The city is facing a new fiscal crisis. To get out of that crisis the city is proposing dual tax measures. First in June a three-quarters cent sales tax and then perhaps in November a $135 per year parcel tax.
However, the Vanguard and others are concerned that a sales tax measure could end up going toward future raises for city employees – much as the 2004 tax measure did.
The council rightly noted on Tuesday that they could not confine how a general revenue tax measure is spent.
“I understand in general a sales tax goes into the general fund and it becomes general revenue and there’s no way for us to earmark that, correct?” Councilmember Swanson asked.
City Attorney Harriet Steiner responded, “There is no way for you to legally earmark that. You can place before the voters, a companion measure, a separate advisory measure where the voters indicate their desire for the council to use the funds raised by the sales tax for certain purposes. That would be a non-binding statement of intent by the voters and many cities do that.”
Councilmember Swanson replied, “I think that would be helpful because I agree with some of the folks in the audience that people are saying this community does really well when there’s something tangible that we know that we are trying to preserve.”
But a non-binding measure can only go so far. Therefore it is important to lay out how we got into this situation.
From our standpoint, there are three critical errors that the city made. First, in 1999, along with many in the state, the city went to enhanced retirement benefits starting with enhanced pensions that were unfunded and later enhanced OPEB (Other Post-Employment Benefits), and retiree health care benefits, that the city failed to properly actuarially assess. This created more than a hundred million in unfunded liabilities in two areas – pensions and OPEB.
Second, in 2004, the city went to the voters for the half-cent sales tax currently on the books under the guise of state cuts for funding that would imperil parks and public safety. But instead of investing in infrastructure, the city would approve a series of MOUs that gave about a 36% to firefighters and about a 15 to 20 percent raise to all other employee groups.
The city essentially gave the $3 million in revenue generated by the sales tax to the firefighters in their 2005 to 2009 MOU.
Third, beginning in 2009 with the recession apparent, the city failed to address critical structural needs on PERS (Public Employees’ Retirement System), OPEB, and cafeteria cash outs. They balanced the budget by failing to invest money into roads and other critical infrastructure.
It is easy to argue that these impacts are only apparent in hindsight, but that is not true. I ran into an analysis published on January 13, 2010, after the Davis City Council had ratified another MOU by a 3-2 vote, with Sue Greenwald and Lamar Heystek in dissent.
The article entitled, “Council Majority in Need of a Math Lesson on MOU,” noted that, in justifying their vote, “the Council Majority essentially made three points, first they argued that this contract represents a savings of $744,000. Second, they argued that while not as much as they might have liked, this contract marks the first time that the council has decreased the size of contracts. Finally, they argue that this contract begins to deal with the structural issues.”
As the Vanguard noted at the time, “Councilmembers Sue Greenwald and Lamar Heystek counter that this contract does not go nearly far enough, it leaves the bulk of the work to be done by future councils, the amount of savings is a third of the claimed $744,000, and at the bottom line, we could have gotten a better deal.”
Aside from considerable problems with the “math” hence the title of the article, the problem was that the council majority claimed that a reduction of the rate of total compensation increase was a sufficient first step.
In justifying his view, Councilmember Stephen Souza made two critical analogies.
“That is a changed, that is a change, there is two analogies that have been used here tonight and I’m going to use both of them to turn them on their head. The first one is the analogy that you can turn something around immediately. That is a ski boat. This city and the progression over the last 30 years, and I’ve looked at contracts going back to ’96, has been a progression that has gotten us to the point, from all the councils, up to this council, where it was continually upward, in benefits, in salaries,” he stated.
He argued, “This is the first contract that is the beginning of the turning of this aircraft carrier. And it takes a long time to turn an aircraft carrier around for anyone who has ever been on one, it doesn’t happen overnight. Doesn’t happen quickly, it takes a while.”
As we pointed out at the time, “The problem with his argument is that no one is arguing we can fix the problems overnight, the dispute is over how far to go in this first contract and his opposition is arguing that we have not gone far enough. “
In fact, that is the exact problem that we are dealing with today. The 2009-2010 MOUs failed to deal with the structural problems, they failed to properly roll back the cafeteria cash out and retiree health, they failed to move the city on a path to deal with pensions, both through creating a second tier for new employees and by requiring the employees pick up their full share.
The result is that we now had to make those changes in the 2012-13 MOUs and as a result had to offset some of those cuts with small pay increases. Had council simply dealt properly with the structural issues in 2009-10, we could have rolled back salary to a greater extent today and might not be facing a $5.1 million deficit, additional cuts, and two tax hikes.
