By David M. Greenwald
It was 2010 when I watched Bob Clarke of Public Works give a staff presentation for the city of Davis that the city of Davis was allocating no general fund money toward road repairs that I realized there was a problem brewing. The city had always been able to rely on state and federal grants to fund road repairs, but those were cut off by the Great Recession, and for the most part have not returned.
The cost estimates have gone up considerably since then, but the city’s lack of investment in infrastructure is the basis for the off-the-book deficit the city has been running.
The council – to their credit – has managed to cobble together ongoing general fund monies to shore up the roads, but not completely bridge the funding gap over the last ten years.
The city council has also grown more prudent with respect to contracts for city employees. After the pension crisis created by increasing pension benefits without prefunding them and another crisis brought on by contracts which greatly increased city employee salaries, the city has held compensation growth over the last few years to at most two percent – some would argue that is still too much, but it is clearly better than the contracts that increase salaries by anywhere from 20 to 36 percent over a four years period a decade ago.
Where the city has fallen short has been attempting to gain the revenue needed to close that funding gap.
After several aborted attempts, they finally put a parcel tax measure on the ballot that would pay for roads. It fell well short of the two-thirds needed for passage.
They also put DISC on the ballot this year, a research park that could have generated $5 million annually perhaps more at build out – it too has failed.
Smaller ventures such as cannabis and hotels may yet pan out, although the hotel industry has been severely harmed by the COVID pandemic – that figures to be a short-term setback rather than a long-term failure.
For a city that does not generate a lot in sales tax, revenue has always been a bit precarious. When real estate is booming, the city does generate increases in property tax, although that revenue is limited somewhat by lower turnover rates and Prop 13.
The council will probably next look at majority (50% plus one) vote rather than supermajority (two-thirds) vote revenue measures. That likely means a Utility User Tax which would require a majority vote and could generate enough to pay for the annual increased cost of a ladder truck and staffing.
Without a innovation center to add about 200 acres and 2.5 million square feet of R&D and office space, the city is quite limited in its ability to commercially expand.
The city recently announced a loan to Inventopia, to allow it to expand its lease at Pena Drive to add two new suites to the two business suites it currently maintains. That expansion would add over 3900 square feet of new maker space.
The University Research Park is likely to densify. We saw the first approval last month for the mixed use project that will mainly add workforce housing. Eventually it could add a few hundred thousand square feet of space to its existing footprint.
There are still a few properties along Second Street that are vacant. The greenhouse property recently went on the market, 6.5 acres with 25,000 square feet of space for the greenhouse. That is expected to quickly sell and could close by the end of the calendar year.
But none of that is likely to make a huge dent in the city’s revenues. The downtown plan could allow for densification but with construction costs and the lack of RDA, it could be years before that ends up resulting in any real impact.
Meanwhile retail continues to ebb. The opportunity for retail expansion has long since closed and the only question is really how far it will contract and whether it will continue to harm the city’s revenue in the form of sales tax.
A few years ago we pointed out that the city looked overall to be in good shape. The parks and greenbelts remained attractive, quality of life in the city was good, crime was still relatively low, but we warned that the city was sitting on the edge.
This is a precarious moment because most people do not see the danger that lies ahead. The inability to maintain our roads, greenbelts and parks, the inability to maintain the nice downtown, the inability to fund our schools. Those are the risks. We have not yet gone over the edge, but at this point, it is hard to see the path forward.
The question of where the revenue is going to come from is likely to hang over the next council.
—David M. Greenwald reporting
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In an article ostensibly about City finances, at the end, David, you ‘conflate’ that with schools… a very different and somewhat disparate set of issues…
As to the gist of the article, you are correct… most don’t fully recognize the fiscal challenges… and/or, it is not a priority for serious consideration… focused on other facets of their lives… personal finances vs. City finances…
And many fewer still, have constructive, pragmatic ideas for a solution to a real issue…
I see the two tied together – quality of life – this is the point I made a few years ago, we think in terms of silo, but the policies are of the city impact schools and vice versa.
I don’t “think in terms of silo”… perhaps you do think others (“we?”) do, which is fine…
I have 40 years of experience seeing how the two entities are vastly different… called ‘reality’… if you want to see them as the same, as to mission, priorities, and financing, that’s your God-given right… it is very incorrect…
But the truth is, two sets of issues, two very different sets of possible answers… not “silos”, but reality. One ‘reality’ is that DJUSD has a long record of being interested in ‘partnering’ with the City… but only to the extent that it is a one-way street… City of Davis pays, provides services to benefit DJUSD… but no reciprocity… reality… can cite many, many examples… but that would be “going off-topic”…
The prospects for schools are tied to the vitality of the City. It isn’t directly through financing, but the district is very dependent on local financing measures. DJUSD gets one of the lowest per capita allocations of state funds, so it makes it up through parcel taxes and bonds.
But the real reason for the success of DJUSD is the parents. The combination of income and educational attainment drives success in the class room. If instead Davis becomes an unattractive place to live because the City isn’t well maintained, then that factor diminishes and the schools fall behind.
Bill is right, regarding the school district. And frankly, some of that self-serving interest is the reason that unwise proposals keep arising.
