It is hard to call something easy that was a five-year battle and took six months after the audit report came out, but in a way it is. The savings of nearly half a million dollars was already factored into the current budget that will be due by the end of this month. The heavy lifting is yet to come.
Tonight from 7:30 to 9 pm at the Avid Reader will be Mayor Joe Krovoza and City Manager Steve Pinkerton addressing “the city’s sources of income and expense, the costs that are fixed and those that are flexible, as well as the city’s ongoing liabilities.”
Despite last week’s vote on fire staffing the city is still facing about a $2 million structural deficit this year, a gap expected to widen to about $6 million within five years mainly due to two factors – water and roads.
In light of the push-back that firefighters gave on the staffing issue, it is important to remember that fire, along with DCEA (Davis City Employees Association) are the only two bargaining units that have not taken concessions in the form of cuts to cafeteria cash out, a second tier for pension earnings, and reductions to retiree health care.
The city estimates that the lack of concessions, now approaching one year after the contracts expired, are costing the city tens of thousands each month.
“A few hundred thousand dollars is nothing to scoff at, of course, but it deserves to be put into perspective,” critics of the city policy scoffed in an op-ed published on Sunday in the local newspaper. “What is the cost of saving a family’s home, or an apartment complex or a business from complete destruction? What is the cost of saving a life? Or, more coldly, what is the value of $400,000 in balancing the city’s annual budget?”
As Mayor Joe Krovoza put it, “$435,000 a year, year over year, in this budget is significant.”
But he also reminded everyone that, unlike every other bargaining unit in the city, the firefighters have not taken their fair share of the concessions that 70% of employees have taken.
The mayor would argue, “The compensation savings that the other units have provided to the city is extremely significant. The savings that we have not gotten from the two units that we have not come to settlement with yet is harming us, putting us in a worse position.”
“Other programs in the city will be cut because we have not come to settlement with all of negotiating groups – fire and DCEA – that is simply the way it is,” he said.
The question many are asking is would there have been a third vote to cut staffing had the firefighters stepped up like the rest of the bargaining units. The answer may well be yes, but by holding out on the contract, costing the city hundreds of thousands over the course of the fiscal year, the firefighters likely sealed their fate.
The commonly held belief is that within a few months the city will end this and impose the last, best, and final offer on both the firefighters and DCEA. DCEA went to impasse back in 2010, the city imposed the offer, but it was overturned by PERB (Public Employment Relations Board) and then that decision was upheld by an administrative law judge.
That mistake that cost the city hundreds of thousands in back pay, and led to the June 2012 layoffs of nine DCEA city employees, will not be repeated. The city has learned its lesson, but apparently neither bargaining unit has.
The city’s water rate hikes are going to end up putting a tax on the general fund with about $3 million in the upcoming deficit due to water rate hikes. The Vanguard is a little unhappy at this development, which was not made clear during the surface water project and Measure I discussions.
The large looming problem is deferred maintenance on a variety of infrastructure, from parks to water lines and especially roads.
As Councilmember Brett Lee noted in the most recent discussion, the city will be forced to lay out about $5 to $8 million a year in fund to keep the city from falling into a $444 million hole on road repairs. Much of that money will have to come in up-front costs.
As Steve Pinkerton noted, in the last twelve years, the city has paid from its own funds about $550,000 for road repair.
We have discussed on numerous occasions how we got into this mess. The simple answer is that the policies set forth over the course of a decade were ultimately unsustainable. The council would implement huge increases to retirement at a time when CalPERS (California Public Employees’ Retirement System) looked superfunded. The council would expand fire coverage to four on an engine.
And then, over the course of the decade – fueled by the combination of double-digit property tax revenue increases on an annual basis and the passage of a half-cent sales tax meant to ward off future cuts – the council greatly increased salary, retirement and total compensation.
We recently have heard that members of the old council are still touting their balanced budget with a 15 percent reserve, but that’s an illusion AT BEST.
The reality is that, while the council was balancing their budget on paper, they were busy ignoring unfunded pension and retiree health care costs, ignoring the fact that as early as 2009 they were warned of the need to increase money for roads and parks, ignoring the fact that the budget was largely balanced by failing to put in money for infrastructure, thus creating huge backlogs of deferred maintenance.
To be fair, the pension issue is not just a “Davis problem.” Last month, CalPERS authorized raising employer rates by roughly 50 percent over the next seven years, but more importantly they replaced actuarial methods that kept rates artificially low during the recessions with a new goal of fully funding the pensions within 30 years.
That will be enough to eliminate the unfunded liabilities and produce a fund that is 100 percent funded within 30 years. Under the old method, the plans were projected to be 79 to 86 percent funded in 30 years.
Davis is also fixing its $60 million unfunded retiree health care liabilities by moving toward fully funding health, as opposed to the more expensive pay-as-you-go method.
In the meantime, the Governmental Accounting Standards Board (GASB) is adopting tougher accounting standards, which will avoid future crises like the ones state and local governments have faced.
Rules that were adopted last June are expected to show the public pensions funds are in a weaker position financially than most observers wanted to believe.
The accounting practice will require state and local governments to post their net pension liability – the difference between the projected benefits that are owed to employees in the future and the current assets that will be used to cover those payments.
While Davis has made remarkable progress in the last two years under the leadership of the new council and City Manager Steve Pinkerton, the city is still at the mercy of forces beyond their control. Pension and health care costs for retirees are rising faster than inflation.
Had the city done nothing, retiree health care costs alone would have consumed nearly one-quarter of the city’s payroll. With changes, their goal was to knock that down to about 16%. Right now we are not there yet – part of the reason for that is the holdout by groups like the firefighters and DCEA, but the other part is that the city did not quite get deep enough cuts.
The bottom line is this. The city is still going to need to make up for bad practices. As we have noted, the city is unlikely to face bankruptcy. The biggest problem is that, in deferring the road maintenance, the past councils have exploded the costs for basic repairs. Worst case scenario, therefore, does not appear to be bankruptcy but in the ability to provide basic services for its residents.
There is an irony here. The firefighters were fighting cuts on the mantra of public safety, but offered the city nothing – nothing in terms of salary concessions and nothing in terms of staffing changes. They argued for the status quo, but the status is gone, it cannot work.
As Mayor Pro Tem Dan Wolk noted, we need to do things a new way, as the era of big local government and generous employee compensation is over. This is a new world order. And while he was not going to support staffing cuts, even he acknowledged that big cuts were going to have to come.
—David M. Greenwald reporting
So, just what, exactly, has the Finance and Budget Commission been doing over the years. Seems to me that if a process for Participatory Budgeting had been in place, Davis residents would have done a much better job than past City Councils in setting priorities and planning and budgeting for city needs. There would, at the very least, have been a constructive and hopefully objective, open and transparent disclosure of information and discussion, rather than decisions made that appear to be more politically motivated at best.
Many other cities worldwide and in the U.S. are now
adopting Participatory Budgeting with great success. It’s time for Davis to live up to its so-called Progressive reputation.
Nancy: The question is not whether the public would do better than past councils, it is whether the public would do better than the current council. I’m not opposed to an idea of public involvement particularly in setting priorities, but at the same time, I think this council and city manager have proven themselves very capable here.