Last week the city had its first budget presentation for the 2019-20 budget. Past analysis has shown the city has a deficit not in the current fund balance, but rather in long-term infrastructure needs in excess of $7.8 million per year over the 20 years.
This is especially troubling because many economists believe that, while the economy remains strong now, a recession is probably overdue.
As I will argue shortly – as I have for the past several years – the real challenge will be maintaining the quality of life in Davis into the future. The immediate future presents challenges as well. In 2018, voters turned down a parcel tax (the measure received 57 percent of the vote but needed 67 percent) that would have closed a huge funding gap on roads.
The city opted to extend its parks tax which was status quo – the only change was it included a future inflator to keep the tax from depreciating with inflation. Finally, the city is banking on the renewal of the 2014 sales tax increase (which was supposed to be short-term) in order to maintain its operating budget.
At the same time, the ability of the city to generate additional tax revenue will be limited, as the school district perhaps in November 2020 is expected to put forward their large parcel tax to close their compensation gap.
The infrastructure funding picture really doesn’t change. Staff notes that the city, since 2015, “has focused on identifying these unmet needs and developing a comprehensive plan for funding them.”
Here are their current projections: Road maintenance needs remain between $6 million and $16 million annually over the next 20 years. For bike paths it is $100,000 to $1.9 million annually over the next 20 years, and this includes an identified significant $9.4 million backlog in needed work.
Facilities have an annual need of $1.2 million. Parks have an average annual need of $3.58 million. Traffic maintenance could be $3.875 million annually. Parking lots need about $176,000.
Overall, between now and 2037/38, there is a 222.4 million dollar funding gap. Staff views this somewhat positively: “The key is that the overall funding level achievable is 50% of the identified total need. Given that most cities have not even attempted to identify their comprehensive infrastructure needs, as Davis has done, this is actually a high rate of infrastructure needs funding.”
Going forward, staff notes: “The most significant fiscal variable is whether or not the 1% Measure O sales tax is renewed by the voters prior to its expiration in 2020.” Currently that generates $8.7 million in annual revenue (the renewal will represent the composite of the 2004 and 2014 sales taxes at one percent).
Staff writes: “Seeking renewal of the Measure O sales tax will be the primary financial objective of the City in the coming year.”
The problem is that the renewal just maintains the status quo.
The question going forward is how the city will continue to provide its current levels of services while maintaining critical infrastructure – particularly roads, bike paths, and parks.
Back in 2016, a Vanguard analysis (see here), showed Davis lagged behind both regional cities like Dixon, West Sacramento, Woodland, and Walnut Creek, as well as other college towns, in per capita retail sales.
While we have recently discussed the city’s efforts to plug sales tax leakage, in particular through the building of Target, the city remains well behind other communities in overall sales tax base.
For the last six or seven years, we have argued for a three-pronged approach to close the funding gap and make the city long-term fiscally sustainable.
The first plank has been cost containment. In 2016-17, the general fund expenses were at $55.1 million, and they go up to $60.3 million by 2020/21. That’s about an 8 percent increase over a five-year 
period, if those projections hold.
The second plank has been short-term tax revenue. As explained above, the city passed a half-cent sales tax back in 2014 and is expected to prioritize renewing it in 2020. In the meantime, it renewed its parks tax (which is well below ongoing parks needs) and failed to pass a roads tax. As we pointed out in 2018, it is unlikely that the city can come back to the voters for the roads tax prior to 2022. That was even before we knew that the school district would have a major parcel tax on the ballot for November 2020.
There is some good news. The city has issued building permits for the Marriot Hotel, which is nearly completed, and the Hyatt House, expected to get underway shortly. That combined with the TOT (transient occupancy tax) measure from 2016 could generate additional revenue for the city. By 2020/21 that is projected at perhaps an increase of half a million.
Also the city has approved a number of cannabis dispensaries and mobile delivery services which could generate tax revenue for the community. Right now that’s projected at $500,000.
