Commentary: A Cautionary Note For the City Manager

In 2008, I will never forget going to a Davis City Council debate and hearing two incumbent city councilmembers boast that they had balanced the budget with a 15 percent reserve.

Understand that these words were issued in April or May of 2008.  By September of 2008, the world would be very different, both in terms of our budgetary reality and in terms of the view on issues like unfunded liabilities and pensions.

However, even at the time when those words were spoken, the city had a large category of unmet needs, including road maintenance.  At that time the number was put at around $13 million.  We had unfunded liabilities in retiree health in the tens of millions.  And we had a pension plan strained by salary increases and enhanced benefits.

In November, the Davis City Council fixed this problem.

“A number of years ago, I pointed out that we were essentially balancing the budget by calling our deficit ‘unmet needs,’ ” Councilmember Sue Greenwald said.  “As we’ve mentioned, they’ve accumulated and we’ve said that… we wanted to know what services we could restore.  I don’t think that’s a very accurate way to describe it.  We are not restoring services, we are trying to catch up with unmet maintenance needs that are getting really severe.”

“We’re evading the big issue,” Councilmember Greenwald warned. “The budget is not a realistic budget.  We’re still saying that the budget is on its way to being balanced by having this enormous category of unmet needs.”

“In the end we’re going to have to spend money on our roads, on our sidewalks, our bike paths and we have to start putting it in the budget and we have to start spending it,” she stated.  “We need to start being more realistic because what I’ve heard tonight is more kicking the can down the road.”

Councilmember Greenwald then moved to direct staff to come up with a budget that reflects the true deficit, which includes a concept of the city’s unmet needs.

Councilmember Wolk seconded the motion.

City Manager Steve Pinkerton said, “You want a budget that reflects our physical needs, both ongoing and the deficit.”

Councilmember Greenwald said that we need the budget to reflect both unfunded liabilities and unfunded needs and a way to pay them down, just as the city has a plan to deal with unfunded health liabilities.

Mr. Pinkerton said, “We have $420 million infrastructure and right now, we’re not budgeting enough to deal with that infrastructure.”

The council would then unanimously support the motion, and for the first time seemed to recognize what to many seemed like a huge disconnect, the fact that there were mounting deferred maintenance and unmet needs costs, the amount is going up over time, and yet there has been no accounting for it in the budget.

As Councilmember Greenwald put, it was disingenuous to have these mounting costs and suggest at the same time our budget was balanced.

As recently as last year, the council was presented with a budget that did not deal with OPEB (Other Post-Employment Benefits) or PERS (Public Employees’ Retirement System), and did not include funding for road maintenance.  The finance director, at the time that budget was issued, acknowledged that the council would have to factor in these costs down the line, but still presented the budget as balanced.

It has to be in this context that we view the new City Manager as a breath of fresh air.  In his state of the city address, he had the chance to take the easy way out.  He could have done as his predecessors had done and fall back on the fact that the city is better off than many to suggest that we will be all right.

He could have taken comfort in the overly-rosy projections of CalPERS, that likely means we can forestall some cuts.

But he did not do that.

Instead he took them on.

“The sort of good news on the pension side is that we’re getting projections from our friends at CalPERS… the folks at CalPERS claim that they have enough money at the moment and that they’re not going to increase our rates over the next two years,” he said.

However, he quickly added: “We think they’re wrong.  We think they’re basically doing that so that they don’t have to give the state an increase in their rate this year so they don’t contribute to the state budget deficit.”

“But we think they’re in complete denial.” He said that they don’t anticipate any additional cost pressures from CalPERS at this point in time, but the city still plans to set additional money aside in case they change their mind, which he said happens “just about every year.”

“Long-term, what’s happening with CalPERS is completely unsustainable,” he continued.  “There’s no way they can ever meet their obligations and so at some point in the next five years they’re going to come clean and there’s either going to be a ballot initiative or some legislative change and both future employees and existing employees are going to see some reduction in the accounting methods – it’s just not sustainable.”

He hopes this realization comes before they hit the city with a 30 to 40 percent increase in our contributions rates.  “There is some point in time when the fiscal laws of nature are going to catch up with [Cal]PERS,” he said noting that non-PERS cities are having to increase their rates by as much as 70 percent.

That was a monumental change in attitude from the city manager.  This week we heard from people who think there is a serious problem with the city manager – I just don’t see it.  What I see so far is someone who is looking to make changes.

But dangers lurk ahead.  While we discussed, earlier this week, the reorganizational plan that the City Manager hopes can save nearly half a million, he has so far left the former team in place.

Chief among this team is finance director Paul Navazio and Human Resources Director Melissa Chaney.

Paul Navazio is frustrating at times, because in private conversations he seemed to understand better than most in city government that this was a train wreck.  At the same time, he was keen on hiding the ball.  His budgets were always overly-rosy.  His projections rarely proved to be pessimistic and the true nature of the problems often took six to twelve months to manifest themselves.

People can justify his continuing as finance director.  Frankly at this point, I see no compelling reason to change.  At the same time, there is a danger that institutional and bureaucratic survivors survive by riding the lower amplitude waves of shifts in policy.

By that I mean Paul Navazio was never firmly in the “see no evil” camp, but he may also never be firmly in “no more business as usual” camp.

Both he and Melissa Chaney know where the proverbial bodies are buried in the budget, the risk is that they may hide some of their own if the council and City Manager do not properly scrutinize the budget.

We remain more concerned with Melissa Chaney staying on.  There may be advantages in her knowing where the bodies are buried in employee contracts, but she also behaved unscrupulously in the previous round of MOUs.

Back in January of 2010, we reported that Melissa Chaney had sat in on the management side of her own bargaining unit’s MOU and to make matters worth, her husband, who has since left the city, was also a member of that bargaining unit.

To make matters even worse, the city was clearly aware of these potential conflicts of interest, but the city manager and city attorney did nothing to prevent this.

Moreover, we should not forget that Paul Navazio and Melissa Chaney, along with Harriet Steiner, were the authors of the city’s now failed effort to impose impasse on DCEA, something that will cost the city perhaps three-quarters of a million dollars.  And once again, no reform, no consequences that we know of.

The city manager will undoubtedly point to the institutional memory that these individuals present, and perhaps he wishes to evaluate their performance under him. But, given the sea of discord that has been bubbling to the surface in recent weeks, given the fact that it appears a lot of that is coming internally and from perhaps people in leadership positions, we strongly suggest that this continuity may be what unhinges reform efforts.

We have believed that City Hall has needed some housecleaning for the past six years and nothing has really changed on that front since Mr. Pinkerton came aboard.

—David M. Greenwald reporting

Categories: