Why Davis Remains in Fiscal Peril

Despite making tremendous progress in 2012 on contracts and budget, Davis remains in substantial fiscal peril.  As we have noted previously, at the same time the city of Davis is looking to fix things like fire staffing and boundary drops, the firefighters’ union, along with DCEA (Davis City Employees Association) remain holdouts for new contracts.

Mr. Rifkin argued that this “doubled the value of fire employee pensions, even for those who were less than a month from retirement.”  Worse yet, while the formula would require the firefighters pay 9 percent of their salaries for the employees’ share, “The union did not want its people to pay any of the added cost.”

Since “the city understood it would be a harder sell to the public if we discovered that the city was paying the employees’ share,” the city made the decision “to hide this expense.”

“The solution was simple,” Mr. Rifkin writes.  “Our City Council gave every firefighter a 9 percent annual raise to cover their share of the costs. And the council gave them a larger raise on top of that, because, well, it was public money they were giving away.”

In 2005, a contract we have covered extensively, the firefighters were given another 36 percent increase from 2005 to 2009.

He writes sarcastically, “It probably had nothing to do with the fact that the Firefighter Local 3494 spent tens of thousands of dollars to elect a pliant majority to the City Council.”

The police officers were also given 3% at 50 and given a large, though smaller, raise as well.

One of my critical questions is how long the city might have been able to sustain this had the economy not collapsed in 2008.  From 2000 to 2007, property tax revenues for the city of Davis increased in annual increments of at least 10%.  But even that was not enough to sustain the largesse given to city employees.  So the city passed a half-cent sales tax in 2004 – ostensibly to protect the city from state government raids, but in fact the $3 million in additional revenue, which we extended in 2010, went to the firefighters’ 36% raise.

Had the economy not collapsed and the housing bubble burst in 2008, the 2009 contracts might have continued this unstable and unsustainable public giveaway.  But because the economy collapsed under its own weight, as Mr. Rifkin puts it, “the irresponsibility of our employee contracts has become painfully clear. Davis has been scrambling ever since to stay afloat.”

Rich Rifkin in his column reports, “The latest actuarial reports published by CalPERS say Davis needs an additional $141.3 million to cover unfunded debts to past and present employees.”

That figure includes a $64 million unfunded retiree medical liability (Other Post-Employment Benefits), a $27.4 million unfunded liability for pensions for safety personnel, and $49.9 million for non-safety employees.

Mr. Rifkin argues that since 2007 he has been calling for a second tier for new hires with reduced pensions.  Currently, state law prevents cities and other governmental entities from reducing formulas for existing employees.

But the city has not done this reform yet.  As Mr. Rifkin notes, “Every new employee hired in 2012 gets what we cannot afford: 3 percent at 50 for safety; 2.5 percent at 55 for non-safety.”

So, while other communities have made this reform, the city of Davis, at least for fire, so far has not.

He uses Cathedral City near Palm Springs as an example.  They adopted a second tier back in September.

He writes, “Its existing employees are on the same formulas we have in Davis. Cathedral City’s new police and fire get 2 percent at 55 and the rest 2 percent at 60. These changes make little difference in the short run, but over time they produce tremendous savings.”

“In 2013-14, CalPERS estimates that the employer share for Davis will be $2,954,000 for public safety employees. The bill for non-safety will be an additional $4,551,000,” he writes.  “On a payroll of $32.16 million, that’s a yearly expense of $7.5 million, and it is rising. In 2015-16, the employer pension contribution for Davis will climb to $8.5 million on a payroll of $33.8 million.”

How much of a difference would this make?

Mr. Rifkin calculates, “If, in 2015-16, all our cops and fire were instead on 2 percent at 55 and our non-safety were on 2 percent at 60, the employer contribution would be $6.47 million. We would save just over $2 million per year.”

The new contracts for the groups other than fire and DCEA create a second tier for those hired after January 1, 2013.  Under those provisions, new safety employees would get 2.7 percent at 55 while non-safety would get 2 percent at 62.

Writes Mr. Rifkin, “Because Davis dithered for the past five years, failing to act before the law changed, we will not be able to capture as much second-tier savings as cities that followed my advice.”

He again calculates: “Cathedral City’s newest safety employees, for example will now get 2 percent at 57; ours, 2.7 percent at 57. If we had all new sworn employees in 2015-16, the difference between those formulas would cost the taxpayers of Davis $565,000 annually.”

Mr. Rifkin concludes, “Since our journey toward insolvency began with the 2001 fire contract, it’s fitting to close by noting that $565,000 is what one new, fully outfitted Type-1 Urban fire truck costs. They are supposed to last for 20 years. Unfortunately, we no longer have the money. We probably won’t have it for another 20 years.”

Rich Rifkin makes a good point here.  A few weeks ago, Union President Bobby Weist made the comment that for the proposed staffing changes, the “flavor seemed to be money – nowhere in there did it say it was going to improve the service, that it’s going to give the citizens a better service than they’re getting.”

The problem is that this is all about money.  When the city is paying a tremendous percentage of their payroll for pensions and retiree medical, that takes away money from public safety.

Clearly, the firefighters’ union want to use the public safety buzzword when it serves their purpose, without looking at its full context.

The city continues to move in the right direction, but not nearly enough has been written about how much the delay, from 2008 when the economy collapsed to 2013 when the council is finally making the needed reforms, will cost the city and what the public safety ramifications are for that delay.

Mr. Rifkin mentions a new fire truck, but it could just as easily be unsafe roadways, infrastructure that has not been upgraded, and other expenditures that we cannot afford to make because millions are going to the retirement of people who will be making near six figures in pensions upon their retirement at the age of 50, on your dime.

—David M. Greenwald reporting

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