The bad news is that the city was hopeful that the development of innovation parks would also generate additional tax revenue in the longer term. The city’s success here has been mixed at best. Voters turned down Nishi with the innovation park in 2016, and then approved it in 2018 without one.
We have seen investments privately from Sierra Energy and the University Research Park, but the city’s analysis from January showed only about 124 acres of available land, and our projection is only about 50 acres of that – somewhat scattered and smaller parcels are actually available in the next ten to 20 years.
Will MRIC (Mace Ranch Innovation Center) emerge to fill that gap? And if it does, will the voters approve it? That could be a critical question moving forward, as the city looks to figure out its long-term fiscal stability.
—David M. Greenwald reporting
I have two thoughts. One about David’s article above and the second about Rik’s comment below.
Regarding Rik’s comment …
As a member of the FBC in April 2016 when the MRIC economic and fiscal analysis was scheduled to come before the Commission, but wasn’t when the project application was pulled, I am 100% clear in my mind that neither the FBC nor the community knows neither what the economic impact of the then-proposed MRIC would be on the community nor what the fiscal impact of the then-proposed MRIC would be on the City (as a municipal jurisdiction). It was never reviewed.
Further, we have no idea whether the then-proposed MRIC will be the same as any to-be-proposed MRIC.
So just as I told a telephone survey person who called me recently asking me my thoughts about MRIC, I say to Rik and anyone else who is interested, the due diligence process for MRIC was aborted in mid-stream and until that due diligence process reaches its conclusion, making any assertions about the fiscal/economic impact of MRIC, either positive or negative, is a fool’s errand.
Regarding David’s article …
First, the 20-year budget shortfall is not $222 million. It is just over $201 million. The $222 million figure includes several already completed years.
Second, the $201 million shortfall was reported in last year’s budget as $172 million and in two years ago’s budget as $156 million. That is a shortfall increase of over 29% in two years. That is an alarming trend in the wrong direction … and I expect it to get worse as additional currently-unreported shortfall items are added to the $201 million figure.
Third, the Measure O sales tax renewal, if passed, only keeps the $201 million intact. If the Measure O sales tax is not extended by the voters, the $201 million shortfall balloons to over $370 million when $8.7 million times 20 years of lost sales tax revenue is added to the shortfall amount..
Matt Williams: you make a very good point that the fiscal analysis that was previously done for various MRIC permutations was never vetted. In my brief review of it, the study has some major flaws/caveats including:
– a large percentage of the net projected revenue increase for the City was due to the hotel and ancillary retail uses that that don’t have a necessary connection to the business park uses.
– the industrial and flex/office space valuations for the project far exceed actual regional rates for such uses and considerably inflated the net net projected revenue increase for the City
– while induced residential development because of the increased employment was assumed in the analysis, and the retail spending from these households was included to bolster revenue increases for the City, the study did not account for the fiscal drain that such development would provide.
A more realistic analysis would likely show substantially less net revenue gains for the City (and might even show a net revenue decrease). The project at the scale that it was proposed would have massive impacts on the City i such areas as traffic, while having minimal benefits for the City budget.
And then there is the matter of the studies of business park development that don’t show an actual benefit to pushing this type of concentration beyond the economic development activity that would have happened otherwise. In other words, “synergy” effects have been shown to be minimal to non-existent in the literature.
The article is a set-up to conclude with the question “Will MRIC (Mace Ranch Innovation Center) emerge to fill that gap?”
But it doesn’t provide an honest assessment of the minimal fiscal impact that adding hundreds of acres of business park development would actually have.
You said hundreds of acres, it‘S 200 acres and developed over 20 to 50 years. Is it really going to have a huge impact? There’s going to be a (negative) fiscal impact from commercial development? Then why do cities do commercial development? Your comment isn’t well thought through.
Some would say to pay back the developers who financed the campaigns of elected officials. Some would say.
“Others” may say that there actually appears to be very little demand for commercial development (hence the conversion of existing commercial sites for housing), and that developers’ primary goal is to build housing.
