Sunday Commentary: Just When You Thought It Was Safe…

weist

A reader made the flippant remark that at least we’re not Stockton, and as Stockton continues to struggle with bankruptcy and getting themselves out of debt and obligations, we are quite fortunate.  But for most places this side of Stockton, the news coming out this week is not good.

Somehow, approaching the five-year mark of the collapse of Lehman Brothers, the city of Davis is still churning a not-so-insignificant $2 million deficit, which represents about 4.7 percent of the budget.

That means in order to close the gap, the city can make cuts, raise revenue or use one-time resources in order to balance the budget.

As the city manager notes, 71 percent of the general fund is tied up in police, fire, parks and infrastructure.  In 1998-99, that figure was just 54 percent.

The news is actually a lot worse than all of this implies, as we start drilling down into the numbers.  A former councilmember apparently is still claiming that he balanced the budget with a 15 percent reserve during his time.

We note that this council can make the same claims – if they fail to put any money into street maintenance, they can have a budget balanced on paper with a 15 percent reserve.  But the failure to properly fund infrastructure, whether it be roads, parks or water, is part of what got us here in the first place.

Two months ago, a consultant report came back showing that if the city does not immediately infuse tens of millions into road maintenance, the city would be facing a deferred maintenance backlog of over $400 million within a few decades.

The bad news is that the current city budget is *only* putting $2.3 million toward street maintenance, and $1 million of that is the money budgeted from last year that was carried over as the city hopes to maximize the bang it gets for its buck.

The city will have to grapple with this issue, as well, on Tuesday night.  Staff knows they are behind the eight ball here and recognizes “the potentially unobtainable fiscal needs of the earlier Scenarios” for funding road maintenance at a level likely to, at the very least, prevent the growth of the maintenance backlog.

The result is two proposals.  One would provide an infusion of $25 million over the first two years and then increase funding in order to maintain an average PCI (Pavement Condition Index) at 68 for roads and bike paths.  The current level was downgraded to 62.

The other scenario would spend the $25 million but maintain a steady funding level of $3 million a year.

Recall that in February, the original consultant projection was at about a $15 to $20 million infusion of money with about $7 to $8 million a year.

Clearly, without added revenue sources, the idea of the city getting to the $7 to $8 million a year level is unrealistic.  This not only illustrates the depth of the problems, but also the irresponsibility of past council practices.  To claim that they balanced the budget with a 15 percent reserve ignores the failure to fund and maintain not only the city’s road network, but also parks and water.

The second problem is well-documented, and that is the explosion in the early and middle part of last decade in employee compensation and post-retirement benefits.

In one of the shrewdest moves we have seen, the city manager who was directed to consider the fire staffing issue in the context of the budget as a whole, has simply incorporated both the staffing levels and labor agreements into the new budget.

The city manager’s budget, which contains a structural imbalance of over $2 million also assumes that there will be a fire staffing level of 11.  Why is this an important move?  Because now in order to raise fire staffing levels, the council has to essentially add an additional cost of $443,663 to the current budget deficit.

Already the city is going to be faced with service cuts, possible pool closures, possible reduced hours at key city services desks, and in that context the fire department is going to ask the city to restore their funding?  That is going to be a very difficult task.

One council member told the Vanguard that the question is not going be 11 or 12, but rather 10 or 11.  Recall that Joe Krovoza at the February meeting at least floated that idea, though the former interim fire chief was not on board with that.  But then again, that was before these numbers came out.

At the same time, the heat gets turned up on both the firefighters and DCEA because they have held out on agreeing to the contract that the other five bargaining units have already agreed to.

That hold out now has a cost.  Every month they hold out, they cost the General Fund $144,000.  Think about that for a second – the labor contracts are nine months overdue, and that is a cost already to the city of $1.296 million.

The city manager projects about $1.7 million per year as the cost of the two labor contracts.  That means that fire is not only asking for the city to spend $443,000 more for maintaining the staffing level but also has cost the city probably three-quarters of a million by failing to agree to a new contract.

The heat has definitely been turned up on the fire issue – the firefighters and their union are clearly obstructionists to reform and the path of fiscal sustainability.

