One of the unintended consequences of moving the date of the city election is that the city’s sales tax renewal would have a gap if it is placed on the November 2020 ballot – a gap that could cost the city about $2.2 million in one-time revenue.
There are several provisions within the state law that lead the city council to the need to declare a fiscal emergency in which the city can place a general tax measure on the ballot in March to prevent a gap in the tax coverage.
Passed by the voters in June of 2014, the source of roughly $8.6 million in annual revenue will sunset on December 31, 2020. However, if the sales tax measure were to be approved in November 2020, “the operations date or the date on which collection of the tax would commence is the first day of the first calendar quarter commencing more than 110 days after adoption.”
Thus, according to the city, tax collection would end on December 31, 2020, but not begin again until April 1, 2021, which would create a gap in funding resulting in the loss “of approximately $2.2 million in general fund revenue for that year.”
In addition, the city staff writes, “there is a three-month time lag between collection and the City receiving the funding. This interruption to cash flow will exacerbate the inability to fund City services.”
The city could alleviate this gap by moving the sales tax election back to March 2020. But there is a problem there as well.
“The California Constitution requires the election for a general tax measure such as this to be held on a regularly scheduled general municipal election,” the city staff write.
Under state law, a specific tax like a parcel tax can be held at any point, and while the council can directly allocate that money for a specific purpose, it requires a two-thirds majority in order to pass. That becomes a problem for the city as we saw in 2018. In 2014, in fact, the sales tax measure passed with a 57 percent vote – sufficient to pass because it was a simple majority election.
In 2018, however, the transportation parcel tax failed even though it received about the same percentage of the vote as the sales tax measure did – 57 percent. In this case, it was a special tax 
that required a two-thirds vote.
Given the polling, it really might not matter whether it is a specific tax or a general tax, but the city does have an option here – they can declare a fiscal emergency by a unanimous vote of the City Council.
The staff report really does not get into the specifics of how to declare a fiscal emergency.
They do analyze: “The magnitude of the decline of General Fund revenue if the tax sales collection is not renewed would be dramatic. The delay of the potential approval from March 2020 to November 2020 would have drastic effects as well.”
They write: “The loss of the $2.2M anticipated to be collected from January 1-March 31, 2021 would require the City Council to determine how to reprioritize among critical city services, reducing or cutting numerous City programs including public safety (Police and Fire); maintenance of city roads, sidewalks, bike paths and parks; and community programs, such as recreation for youth and seniors.”
Staff, relying on polling on which the Vanguard has previously reported, writes, “There is evidence to suggest that a sales tax renewal measure will meet with successful approval by the voters.
“On July 9, 2019, Council received a presentation of the results of a resident satisfaction survey that was conducted by the City consultants, EMC Research and TBWB Strategies,” staff continues. “The scientifically valid survey was completed in May 2019, with a random sample of 500 registered voters in the City of Davis. One section of the questionnaire administered by telephone or online concerned the potential for the renewal of the sales tax of one percent.
“The results show that the vast majority of voters would support a measure to renew the sales tax with initial reaction to the ballot language at 77% of respondents saying they would vote yes and 21% saying they would vote no.
“After hearing statements of opposition to the measure, 71% of respondents said they would vote yes, with 27% saying they would vote no,” they add. “A question that asked about likelihood to support the measure with inclusion of an expiration of eight years revealed that this sunset clause had no effect on likelihood to support the measure.”
The staff report does not explain what qualifies as a fiscal emergency, however, they do have a resolution that would call for a fiscal emergency and provide for an election to be held on March 3.
In the resolution, the city notes, as they wrote in the staff report as well, that the loss of the $2.2 million would require the city to reprioritize critical city services through cuts or reductions – albeit it temporarily.
They note: “Section 2(b) of Article XIIIC of the California Constitution requires the election for the Tax measure to be consolidated with a regularly scheduled general election for members of the City Council, except in cases of emergency declared by a unanimous vote of the City Council.”
Once passed by the voters, the proposal would be indefinite, extending the “existing one percent sales tax” with “no increase to the current rate,” which would continue “annually until repealed by the voters.”
—David M. Greenwald reporting
Can’t help to wonder if this was part of the ‘calculus’ leading to the timing of the Rexroad/potential plaintiffs’ “demand letter”… nah, that would be cynical…
Bill, I’m not sure what that “calculus” would be. The sales tax vote was scheduled for the Presidential Primary election date, and after all the dust settles it will take place on the Presidential Primary election date.
Same-Same.
Not…
With the districting thing, that means the ‘general municipal election’ goes to November (see previous articles). The calculus could well be that the City has a different choice, than otherwise (a March ‘general municipal election’)… either wait ’til November, with revenue gap-osis, or go to the “fiscal emergency” thing… truly Machiavellian… a “win” either way for the ‘potential plaintiffs’ and their Counsel. And those who would like to roll back the sales tax rate…
Politically, renewal of the sales tax, as is, is likely dicier by opponents, as now they can add “is there a fiscal emergency?” to their rebuttals… and the “cause”of the ‘fiscal emergency’ comes into play. May still pass in March, but it might be a “squeaker”… not like a normal renewal, due to the need to pass the “fiscal emergency” label. We have seen signs in comments posted on VG…
I stand by my previous assertion… but I no longer think I’m ‘cynical’… there is someone behind the curtain, wanting to be the great and powerful wizard… manipulating the politics (is that an oxymoron?). Facts in evidence. Timing. Fiscal conservatives. Republicans. Implications.
