On the radio this weekend, I made the point that the city’s fiscal crisis is not something new – in fact, it is something that was 10 to 15 years in the making, but was accelerated during the economic collapse in September 2008. The host asked me a critical question: how can the city better engage the public?
And while we always talk about engagement of the public in terms of getting the views of the public, in many cases what needs to happen is a two-way street: government as always needs to be able to listen to the people, but, at the same time, government needs to be able to communicate to the people.
One of the better ways to understand if the public is getting the message is to read letters to the editor – here you are getting your first signs of the public’s response to the news that is coming down. For most of the past six or seven years, while Vanguard readers have discussed things like unfunded liabilities and pensions and OPEB, the general public has been silent.
Now as I read letters to the editor there is an expression of surprise, an opposition to new revenues without spending cuts, and a complaint about the city’s pursuit of a POU (Publicly Owned Utility) in times of trouble.
Last week, the city manager announced a belated intention to engage the public during what will turn out to be the last nine weeks of his tenure as city manager. While I think Mr. Pinkerton is in general a pretty good presenter, I think there is a natural inclination to discuss everything and the problem with discussing everything is that most people’s eyes will glaze over and they will actually get nothing out of the discussion.
We have already seen what a potential opposition will look at and, while I believe that the city made a mistake in going the sales tax route and failing to fully fund the deficit – believing, mistakenly, they will get a second chance at this – these are critical issues that the public really needs to understand and clearly, based on the letters and comments by the public, they do not.
Instead of an all-encompassing array of budget discussions, I prefer a simplified approach. I’m going to use two recent examples as foils here to explain the strategy – William Tourney’s February 16 letter to the editor and Bob Dunning’s February 16 column – they are recent, convenient, and illustrate the key points.
First, taxes are not the first resort here, they are the last resort. William Tournay writes, “After years of no serious discussions of revenue, the City Council has finally hit on a solution — soak its residents with more fees.”
Bob Dunning cites his “friend,” “Peter,” when he writes, “Citing a recent council meeting, Peter writes it ‘was another reminder of how eager’ the council is ‘to spend other people’s money.’”
Here the take home point needs to be that the crisis began in September 2008, and it had its precursors well before that, but the council is only now for the first time putting a revenue measure before the voters. That is not an example of the city council eager to spend people’s money.
Instead, what the city did was cut its workforce by 20%, reducing full-time equivalent employees from 464 to 361 since 2008. The city also, in two rounds of MOUs, reduced total compensation and retiree health care, and asked employees to pick up the tab on pensions.
Only after reorganization and getting five employee bargaining units to agree to concessions and imposing terms and conditions on two others is the city now asking the public to help pick up the tab.
Second, there has been a lot of talk about what “Peter” calls “Our $1 million municipal utility snipe hunt, of which spending $600,000 is proposed to spend on a consultant’s study.”
The optics in the roll-out here were all wrong, but clearly Peter does not really understand where the bodies are buried as he writes, “The city is incapable of fixing sidewalk trip-and-fall hazards or street potholes, and we expect a city utility to do adequate upkeep on power lines or gas lines?”
To me, I think a chart that shows the $600,000 in expenditures for a POU contrasted against the millions the city is in the hole on roads maintenance, parks infrastructure, OPEB, and PERS would be a nice and simple illustration that whatever you think about the POU issue, it pales in comparison to the real budget problems that the city faces.
It is here that I think the city manager and the city need to go narrow and deep rather than broad and wide. Roads are perhaps the easiest issue to understand. Start by laying out the fact that the city has failed to invest in roads over most of the last decade.
That leaves the roadway conditions in a precarious place. Here you can pick a few key spots, I would start with the stretch from the I-80 off ramp on Olive Drive with a right turn onto Richards Blvd. This is the way a number of people enter town on a road that is basically failing and Richards Blvd is not much better.
The worst part is what happens with deferred maintenance, and here the city manager can lay out that road repairs, which increase in cost faster than inflation, cost presently about $9 per square yard. However, as time goes on and conditions decline, those costs jump to $22 per square yard and ultimately up to $62 per square yard.
Pictures and illustrations will show this point well. The city presently projects that we need at least $5 million per year for road maintenance and the present $150 million tag could increase to over $600 million if we further delay.
