The good news for the city is that the immediate budget picture has improved to the point where the council has decided to use one-time monies, basically its fund balance, to address some of the city’s capital needs.
The council, back in May, made the decision to add to the budget $8.6 million in one-time general fund expenditures to address funding for Building & Parks Asset Management Plan expenditures, Public Works Facility Assessment, and Citywide Functional space needs assessment. Those changes are reflected in the chart below:
The staff report notes that the city has “worked with a new Fiscal Diagnostic tool developed by Michael Coleman to take a look at the City’s fiscal outlook from another perspective. This California Municipal Financial Health Diagnostic is primarily concerned with the ability of the local government to meet its financial commitments now and into the future (cash, budgetary, and long-run solvency).”
The diagnostic creates three basic scores – red which means “Persistent non-favorable trends over consecutive years”; yellow which means “Infrequent non-favorable trends, reasonable plan or corrections in process”; and green which means “Not an issue of concern.”
Right now on the 14 indicators, 10 were in the green.
Of concern was indicator #1, which was the only one in the red: “This indicator is looking at the City’s net true operating deficit/surplus as a percent of revenues. This would include adjustments for annual funding shortfalls for Road, Facility and Park maintenance. Since Retiree Medical and Pension liabilities are being met on an annual funding basis, they were already included in the base operating numbers.
“When comparing FY 2013-14, which had very little activity toward our annual unfunded Roadway liability of over $9 million, it shows a much more significant shortfall than you would see in future years, in which expenses to enhance road maintenance were made. In addition, FY 2017-18 is impacted when adding the $5.0 million needed in facility maintenance compared to our annual current funding. All in all, this area of unfunded liabilities is one the City is aware of and had been making efforts to address.”
While not a surprising finding, this is the one that is driving most of the concern.
On the other hand, indicator #2 was in the green: “This indicator is looking at the City’s annual General Fund Balance as a percentage of expenditures. The Davis’ General Fund Balance has been steadily improving over time and is now in a position to make some one-time uses of fund balance.”
While good news, the city is not in a position to make meaningful contributions that would dramatically decrease category #1 concerns.
The other three areas of concern include indicator #3: “Capital Asset condition is the focus of this indicator. The annual recording of Capital assets in the City’s government wide Financial Statement provides beginning and ending net values of City Assets. This is not a General Fund only exercise, it is reflecting all city assets, which have been showing improvement over time with the commitment of funds to aid in the repair and maintenance of our assets. While the change in valuation has been improving, we still have a long way to go in improving our capital asset condition, therefore caution to continue making forward strides is noted.”
Indicator #5 is also of concern: “Increasing fixed costs may indicate an unsustainable financial structure where the government has limited ability to make necessary budget changes. Fixed does not mean static, they may be changing over time but cannot be easily altered. Labor costs are an example of these types of expenditures. The Davis diagnostic indicates a trend that is currently making efforts to flatten costs over time, but still has open contract negotiations to be mindful of that can make this area one that can change quickly if not managed carefully.”
And also of concern is indicator #14: “Are public service levels below standards in this community in Fiscal Years 2013/14 to 2015/16? Yes, especially looking at underfunding for the City’s Transportation infrastructure, Facility Maintenance and Park Maintenance. These areas alone are planned for improvement, but still have much to be accomplished.
“The City has been working hard for several years to be more mindful and making strides to address outstanding liabilities in Transportation infrastructure, Facility Maintenance and Park Maintenance, as well as being diligent in holding a reasonable line on fixed costs for labor, benefits and contracts to protect the City’s assets. This diagnostic report has affirmed we are paying attention to the right areas of concern and making forward progress to mitigate them.”
While none of these findings are particularly surprising, in a way they understate the nature of the challenges the city faces. We are in relatively good economic times, our general fund balance is healthy and for the most part the city has been fiscally prudent, even if we might question the decision to slightly increase compensation to a host of bargaining units.
However, the bigger picture shows a huge challenge in terms of unmet needs and unfunded liabilities. The council has carved out some of the ongoing needs for roads, but we are only about halfway there on roads. We have done little on transportation infrastructure, facility maintenance and park maintenance.
Our concern has been that the level of service provided to the community will decrease over time without identifying new revenue sources – whether they be a new tax or economic development.
The scary part here is that, right now, we are just getting by during relatively good economic times – what happens the next time we have a major economic downturn?
—David M. Greenwald reporting
Long-term Retiree and Medical Pension LIABILITIES are NOT being MET on an annual basis. Retiree and Medical Pension CURRENT-LIABILITIES (i.e., EXPENSES) are being MET on an annual basis… FOR NOW.