Overall, the news is not good, but there is some good news here.  No longer do we have a council that is content to proclaim we have a balanced budget with a 15 percent reserve, and ignore the deferred maintenance and the unfunded liabilities.

As the city manager notes, “Over the past two years the Council has been responsibly reshaping the City’s finances to address the challenges caused by the national economic downturn: the loss of long-term funding sources as well as dealing with unsustainable and unfunded costs.”

That is the key.  Things are bad now, they are worse than most of us hoped they would be at this point, but the council and city staff is no longer hiding the truth – they are trying to address it.

But it is this realization that makes the failure to act on the fire staffing all the more critical.  This is just another piece on the table and another complication.

If the council ends up getting a better solution because of the delay, then we can move.  But there are still great risks and dangers here.  It is these that should keep every responsible citizen up at night wondering how the city is going to fund our critical infrastructure needs, while maintaining the quality of life and city services in Davis.

—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.

    View all posts

Categories:

Budget/Fiscal

80 comments

  1. Naive question but if the city manager is ‘shrewdly putting the staffing into the budget’, to accomplish the fire staffing issue, why wasn’t that done in years past? How can that get around the fire union staffing agreement with the city? Thanks!

  2. [quote]Despite all the hyperbole we are not Stockton. We are not ground zero of the housing bust. [/quote]

    That may be so right now, but it’s better to get the jump on our finances now before we become another Stockton.

  3. David Greenwald said . . .

    [i]”As the city manager notes, 71 percent of the general fund is tied up in police, fire, parks and infrastructure. In 1998-99, that figure was just 54 percent.”[/i]

    It would be very helpful to see the two breakdowns side by side. Are there 1998-99 categories that no longer exist? Or are severely reduced?

    Is the difference in percentage simply due to different cost escalation rates?

  4. “Despite all the hyperbole we are not Stockton. We are not ground zero of the housing bust. “

    Which information provided here is hyperbole?

  5. “why wasn’t that done in years past? “

    I’m not sure I understand the question. Last year, the city manager put about $4 million in restructuring savings into the budget, then he brought in Chief Kenley in part to do the audit to create the staffing change plan, and now that has been added as part of the proposed savings in this budget.

  6. Yes, what took up 46% of our city taxes in FYI-99, but only cost us 29% in FY-12? This “grey area” must represent a lot of money; has it been increasing or decreasing in real dollars in the past decade?

  7. “…FY-99…” “; how much has the grey area been increasing…”

    P.S.–Thank you Matt and David for the excellent, unrelated information separately provided a week or so ago.

  8. “A former councilmember apparently is still claiming that he balanced the budget with a 15 percent reserve during his time.”

    Who is doing this? Does it accurately reflect what happened during “his time”?

  9. [i]Despite all the hyperbole we are not Stockton. We are not ground zero of the housing bust.[/i]

    The housing bust did not cause Stockton’s problems. It only accelerated their impacts. The root causes of Stockton’s and Vallejo’s fiscal messes are the same as what we are seeing: severe over-spending on the pay and benefits of city employees. However, Davis has the added problem of having previously rejected a level of economic development commensurate with our city needs.

  10. [i]”…having previously rejected a level of economic development commensurate with our city needs.”
    [/i]
    Davis voters have not rejected any economic development proposals that I’m aware of. I can’t remember any economic development proposals that have come before the council or the voters that have been rejected. The voters approved Second Street Crossing, and that’s the only large commercial project I can think of that any developer has brought forward.
    The notion that Davis residents and political figures oppose economic development is not borne out by any evidence. This city is constrained by geography and history.
    Davis has a history of opposing some, but not all, residential development. That is what has usually been proposed by local landowners.

  11. [i] Davis voters have not rejected any economic development proposals that I’m aware of.[/i]

    Don, you must be from out of town.

    Davis voters routinely reject growth. They reject peripheral development. They reject parking structures downtown. They reject expansion of the downtown and higher buildings. Target barely passed approval.

    Davis voters want to maintain their sleepy little college town feel. Then they elect politicians that give away the store to city employees and their unions in return for funding their campaigns. Then they side with these employees in solidarity since many Davis residents also live off the soft money of government. Then they wring their hands with worry over, or else bury their head in the sand while kicking the can down the road for others to deal with, our looming municipal fiscal cliff.

