Vanguard Commentary: What Kind of Community Do We Want to Live In?

parks-taxOn these pages I have shared my view a number of times.  I believe that the city council went about as far as it could go with the employee contracts in 2012-13.  The bigger problem was that we did not get enough structural reforms in 2009 and so, in order to get the employees to agree to structural reforms in 2012, the city had to bargain on salary increases.

The city calculates about $360,000 in additional costs for those offsets.  It is a relatively small amount compared to how much the failure of the firefighters’ union and DCEA bargaining units to agree to terms in a timely manner cost the city.

Could the city have held out for more?  Probably.  Much more and they would have taken all seven bargaining units to impasse.  From a cost perspective it is difficult to know whether the additional savings would have penciled out with the additional costs of going at least one more year on the current contract.

I tend to believe that the critics are missing the political consequences of that action.  For one thing, the city did a good job of isolating the firefighters and DCEA from other city employee groups.  The DPOA (Davis Police Officers Association) has become an important ally with the city and helped this fall in quelling the impact of the firefighters on several occasions that could have been thorny, but failed to materialize.

Had the city gone to impasse with all seven groups, the firefighters would have gained immeasurable political power and could have united the other bargaining units against the city.  Would the city have survived that kind of fight?  Hard to know and as it played out, we never had to find out.

Despite all of these agreements, the city still faces a $5.1 million structural deficit – although this is somewhat misleading.  If you factor out road maintenance, the deficit drops to about $2.6 million.  On the other hand, if you add in the total real costs of deferred maintenance, that figure soars probably far closer to $10 million.

Largely the city – to the criticism of the Vanguard – has chosen to deal with this deficit in two phases.  First, the city will address immediate costs through a sales tax which will generate about $3.6 million and mainly deal with the compensation increases to the city.  Second, it will address roads and other infrastructure issues with a parcel tax this fall.

There are some in the community that believe the deficit can be dealt with, with more cuts.  We have noted in recent weeks that this approach has virtually no support among the council, city staff, or even the candidates running for office, with the probable exception of John Munn.

A few weeks ago the question arose as to how the city has cut probably $5.8 million in costs from future budgets when in fact employee compensation is going up.

Basically, what has happened is that costs to provide the current levels of benefits – whether they be pensions or health care – have gone up for both the city and the employee.

For example, in the agreement that the DPOA signed in December 2012, the employees were required to pick up their portion of CalPERS contributions by this year.

According to the city staff report, “Upon adoption, Miscellaneous employees covered by these agreements will go from paying five percent (5%) to seven percent (7%) of the employee share and pick up the additional one percent (1%) on January 1, 2014. All new Miscellaneous employees will be paying the full eight percent (8%) upon hire. Sworn Police will continue to pay the full nine percent (9%) and the additional 3 percent (3%) of the employer share of retirement costs.”

So, miscellaneous employees will have to pay an additional increment of their pensions, but because of cost increases that have gone into effect since the contract has been agreed to – so will the city.

The city also asked that employees compromise on retiree health.

Those who retire after December 31, 2015, with more than 25 years of service for non-safety and 20 years for safety, will receive the maximum current benefit.

Those who retire with less than that amount of tenure who retire after December 31, 2025, would receive 75% of the current benefit.

In addition, “When all retired employees reach age 65, their benefit will drop to the Medicare Supplemented/Managed Medicare monthly rate.”

Currently, the city projects 20 percent of payroll going to the unfunded liability for retiree health premiums. Under this plan, that percentage drops by 2.75%, an annual savings of about $178 thousand for the three years of this contract.

The current contract also cleans up the cafeteria cash out, ultimately capping the cash-out provision for current employees at $500 per month following a three-year phased in process.  This is still higher than the average of $400 per month for most cities.

This agreement also continues the cost sharing provision established in previous MOUs for medical premiums.

“When new health care premium increases take effect, the City will contribute up to the first three percent (3%) of any increases in health premiums. Employees will contribute up to the next additional three percent (3%) of health premium increases for the benefit year. Any increase in the premium above six percent (6%) will be shared equally (50/50 cost sharing) between City and employees,” staff writes.