Others may also be noting the repetitiveness of articles and subsequent comments, which seem to switch back-and-forth between downtown and peripheral development, depending upon the day.
Oh – in all fairness, “another” topic is how a declining-enrollment school district needs an ever-increasing amount of money. (Also touched upon, in this article.)
I don’t see repetitiveness of this article – I haven’t seen this covered recently and it is based on the new budget figures. I think your comment is unfounded I guess they shouldn’t cover of the budget for 20 19–20 because they covered it last year is that what you’re saying?
That said it seems like this is a critical topic as we move forward here especially if things like Mace Ranch come on the ballot for next year
Much like downtown development, this repetitive series of articles is not “moving forward”. It’s a desperate, repetitive attempt to revive interest in a dormant peripheral development proposal (which was supposedly “imminent” several months ago).
Interesting juxtaposition… raises interesting questions… the most basic one appears to be, are we a community or is “DJUSD” inherently different than the “City”? Also seeing a “goose/gander” thing… or ‘chicken/egg’ thing… would the City be different without DJUSD? Would DJUSD exist if the City didn’t?
The next question appears to be, “are they joined at the hip”?
You talk about cost containment but don’t talk about the good job the city is doing on that front already. Your five year 8% is really 1.82% annually a number slightly under Federal Reserve targets of 2% inflation. Also you don’t talk about the projected cash flow from all the projects that have been approved but not started or if these are already included; Nishi, Lincoln 40, Nugget headquarters etc. Third, as for the renewal of the sales tax, if I vote against it I would do so out of frustration over the loss of the claw and the increase in fees for city waste removal services. Making people pay more while getting less is never a good business strategy for generating goodwill from the taxpayers.
Yes, and a portion of those costs (PERS/PERB) increases (“catch-up”) are running much much higher than that… good point…
The City and DJUSD are both facing “catch-up” as to deferred maintenance/improvements, and previous/current employee obligations… same-same in concept, only slightly different in magnitude… because (DJUSD) STRS and PERB mainly come out of the State $’s, coming from taxpayers, one way or the other… “catch-up” from previous decisions, or lack thereof, are a very big factor… hidden from the City equation… two differing sources of finances… sort of…
The State took away revenues from Cities/Counties, so they could use those funds to support Education, while they spent the money elsewhere… [ERAF]
Are we, City, school districts, State a “community”, or not? The “record” is unclear, as well as current rhetoric…
Ron Glick said . . . “You talk about cost containment but don’t talk about the good job the city is doing on that front already. Your five year 8% is really 1.82% annually a number slightly under Federal Reserve targets of 2% inflation.”
Ron, first, the movement from 2016-17 to 2020-21 is a four year period.
Second, dividing $60.3 million by $55.1 million yields a ratio of 109.4%, not 108%, like David calculated. 9.4% divided by 4 years is 2.35% per year … which is 17% above the Federal Reserve target
Third, looking at the four-year movement of what is being spent by the General Fund is only “one-third” of the story. The second “third” of the story is the money that the City isn’t spending due to revenue shortfalls. When you combine the annual budget amounts with the budget shortfall amounts the trend is a 3.3% increase from 2017-18 to 2018-19 and a 4.2% increase from 2018-19 to 2019-20. That is not a “good job” of cost containment.
16-17, 17-18, 18-19, 19-20, 20-21.
I counted to five but I guess you are right if 16-17 is figured in at $55.1
Not a problem Ron. It was an understandable mistake.
Ron Glick said “You talk about cost containment but don’t talk about the good job the city is doing on that front already. Your five year 8% is really 1.82% annually a number slightly under Federal Reserve targets of 2% inflation.”
