Council Must Decide on Revenue Measure by February 6

The council will be asked to engage in further discussion on a possible revenue measure for June 2018, while providing feedback to staff to prepare for their final action no later than February 6, 2018.  The council is not set to any action at this time and would appear to have at least two more meetings to make such a decision if need be.

This will be the fourth such discussion, and last time the council seemed to narrow in on a parcel tax that funded parks and roads.  However, Mayor Pro Tem Brett Lee held out for the idea of the Utility User Tax (UUT).  There is also the possibility of a separate $50 parcel tax for social services.

Staff notes: “The parks and transportation needs have been well-defined through studies and staff follow-up; the social services concept is evolving and focuses on homelessness and affordable housing.”

The report includes an updated long-term general fund financial forecast from consultant Bob Leland, who had developed the long-range financial forecast for the city.  He has updated the forecast assumptions in relation to sales tax.

Writes staff, “(This is) based on new information from MuniServices, which audits and tracks the City’s sales tax revenue and makes its own projections for future sales tax. MuniServices is predicting a decline from previous growth projections in the transportation sector from 3.7% to 2.1% growth, primarily due to anticipated slower sales in vehicles and changes in gas prices.”

Staff continues: “Because the City is heavily dependent on sales tax from the transportation sector (41% for the 1% uniform statewide tax and 26% of the local Measure O tax), the effects of slower projected growth and changes to the tax base are significant.”

The result is as follows: “In response to the lower sales tax revenue projections, the forecast now assumes no addition of one new staff position per year after 2019,
reduced annual infrastructure contributions from $4.65 million to $3.5 million, and includes $500,000 for estimated annual cannabis tax revenues. The forecast allows for a continuation of current levels of service for operations, but does not account for full payment of all identified unfunded needs, for example, transportation infrastructure.”

In terms of cost-cutting measures, staff notes that the city has “undertaken numerous cost cutting measures” since the recession.  The biggest has been the reduction of staffing numbers from 464 (FTE) to 356 over a ten-year period.  They note that “the City has maintained roughly this number since 2013/4 and the long range forecast does not assume significant increases in staff numbers.”

Staff looked at statewide results for various taxes and found that “simple majority sales tax measures and parcel tax measures are the most common types of taxes placed on the ballot. And, as would expected, a simple majority tax passes more frequently than a super-majority tax.”

On the social services tax, city staff notes that starting in the early 1990s, social services funding was realigned with money sent to counties for certain programs with decision-making authority on how money could be spent.  Staff writes, “This realignment, however, did not result in additional funding for non-mandated services.”

However, over the last four years, “Yolo County has been able to build the beginnings of a comprehensive homeless service system. It has designated some local funding for an administrative structure and has secured grants and outside funding from the federal and state governments and foundations to expand services and develop a more robust system to support homeless individuals.”

They add, “There is always more that could be done.”

Meanwhile, on affordable housing, the city has long “supported affordable housing efforts but has not had a permanent source of funding since the dissolution of redevelopment agencies [RDA]. Efforts to assist with general social services have been limited primarily to CDBG [Community Development Block Grant] grants to local non-profits, provision of transit for seniors and those with disabilities, and non-income-based services for seniors.”

This past year, “the city has funded the outreach homeless coordinator and for the past two years has partnered with the County to fund New Pathways, the program to house four individuals who are chronically homeless.”

Staff notes that Senate Bill 2 went into effect on January 1 and it imposes a fee on the recording of most real estate documents.  Staff writes, “Although SB2 is expected to generate approximately $250 million annually statewide, it is not yet clear how much would come to Davis.”

Meanwhile, SB 3 was signed into law and the state will put a $4 billion general obligation bond on the November 2018 ballot.  If it passes, “$3 billion in bond proceeds will be allocated among programs that assist affordable housing developments. It would also provide matching grants for local housing trust funds.”

There are also housing impact fees that can be used to provide a stream of funding to assist with development of affordable housing units. As the city embarks on its General Plan update and corresponding updates to its development impact fee structure, staff recommends “we many want to consider doing a nexus study to add a housing impact fee, similar to what communities like Berkeley, Fremont and San Luis Obispo have done.”

Staff acknowledges, “It is difficult to ascertain exactly how much is ‘enough’ in terms of funding for social services. Such services do not lend themselves to the fairly straightforward calculation of needs such as has been done for the City’s infrastructure. The social service needs are great and costs per recipient can be high in order to move people off the streets and into permanent housing.”

Staff notes that expanding shelter capability and continuing the current grant-funded programs is expected to cost $550,00 per year alone.  That is the amount of the parcel tax that would be allocated for homeless programs.

In addition, council needs to reconsider in the face of possible opposition whether they want to continue to pursue a parcel tax, which is a two-thirds vote requirement.  The advantage of such a tax is that they can explicitly designate where the money goes.  The disadvantage is that there is a much higher statewide failure rate for two-thirds taxes than simple majority taxes.

A parcel tax only passes 52.7 percent of the time in the last 11 election cycles, whereas a majority vote UUT has passed two-thirds of the time and a majority vote sales tax has passed 82 percent of the time.

—David M. Greenwald reporting

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