Finally, the message of William Tournay is that we have to get serious about revenue – he, of course, is looking at retail. However, the city has decided to go another direction – economic development which utilizes the city’s position both near UC Davis as an emerging research university with $1 billion in funding, and prime agricultural land.
The city manager should talk about the proposed Mace 200 as a way to bring in both increased property tax and point of sale revenue. If projections of $5 to $10 million in revenue are correct, this will be a way that, in the future, the city can capture additional revenue while enhancing its standing as a university town and not going the large peripheral retail route that most in this community do not support.
This is also where someone like Rob White, who can greatly articulate the economic development picture, becomes a huge asset in this battle.
In a nutshell, that is the city’s message: taxes were a last resort not the first resort, our roadways are in trouble, and we have a plan to improve revenue in the long term, but we need to balance our budget in the short term.
It is simple, direct, and counters the misinformation out there.
—David M. Greenwald reporting
Your proposal to treat Olive Drive as a priority shows a lack of situational awareness. The underlying pavement is the old Lincoln Highway. Cement was cheap when it was built. It is stronger than the proverbial “hinges of Hell”. Attempts to grind off lifted edges of the PCC pavement resulted in the loss of grinding teeth on the machine, with little progress on removing the “lips”. Core samples were taken, and the strength of more than one sample exceeded 7000 psi (normal sidewalks have PCC whose long-time strengths are more like 3500-4000 psi). Reconstruction, which will be very expensive due to the strength of the PCC, is really the only option to get a decent PCI. Money would be better spent on higher volume roads, in order to arrest deterioration, particularly water intrusion to the subgrade.
Traffic volumes on Olive are significantly less than Fifth Street, Eighth Street, and even Loyola Drive. If there were nearly infinite resources for street maintenance were available, perhaps Olive Drive would make the “list”. Don’t see rhe level of resources being available that would result in Olive Drive being a priority. Funny though, the money spent on traffic calming on Olive would have been better spent to fix at least portions of the road.
“Your proposal to treat Olive Drive as a priority shows a lack of situational awareness. ”
That’s not my proposal. My proposal is to treat Olive Drive and Richards as prominent examples of the problem that is across town.
I misunderstood. However, the point remains that we need to prioritize our resources to prevent deterioration of the major routes, and not spend them on life support for a roadway that has basically died.
BTW, regarding sidewalks, the Streets and Highways Code provides that the abutting property owner has the responsibility for repair/maintenance. The City has stood in for those property owners. Perhaps it is time for the city to assess at least 50% of sidewalk repair costs to the property owners. This lets the city dollars stretch farther, and has the side benefit of minimizing water intrusion into the subgrade of the adjacent streets.
We should also increase the franchise fees for UG utilities, as their repair and maintenance activities, when they need to make pavement cuts, compromise our roadway integrity. Note the PG&E activity on Second Street, east of L. Roadway patches are very deleterious to the roadway integrity.
“I misunderstood. However, the point remains that we need to prioritize our resources to prevent deterioration of the major routes, and not spend them on life support for a roadway that has basically died.”
I guess some of that is going to depend on what the city’s Gateway-Olive Drive visioning project is going to look like. I mean, you wouldn’t want to a ripped up road welcoming you to Davis. DO you think that the road is beyond repair event ripping it out and laying an entirely new bed?
I inquired with the City some months ago about what was planned for Olive Drive, which has to be the single worst street in Davis for roadway conditions. I don’t recall who it was who answered my inquiry–it was not Bob Clarke, the city engineer–but I was told (paraphrasing) that as soon as PG&E completes its work (which made the roadway much worse in the last year) the surface will be repaved from I-80 to Richards.
I don’t know if anything has been done in the last 3-4 weeks–I would guess not–because I no longer will use that stretch of Olive until it is repaired. I used to ride home from Sacramento once a week on my bike, entering Olive from the Frank & Eve Childs Bike Path (formerly known as the US 40 bike path). Now when I ride to Sac and back, I just take Mace to Covell, which is slightly longer for me. Alas, Covell is deteriorating, too, but not dangerously so, yet.
