Despite projections from last June showing the precarious nature of the city budget and despite sales tax figures coming in nearly three percent below the budgeted estimate for 2015-16, the city council is being asked to approve four MOUs from employee groups that will add half a million to the current fiscal year budget and $1.12 million to the 2016-17 fiscal year budget.
The MOU agreements between the city and four bargaining units – Davis Police Officers’ Association (DPOA), Program Administrative and Support Employees Association (PASEA), Individual Management Employees, and Individual Police Management Employees – each come with a 2 percent COLA (Cost-of-living Adjustment) on January 1 and an additional 1 percent on July 1.
The only “good” news in these budgets is that the city is not locked into them long term. Each expires at the end of June 2017. Even that silver lining represents a mixed bag, as it is possible that the city will be able to course-correct at that time, but it is also possible that a more labor-friendly council will open vaults to the bargaining units.
The writing has been on the wall for some time, as Dirk Brazil last spring told the Finance and Budget Commission that there would not be additional concessions sought in this bargaining process – this despite the very precarious nature of the current budget.
These announcements come just six months before the voters will likely be asked to approve some form of tax – likely the Utility User Tax – to support the city’s upgrade of infrastructure such as roads.
In June 2014, the voters approved a half cent sales tax. The sales tax was billed as a temporary tax measure to deal with the current structural deficits.
The chart above shows the impact of the tax as it pushed the city’s fund balance into the positive. However, last June’s projections show that, as soon as that tax expires, the city’s fund balance heads right back into the negative.
The city goes from being in the black in 2020-21 by nearly $2 million to being in the red in 2021-22 by about $3.4 million. And while revenues continue to increase modestly throughout the period, expenditures increase as well.
Most ominous is that this chart doesn’t show what happens with employee compensation increases.
The chart shows what happens with a one percent COLA and projects it out past when the tax increase will drop off the tax rolls.
The first thing we see is that a one percent COLA will basically track with expected revenue increases across the board. So the city’s projection of being in the black will no longer hold. The city will fluctuate between slight deficits and slight surpluses. By 2020-21, the city will be in the black by $300,000 under this scenario.
When 2021-22 hits, and the tax increase disappears, the city will immediately find itself right back in the $5 million deficit it was in previously. By 2024-25, the city would be back in a $7 million deficit.
While the second chart shows what happens with a one percent annual increase, the impact of even a one-time three percent increase is monumental. We assume that the rest of bargaining units such as Fire and DCEA will have similar pay increases should council approve this one, so we are likely looking at a $2 million plus hit on the city expenditures, which was not included in the first projection.
That being the case, we may not have any single-year budget surpluses if you look at the model. And that is only assuming that we implement the 3 percent as a one-time expenditure and go back to a flat line budget.
As we argued back in June, the zero-increase budget over a decade was unrealistic. However, there is a lot of bad news here.
First, the city’s model assumes no economic downturns in the next decade. Second, CalPERS (California Public Employees’ Retirement System) is already threatening to raise the rates for the city, which could take another million out of the budget, and Governor Brown is telling CalPERS that their planned cuts do not go far enough.
Perhaps the city is hoping to further cut non-employee costs, perhaps they are planning on the voters approving the renewal of the sales tax, and approving the Utility User Tax that they can use to bolster the General Fund – particularly on roads where the city is currently pulling $4.1 million.
However, that is a lot on which to risk the sustainability of the city’s budget. The voters have not approved the Utility User Tax – and we have yet to see the plan for how that would work.
The voters have also not approved Nishi or the Innovation Parks. Right now, even if they do, they are modest revenue sources and potentially only in the long term.
The only good news is that the city could move back toward a zero-growth budget after the current MOUs expire in mid-2017, but, as we warned back in June, the city’s budget is not nearly as strong as some have suggested and simply adding a few million to the budget is going to put tremendous strain on it.
Is the council willing to buck the city manager on this budget-related item? That seems unlikely without considerable push-back from the community. As it stands now, the city is in precarious shape and a lot of the hard work from the last five years is in jeopardy.
—David M. Greenwald reporting
The city purchased the DACHA homes for under their market value when the residents were being sued and the properties were in foreclosure. The CA foreclosure laws state that any previous contracts must be honored when a foreclosed property is purchased. However, none of the residents received their carrying charges (down payments). In many cases, these funds were their life savings.
Now the city has 1.1 million dollars to spend, yet they still do not have funds to reimburse the DACHA residents, some of whom continue to live in the homes they thought they were purchasing as part of a housing “cooperative”, but are now forced to rent from the City.