I think it is disingenuous to make the statement that our fundings for city employee retirement benefits are sufficient in any way shape or form.
I concur with Frankly. In fact I have to wonder why Michael Coleman believes Indicator #10 is “GREEN – Not concerning” when Page 93 of the City’s Consolidated Annual Financial Report shows that the current unfunded Retiree Healthcare Benefit balance of $14.65 million is projected to grow to $61.89 million. If we truly were paying the current actuarially determined costs of other post employment benefit liabilities that $14.65 million value would not show any increase.
Matt,
As confusing as possible, that seems to be the operative standard for public sector financial reporting.
The $14.5MM is the amount of the unfunded liability that has been transferred from Off Balance Sheet to On Balance Sheet Liability. The good news is that it is not growing – as it is in virtually every other agency and district within the state.
I think the point is, at least we aren’t deferring what has already been once deferred.
Matt,
I think it absolute brilliant and a stroke of good luck that we are able to have Michael Coleman spending some quality time under the hood and delving into our finances.
Where I’m kind of stuck is this disparity between the $32MM shortfall, per annum, that you have been describing – and this notion that we are actually doing quite well on a number of key metrics – to the extent that perhaps we may have sufficient General Fund “surplus” to begin spending/re-investing on a number of new frontiers.
What has really not been made clear is a simple statement of revenues that clearly shows where the new “revenues” are coming from and how sustainable those sources are likely to be over a 5 or 10 year horizon. I had heard at one point that is was, in large measure, from additional vehicle sales tax. If so, last year was an exceptionally outstanding year for vehicle sales. How likely is that to become the new normal?
My second question is the same question I have been ask to be reviewed for the past six or seven years – it pertains to our local economy and how our economy stacks up for a community of our size. Related to that is the matter of our options, as a community, to increase our overall level of economic activity – and what that might mean to our ongoing base of essential municipal revenues.
With Mr. Coleman’s expertise and knowledge in municipal revenue, perhaps he would be in position to compare our relative performance, as an economic unit, as measured by local, per capita taxable sales and commercial property tax receipts (assuming these are a form of proxy for economic activity). Another interesting metric would be the current levels of our local parcel taxes, both for city services and DJUSD, in terms of how our per parcel tax receipts stack up with other comparable jurisdictions – are they already higher or lower than one might otherwise expect.
My overarching point remains that we, as community, (and even more importantly the Finance and Budget Commission) often appear to be operating in a kind of vacuum – devoid of meaningful comparative data from other peer communities. Without that data, without those reference points, it would seem difficult to assess both our current position as well as our realistic and best options for improving the balance of revenues and operating expenses.
Doby – I appreciate your perspective, but I do wonder, do we need comparative data to understand we have backed ourselves into a corner on finances?
Pugilist,
Well, I guess that really is the question. Have you heard anybody in leadership state that we have backed ourselves into a corner on finances?
I don’t profess to have the answers, but I sure as heck do have a lot of questions about how well equipped we are to see our way out of what appears to be a very real financial bind – particularly if we are willing to look out a decade or more.
On the other hand, if nobody is willing to take a look see out the next twenty years and talk realistically about how trends in operating expenses and finances are likely to look then – it makes the conversation a lot less contentious and we can simply look back on last year’s great revenues and how our budget will look for 2016-2017.
So I guess it really depends on what we are trying to accomplish with these conversations. If we are going to be taking the “long view”, then yes, I do believe it is important to have a better sense of our relative preparedness to endure and prosper for the long term. In that sense, I am convinced it is critically important to look at a range of comparable models that might be suitable, appropriate and realistic for the Davis community.
Doby Fleeman said . . . “Where I’m kind of stuck is this disparity between the $32MM shortfall, per annum, that you have been describing – and this notion that we are actually doing quite well on a number of key metrics – to the extent that perhaps we may have sufficient General Fund “surplus” to begin spending/re-investing on a number of new frontiers.”
Doby, without knowing the actual numbers that the City provided to Michael Coleman it is really hard to speculate on the “disparity” with any specificity.
I have stated numerous times in public comment that our annual City Budget has all too often been created with an “out of sight, out of mind” perspective. Our leaders have touted the level of our general fund reserve, while at the same time not acknowledging the massive number of dollars that was accumulating outside the boundaries of the formal budget document. We simply have not been honest with ourselves.
If the numbers (account entries) Michael Coleman has been provided by the City are not all inclusive then they could easily fall short of the $32 million per year unfunded levels. That is one of the basic tenets of “out of sight,out of mind.”
Pugilist said . . . “I do wonder, do we need comparative data to understand we have backed ourselves into a corner on finances?”
