We have spent a lot of time over the last few weeks discussing City Finance issues ahead of Measure Q and the question as to whether the city voters should approve Measure Q.
As I have said a number of times, I don’t have a dog in the Measure Q fight. I have concerns about city finances, going forward, and particularly on the revenue side. Again, I think the opponents of Measure Q have underplayed perhaps the most important revelation that has come out—the fact that the city expects to generate $11 million from Measure Q while the same tax increase is expected to generate $20 million in West Sacramento.
That’s a problem that has not been discussed and certainly not addressed.
Opponents of Measure Q have argued that the city doesn’t have a revenue problem, it has a spending problem. But that statistic suggests otherwise.
I have also been a bit chagrined that the opposition has not made an effort to better unpack why costs have gone up.
For example, in a recent comment, one opponent of Measure Q noted that, between 2012 and 2022, the city’s general fund has gone up by an unadjusted 63 percent or so. Never mind that they failed to adjust for inflation or note that perhaps two-thirds of that increase is due to inflation alone and thus not an increase in real dollars.
I recently reached out to City Manager Mike Webb to get a better understanding of what is driving cost increases.
For example, he noted that “the costs of goods has risen in the past 5 years.”
One of the biggest increases is in construction costs, which he said have risen 9 percent per year three years in a row.
“We already have a difficult time preparing for CIPs because we have to save funds for multiple years to have enough for a particular project. The shifting target makes it challenging to set aside the correct amounts and we often have to delay a project until we have enough funding,” he told me.
But delaying the project until they have enough funding also means the cost keeps going up.
The city made a decision to bring staff compensation back up to the average compensation for the region.
Under the Leland Model, for instance, the city had covered two percent in compensation increases each year. The problem is that average inflation was 3.86 percent per year from 2014 through 2021, according to Mike Webb. Thus as a result, the city’s compensation was not keeping pace with inflation.
In fact, I would argue it is even worse than that if you move away from inflation and look at housing.
Mike Webb told me, “Housing costs do not directly factor into compensation studies and analysis.” But they do factor in several ways indirectly, as we shall see.
The problem is that people have to be able to purchase housing, which is for most people the single largest monthly expenditure. And while inflation may be 3.86 percent over the course of the last decade, the cost of housing is going up far faster than that.
In August, the LAO came out with analysis on the cumulative growth for monthly payments for a newly-purchased “bottom-tier” home since January 2020.
In Yolo County that amount rose 76 percent from January 2020 to July 2024. In Sacramento, that increase was 88 percent. In Solano it was 76, Napa, 79, Contra Costa 73.
That’s a huge factor in the city’s ability to attract and retain quality employees.
In 2023, the city hired an outside independent consultant to perform a comprehensive total compensation study. They then compared the compensation of city employees to that of comparable agencies in the region.
As Mike Webb explained, this “factors into the housing market as we try to attract employees who have less expensive housing options outside of Davis with a job market closer to those housing options that pays the same and sometimes more.”
The basic finding is that many position in the city of Davis “were below market” which Webb said “can make it difficult to hire and to retain qualified and quality employees.”
Based on that study, Webb said, “The City Council voted to bring all staff up to the median in total compensation for the region.”
But I want to hone in on the housing factor even though it is indirectly related to compensation. The problem that the city faces is that with housing going up as it is, not only in the city, but in most counties surrounding Yolo by comparable rates, in order for the city to be able to hire employees and keep them, they have to pay a competitive compensation and because the costs of living here and elsewhere are going up pretty fast, the costs to the city will continue to rise.
The bottom line is that the city’s policies are hurting our finances in multiple ways at this point.
On the one hand, our lack of retail and tax base development is harming our ability to raise revenue to pay for rising costs. On the other hand, our housing policies are making it more expensive for employees to live here, which is driving up the costs of compensation.
The community will decide in a few weeks the fate of Measure Q. But in the longer run, what we decide to do about issues like housing and economic development will make a big determination as to the direction the community goes.
Net: wll agied piece that Problem is on revenue side,,not cost side….
This is congruent with Mayor Chapman’s Enterprise piece that mentions lot projects, none of which increase our tax base, just add mostly apartments.
I note lack of any district 2 council candidates talking about economic development, just housing.
Housing is increasing, , but these are apt complexes who residents social service requirement typically exceed the tax increment they bring to cities. Davis has imbalance.