The DACHA folks will never be reimbursed – the DACHA debacle is over with in so far as I am aware.
At least one family had a lawyer representing them. I do not know the outcome. I am in proper and if I ever hear that the other resident settled, then I will pursue reimbursement of the remainder of my down payment.
“The voters have also not approved Nishi or the Innovation Parks. Right now even if they do, they are modest revenue sources and potentially only in the long term”
Much has been said about Nishi and the Innovation Parks as revenue generators. However, the last part of your statement is the most cogent I have yet seen about their contribution to the city coffers. Nishi would be a very modest revenue generator if not a loss depending upon final configuration ( not that it does not have other merits), and the Innovation Parks ( now down to one) would never have brought in money except in the “long term”.
I think that we still need to face what I see as simply objective fact, and what others see as somehow “unfair”. We need to be willing to pay for what we want. With appropriate relief for those who genuinely cannot pay or who would be forced out or forced into poverty, the rest of us need to pay for our desired lifestyle. We can pay with taxes, or we can pay with utilization fees, or we can donate our time and money for our pet projects, but the bottom line is we must pay for what we want. What we cannot do is to wait for some new bright shiny project to be approved and pretend that will take care of our current and near future costs.
Not everyone agrees with me on the Innovation Parks. There are certainly opportunities for more revenue – CFDs, cutting costs (although this move mitigates that possibility), etc. I prefer to be conservative with regards to projections.
I really enjoy see the “projections” in the article for 8 or ten years of “revenue” when these agreements are expiring in two years or less, but the nice little charts display gloom and doom. An Economists dream, Obama accounting, if you will. Take figures for a year and extend them ten or more years to exaggerate them.
Why doesn’t the charts include all this “new money” coming into the system? What a scam. Nothing like voting on bad information, and Mr Brazil giving this to a City Council should be reprimanded for this.
Tia, setting aside the issue of the innovation parks, you seem to be advocating for increasing taxes enough to “pay for the services we want”. The problem is if the city continually adds on projects, e.g. new sports park, new swimming pools, pay more to employee groups, it can far outpace the citizens ability to pay. Are you advocating driving the “riffraff” out and having nothing but a wealthy enclave? There are folks having to leave Davis because they can no longer afford to live here.
Anon
“Are you advocating driving the “riffraff” out and having nothing but a wealthy enclave? There are folks having to leave Davis because they can no longer afford to live here.”
I fully believe that by now you know full well that this is not what I am advocating. I have said many, many times including in my previous post on this tread that I would make exemption for those whom this would exclude from living in Davis. I also think that you must know by now that I believe that as a society, we have enough wealth to provide an above poverty level living standard for every man, woman and child in this country but that we refuse to do so.
I find it disingenuous that you attribute driving out the “riffraff” to me when I am sure that you must know all of the above. Instead of attributing it to me, why not just state your own thoughts on the matter ?
David
Does anyone believe that the Innovation Parks are a “short term” money generator? Or was that not where you see the disagreement ?
No, it’s going to take years to build out to the point where it would be a revenue generator.
That is a very good question Tia, and one that the EPS economic/fiscal analysis doesn’t explicitly answer. The EPS report is very clear about the one-time construction expenditures by the developer of $273,078,870 (Table 3 on page 64 of the EPS analysis), and also very clear about the $185,603,212 one-time impact of Nishi on the City’s construction economy (Table 5 on page 69), but nowhere near as clear about how those one-time impacts contribute both revenues and service costs to the City Budget.
The report is also very clear about the Estimated Annual Fiscal Impact Summary at Buildout on page 131 that lays out $1,273,000 in annual revenues and $1,351,000, (with drill down into those revenues and expenses in Table 1 on page 132), but that is only a single point in time (a future time that some say is irrelevant to our immediate city budgetary issues), and are asking questions like yours.
A table showing the trended annual revenue and expense number estimates from year one through buildout would be very useful.
David, question on a utility tax. Being that the brunt of the tax will be gas and electricity will a utility tax be based on what a household is actually paying for gas and elec. or will it be based on what a household actually uses regardless if they have solar or not.
It would be based on your bill, so if you use solar, less tax.
That’s what I thought. So basically a utility tax will be a regressive tax. Rich people that can afford extensive solar systems and use all the electricity they want will pay much less tax than the average Joe that can’t.
It’s certainly not a progressive tax. I would prefer the parcel tax personally, I see a good possibility that they use the UUT to increase personnel compensation with the general fund money and then backfill with the UUT. A parcel tax might not preclude that, but it would make it more difficult.