There are serious engineering problems with Olive Drive… a failiing PCC pavement constructed about 100 years ago, trying to be overlaid by a AC pavement? PCC is a ‘rigid’ pavement… if that is failing, a AC (flexible) pavement overlay is a bandaid that doesn’t stick too well.
We need to remember that the LAST thing anyone in government wants to do is “simplify” the budget (and they sure don’t want to “better engage the public” (they want the public to leave them alone).
P.S. Other than the few people that live on Olive (and a few out of towers that get off on Olive on the way to In ‘n Out) does anyone else ever drive down Olive (unless they are checking out a used car to see if it rattles in a bumpy road)?
Yes Olive Drive needs to be reconstructed to be “resurrected”.
I believe that the ONLY access to Richards from Nishi needs to be bike/ped, and emergency vehicles.
Make that “adamantly believe”.
Would appreciate it if these posts of mine could be relocated to a response to David, above. I messed up, and was NOT trying to respond to South of Davis
Despite the 20% reduction in full time employees, did total employee compensation also go down 20%?
It is costs that affect the city budget.
Why are total employee costs still rising?
The answer is no, it hasn’t. City believes it has saved about $5.2 million with the reduction and $5.8 million from the new MOUs, but that is prospective funding.
The answer as to why is PERS costs have increased, health care premiums continue to go up, the city has increased its ramp up to fully fund OPEB. So those are the main drivers.
David, isn’t it also true that most cuts occurred in the ranks of lower salary positions? Have we really reduced much in the middle and the high end?
It’s been both because a number of department heads and upper managers have also retired.
David, you are right those are the main drivers–by far. And all of them were known in advance. The increasing costs for the Kaiser Family Plan, which has averaged going up 10.3% per year for the last 12 or 13 years, are no surprise. Davis uses the KFP to set its cafeteria benefit and its OPEB. The increasing costs of pension funding, also, have been well advertised in advance by PERS for 5 or more years.
One thing which is also adding to the problem is the seemingly small increases in salary that the city keeps giving its employees, even though Davis has no money to afford these increases, and there is no competitive need to give them at all for any positions, let alone the many city jobs which pay 3-4 times the going rate compared with the private sector (such as landscape maintenance, custodial, secretarial, etc.).
Here is a stylized example of how the salary increases given away this year and last are compounding the problem of pensions: Take a cop who made $100,000 in base salary in 2012. The city’s cost of funding his pension was (approximately*) $25,907 on top of his salary. On 1-1-13, we gave him a 2% raise, moving his salary up to $102,000. The funding rate actually went down** in 2013 to 25.551%, so it cost Davis $26,062 in 2013 to fund his pension. We then gave this cop a 2% raise this year, moving his base salary up to $104,040. The employer pension funding rate this year is 27.823%. So it will cost $28,947 to fund his pension. He is then due a 1% pay raise next Jan. 1, moving his salary up to $105,080. Next year’s projected employer pension funding rate is 29.3%. So it will cost $30,789 to fund his pension in 2015.
The 3 year cost for the employer pension funding = $85,798. His 3-year base salary total will be $311,120. The combined total is $396,918.
Had we instead frozen employee wages (knowing this crisis was coming), the three year cost for employer pension funding for this one cop would have been $82,674. His 3-year base salary total would be $300,000. The combined total would be $382,674.
The combined loss, due only to the hike is salary, for Davis for this one cop is $14,244. The DPD has 62 sworn officers. (That counts some not in the DPOA. I have not looked up the raises for the others.) If you multiply $14,244 by 62, you get a 3-year loss of $833,128. That is the loss just from the raises in pay. It is not counting the much more significant problems David points to: higher pension rates; higher medical benefit costs; and MUCH higher OPEB costs.
One final note on my stylized example: For simplicity, I have ignored a fact which is important. Sworn police officers (including those not in DPOA) have been paying the full 9% employee funding rate and an extra 3% of the employer funding rate. So the numbers I use for net employer funding costs are overstated. However, the total cost of the salary increases–they were even higher for non-sworn employees on 2.5% at 55–is basically accurate as a percentage. As a dollar figure, the $833,128 is probably too high. It assumes the mean cop (including all of the executive management of the DPD) makes $100,000 in base pay. I am pretty sure it is lower than that on average.