Pugilist, you appear to be advocating for an accountability audit of the past. Is that correct? Is it your desire to assign blame to individuals for getting the City into this mess?
If that is what you are advocating for, I can’t help but wonder what useful purpose that kind of witch hunt will serve? In the Vanguard Candidates Forum, Brett Lee and Lucas both assigned blame to both the State and the Feds for the current condition of our roads, citing their respective withdrawal of funding. My immediate thought when they said that was that assigning blame doesn’t change the reality we face at all. It is our problem, and it is our responsibility to come up with a solution, fund that solution, and then implement that solution. As Harry Truman used to say, “The buck stops here.”
Matt & Pugilist,
Just my opinion, based on reading of GASB’s pronouncements as they pertain to financial reporting and principles of accounting recognition, if it hasn’t been written into the GASB regulations – it doesn’t have to be reported (even in the footnotes).
You can do projections and common sense financial modeling to your heart’s content, but if the information isn’t required to be reported, and the entries aren’t required to be formalized as accounting entries – the information has no bearing in the context of the formally recognized budgeting process or the discussions pertaining thereto.
Don’t know if that helps, but it might serve to explain why there could be significant differences between an officially rendered budgetary financial analysis and something that the Finance & Budget or the City might have compiled in their efforts to be more proactive in their approach to the issues.
In this sense, both Brett and Lucas are correct in their comments about the Feds and the State. Feds write and enforce the GASB rules, State administers the PERS. All parties are simply following the rules as written which is why most agencies follow a “pay as you go system of accounting system” – meaning you don’t start paying towards a deferred liability until you are told to do so by the GASB, and not before.
If Davis wants to adopt some other approach to accounting, it will necessarily need to go outside the bounds of what is generally accepted accounting procedure for a public agency.
Doby,
Lucas and Brett were talking about the cutbacks in Federal and State funding of highway repairs.
Matt,
I don’t have the background on specific comments by Lucas and Brett. It is my understanding, however, that a significant source of the SACOG monies being shared with Davis for our Bicycle and Road Safety Improvements do proceed along a path beginning with the Federal Government, which is then subsequently redistributed by the State. I don’t know if that is correct, but that’s my general understanding.
As I went out of my way to mention above, my gripe has little to do with the history of subsidies. My primary concern is with the lack of attention paid to the drivers of our local Davis economy and corresponding ramifications for our organic revenue streams accruing to the city. We have made zero effort to understand just how underperforming is our local economy AND why. In any enterprise, there is generally a major concern directed to understanding the marketplace, the changing habits and demographics of the customer, the new strategies presented by one’s competitors, and the new opportunities being provided by an ever changing economy.
When do we discuss any of these things in the context of how we operate as a city and a community?
Doby, I understood your argument when you expressed it, and for the most part agree with that argument. I too believe we need to discuss the concerns you raise in the context of how we operate as a city and a community. However, I also believe discussing that here and now extends this article topic beyond Michael Coleman’s analysis contained in tonight’s Item 7 staff report.
When I get back from Philadelphia in 10 days let’s get together and work on a series of articles the Vanguard can publish that focuses on the important concerns you raise. I look forward to the public dialogue they should provoke.
The Staff Report says . . . “Indicator #8 – GREEN – Not concerning
Has the general fund been balanced with reserves, selling assets, deferring asset maintenance or operating costs in Fiscal Years2013/14 to 2015/16? No it has not.”
How can any person in their right mind and/or with a straight face say that for the vast majority of the last 15 years the City of Davis general fund has NOT been balanced by deferring asset maintenance?
Indicator #8 is RED. It is probably INFRARED.
Michael Coleman has a superb reputation, but I believe he has totally and completely missed the boat on this. I look forward to hearing his assessment of the history of asset maintenance (roads, bikepaths, buildings, facilities, parks and pools) over the past decade and a half.
Matt
“I look forward to hearing his assessment of the history of asset maintenance (roads, bikepaths, buildings, facilities, parks and pools) over the past decade and a half.”
You are very, very good with numbers. I would like to hear Michael Coleman’s assessment, and I would also like to hear yours for comparison.
Tia, I know my limitations, and Michael Coleman is substantially better at the specifics of what he does than I am. I see no reason to put forward alternative numbers to Michael’s. What I believe we need to do is have him explain how he came to the conclusions that he did based on the numbers the City provided him. For all we know the City did not have the $37.9 million Buildings and Facilities unfunded liability number when it gave Michael the financial statements to assess . . . or the $317 million Parks and Structures unfunded liability. If Michael was not given that information then his conclusions make sense within their limited context, but not in the big picture.
