The city, facing a new and emerging fiscal crisis more than five years after the Great Recession began in September 2008, is, for the first time after years of cuts, proposing a revenue increase. Right now, city staff is recommending a three-quarter cent sales tax increase in June and a $150 parcel tax in November.
The sales tax increase would be a ten-year tax and, while the parcel tax length was not specified, the city staff report indicated it would be a longer term increase in order to be able to take out revenue bonds against it.
While the Vanguard has been critical of the city’s fiscal efforts now going back to 2008, the city can rightly make the case that over the past six years, it has reduced staffing by 103 FTE (full time employees), it has cut the General Fund by $5.8 million and the last round of MOUs collectively saved the city an additional $5.2 million.
At the same time, most of that is not actual cost cuts, but rather slowing of future expenditures. So, instead of having a General Fund that would be at $53 million in annual expenditures, it is projected to be at around $42 million.
On the other hand, critics can rightly argue that the city has failed to be honest about its complete deficit. It lists its current deficit at $5.1 million, however, the two revenue measures would generate about $9.5 million collectively, suggesting that the real deficit is closer to $10 million.
While it is true that the parcel tax would pay some for new projects, the vast majority of it would go to existing infrastructure needs or future infrastructure needs that would lead to reduced costs down the road.
In the short term, the city needs to balance its books. The sales tax proposal is expected to generate around $5.4 million, which would allow the city to address its structural deficit.
However, from practical and political perspectives, while the city could probably get the 50% plus one support needed for a sales tax measure, a parcel tax is going to be a tough sell and maybe bad policy on top of it.
A parcel tax requires a two-thirds vote. The voters have already been asked to pick up a $400 annual tab for schools, and they have existing library and parks parcel taxes as well. And there is also the water rate increases expected to nearly triple over the coming years.
While Davis voters have often astounded even skeptical critics in stepping up to support education, will they do the same for a city that has self-inflicted wounds?
From our standpoint, there are three critical errors that the city made. First, in 1999, along with many in the state, the city went to enhanced retirement benefits starting with enhanced pensions that were unfunded and later enhanced OPEB (Other Post-Employment Benefits), and retiree health care benefits, that the city failed to properly actuarially assess. This created more than a hundred million in unfunded liabilities in two areas – pensions and OPEB.
Second, in 2004, the city went to the voters for the half-cent sales tax currently on the books under the guise of state cuts to funding that would imperil parks and public safety. But instead of investing in infrastructure, the city would approve a series of MOUs that gave about a 36% to firefighters and about a 15 to 20 percent raise to all other employee groups.
The city essentially gave the $3 million in revenue generated by the sales tax to the firefighters in their 2005 to 2009 MOU.
Third, beginning in 2009 with the recession apparent, the city failed to address critical structural needs on PERS (Public Employees’ Retirement System), OPEB, and cafeteria cash outs. They balanced the budget by failing to invest money into roads and other critical infrastructure.
This has a twofold impact. First, the last round of MOUs that was signed by five groups and imposed on DCEA (Davis City Employees Association) and fire, had to address the structural reform that should have been fixed in 2009. The result is that instead of being able to address salary and total compensation imbalance, the city traded off concessions on PERS, OPEB, and cafeteria cash outs for small salary increases.
The effect of the 2009 MOU failure is that we are actually about three or four years behind now in reform efforts. Compounding the problem was the balancing of the budget by failing to address infrastructure needs which means that a relatively small expenditure need for roads in 2009 is turning into a $5 to $8 million annual cost just to keep roads in their current condition.
Based on this analysis, the Vanguard offers the following thoughts.
First, we believe that having two tax measures is politically infeasible. The city has rather hastily put together a sales tax proposal. Since that will address the current structural deficit, the Vanguard recommends that the council place that on the June ballot – which is the only place it can be placed by state law – and create a citizens group to develop other revenue options for the fall or into the future.
Second, in order for the Vanguard to support current revenue efforts, the city needs to make commitments to the citizens.
The city must avoid a repeat of 2004 where money that was advertised to be emergency funding to prevent layoffs and service cuts instead went to employee salary and total compensation increases. A ten-year term is a long time and the city should consider some sort of early sunset provision if revenues reach a certain threshold.
While the Vanguard does not believe the council can bind future councils on salary increases to city employees, the council should make the commitment to hold all future salary increases in future MOUs to the rate of inflation, whether measured by COLA, CPI or some other metric.
Furthermore the city needs to commit to a longer term strategy for economic development and revenue enhancement.
The Vanguard has stated a willingness to consider supporting a peripheral innovation park if proper mitigation measures are put in place to prevent additional leapfrog development or sprawl east of Mace. The Vanguard does not support additional peripheral housing or retail development.
The city needs to understand that the other communities that it compares its tax revenue to, especially retail sales tax, were in just as bad if not worse shape during the recession than Davis. Part of those problems is the tendency for government to spend what it has. Revenue measures will not improve the fiscal picture without a commitment to a fiscally sustainable process.