But for those who think that NIMBYism is the reason for DISC’s defeat (and that it was some kind of a “solution”), I have a solution of my own:
Next time that Measure D comes up for renewal, put a clause in there that disenfranchises the half of the city that’s closest to any given proposal.
Fixed it for ya.
Nothing is going to change unless we enact some sort of commercial rent control.
The amounts Davis commercial property owners charge for rent are beyond the reach of any legit small business to pay – be it locals or out of towners.
The only ones who can afford to do business here are larger franchises or chains. Or Megacompanies.
That is evident to anyone who walks downtown, and sees the empty storefronts.
We need to encourage small business growth. Sole Proprietors instead of Boards of Directors.
There is no good reason that Jeff Simons and Watermelon Music should have had to be exiled to the edge of town after being there with Davis Music for generations.
Nobody can afford $25,000 a month rent on a commercial space.
PS This was a big problem already before Covid. The other side of the coin is the burden that CA EDD places on these same small businesses while allowing megacompanies like Apple to get away with EDD murder.
We all want to see employees get taken care of. But why do sole proprietors end up paying Apple’s fair share?
Joseph, how do the monthly commercial rent amounts compare to other communities in the region?
If the answer to that question is that they are not very much different then, what does that say?
One of the important teachings taught at most Business Schools is to “Think Like an Income Statement” and an Income Statement has three sections … Revenues, Expenses, and the Bottom Line (Profit/Loss). Rent amounts are a core part of the Expenses (Costs) section of an Income Statement. However, to get to the kind of healthy Bottom Line you are arguing for, the Revenues portion of the Income Statement needs to be sufficient to cover the Expenses/Costs, regardless of what those Expenses/Costs may be.
In the context of your thoughtful comment, are Revenues that are enough to cover expenses/costs also “beyond the reach” of legit small businesses in Davis?
Finally, when you say “The only ones who can afford to do business here are larger franchises or chains. Or Megacompanies,” what examples of chains/megacompanies do we have in Davis? The Gap just left Davis. Borders left Davis. The anchor tenant of University Mall (I can’t remember their name) left Davis. The most noticeable chain/megacompany I can think of that is in Davis is Target, and they don’t pay rent to a local landlord. They pay rent to themselves … and they are not located in Downtown.
If the commercial rents stay the same because they are comparable to other areas, then the problem will never get solved. We will have empty storefronts into perpetuity.
If Davis isn’t an affordable place to do business, then no small business in their right mind would come here. More empty storefronts.
Oh wait there is Philz coffee. My bad.
If the CA EDD laws continue to favor megacompanies, allowing them to place their EDD burdens on small business, then no person in their right mind would start a small business in CA except to throw their money away. Or maybe a tax shelter.
Nothing changes.
Time to think outside the box.
Big companies? Bayer/Monsanto. Genentech. Many more ….But it isn’t limited to Davis. Davis small businesses pay disproportionate EDD because Apple and other california companies have found ways around it. Like basing their corporate HQ in Nevada. I know it’s not an exclusive Davis Problem, but it needs to be solved before things can flourish.
I will try asking my question to you again, you didn’t answer it in your response. So here it is again, said a different way … “Is the empty storefronts problem a cost problem, or is it a revenue problem?”
If I understood your first paragraph/sentence correctly what you are saying appears to be that Davis small businesses occupying storefront space, can not succeed it their rents are the same as the rents in other areas (other communities in the region). Is that a correct reading of what you have said?
Looking at the middle of your second paragraph/sentence, “no small business in their right mind would come here,” I think we both agree on the veracity of that conclusion. However, I suspect our reasons for coming to that conclusion are different. It appears (and correct me if I am wrong) that you believe the reason for that conclusion is the cost of monthly rent. Is that correct? However, I believe that the reason is due to an existing lack of customers for the typical small storefront business. Lack of customers means lack of sales. Lack of sales means not enough income to cover the costs of doing business. Further, the lack of customers is getting worse and worse each year … and that was before COVID.
The reasons for the lack of customers are pretty straightforward. (1) the demographics of Davis have a large cohort of UCD students, whose buying patterns are both limited in scope and limited in size. Restaurants and bars attract UCD student patrons, but typical small storefront businesses do not. (2) the demographics of Davis have a large cohort of retirees, whose buying patterns are both limited in scope and limited in size. (3) The demographic proportion of those two groups is growing, and the proportion of two other groups, young parents and DJUSD-age students/children are shrinking. (4) More and more and more the products sold by typical small storefront businesses are being purchased through online retailers rather than brick and moter storefront retailers.
Your final paragraph is strange. What storefront has Bayer ever occupied in Davis? What storefront has Monsanto ever occupied in Davis? What storefront has Genentech ever occupied in Davis? What storefront has Apple ever occupied in Davis?
One question. You mention EDD. Are you referring to the California Employment Development Department (EDD)? If so, how does Unemployment Insurance impact Davis small businesses differently than other non-Davis businesses?
“and/or, it is not a priority for serious consideration”
And/or is a very serious consideration, but with other even higher priorities. Priorities such as the safety, health and well-being of all community members. We used to hear a great deal about meeting our needs before our “nice to haves”.
It seems that consideration seems to have fallen out of favor.