*The funding numbers I am using are off a bit, because the raises were given each Jan. 1, while the pension funding rates use the fiscal year and begin July 1 each year.
**The funding rate went down because the CalPERS fund had better returns, and so the amount Davis is charged for “unfunded” pensions declined. In other words, agencies like Davis owed less to backfill their present and future pensions.
Thanks for the example Rich. Very helpful to see the numbers laid out. Can you remind me of something? You wrote: “Sworn police officers (including those not in DPOA) have been paying the full 9% employee funding rate and an extra 3% of the employer funding rate.” When you say “the full 9% employee rate”, what does that mean and what proportion of the employer rate could the city ask the employee to pay? Thanks
“When you say “the full 9% employee rate”, what does that mean and what proportion of the employer rate could the city ask the employee to pay?”
I can best answer you, Robb, with a similar stylized example, using a cop who makes $100,000 this fiscal year.
To fund his pension CalPERS charges an employee rate and an employer rate. The employee rate for a 3% at 50 pension is fixed at 9%.
The employer rate* changes every year, depending on what market returns CalPERS is making on its investments and how much backfilling we need to do and therefore what amount PERS needs to fully fund his pension. In 2013-14, the employer rate is 27.823%.
In this case, $9,000 (or 9%) is taken out of the salary of the cop**. That is the employee rate. He gets $91,000 in salary less his share of Medicare and less income taxes. Keep in mind that he is not in Social Security. So he pays nothing for that.
The City of Davis additionally pays the employer rate, (27.823% x $100,000) $27,823.
As I noted above, for the last few years (I think it began in 2010) cops in Davis (but not fire) have paid the employee rate (9%) and a share (3%) of the employer rate.
So for the $100,000 cop, he has $12,000 deducted to fund his pension. The City will pay in an additional $24,823 to fund his pension. Together, PERS requires $36,823 this year for this guy’s pension.
It is expected now that by 2020, a 3% at 50 pension will come with an employer rate of 55%!!!
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*There are two components of the employer rate. One is called the Normal Cost. In 2013-14, that is 16.681%. The second part is the Unfunded Rate. In 2013-14, that is 11.142%. Together, the employer rate this fiscal year is 27.823%. … You can likely figure why there is an “unfunded” portion of the pension fund. It is mostly due to CalPERS failing to meet its 7.75% return on investment. But it is also there because cities like Davis gave employees in mid or late career much more lucrative pension plans like 3% at 50 (which had previously been 2% at 55 for cops and fire). So Davis was required to backfill the amounts which were never paid in. Davis has large liabilities in unfunded pensions. For safety, as of June 30, 2011, the debt was $27,422,570. I don’t have the non-safety number at hand, but I know it is much larger.
**When fire in 2001 and a year later cops in Davis were moved up from the lower pension plan to 3% at 50, the City Council insisted that the employees had to pay the full 9% employee share. But, the cops and firefighters did not want to pay in. They never had to pay in a dime previously. So a “compromise” was reached: Every cop in 2002 and firefighter in 2001 got three raises: First, they got a cost of living raise. I think that was 4%. Additionally, they got a market comparison raise, because apparently some safety personnel in other cities were making more money. I think the market comp raise was an additional 2%. On top of those two raises, they got a 9% raise, and agreed to “give back” by fully paying the employee share of their pensions.
As a result of the original 9% raises, cops and fire have never paid anything, as they always have had a higher wage to cover the employee share of pension funding. …. By contrast, the City paid the employer rate and the 8% employee share for its miscellaneous (non-safety) employees up until a few years ago. In all cases, misc. employees are or will soon be paying the 8%. Most of them did not get a raise in advance to cover that 8%.
I have three concerns that I think should be discussed more as we move forward in communicating the nature of the fiscal challenges before us.
1. The staffing cuts that have been made over the past five years (103 total or 22%) have been done via attrition. This implies that they have not been done (with perhaps a few exceptions) in a strategic way: attempting to match skills and experience with actual need. My concern is that we have a staffing profile that does not match service needs in the city. I have no way of knowing whether this is actually the case but an analysis would appear to be in order. The basic question: are we staffed to provide the services we are currently committed to providing?