  12. Frankly, I don’t understand, and perhaps, I don’t give a damn… voters “approved” Wildhorse”. Votes approved Second Street Crossing. They rejected Covell Village and Wildhorse Ranch.
    Cite ONE time voters have weighed in (in the last 40 years), at the ballot box, on direct proposals for [quote]parking structures downtown[/quote],[quote]expansion of the downtown [/quote], and/or [quote]higher buildings[/quote]. Untruths are easy to make, harder to disprove. Reminds me of another “crime”.

  13. Don Shor: “Davis voters have not rejected any economic development proposals that I’m aware of.”

    hpierce: “Cite ONE time voters have weighed in (in the last 40 years), at the ballot box, on direct proposals for…”

    Both of you are of course correct, but you are both conveniently ignoring the fact that for generations the citizens of Davis have elected City Councils that have created our current ‘economic development deficit.’

    We (the voters) are responsible for the problem, even if we did not vote on specific proposals directly.

  14. David M. Greenwald said . . .

    [i]”You mean the gap between 71% and 100% – you have city manager’s office, support staff, some of the tech people, etc.”[/i]

    JustSaying replied . . .

    [i]”Yes, what took up 46% of our city taxes in FYI-99, but only cost us 29% in FY-12? This “grey area” must represent a lot of money; has it been increasing or decreasing in real dollars in the past decade?”[/i]

    Or things that we probably should have continued to spend on, but now find ourselves deferring those expenditures.

  15. [quote]”Cite ONE time voters have weighed in (in the last 40 years), at the ballot box, on direct proposals….”[/quote]Ignoring the historic issues in our campaigns for city council is one oversight; forgetting that we approved a direct proposal that now requires a public vote for every development proposal is another.

    [quote]”The notion that Davis residents and political figures oppose economic development is not borne out by any evidence.”[/quote]But, what specifically have we supported enough have made it a reality? Doing nothing pretty well assures businesses will locate somewhere that seeks them out. And, what is the geographic constraint other than the fact that the university owns some of the peripheral property?

    Does anyone believe that our very public reluctance to approve housing hasn’t had a negative effect on our ability to improve our economy? Or, our local business protectionism hasn’t slowed economic growth? Is our anti-growth reputation really so unwarranted?

    Why don’t we just acknowledge that we like everything just the way it is, including our quaint and tiny, low-rise downtown? I’m pretty convinced that we’ll continue the fight to keep things that way, trying to depend on our auto row income until the car dealers disappear to a few historical retail hubs.

    Why don’t firefighters even live here? (Just trying segue back to the city budget. Other than the IT specialists and some other support staff and the manager’s office, what cost 46% of our budget a decade ago and only 29% now?)

  16. Mark,
    Here’s a list of the council members since about 2000. I see plenty of slow-growth names, but a lot of pro-growth names as well.

    Ruth Asmundson
    Susie Boyd
    Sheryl Freeman
    Lucas Frerichs
    Sue Greenwald
    Michael Harrington
    Lamar Heystek
    Joe Krovoza
    Brett Lee
    Ted Puntillo
    Don Saylor
    Stephen Souza
    Rochelle Swanson
    Ken Wagstaff
    Dan Wolk
    Lois Wolk

  17. It’s worth note that many of communities with faster growth policies weathered the downturn less well than we did both fiscally and in terms of sales tax base.

  18. [i]And, what is the geographic constraint other than the fact that the university owns some of the peripheral property? [/i]

    Look at a map and tell me where economic development would occur.

    Frankly: [i]Davis voters routinely reject growth. They reject peripheral development. They reject parking structures downtown. They reject expansion of the downtown and higher buildings. [/i]
    Davis voters have both approved and rejected peripheral development of housing.
    Davis voters have never been asked to vote on peripheral development of retail and commercial, except for Target. Davis voters approved that.
    Davis voters have never even been given an opportunity to vote on parking structures. Some specific interest groups appear to have sidetracked that.
    Davis voters have never been given the opportunity to vote on ‘expansion of the downtown’ (whatever that means) or higher buildings. There are higher buildings in downtown Davis, built by Chuck Roe.