I think this is reason enough that any UUT tax should be fought as being unfair.
Would you prefer a parcel tax?
No it will not be BP, the people who have put in solar would have paid taxes at the time of the installation of their solar system.
Matt, they’ll still be paying much less on a monthly basis than most other UUT taxpayers in Davis. It will be seen as unfair no matter what spin is put on it.
I agree it will be “seen” that way. That is a political calculation. This is a case where the political calculation is not supported by the actual taxes paid when you consider both the up-front tax payments and the ongoing tax payments.
Matt, trying to say that a sales tax being paid up front on something takes the place of an ongoing monthly tax that everyone should have to pay is a non-starter in my opinion.
That is a different question BP. The challenge you face is finding a taxing mechanism that “everyone pays” … their fair share.
To Barack Palin: UUT tax can be on all utilities, e.g. water, sewer, sanitation, cable (not including internet), telephone, gas, electric. Each utility can be taxed at differing rates. I suspect the city will decide to recommend taxing all utilities rather than just gas & electric. And yes a UUT is a regressive tax to some extent. Wealthier folks tend to use more water and gas/electric than those less fortunate, which helps such a tax to be less regressive – but it is regressive. The problem with advocating for a parcel tax, is that it requires a 2/3 vote to approve, a difficult barrier to get over. Hence the move towards a UUT (utility user tax), because it requires only 51% approval. Whether the tax to be asked for will be a parcel tax or UUT is still undecided.
The problem Anon is that most of the UUT tax will be based on a household’s biggest bill, their gas and electric, which as noted will be easier for people of means to sidestep than others.
To Barack Palin: Biggest bill is city services bill, not necessarily gas/electric. Cable bill can be huge, but have to tease out internet, which cannot be taxed per federal law (at least as far as the city can determine at the moment).
Any way you try and parse it people who have the means to install solar will be making out over people who don’t. Unfair………
Have you personally ever run into a tax that you believed was fair?
BTW, not parsing anything. Simply reciting the factual evidence.
Anon said … “The problem with advocating for a parcel tax, is that it requires a 2/3 vote to approve, a difficult barrier to get over.”
I don’t see the 2/3 barrier as a problem because there will be a very specific list of what the money is going to be spent on, and I believe that if the citizens/voters see that kind of transparent accountability, they will be much more comfortable with voting yes.
I personally prefer accountability and transparency. Our City needs to practice fiscal responsibility in all its transactions, taxes included.
Poll was taken showing parcel tax would not likely succeed. Citizens may be tax weary now – it appears from past votes the threshold for passage of a tax might be hovering around 58%, which is well under the 67% needed for a parcel tax.
The poll presented the people being questioned with a no accountability, no transparency, no fiscal responsibility option. Is it any wonder higher numbers of people said “No” The poll as administered had a head-on collision with the fundamental lack of governmental trust that pervades Davis.
It is interesting that the City Policy wants to subsidize a huge rental population with a Parcel Tax. At least with the Sales tax, EVERYONE in town paid, transient or not. Parcel taxes will only hit the Houses in town, but not UC owned properties. A gift? Subterfuge? Obfuscation?
Miwok, I agree.
I’d rather our council cut down on costs but at least with a sales tax everyone pays a share and it doesn’t just fall on the homeowners.
BP, the way it has been presented in the meetings I have attended, it would be based on the net amount of a person’s bill after deducting any credits for renewable energy produced. A person who has installed solar would have paid applicable sales taxes on the capital costs of that installation.
If I buy a new car and pay sales tax does that mean I shouldn’t have to pay yearly registration taxes?
I hear your point BP, but I would say that everyone who owns a car has to pay sales taxes and registration taxes. On the other hand, everyone who uses electricity in their home does not have to pay sales taxes on a solar system. So, even if your point is a good one, your analogy is a poor one.
No COLA for Social Security for 2016 because we’re told cost of living actually went down (though I don’t believe it).
http://www.npr.org/sections/thetwo-way/2015/10/15/448959767/no-cost-of-living-increase-for-social-security-recipients-in-2016
But our local city workers get 3% in COLA’s?
The reason overall cost of living went down is because of the steep decline in the oil/gasoline component of cost of living. Personal transportation and the transportation of goods cost considerably less.
Okay, but the costs still went down, why are we offering our city workers a 3% COLA?
That is a different question than the one you asked.
It is a very good question … one that I too am asking.
No, it’s precisely the point I was making.