Hopefully we will get a thorough explanation on Tuesday night.
Are you thinking this is a politically based rather than an evidence based move?
Hi Matt!
Who is Michael Coleman?
“The scary part here is that right now, we are just getting by during relatively good economic times – what happens the next time we have a major economic downturn?”
I am going to address not the numbers, but rather the choice of words since as our soon to be Mayor Davis has said “symbolism matters”. I would be fine with a statement of the seriousness of accurately assessing the numbers and deciding where we are adequately funded, where we are not, and what alternatives we have for addressing our short falls. But when we start using the word “scary” this is a blatant attempt at emotional manipulation. I do not believe that scare tactics have any place in public policy making whether the issue is fluoride, or roads, or traffic delays or “toxic soup”. All of the voters of this town have presumably reached what we consider adulthood. Do we really need to invoke boogeymen in order to sway them to our point of view ?
I agree. So in turn I guess you would also agree that when the city comes calling for more taxes they shouldn’t be “scaring” us with threats of police, firefighter, librarian, city service and other cutbacks?
Hi Tia!
but on the other hand, terms like rosy and ‘green’ may imply all is fine and time for, let’s say a sports complex?
Tongue in cheek but only partly.
BP
“ they shouldn’t be “scaring” us with threats of police, firefighter, librarian, city service and other cutbacks?”
“They” are not in control of your emotions and should not be trying to influence them. What I believe that they should be doing is to present facts about what services we have now, which we will lose without a specified amount of increased funding and how they propose to raise those funds. Then each citizen can decide for themself whether we “need” another police man for “X” amount of dollars.
What I do not believe is necessary is to preset a tone of fear rather than setting a realistic tone of the current staffing, perceived need for increase or decrease and cost of each option.
You will never see this level of specificity, and frankly, you never should. While it is reasonable to have residents weigh in on their priorities for what services the City should be providing, it would be completely unmanageable and unreasonable to expect to have input on how many of one particular job classification should be hired.
Given that this is an opinion piece, can’t he offer that there is a scary element that we aren’t really doing that well during good times?
The term “scary” is of course an adjective and emotive. But it still might be justified in use. When I think about the end game of an unmitigated path of unsustainable finances like I see in our city, I am scared about the vision of that future… Especially for young people and future generations.
The Pugilist
“can’t he offer that there is a scary element that we aren’t really doing that well during good times?”
Of course he can. But that doesn’t mean that I have to like it and I am also free to express my dislike of hyperbole wherever I may find it ( with a nod to Soda).
I feel like you understand there are problems but want to adopt a see no evil stance. The problem we face is most people don’t see to recognize the depths of our challenges because they see a relatively affluent community with nice amenities -amenities that are crumbling as we debate this.
“However, the bigger picture shows a huge challenge in terms of unmet needs and unfunded liabilities. The council has carved out some of the ongoing needs for roads, but we are only about halfway there on roads. We have done little on transportation infrastructure, facility maintenance and park maintenance.
Our concern has been that the level of service provided to the community will decrease over time without identifying new revenue sources – whether they be a new tax or economic development.
The scary part here is that, right now, we are just getting by during relatively good economic times – what happens the next time we have a major economic downturn?”
Road repair and maintenance is still going unaddressed. The longer it is put off, the more expensive the fix. The reality is if the city does not find more sources of tax revenue, the state of the roads in this city is only going to get worse. Where is that tax revenue going to come from? If some have their way, it won’t come from economic development, but rather higher taxes. But unfortunately that doesn’t work indefinitely. At some point higher taxes will literally kill the golden goose. In other words, there is a tipping point that will be reached at which higher taxes will so erode people’s pocketbooks that they will refuse to approve them because it will cut into their lifestyle significantly. Think about it. Ever higher taxes is not a permanent solution…
Tia Will: “I do not believe that scare tactics have any place in public policy making whether the issue is fluoride, or roads, or traffic delays or “toxic soup”. All of the voters of this town have presumably reached what we consider adulthood. Do we really need to invoke boogeymen in order to sway them to our point of view ?”
I find this a bit ironic, when it was you who insisted no tactics employed were bad enough to excuse people from not attending public forums or commission meetings because the discourse was uncomfortable. You cannot have it both ways, i.e. scare tactics have no place in public policy while allowing scare tactics to hold sway at public meetings.
And the scare tactics of so many kids with tooth decay needing fluoride in the water.
and the scare tactics that Davis plastic bags were going to make their way to the ocean.
This could go on for a long time.
And the scare tactics that the earth is melting and sea levels are rising.