2. The full extent of other maintenance backlogs beyond streets is unknown as far as I can tell. The basic question: What is the maintenance backlog (or projected future maintenance needs for which we should be setting up reserves) for city buildings, parks, pools and fleets?
3. Despite the reductions in staffing and reductions to compensation achieved in the last round of contracts, the City Manager’s projections contained in his December 17 presentation indicate RATES of growth for costs and revenues that will lead to inevitable shortfalls in the near future if something is not done. This is a problem of rates of growth not absolute levels. I may have calculated incorrectly so someone can check but I think the rate of growth of costs projected between 2014/15 and 2018/19 is 3.2% per year (average) and the rate of growth of revenue in the same period is 2.5%. Again, these are projections but unless we get these rates of growth in line we will continue to face growing gaps fairly quickly (projecting out 5 years beyond 2018 if the rates do not converge we will be facing another $2.5 million imbalance). Again, I hope someone will check my math. I am basing it on costs and revenue projections in Pinkerton’s December presentation. The basic question: how do we get rates of growth to converge in the short term?
I have had the opportunity to speak with dozens of people across the city in recent weeks and the message I am hearing is: “Tell us the whole story and don’t hold back. We need to see the full picture if we are to make a decision about revenue generating options. Just tell us the truth.”
1. hasn’t part of what pinkerton done to reorganize the departments and structure of government? for instance, bob weir retired, so did others at the top, and he brought in niederberger to run the reorganized public works?
2. good question
3. there were rates of growth mainly from inflation for health care and PERS charging more. plus, as david points out, because of the failures of 2009, they offset the structural reforms with slight pay increases.
we need to have a discussion here and people seem checked out again.
Robb wrote:
> The staffing cuts that have been made over the past five years (103 total or 22%)
> have been done via attrition. This implies that they have not been done (with
> perhaps a few exceptions) in a strategic way
Thanks for the nice post. One thing that you will have to remember if you get elected (and I hope you do) is that it is very hard for most people to make “strategic cuts” when they are personally close to the people involved.
I’ve posted before that we are not spending our tax dollars wisely when we pay firefighters over $200K and I stand by my comment, but I’ll be honest that it would be hard to personally vote to cut the pay of my best friend and cousin who both make over $200K (with a TCOE close to $300K) working as firefighters…
I am sitting there contemplating what to do because this year business is down 50% from projections.
I have to cut expenses.
I have to do so without cutting service, because if I cut service, my competitors will take market share from me.
How do I do more with less? Yes, at some point there are no more cuts to be made without accepting some service reductions. But public sector business seems to lack that middle step… how to get creative in costs and efficiencies to carry the same water with fewer or cheaper water carriers.
Now I know this type of thing gets up the ire of people like Tia and others… they see competition as a constant reduction in employee consideration. But what Tia and others either don’t know, or don’t care about, is the value passed on to the consumer… lower prices and better service… and the stockholder… increased equity.
We are either a labor nursery, or we are in business. And if we are a labor nursery we better be willing to keep dumping money into it because human nature is such that employees will always demand more consideration. Face it, after 7-8 years doing the same thing, it becomes a slog. Employees start looking for things that keep them feeling good about their work. They would like recognition. The would like more money. They would like less stress. They would like more free time. The would like more control and more power, and fewer mundane tasks. Bureaucracy grows because of this human tendency to always want more and to be made to feel wanted and appreciated. Good leadership can help provide much of this stuff without just opening up the vault and giving out cash to pacify. I know of several well-managed organizations that actually force employee and mangers to switch jobs every so many years to prevent this type of thing from happening. Even the federal agency that I work with has started doing this with all of their directors .
But at some point there becomes the business reality of profit and loss, revenue and expense. The business model is the business model. If it is costing too much, cuts have to be made. And if cuts have to be made, the first step is to figure out where and how to do it with minimal impact to service.
I think the city has capacity to do this. I don’t think we have cut so far that the next cut will impact service… unless we allow if because we either don’t want to do the hard work to re-engineer our work processes and employee roles to accommodate for the cuts, or because we are better served by cutting to support that next request for tax increases.