have not shared with the Council or the public what went on at DACHA. It continues to be a debacle of the first order imposed by staff on the City Council. There is much that needs to be cleaned up.

    David Thompson, President, Twin Pines Cooperative Foundation

  20. [i]”So I’m genuinely curious to know if you have a background in accounting and/or finance.”[/i]

    Sort of.

    When I was an undergraduate at UC Santa Barbara, one of my two majors was Economics (the other was Political Science). In econ, we had to take a full series in accounting.

    But in my professional life, I was for some years a general partner in a real estate development* and management company in San Francisco. My work included raising investment capital (through limited partnerships) and getting construction loans (usually from banks) and getting long-term loans (usually from thrifts). I did a lot of other things in that company, but it was there that I really learned the world of finance and financial accounting.

    That knowledge came in handy when I covered business development and investment in Mexico as a journalist. Though I was based out of Mexico City and Guadalajara, I also covered other topics and occassionally covered other Latin American countries.

    *With my partners (one of whom was my cousin who started the company) we bought old, usually shuttered, run-down or bank-owned industrial buildings in the Bay Area. We then rehabbed them into small to medium sized light-industrial spaces or we converted them into live-work lofts. Our typical tenants were artists, craftsmen, cabinet shops, photographers, assemblers, importers, office users and other people who had trouble paying the rent.

    One of my duties was to check on the progress of projects under construction and write reports for our bankers detailing that progress. As such, I had to visit our construction sites, meet with the supervisor of construction and debrief him, usually a couple times a week. But in late September of 1989, I left my company for a time to go back to graduate school at UC San Diego. The employee who assumed my duties visiting our job sites was a guy named Bruce Stephan, who drove a Mazda. About three weeks after I left, on October 17, 1989, Bruce and our property manager drove over to Oakland at 4 pm to measure the progress on a project which was nearly done. At 5 pm, driving back to San Francisco, the Loma Prieta earthquake struck. Bruce’s Mazda became famous, as the Bay Bridge collapsed underneath them, and his car dangled precariously over the Bay. He survived with nothing more than a few cuts and bruises. Janet, the property manager, was hospitalized with broken ribs and severe emotional trauma. … I never kept up with Bruce, who was a great guy and a good friend, but the last I heard about him he was working in New York at the World Trade Center ([url]http://articles.latimes.com/2002/sep/01/news/adna-dodging1[/url]). Yes, he was in WTC1 on September 11, 2001. His wife was in WTC2. They both made it out alive.

  21. [quote]We shall see. But the flip side is also true as to impacts and the fact that the voters can effectively block any rate increase if they are so inclined. Your seeming refusal to look at that side of the equation, leads to my skepticism.[/quote]

    You seem to refuse to look at the flip side of the equation if the voters do effectively block any rate increase – which is MANDATORY FINES. THAT WILL HAVE TO BE DEALT WITH IF THE VOTERS DECIDE TO VOTE AGAINST THE RATE INCREASES.

  22. [i]”Janet, the property manager, was hospitalized with broken ribs and severe emotional trauma. … “[/i]

    My memory failed me. The lady’s name was Janice, not Janet. She was [s]a total shrew[/s] a competent property manager who went the extra mile to extract rents from our poor tenants.

  23. David: [i]”…the flip side is also true as to impacts and the fact that the voters can effectively block any rate increase if they are so inclined.”[/i]

    The question is whether you, personally, believe they [i]should[/i] do that.

  24. [quote]The fact is it got PASEA and others (and later the police, sworn and non-sworn) to agree to changes that DCEA and by a unanimous vote its members rejected.
    [/quote]Could it be, given the record in the PERB ruling, that DCEA was presented with the LFBO, and before they, by thylaws, ciuld not vote on it for 10 calaendar days, but the City declared impasse in 4? If you were willing to consider something, would you be inclined to vote “yes” if the other negotiating team said “no deal” before you could vote on the “deal”?

  25. Moderater… can we please look seriously @ Mr. Thompson’s post where the subject is water and employee compensation, and he goes on about DACHA, etc. Maybe on topic, but I’m thinking NOT.

  26. As I look at Mr. Thompson’s, Mr. Harrington’s posts, they tend to promte off-topic issues… please delete mine, after reading, because it is technically off topic.