There is a tradeoff for these concessions. The DPOA sworn employees will receive a two percent (2%) salary increase starting January 1, 2013, a two percent (2%) salary increase effective January 1, 2014, and a one percent (1%) salary increase effective January 1, 2015.

The non-safety employees get a 3% salary increase on January 1, 2013, 2% in 2014, and 1 percent in 2015.

Staff writes, “These modest increases were a trade-off for the large number of structural benefit changes impacting employees involved in the contract.”

Matt Williams summed up the situation fairly well in a comment on Sunday: “The City’s cost of providing employee compensation is indeed going up dramatically, but at the same time the actual compensation levels for the employees is close to level. The level of service provided by their healthcare benefits is essentially unchanged. The coverage by Kaiser (the default plan for employees I believe) is essentially the same, and actual hourly pay rates (as you have pointed out elsewhere in this thread) have only increased an aggregate 6% over 3 years, which is barely higher than the inflation rate.”

From our perspective, the city has asked employee groups to step up and take concessions and this has occurred.  We might have preferred to go deeper, but our biggest fault is the 2009-10 council, rather than the current one.

Attempting to go deeper this time would have created a backlash with seven bargaining units going to impasse.

While the city has asked employee groups to do more with less, it has largely provided comparable levels of compensation with a reduction of workforce from 464 to 361, a 22% drop.  Now is the time for the city taxpayers to step up to take their sacrifice.

The cuts list is going to be ugly and with staffing cuts will come serious reductions in services.  That means that we will be closing down parks, browning greenbelts, closing down recreational services.

None of these are what we call core services.  We can live without them.  But it would mean that part of what makes this a great community will be gone.  The voters are going to have to decide if that is what they want?  Do they want to pay more to keep the type of services that they want to keep?

At the end of the day, that is really what the sales tax will be about – a relatively small increase in taxes for everyone.  As we noted yesterday, it is a small amount of additional taxes, $5 for every $1000 you spend on taxable products, $50 for every $10,000 you spend.  That’s a very small price to keep Davis as it is now.

—David M. Greenwald reporting

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  • 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.

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Breaking News Budget/Fiscal City of Davis Elections

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66 comments

  1. But where is the economic development? You discuss what happens as far as ten years out with some benefits and lay out our current choices too. Yet you mention not a word about the economic development needed to supplant this tax increase when it expires in six years.

    What kind of a community do we want to live in? A stagnant declining one with fewer public servants and services, deteriorating infrastructure and fewer young families because our children can’t afford to raise our grandchildren here without the continued succor of their parents or one that capitalizes on its human and geographic resources to generate the wealth needed for the commonweal.

    I’ll be voting yes because I believe in paying for what we need for society to function but with a different vision we can have a more dynamic, vibrant, diverse community where everyone pays less and everyone gets more.

    1. You are assuming growth means economices prosperity. It ain’t necessarily so. I agree we need to increase revenue but we also need to be very careful about the I intended consequences of our actions. The chamber of commerce is in the growth business. Their motto should be more is better. I have a healthy skepticism about their proposals

      1. It’s not clear to me where the Chamber or housing growth entered into the article or the conversation. Are you sure you posted to the right thread?

        -Michael Bisch

  2. “At the end of the day, that is really what the sales tax will be about – a relatively small increase in taxes for everyone. As we noted yesterday, it is a small amount of additional taxes, $5 for every $1000 you spend on taxable products, $50 for every $10,000 you spend. That’s a very small price to keep Davis as it is now.”

    David, your conclusion is misleading in my view (I’m not saying it’s malicious). The “very small price” described in your article does not keep Davis at all as it is now. Quite the opposite. It only stems 1/5th or so of the fiscal bleeding. The price to fullly stanch the bleeding, i.e. “to keep Davis as it is now”, is far, far higher (although even the city doesn’t know how high). That’s exactly why the city’s approach has been confusing/dysfunctional. The way problem solving generally works is you fully identify the problem, then identify and analyze a full range of solutions, then pick one. None of this has been happening.

    What the voters are being asked to do is to approve a solution to a problem that has not been fully explained to us. We only know 2 things at this point: 1) the extent of the problem is unknown; 2) the proposed solution falls short of solving whatever the problem is, i.e. the cost will be far greater.

    PS: Another confusing/dysfunctional aspect to the city’s fiscal emergency is the maintenance backlog being hived off from the “operational budget”. Why is that? Maintenance is an operational expense, so why is the city acting like it’s not part of the operational budget? Indeed, the very reason we now have a backlog is the city has not been treating it as an operational expense these past many years. The reporting above perpetuates this.

    -Michael Bisch

    1. That’s a fair point and this was intended to be the first in a series of articles that will go into the roads issue and also the economic development issue.

    2. Michael… part of the problem, historically, was building non-core programs, activities, and in doing so, not fully funding the core responsibilities of the City… some have characterized these as the “feel-good” activities. Distortion of funding mechanisms, including State taking property taxes from local agencies, and using them to backfill their “feel good” programs, and education, didn’t help. Have come to the conclusion that there is a ‘constellation’ of decisions that have brought us to this point. To say it is “simple” to fix it is not realistic, particularly if the ‘solution’ is to take it all out of City employees.

      It will need a multi-faceted, (hopefully) balanced approach. I do not have a comprehensive answer, but we do need to find an approach different from what we have been doing. I don’t see a single panacea

      You are correct, and as an example, anytime a capital improvement is built, a fund for maintenance, and eventual replacement of the facility should be established, and funded.

      Where is the “sinking fund” for all the improvements contemplated by the Cannery project, for example?

      1. It is my understanding the Cannery project will result in positive cash flow for the city for 10 years then it becomes a negative cash flow. I suspect that the income in years 8 and 9 is very small. How many projects that last 50 to 75 (wild guess here) and pay for themselves for only the first ten years can we support before we go broke? Maybe someone should look at Wildhorse to see if that is now a part of our financial crisis.

        1. There must be some hidden text in David’s article or in the comments above that I can’t see because this DB guy keeps going on and on about housing growth.

          -Michael Bisch

    3. Michael wrote:

      > PS: Another confusing/dysfunctional aspect to the city’s fiscal emergency is
      > the maintenance backlog being hived off from the “operational budget”.
      > Why is that? Maintenance is an operational expense, so why is the city
      > acting like it’s not part of the operational budget?

      I know that most voters were not making budgets in VisiCalc on their Apple IIs in 1979 (and saving them on cassette tape since I did not have the $500+ to buy a floppy drive until 1980) but it seems like it should be “criminal” (yes an actual criminal offence) for a city or school district to NOT reserve for road repairs and/or roof replacements (while “buying votes” with the funds) then go to the voters every few years for EMERCENCY funds to fix the roads or repair the school roofs that are leaking on their kids.

      1. The city council in large part created the illusion of a balanced budget from 2008 to 2010 by placing unmet needs into a separate line item.

      1. A CostCo store averages 150,000 square feet. Average sales per square foot are about $1,000. Typical big box is now 20 – 30% nontaxable, so a CostCo would probably yield about $800,000 per year in sales tax. CostCo’s growth and expansion model doesn’t include building two stores within a two-city area like Davis-Woodland, so that market is already occupied.

  3. With the possible exception of the Economic Development staff and perhaps grant writers, high paying City jobs do not generate new wealth for the community. Instead, we take tax money from all the citizens and redistribute their wealth to the City employees. In essence, high paying City jobs simply make living in the City more expensive for everyone else. When those highly compensated employees live outside the community, we are not just redistributing wealth, but also taking the wealth away from the community.

    From the taxpayers perspective, the only thing that matters in the discussion of City payroll costs, is what can we, through the auspices of the City, afford to pay to the City employees. With total compensation rising at a faster rate than that of City revenues, we are clearly paying too much. The problem is magnified that much more as we learn the total extent that past and current CCs have deferred maintenance on our infrastructure in order to continue paying the high rates of compensation to the employees. The simple answer is that we have been overcompensating our City employees for years (decades?), and the latest MOUs really haven’t done anything to change that situation, only slowing the rate of growth somewhat.

    By itself, the proposed increase in sales tax will do nothing but continue this history of fiscally irresponsible action, further draining the wealth from the community to continue overcompensating City employees. The proposed parcel tax next fall continues the problem even if the monies generated go towards infrastructure as poposed. All we will be doing with the new tax monies is back filling the maintenance deficits that we have run up over the past decade in order to continue over generous compensation program. Raising taxes alone will just be a continuation of the redistribution of wealth, making the City a more expensive place to live with the continued net decrease in community wealth.

    In contrast, economic development offers the opportunity of bringing new wealth into the City. New, high paying private sector jobs increase the net wealth of the City, generating more taxes from the businesses and increased economic activity in the community. In the long run, economic development can replace the need for further tax increases, and with sound fiscal management (something that is not guaranteed) create a more prosperous and less expensive place to live.

    There is no doubt that we need the tax increases, but they are only beneficial if we continue to reduce expenses (primarily by cutting payroll through outsourcing and planned reductions) AND grow our economy through economic development. The CC needs to shift their focus away from tax increases and engage in all aspects of improving economic development and cutting costs. If a proposal does not bring new monies into the City, or reduce city expenses, it should not be on the agenda. That sort of laser focus on economic growth and cost cutting by the CC and staff is all the justification I would need to support the proposed tax increases. That sort of focus would indicate a change of direction towards bringing new wealth into the City, rather than simply redistributing wealth into the staff’s pockets.

    Without the complete commitment towards economic development, there is no justification that I can see for supporting the tax increases. No David, it is not time for the tax payers to ‘step up and take their sacrifice,’ we have been paying more than our share for years.

    1. Am I understanding you correctly? ‘High paying’ jobs generate no new wealth to the community, but lower paying positions do? Does your doctor, dentist, contractor, clergy, store clerk, etc., provide additional wealth to you?

      There are many ‘high paid’ [by the way, what is your definition of that? anything above minimum wage?] positions in the city who tend to be ‘revenue neutral’ in the fact they generate revenues from fees that are charged for their services, such as plan checkers, building inspectors, planners, engineers, etc. In fact, their ‘charge out’ rates pay for some of the costs of the Finance department, HR, IT, etc.

      Am thinking that in your view, no City employee should be paid anything if they do not add to ‘the wealth of the community’. We used to have a system that did that quite well, but the liberals abolished it in the 1860’s.

      1. This has always seemed like an odd contention to me. If the public employee gets paid a salary, they spend that salary in the local economy and it goes to private sector producers of wealth who can then take that additional revenue and invest it.

          1. Yet public employees from other agencies spend money in Davis. Guess it’s a case where City employees should only spend their money in Davis, and those public employees for agencies outside Davis are encouraged to spend their money in Davis. Very ‘Chamber of Commerce”. Except of course, the money brought into Davis should not be restricted to the Downtown.

        1. “If the public employee gets paid a salary, they spend that salary in the local economy”

          Who pays the salary David? The other people in the community. Money from one pocket into another is wealth redistribution, not expansion.

          1. That’s a very limited view Mark, in my opinion. You don’t think the city maintaining a nice green belt and parks system doesn’t ad value to people’s homes and make this a community that people want to live in?

          2. David: The City owns the greenbelt, but is it necessary for City employees to maintain it? Your view is the one that is limited in my opinion. The City seems to agree as they continue to expand the outsourcing of park maintenance.

            Let’s look a little deeper. Why do we need City employees to operate our pools? Why not lease the facilities to non-profit and for-profit companies to provide the same, or even expanded service? We have already done so with Community Pool, why not the rest? Why do we pay City employees to maintain the City’s vehicle fleet? Operate our IT services? Teach gymnastics? Handle building inspections? Maintain softball and baseball facilities? Could we not do all of these things with a manager (that we already have) overseeing outside contractors? In most cases I would anticipate a higher level of service at lower costs. How is that a bad thing?

            I think we need to expand our view and re-imagine what services actually require the use of City employees.

          3. The same could be said about “out-sourcing”, where the firm used may not be in the City, County, State, or country (IT, for example).

      2. City employees are paid from tax dollars, whether those taxes are in the form of sales tax, property taxes or fees for service. They are all forms of taxation. The only City employees who generate money for the City are those who help bring new business, jobs and grants to the community as that is new money flowing in to the community, not just being redistributed from one family to another.

        “‘High paying’ jobs generate no new wealth to the community, but lower paying positions do?”

        My distinction was between high paying jobs (and the low paying as well) that are brought into the community through economic development and general economic activity, and those that are funded by local tax dollars. The former bring new money into the community, the later only redistribute it, and in some cases take it away from the local economy if the employee lives outside of town.

        Public sector jobs at the University, funded by state wide and federal taxes, bring money into the community and offer greater benefit than do City funded public sector jobs.

        “Am thinking that in your view, no City employee should be paid anything if they do not add to ‘the wealth of the community’. ”

        On the contrary. I am not saying anything about the compensation level of any individual employee or the necessity of paying for required public services. I am certain that there are many on the City payroll who are under-compensated for the value they bring on the job. As a group however, we are paying way more than we can afford for the level of services that we are receiving.

        We will know that we have cut compensation enough when we begin to have difficulty filling jobs with qualified applicants. It can be argued that we may have already reached that point with our police force, but it is doubtful that the situation is true for any other job classification. In addition, we still have far too many jobs being performed by City employees, that could be accomplished at lower cost by outsourcing to a local company.

        The biggest issue with total compensation is not the salary we are paying, but the benefits. We are living with a defined benefit system that may have made sense when employees worked until they were 60-65 and died in their 70’s. It is a system that makes absolutely no sense today when employees retire at 50 and live into their 90s, while we fund the lifetime healthcare for both the employee and their spouse.

        There is still a great deal of cost cutting that we need to do as part of a comprehensive solution to our fiscal problems, but a focus on economic development is the only way that we can improve the economic health of the community as a whole.

          1. Pithy comment, but not very useful. Much like your allusion to slavery. Funny in a limited way, but really only masking your lack of a cogent argument.

          2. Again, you’re right. Something that brings in State and Federal funds to the community is good & noble, because those funds do not originate from taxpayers.
            Economic development staff don’t do things like ‘writing down’ impact fees to attract new business to the community. If they DID, the rest of the community would have to pick up the. slack. Except, yes, that’s what has been happening the last 10 years or so. AND the City gave tax rebates and ‘holidays’ that greatly offset any new revenues from the new business. But I’m sure it will all pencil out someday.

          3. Financial mismanagement by the City is not a new problem as you have aptly demonstrated in your examples.

    2. You do realize that when you outsource jobs you pay a rate that incorporates all the employee cost PLUS a nice profit for someone. I don’t deny we have a problem paying for our OPEB and we aren’t alone. It’s a problem that faces most California cities so davis didn’t get here by being different or thinking we could pay our employees more or five them more benefits (except that cafeteria medical benefit cash out–that’s new to me and a crazy concept). Cities were lead to believed they were behaving responsibly by CalPers. CalPers is the problem IMHO. I wonder how many city employees live in town. When you pay someone a wage you aren’t throwing that money away. It is an exchange for needed services. And when the employee lives in town that money recirculates many times within the community.

      1. You’re missing the advantage of out-sourcing… employees are paid somewhat less, have little or no benefits, particularly post-retirement, and the business owner/stockholders take the profit to the bank, and the public pays a little less for the service, assuming the service level is equal.

      2. “And when the employee lives in town that money recirculates many times within the community.”

        The money was already in the community and was recirculating just fine without the involvement of the public employee’s paycheck.

        And I agree, many of the problems have been driven by CalPers, and there are limited options for a local community to change the impact of the State run program. The easiest approach then is to limit the total number of employees that we have, but I guess that is a difficult concept for some to accept.

      3. ” When you pay someone a wage you aren’t throwing that money away. It is an exchange for needed services. And when the employee lives in town that money recirculates many times within the community.”

        I concur. And that’s why we should also happily pay all local businesses 50-100% more for the goods and services they would otherwise charge because the money recirculates many times within the community. Perhaps I’m being too conservative, make it 200%.

        -Michael Bisch

          1. Thinking about it, in addition to residents paying more to local business, the City should rebate them 100% of their contribution of sales tax and property tax that goes to the City, and spend more for Core Area amenities, at no cost to business.

            Think there is at least one other poster who would support that.

    1. While it might be possible to glean that data by looking at budget reports year by year over the last few years, we don’t have a simple answer to that question. We keep trying to get the info from the city, but it isn’t forthcoming. And I plan to keep harping on this complete lack of data until we get it, because we’ve been promised it repeatedly without results. I seriously don’t know how the council or voters can be asked to make an informed decision without knowing the answer to the question you just asked.

  4. David –

    Is the 25 years of service based on years of service to the City of Davis – or 25 years in aggregate service to CalPERS recognized agencies?

    The distinction will become more important as those approaching retirement begin to seek agencies still offering this benefit.

      1. you might want to double check that fact as retirement benefits, including health benefits, are almost always based upon total number of CalPERS service years although I am not specifically familiar with the Davis situation.

          1. I don’t want to tell you what to do, but I would be interested to see if you have any better luck than I have getting the number of full time employees Davis had over the past few years and the total paid in salary and benefits paid to those employees each year.

          2. The answer from the city is that it is based on PERS service time. That is a key reason the city went away from the medical vesting plan in that it would be far more expensive in both the short term and the long term.

            In Davis, the vast majority of employees have been in PERS. So we would have many employees with less than ten years of service in Davis, but more than 20 in PERS.

            Thus, we would end up with most retirees getting 100% coverage from the day retired whether they were 50, 55 or 60. Whereas, under the City’s current plan, post-1996 employees who retire before age 60 did not get full benefits until they reached age 60.

          3. Thank you for checking on this, David. The City’s response is consistent with other CalPERS agencies with which I am familiar.

    1. Is the 25 years of service based on years of service to the City of Davis – or 25 years in aggregate service to CalPERS recognized agencies?

      It IS based on aggregate service. See the comments on Pinkerton and our obligation to fund his retirement after 2.5 years. This has to change or the last employer has to pay all the benefits rather than only for the portion of the time we were the employer…but I can imagine a real nightmare trying to hold multiple employers responsible for every employee they every hires who ends up eligible for benefits.

      1. Whoa… which benefits? Post-retirement medical is one thing… you’d have to look at Mr Pinkerton’s contact. As for pension, the statement that implies that the City of Davis is ‘on-the-hook’ for all Mr Pinkerton’s retirement ‘salary’ is either ill-informed, and/or a lie.

      2. Interestingly, it used to be that you had to RETIRE at the time you separated from the City to have ANY retiree medical benefit… so if you left City employment after 25 years, worked another 5-10 years for another agency, or on the private side, your retirement medical benefit would be 0.00.

  5. “Do they want to pay more to keep the type of services that they want to keep?”

    Yes they do, they want those spanking brand new $1000 garbage cans.

          1. Biddin wrote:

            > I should be designing and building garbage cans, instead of guitars.

            Years ago a rich man told me “If you want to get rich sell things to people that don’t care what they cost”…

        1. G.I., I know it feels good to bash the NRC, but you really should do at least a little bit of homework before doing so. Here are a few questions you might want to ask yourself.

          What was the NRC’s involvement in the analysis of the replacement bin alternatives?

          Why are bins being replaced?

          What alternatives were looked at prior to choosing the ones that were chosen?

          What is the amount of labor that is currently devoted to servicing the current cans?

          What does that labor cost per hour?

          What is the amount of labor that is projected to be devoted to servicing the replacement cans?

  6. I understood from reading this blog that Davis wos on the hook for his retirement which I took to mean he had work in the CalPers system long enough to be eligible for retirement. Please correct me if I am wrong. I hope I am.

  7. I am not up on all the numbers,but most of the city workers I know retired between 55 and 62.Most were field workers.When it comes to outsourcing it looks good on paper but it doesn’t work out quiet often.The county outsourced their fleet and had to hire one of the Davis mechanics because things weren’t getting done.

    1. And the City has/will experience a lot of retirements between 2010 and 2015. Many were/are experienced, knowledgeable and pretty high performers. Fortunately, we still have many sharp, dedicated who will remain. And we will also have a significant number who are just putting in their time.

      Some of the main drivers for the slew of ‘early retirements’ is the stagnation of compensation, potential loss of retiree benefits, and a general community disrespect shown to them in day-to-day interactions, and by the City Council (I’m talking public disrespect, not votes re: compensation, although it has gotten somewhat better since a certain Council member was not re-elected).

      We’ll have to see who, if anyone, who is highly competent, will be willing to make a career working for the citizens of Davis in the environment today.

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