    I think you are taking the vocal objections of some Davis interest groups and ascribing them to the city as a whole. The voters here will approve projects that are presented well, and that don’t drastically change the character of the city. They won’t approve any and every project that comes before them, but you and I have watched Davis grow substantially over the years. At one time Davis was the fastest-growing city in the county.
    But for as long as I can remember, the whole focus of development discussions here has been on residential. The property owners and developers simply don’t bring commercial projects forward. They always want to build high-end housing.

  19. The hyperbole is in using Stockton as an example of what could happen in Davis. Davis didn’t overbuild its municipal infrastructure with borrowed money and the housing market here didn’t crash. Average incomes in Davis are higher too and the unemployment rate is lower. Davis has problems and is in the process of trying to address them but the idea that they are on the same level as Stockton’s or that we are going to go bankrupt is only true if we make no adjustments going forward suggesting otherwise is hyperbolic.

  20. The problem is that wasn’t done.

    Here’s what I wrote: “A reader made the flippant remark that at least we’re not Stockton, and as Stockton continues to struggle with bankruptcy and getting themselves out of debt and obligations, we are quite fortunate. But for most places this side of Stockton, the news coming out this week is not good.”

    Now where do I state that Stockton is an example of what could happen in Davis. Davis’ problems were failure to invest in infrastructure and growth in compensation based on real estate values that did not keep pace and could not keep pace.

  21. [quote]”Look at a map and tell me where economic development would occur.”[/quote]How many acres are you needing? A 200-acre shopping mall? A 50-acre research park? A 75-acre housing/business park?

    There’s open land at the edges of Davis at the north, south, east and west. Now, mostly used for agriculture purposes, the soils also are ideal for development. Might UCD be interested in a joint city-university project using their land? And, we’ve already discussed the Nishi property.

    Who has figures indicating whether Davis is much more than a bedroom community? Or, whether the people who have permanent jobs in Davis live here?

    I’m trying to understand your point that geography has prohibited us from economic development rather than our attitude/reputation/lack of will/whatever. Please be a little more specific so I can get it.

  22. Don: “[i]Mark, Here’s a list of the council members since about 2000. I see plenty of slow-growth names, but a lot of pro-growth names as well. And for quite a while there was a pretty pro-growth majority there.[/i]”

    So? What is your point? We still lag the State average in [i]per capita[/i] Sales Tax Revenues don’t we?

    How often in the past 30-50 years have we had Council majorities that favored business growth, job creation and increased sales tax revenues. ‘Pro-growth’ in the Davis vernacular refers to growing houses, not businesses and (non-construction) jobs. The citizens of Davis have voted against our own economic development consistently by our votes for City Council, by the development of our General Plan, and with our failure to support local businesses with our dollars.

    I think it says a great deal about our poor choices when you consider that the so called ‘bicycle capital of the world’ is completely dependent upon the sale of automobiles for its economic health.

  23. “I think it says a great deal about our poor choices when you consider that the so called ‘bicycle capital of the world’ is completely dependent upon the sale of automobiles for its economic health. “

    Or to move us back on target, that the bicycle capital of the world’s bike paths will fail without the infusion of tens of millions over the next few years.

  24. JustSaying: [i]How many acres are you needing? A 200-acre shopping mall? A 50-acre research park? A 75-acre housing/business park?
    There’s open land at the edges of Davis at the north, south, east and west. Now, mostly used for agriculture purposes, the soils also are ideal for development.[/i]

    “It is the policy of Yolo County to vigorously conserve and preserve the agricultural lands … especially in areas presently farmed or having prime agricultural soils and outside of existing planned urban communities and outside city limits.”
    “Both Yolo County and the City of Davis require mitigation of farmland conversion at the rate of one acre preserved for every acre developed.”
    –[url]http://www.farmland.org/programs/states/futureisnow/m_yolo.asp[/url]

    Mark: [i]We still lag the State average in per capita Sales Tax Revenues don’t we? [/i]
    Yes. And we always will. For reasons of history and geography, and the patterns of regional development.

  25. And we always will. [s]For reasons of history and geography, and the patterns of regional development[/s]. For reasons of our own choices and the decisions of our elected officials.