Matt Williams said: “Ron, first, the movement from 2016-17 to 2020-21 is a four year period. Second, dividing $60.3 million by $55.1 million yields a ratio of 109.4%, not 108%, like David calculated. 9.4% divided by 4 years is 2.35% per year … which is 17% above the Federal Reserve target”
We are calculating compound growth rates, right? In that case the figure would actually be a 2.28% per year increase for the 4-year period calculated as a compound annual growth rate or 2.25% per year calculated as an average annual growth rate using natural logs.
That is merely a minor quibble though. But it does mean that at 2.25% per year, the City of Davis increase has only been 12.5% above the 2.0% annual inflation target set by the Federal Reserve Board.
Much more relevantly the 2.25% annual increase is less than the actual CPI index increase from January 2016 to April 2019 of 2.36% (CAGR)/2.33% (average ln)
Rik,your point is well taken. I’m not sure if the Fed Target is 2% CAGR or 2% absolute per year.
With that said, your comment only looks at the part of the iceberg that is above the waterline. You need to include the amount of the Budget Shortfall … the amount that needed to be spent, but couldn’t be spent because there were no revenues to provide the spending cash. That portion rose by 29% in last two years (10% in the first year and an additional 19% in the second year.
On a “whole iceberg” basis the increase was 3.3% and 4.2% respectively in the past two years. The CAGR for those two increases is well above the target set by the Federal Reserve Board.
Matt: from what I can tell, the 2% target is an annual year-to-year rate. Over one year, a CAGR calculation is identical to an “absolute per year” increase (though really, I think you mean “percentage per year” increase).
You are correct I haven’t looked at what you are calling the “whole iceberg” numbers. Where is this “budget shortfall” data coming from? I thought I saw another reference in the comments that these numbers are unpublished? Is there debate about these figures or does everyone agree that they are “real”?
Rik, the FY 2017-18 average Annual Shortfall over 20 years is clearly documented at the bottom of page 4-9 of http://documents.cityofdavis.org/Media/Default/Documents/PDF/Finance/2017-2018-Budget/Final/04-Financial-Forecast-Final-17-18.pdf “The annual shortfall in funding for all of the above infrastructure and service categories is shown in the chart below. The average annual shortfall in funding is $7.8 million”
The FY 2018-19 average Annual Shortfall over 20 years is clearly documented in the table at the bottom of page 4-11 of http://documents.cityofdavis.org/Media/Default/Documents/PDF/Finance/2018-2019-Budget/Adopted/04.-Financial-Forecast-Adopted-18-19.pdf “Total Funded Status with Measure H Park Tax Approved and Measure I Street/Bike Tax Fails 43% Unfunded ($172M)”
The FY 2019-2021 Annual Shortfall amounts for each year for 20 years is clearly documented in the tables on pages 4-20 and 4-21 of http://documents.cityofdavis.org/Media/Default/Documents/PDF/Finance/2019-2021-Budget/2019-2020-Proposed/04-Financial-Forecast-Proposed-FY19-20.pdf Over those 20 years the aggregate total is 201.4 Million.
Those numbers also appear in the respective State of the City reports/presentations given by the Mayor(s) the last three years, so they are definitely “real.” Based on the activities of the FBC subcommittees tasked with working with staff to continue to identify additional shortfall amounts that have been missed to-date, I fully expect that the $201 million amount reported this Budget cycle will increase substantially in the coming months. To-date no one has stepped forward to “debate” that prediction.
Matt: Thanks for the explanation and links!
Maybe hiring a bunch more of their friends for junior manager positions at $170K per year will solve the problem.
Salary or total comp?
Or discernable animus to the occupant of a certain position? Repeated several times now…
You must have your reasons… it appears it is not fiscal concerns (past comments/postings)… I have no need/desire to hear about the cause of your apparent animus…
The sooner people forget about this waste of money the sooner they will do it again…
It solves the problem of my remotely considering voting for a tax increase.
Perhaps the new communication will be so powerful and efficacious you will change your mind, or perhaps not.
My personal belief is that the city messaging over the years and communication has been so poor, it probably cost the city far more time and expense than the annual salary of the communications manager.