We’re not in Kansas any more. Not sure clicking ruby slippers three times will change things… it is what it is.
If we face a “fiscal emergency” then maybe the City should start acting like it and implement serious cost reductions.
The only reason they are calling it an emergency is that they are required to. I don’t understand why a one-time shortfall constitutes an emergency, are we really that much on the edge? This should be a wake up call.
We have known for a few years now that we are operating with an $8-10 million annual deficit, and have likely been doing so for some time, though the City only admitted to it quite recently. When the sales tax increase was voted on it was intended to be temporary, but the City failed to make a serious effort to increase other revenues or reduce costs in order to make the tax unnecessary. What we did instead was increase staff total compensation, in time eating up the entirety of the ‘temporary’ tax creating yet another fiscal emergency.
You’re misstating this a bit. We are not operating with a deficit. We are not short in the operating budget. Moreover, they are pumping $4 million in general fund money into the roads and there are probably other funds as well that are not immediately being spent.
We are if you use the accounting rules required of businesses instead of those created so cities can hide their unfunded obligations from the public.
True. Those are the same rules that cities use to hide the cost of serving housing developments. (In fact, they are the same costs.)
He just can’t help himself
Craig, we absolutely are operating at a deficit.
Let me put this into terms you can understand. Imagine you have taken a vacation to Alaska in the winter, and you get a severe case of frostbite. You get back to Davis and go to see your doctor, and the doctor says to you, “Your body is desperately in need of medical maintenance due to your Alaska visit. If you don’t treat your frostbitten extremities they will go gangrenous.”
You look at your personal budget and say to yourself, “My revenues and expenditures are currently equal. My ‘operating budget’ is balanced. I don’t have any available revenues to cover the costs of treating my frostbite, so I will postpone the medical treatment and expenses.”
One year later you go to the doctor and the doctor says to you, “The frostbitten fingers of your left hand have developed gangrene. If you don’t treat the gangrene and they will have to be amputated.”
You look at your personal budget and say to yourself, “My revenues and expenditures are currently equal. My ‘operating budget’ is balanced. I don’t have any available revenues to cover the costs of treating my gangrene, so I will postpone the medical treatment and expenses.”
Six months later you have to go to the Emergency Room and have your fingers amputated at Emergency Room prices. The only way you keep your ‘operating budget’ balanced is to skip meals two days a week for a year.
One year later you go to the doctor and the doctor says to you, “The frostbitten fingers of your right hand have developed gangrene. If you don’t treat the gangrene and they will have to be amputated.”
You look at your personal budget and say to yourself, “My revenues and expenditures are currently equal. My ‘operating budget’ is balanced. I don’t have any available revenues to cover the costs of treating my gangrene, so I will postpone the medical treatment and expenses.”
Matt… I believe your analogy to be seriously flawed… but there is a kernel of truth…
Perhaps a better analogy would be a credit card account… where there is a liability (balance), and one only makes the ‘minimum payment’… you know the liability is there, but you fail to see how important it is to pay down the liability to avoid interest charges (deferred maintenance/early need for capital replacement), and so your liability does not go down, but may well grow.
You are correct that the primary goal of the City (using my analogy) should be to pay down the principal, making some sacrifices as necessary, as well as paying off the ‘interest’. And, while doing so, not adding to the principal.
You can’t ignore the liability (balance), and one needs to fill in the hole one has made, to get back on to truly solid ground. Shovelful by shovelful.
[yeah, I mixed metaphors]
Bill, your analogy is indeed better.
With that said I would make two friendly amendments to it (1) note that the interest rate on the unpaid principal amount is well above 10% and in many cases above 20%. (2) There comes a time when you can’t even pay off the minimum payment.
What your analogy does not include is the amputations, which I personally believe need to be pointed out.
Mark… any suggestions of where those ‘serious cost reductions’ be made? Certainly not in keeping up with preventative maintenance/repair/needed capital replacement, right? That would only dig the hole deeper.
So, where? Honest question. I have some ideas, but, as you raised it, you go first.
Bill – I have answered this question for you before where I mentioned specific options. I really don’t see much value in that discussion however as neither you or I have the power to implement. I, therefore, am willing to leave the specific choices to the CC and CM, who do have the power. I would instead provide a broad suggestion, and that is to look at our community’s businesses and determine if a service that is currently provided by City employees is available outside, and if so, look seriously at outsourcing that service. The maintenance of many of our parks, greenbelts, and trees are already handled in this manner. There are other similar opportunities.
Some of the City’s greatest costs are the overly-generous benefits we offer employees, including a large number of paid days off each year, as well as the overall costs of benefits for retirees. Rich Rifkin has written about these many times over the years. We can reduce these costs significantly by replacing City employees with private outside contractors. In some cases, outsourcing services might also make City-owned facilities redundant, allowing for those properties to be sold and redeveloped into tax-paying operations, increasing revenues as well.