As we wrote last week, the effect of the 2009 MOU failure is that we are actually about three or four years behind now in reform efforts. Compounding the problem was the balancing of the budget by failing to address infrastructure needs which means that a relatively small expenditure need for roads in 2009 is turning into a $5 to $8 million annual cost just to keep roads in their current condition.
Mr. Souza back in 2010 defended what they did, arguing, “I would also add that there are structural changes here, not huge. We could have gone for one. We could have said okay, let’s not do four, let’s just do one. But we attacked four different areas.”
Part of the problem is that the council in 2009 was dealing with a faulty budgetary assumption – they believed that the city would come out of the fiscal crisis far sooner. That was exemplified by the efforts by Lamar Heystek to present an alternative budget that proposed more stringent reductions in total compensation for employees while presenting a more realistic revenue projection.
Mayor Pro Tem Saylor would later criticize Councilmember Heystek, saying he preferred to use Navazio’s “real numbers” rather than “making them up.” However, history would show that Mr. Heystek’s numbers were far closer to reality than Mr. Navazio’s.
The big change in the 2009-10 MOU? For the next three years, “Employees agree to cover any additional cost of the FY 2008/09 PERS employer contribution rate, up to an additional 3%, for the life of the contract. For Fiscal Year 2009/10, employees will pick up 0.453%.”
That came at a concession of small increases in salaries in the second and third years of the MOUs.
They also achieved a vesting period for retiree medical benefits, requiring a minimum ten years of employment and five with the city of Davis. As we noted at the time, “This is a small change that does not attack the underlying problem and the $42 to $65 million unfunded liability which will have to be dealt with by changing the retirement age and reducing the gap between when city retirement benefits kick in and medicare picks them up.”
The plan was so bad that city officials recently told the Vanguard that the vesting plan actually would have ended up costing the city more for medical insurance and the city therefore ended up never implementing it and went to a different plan with the current MOU.
The cafeteria plan in 2009-10 was to cap the current $18,000 per year payments and then cap benefits for new employees to $500. This time they had to bring it down to $500 for everyone which was one of the heaviest lifts.
Councilmember Souza continued: “In this contract and sought through negotiations, it’s not demands, it would be great if we could just demand upon our employees, we are going to tell you that you are going to take this, well that’s not the way that negotiations work, it’s a give and take and you get to a point where you reach an agreement hopefully and not have to go to a process called impasse, as we have and are in the process of with one of the bargaining units.”
While that is true, the city council in 2009-10, refused to go to a professional negotiator and instead went to a team of city employees including the HR Director who appallingly would sit on the management side of the negotiations for her own bargaining unit’s collective bargaining process, a unit which at that time also included her husband.
This time, the city created clear goals, hired an outside negotiator, and imposed contracts on two bargaining units. However, had the city properly ramped down the benefits in the previous bargaining process, the city might have been able to dig deeper in the disparity in salaries with other local agencies.
The city is now forced to seek a sales tax initiative that must be on the June ballot. The city has to put it on the June ballot or wait until June 2016.
The city attorney believes strongly that the city would not be able to declare a fiscal emergency, which is a step just short of bankruptcy, to attempt to place the sales tax measure on the ballot at a time other than the council elections.
The city faces tough choices this year in undigging from mistakes made in the recent past.
—David M. Greenwald reporting
this is a fantastic history of how we got here, the only thing that disappoints me is the focus on souza – a bit player – rather than saylor the architect.
David, I understand that facts can get in the way of a good story, but you have either erred, or ….
Retiree medical (full for employee, spouse, etc) was “on the books” well before 1999. In fact, that was about the time that the City racheted it back to be 50% until age 60.
The increase in retirement formulae, except perhaps for public safety, did not occur in 1999. Another inconvenient fact, or …
I will leave to others, independent of timing, to decide whether decisions were made that have caused problems, but you definitely don’t have your facts straight, and you should, IMHO own up to that.
BTW, in the 2009 agreements, concessions were made by most groups, to reduce cafeteria payouts, share costs of medical coverage increases, etc. For you, another inconvenient truth.
David: Why the focus in Souza? He wasn’t going to try for higher office and had no real motivation to screw the taxpayers in order to gain favor with the unions.
However, like Davis Progressive writes above, Saylor was the leader. Saylor needed the union support and he delivered. Steve was just along for the ride.
I see Wolk and Frerichs like that : Lucas is sort of Dan’s “Oddie” and just looking for the union pat on the head . Dan’s the leader. It’s why many of my friends will never vote for Dan, and might vote for Joe for Assembly.
That was the story written four years ago and Souza was the deciding vote.