And the scare tactics that the rich are getting richer and the poor are suffering more as a result.
And the scare tactics that cops are racist and killing black suspects in great numbers for no justifiable reasons.
And the scare tactics that Americans will be made less well off if Trump is elected compared to Clinton.
And the scare tactics that guns kill people and not the mentally ill and Islamic extremists.
That scare tactic that abortion controls are a war against women.
Frankly, (because I am) the more I think about it, the more I can see Tia’s political views to be primarily backed by scare tactics.
“And the scare tactics of so many kids with tooth decay needing fluoride in the water.”
I do not consider pointing out the fluoridating water provides a relatively inexpensive and consistent way of providing a tooth decay preventative to the entire population a scare tactic. I certainly do not consider that the equivalent of a certain poster who claimed that my pediatric colleague and I were attempting to “poison our children” as you or your alter ego asserted.
The simplest solution is generally the best… provide fluoride toothpaste and brushes to those at risk…
One way of providing contraceptives for all is via the water supply…
Yet, we have folk unwilling to innoculate children to avoid measles, diptheria, whooping cough, mumps etc. Let’s just put all those drugs in the water… makes sense to me…
Well, fluoride is a poison. Says so right on the toothpaste. So I guess your government is involved in scare tactics.
[moderator] You all have taken this way off topic.
Frankly
“So I guess your government is involved in scare tactics.”
“My government” ? Really ? The last time I was aware you and I were citizens of the same city, state and nation.
On the issue of poison, so is aspirin, Motrin, many antibiotics, all opiates and many other life saving drugs if used at higher than recommended doses. Would you also want those withheld or made unavailable ? No one was advocating for inappropriate dosing. But the opposition was certainly claiming that we were.
And in all honesty, I cannot imagine why you are raising this issue again, since you or your doppelgänger told me in person, face to face, that you knew that my intent was not to harm anyone. Seems a little disingenuous to be trotting this tired claim out again.
OK, Ok Don delete at will. But the blatant dishonesty does not sit well with me.
No one is advocating putting those drugs into the water system thereby exposing everyone in an uncontrolled way.
Since there is no ‘appropriate’ dose when putting drugs into the water system given that the dose received would be dependent upon the amount of water consumed, all levels of use would be ‘inappropriate’ by definition. Name any other drug that you prescribe that does not require a known rate of dosing.
Mark
“No one is advocating putting those drugs into the water system thereby exposing everyone in an uncontrolled way.”
No one was suggesting using fluoride in an “uncontrolled way”. The safe dosing range is well established. Just as it is for every other drug that we use. There are very, very few drugs that are calculated specifically for a particular individual. People are dosed by whether they are adults or children and sometimes by their approximate weight within established safe range of the drug for their body mass. The fluoride amount that would have been used has been proven safe over many decades and to suggest otherwise was an irresponsible alarmist charge. If Frankly and Alan Pryor had been honest about this, they both would have called it out publicly instead of smugly coming up to me and admitting that they knew better after the vote. I guess for some winning is much more important than honesty.
There is a related connection to this point about the use of scare tactics for political issues.
I had a nice intense debate with three liberal friends over the weekend about the general state of politics and the world.
I think my liberal friends have a twitch that causes them to over-count the impact of a few extra carbon molecules in the atmosphere and under-count the impact of running out of other people’s money.
What should we really be afraid of?
It is the stew-ped economy stew-ped. If we do not fix our national, State and local budget deficits, nothing… absolutely nothing else will matter much.
But hey, we eliminated plastic bags and MRAPS!
Which by the way… was used in Orlando to save a whole bunch of hostages.
An MRAP, not a plastic bag.
[moderator] “It is the stew-ped economy stew-ped. If we do not fix our national, State and local budget deficits, nothing… absolutely nothing else will matter much.” Well, at least one sentence in your reply was on topic.
Frankly, we did not eliminate MRAPs.
The City of Davis has a new shiny updated military-surplus armored vehicle (model name “MRAP”) that was acquired to replace the early 1990’s model military-surplus armored vehicle (model name “The Peacekeeper”) used by the joint West Sac-Davis SWAT team since its acquisition in the early 1990’s.
If an Orlando-like situation happened here in Davis, the Davis-West Sac SWAT team would have deployed its MRAP in much the same way that Orlando did.
[moderator] Off topic.
So we let the free MRAP go and paid for another one because of the symbolism? I get it. Another great example of the very fiscal irresponsibility I am talking about.
Nope. It was free too.
Ok. That is good. I guess I don’t have the MRAP sensitivity of our CC. One MRAP is better than another MRAP based on the symbolism of one MRAP over another MRAP.