“My personal belief is that the city messaging over the years and communication has been so poor”
Then why not hire someone competent? Who don’t any of the CC members stand up and own this hire?
“Then why not hire someone competent”
That’s your subjective view, not shared by others clearly.
Refer back to my earlier statement “Why don’t any of the CC members stand up and own this hire?”
I have yet to hear any CC member say this is the best use of $170K. I draw an inference from that. You may not.
Your 7:02 post brings a reflection… when that cell tower firm came into town, the messaging/communication was less than great… Planning/CDD…
When you looked into it, your “communication” approach was a PRA request/demand to PW about the encroachment permits… who assisted you with that? Was there a lack of communication with PW? As I recall, not only did a certain PW employee give you copies of all that, but actually arranged for it all to be posted on the City website before you had a chance to drill through it, write about it… maybe I recall it wrong… but I have heard that is true… might be incorrect…
😉
[See, Alan M, I learned… thx again]
Jim… your post,
Two concepts…
CC only “owns” two hires… the City Manager and the City Attorney … that’s it. Dept heads, with review of CM, are the people who are responsible for hires.
Competency… what are your credentials to judge? What is your evidence to the contrary? Why are so fixated on this? Were you turned down for the position?
Competency… what are your credentials to judge? I’m a taxpayer.
What is your evidence to the contrary? Knowing Barbara. Observation of the DJU board during her tenure there.
Why are so fixated on this? “The sooner people forget about this waste of money the sooner they will do it again…”
Were you turned down for the position? No, I did not apply.
Still, total comp needs to be figured in (which gets nowhere near $170 k), and there is his other assertion as to whether it was a result of a valid recruitment or a “linkedin” ‘arrangement’…
Pretty obvious your source is “transparent California” … a Nevada based firm, who gleans information from CA state sources, claims to be a non-profit “watchdog” (but as you likely know, requires you to take your ad-blocker off)… if you check their organization out, you’ll find that the seriously lack “transparency”… ironic, no?
David’s source is, https://www.governmentjobs.com/careers/davis/classspecs?keywords=communications%20manager
As to what point in the range a particular employee is @, he probably asked the occupant of the position, but I don’t know…
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https://www.governmentjobs.com/careers/davis/classspecs/1268218?page=5&pagetype=classSpecifications
That is what I based my $170K TC estimate on. Your TC estimate?
Any fool (?) knows that the PERS contributions by City are proportional to salary, and the Med/PERB med benefits are the same across the board.
So, the Transparent CA figures for ‘other benefits’ is roughly (with the city paid PERS payments the salary related variable)
I truly hope you are not the Jim Hoch involved in education… at least not in logic, history, or math…
Find it interesting that you could do the web search for Trans CA, but not for the City of Davis website, as both David and I knew how to navigate…
[Moderator: edited]
Are you paying my salary? While I own real estate in Davis I am paying city employees. BTW you seem to be ignorant of this document http://www.cacities.org/Resources/Open-Government/THE-PEOPLE%E2%80%99S-BUSINESS-A-Guide-to-the-California-Pu.aspx
Since you are so expert please guide me to the page on the city website that lists the TC for Barbara Archer… In the past when I have asked you to justify your comments all I have gotten is random BS. Here is a chance for you to prove yourself. Or if that is too tough perhaps you can explain how I can “dox” someone based on what was issued in a press release?
Unclear on the concept, I believe . . .
And isn’t your point not so much whether it’s $130K or $170K, but that the justification that the position exist at all?
Jim H… the City website has the general info… salary (cited as a range before), and the MOU’s (City website) outlines the benefits… the amount of PERS contributions by City, in general have been well documented in CC agendas, and here…
Believe it or not, public employees have at least a scintilla of privacy rights… sounds like you’d like to change that… after all, you’re a tax payer, and have never/will never been a public employee… not a teacher, not any public employee… OK
The Transparent California website info lags by ~ 12-18 months… the person in question (who you seem intent on “doxing”) would not be on their site for at least a year.
$130-$140