Agree. The mug shot should have been of Saylor–he led the charge and did it with insults to his dissenting colleagues to discredit their research and views. Souza’s incremental approach did turn out to be inadequate to the true need (which was hidden in the city’s “real numbers”). And, didn’t the decision require one more vote to pass?
Now is the time to discuss Participatory Budgeting. If such a process had been instituted a number of years ago, we might have had much better financial decisions on both employee and project issues and I would posit, with much less “politics” in play. This has been proven in the cities that have adopted PB in the US and in other countries. Neighborhoods and people benefit over politically and corporate-diven agenda.
When Don Saylor was on the council, I brought a proposal for the council to consider PB as an effective way to engage Davis residents in financial decisions (other than voting on tax and development measures) and his reply was that the city’s finances and budget were just too complex for the ordinary resident to understand.
In fact, in most places where city residents are part of the PB process, “ordinary” people are perfectly capable or understanding basic math and fundamental financial facts. They are also capable of prioritizing expenditures and to make sure that one neighborhood is not disadvantaged over another. I doubt that if Participatory Budgeting had been in place that, for example, road maintenance and infrastructure would have been allowed to be put off for so long that now it is much more costly.
Any ordinary homeowner knows what that means for home value and later costs if maintenance if put off, and can certainly apply that to city issues.
Nancy, we typically can’t get more than 10 citizens to come to a Budget meeting. Do you really want to create a Budget based on the input of such a low number of citizens and such a miniscule percentage of the total number of citizens?
I like the idea of Participatory Budgeting, but the apathy of the Davis citizenry abgout budgetary specifics would seem to make it DOA. Am I missing something?
Hello Matt, Yes, I think you ARE missing something.
Just google and read up on how other communities in the US and elsewhere are engaged in PB and why. Why not ask the question as to why there is so little participation in Davis on Finance and Budget questions. I think there are some pretty clear answers.
Nancy, would you consider writing an article (or a series of articles) for the citizens of Davis about Participative Budgeting, and why it would succeed here? If we can get more community engagement in the budgeting process here in Davis, that would definitely be a good thing.
One of the problems we face is that my personal ignorance about Participative Budgeting is representative of probably the vast majority of Davis residents. The chances that any of them are going to Google the term and sift through the articles to “read up on how other communities in the US and elsewhere are engaged in PB and why” is extremely low, especially since your challenge to them to do so is buried here in one of the late running comments in this thread.
On the other hand if the title of a Participative Budgeting article jumps out at them from the front page of the Vanguard and/or the Enterprise the chances that significantly more people will engage the concept is definitely more likely.
JMHO
I think you all may be missing the larger point in this conversation. And, more importantly, we are a small community with lots of good folks working their butts off to make it better – we don’t need to be bashing one another – as individuals – over this issue.
What I see emerging is an important conversation in a community which is able to see the problem for what it is. And, indeed, it is a serious problem – it is reflective of a fundamental failing of government to protect both employee and taxpayer (NB: Not to imply that employees aren’t taxpayers too) alike.
We are talking about a major, systemic problem that is occurring in virtually every city, county and agency across the state AND the nation. The problem is not unique to Davis.
The real question is how did we get to a place where our government and elected officials have the latitude to simply ignore the simple laws of finance and totally ignore their responsibility to put aside savings each year in order to pay for promised benefits down the road? Isn’t that the real question?
To my view, plain and simple, an obvious conflicts of interest sits at the heart of the Unfunded OPEB problem. We have a situation where sitting members of an elected body are being afforded an opportunity to participate in the very system over which they are expected to ride herd. It simply doesn’t work – it’s untenable – we shouldn’t be placing our elected officials in this position of conflict – it’s simply a poor model of governance.
For more on the issue, please visit: http://www.mercurynews.com/salary-survey/ci_24798591/former-part-time-pols-bay-area-reap-medical?IADID=Search-www.mercurynews.com-www.mercurynews.com
Excellent post and contribution to the debate. You have stated the fundamental question of how we got here. I think your post opens the door to a less polarizing discussion.
Of course, just because you opened the door doesn’t mean many of us are willing to walk through it. The fact is, the problems of funding deferred compensation in the form of OPEB spans decades. It is not the exclusive fault of any council (all have had a hand in it), any union, our local newspaper editorial boards, our churches or any one of us individually. It was a non-issue locally until the financial crash and world-wide economic realignments in 2007.
It is past time, however, to recognize that OPEB for what it is: deferred wages. The very concept is the problem because there is no law that actually mandates these wages be paid or fiscally accounted for on a monthly or annual basis like there is for an individual’s paycheck. Defaulting on paying wages is wage theft. The problem facing us, indeed, is what are we going to do about it short and long term. The article Realchangz referenced was very good because it helps us all to see that compensation is compensation and if viewed in that simple way, allows us to take a principled stand on whether or not elected officials are entitled to OPEB and at what level.
Dave,
Thanks for your comments. It might be more accurate to say it was a non-issue until GASB mandated actuarial reporting of the liability and the magnitude of the problem became for all to see.
How it was allowed to transpire – i.e. the creation of a new defined benefit (deferred wages to use your term) without having to conform to funding standards and protocols as outlined in CERL is another matter worthy of discussion.
Where were the trustees, the unions, the employees’ representatives when it was suggested that a new deferred compensation benefit be added with no formal guarantees, no funding requirement, and no actuarial auditing or reporting requirements?
Additional background on the history would certainly be of value.
Hello Realchangz,
So, seems you might be in support of Participatory Budgeting AND expanding participatory democracy beyond just voting yes or no on tax measures?
Nancy,
For starters, I don’t anything about Participatory Budget, but in a town like ours it sounds kind of exhausting.
And, I certainly wouldn’t want to deprive our electeds and staff from the joys of wrestling with all of the thorny questions associated with municipal governance.
I do support a model which requires our electeds to identify a viable, sustainable sources of funding for any new programs they wish to implement – particularly in the case of long-range, long-term policy decisions.
Where programs are directly related to funding sources for deferred employee compensation or deferred benefits, I strongly support guidelines as established in the County Employees Retirement Law of 1937.
No magic there, just following the original protections established for such programs.
How about this for participatory budgeting in the framework of our already well-designed representative democracy?… elect some true fiscal conservatives to the council. And then support them in their efforts to balance the budget.
I would prefer we elect individuals, whether liberal or conservative, who understand and act on their responsibility to forcefully represent the general interest against the special interests. Our problems all emanate from the corruption of special interests. Why else would Davis pay union bank hours for the firefighters? Even worse, Mr. Weist gets overtime pay for this crime against the public. Why would the state legislature support the corruption of the prevailing wage in public contracts? That’s a crime against the public interest. When we elect people who are afraid to upset the special interests–I’m talking about you, Dan Wolk–the general interest will never be served.
I should add that, while conservatives are worth nothing in California, there is nothing better about conservatives than liberals, when it comes to being corrupted by the money they raise. It’s all corrupt. Our democracy is really a sham.
I struggle with the “special interest” point. What is it? For example, is the Yolo Land Trust “special interest”? Or, are the Davis voters against growth “special interest”? I think everyone has special interests. And there are legitimate reasons and justifications for lobbying and activism to influence policy. Also, campaigns cost money and politicians have raise funds to effectively get the word out and develop name recognition.
For me, where the rubber meets the road comes down to the principle of “doing the right thing”. And reasonable people can disagree with what the right thing is… except for the simple and straightforward issue of fiscal responsibility.
Politicians with the power of the purse should be constrained from every spending or committing a dime more than we take in.
I don’t care about a politician’s tilt on social issues. But it seems that Davis has a history of electing council members that are way too loose with the purse.
That is why I think we need to get to the bottom of the views of candidates related to fiscal matters, and start electing more that are clear fiscal conservatives.
Frankly,
One important consideration in identifying one group or another as a “special interest” is the degree to which their operations are geared to enhance or facilitate access to assets of the government treasury. In that sense, both YLT, groups seeking access to RDA funding and Firefighters would all be considered “special interest” groups seeking to influence government policy for specific benefit.
While the no-growth group may be a very well organized interest group – ostensibly they are not seeking direct government subsidy. Where that equation starts to become fuzzy when we have for no-growth moving lock step in alliance with an organized special interest.
I would leave results of local city council voting records to draw your own conclusion.
Do we have any fiscal conservatives running for council?
I don’t know the answer to that question yet. I think we need to hear more from those candidates. I think Sheila Allen is absolutely not.
Even if the answer is yes, perhaps a candidate in Davis would be rightfully hesitant to tack any title on themselves that has the word “conservative” in it.
This isn’t meant to counter your point at all, it’s just an observation: sometimes the leaders most able to make positive change are the ones who are not generally considered advocates for that type of change (e.g. the famous example of Nixon going to China … if someone with Carter’s reputation had tried that, he couldn’t have gotten away with it). Someone on city council who is considered a deficit hawk and is loved by the more conservative parts of Davis might not have the credibility with the more liberal residents to bring them along. But a council member who is beloved by the liberal community can “get away with” more in terms of making needed cuts and saying “enough” to unions, when necessary. I’m not proposing that we change who we elect based on this, I’m just observing that the best banner-carrier for this cause is not always who you might expect.
we really need to reorient so that fiscally responsible is not known as fiscally conservative.