The city also needs to understand that the work it has done on employee contracts is not done. While those contracts will be in place, with the exception of DCEA and Fire, for three years, the city has considerable work to do to bring fire salaries into better accordance with other municipalities and the university.
Moreover, the city needs to address the fact that, currently, police compensation is about 8 percent below the typical comparative city.
So, while the city spends perhaps 20 to 25 percent too much on fire salaries, it is spending about 8 percent too little on police.
Finally, the city needs to be transparent as to what the current deficit is. In November 2011, it passed a “Truth in Budgeting” resolution.
It was Sue Greenwald who made the motion.
“A number of years ago, I pointed out that we were essentially balancing the budget by calling our deficit ‘unmet needs,’” she said. “As we’ve mentioned, they’ve accumulated and we’ve said that… we wanted to know what services we could restore. I don’t think that’s a very accurate way to describe it. We are not restoring services, we are trying to catch up with unmet maintenance needs that are getting really severe.”
At that time, the critical question comes back to how to fund local infrastructure and how to account for it in the budget.
“We’re evading the big issue,” Councilmember Greenwald warned. “The budget is not a realistic budget. We’re still saying that the budget is on its way to being balanced by having this enormous category of unmet needs.”
“In the end we’re going to have to spend money on our roads, on our sidewalks, our bike paths and we have to start putting it in the budget and we have to start spending it,” she stated. “We need to start being more realistic because what I’ve heard tonight is more kicking the can down the road.”
Councilmember Greenwald then moved to direct staff to come up with a budget that reflects the true deficit, which included a concept of the city’s unmet needs.
Councilmember Wolk seconded the motion.
City Manager Steve Pinkerton said, “You want a budget that reflects our physical needs, both ongoing and the deficit.”
Mr. Pinkerton said, “We have $420 million infrastructure and right now, we’re not budgeting enough to deal with that infrastructure.”
The council would then unanimously support the motion.
But the current budget, once again, does not reflect those infrastructure needs. If we do not have a $5.1 deficit, the question is, what is it really?
In order for the Vanguard to get behind the tax measure for June, we need to lay all of these cards on the table. Otherwise, I agree with the critics that “this (tax) proposal is simply a continuation of the same bankrupt approach that has put us in the precarious position we are in today.”
—David M. Greenwald reporting
“The city needs to understand that the other communities that it compares its tax revenue to, especially retail sales tax, were in just as bad if not worse shape during the recession than Davis.”
The real question regarding the comparisons with other communities isn’t whether everyone suffered during the recession, but what it will take to get each community out of the recession. How many of the neighboring cities now face the prospect of three-quarter percent sales tax increases for a decade and parcel taxes for much longer?
The Vanguard’s attempt at reasonable conditions for its “willingness to consider” peripheral development include pretty much the same code words that end up getting used to fight any development here. There’s never enough “proper mitigation” to satisfy those who want Davis to stay just the way it is.
Since the council cannot keep future councils from going back to over-compensating city employees, why even suggest that they make such a commitment. It’s just another kind of unfunded liability. We should assume that future councils will find themselves in the same difficult negotiations, and we should move ahead deciding what services and facilities we can drop and which additional staff can be cut.
A city insistent on staying the same needs to face up to the fact that it inevitably will become less than it wants to be. In many ways, we already have become a less desirable place to live.
“Temporary” tax increases that supposedly won’t be needed once we really, really, really try to find an economic development bonanza–something that a significant minority(?) will fight–is just another way of kicking the can, as they say.
Not speaking for David here, but usually that simply refers to the 2:1 ag mitigation.
I would start start with 2:1 mitigation, but it has to be on land around the Mace Curve otherwise it doesn’t help anything.
But, David is reasonable, and I’m not so sure about some others who say: “I’m for smart growth (with appropriate conditions), that might come up in the future–just not the one being proposed or the other one being proposed or….”
“There’s never enough “proper mitigation” to satisfy those who want Davis to stay just the way it is.”
That’s democracy. So if half the residents do not want to allow the business park they will choose what is behind doors 2 or 3. Door 2 is increased taxes and Door 3 is reduced services. But at least that will be a voter choice and we need to have that discussion.
Also, a ten year tax is not a temporary tax, that’s a long term tax. We need to be honest about that one too.
5-10 years is short-term. 20-30 years or longer is long-term.
What has been proposed is another short-term fix that won’t address the real problem, just make people feel good while we kick the can down the road once again.
Do you think my additional proposals begin to address your concerns? What else would you add in there as a commitments by the city in order to support the short-term tax increase?
Part of the transparency I would like is an accounting of the 103 FTEs that have been eliminated. How many through retirement (which in our system costs us dearly because of the retirement benefits) and not replacing and how many from realignment of job duties? I am remembering Don Saylor looking at a city org chart and remarking how many supervisors of supervisors we had, not an efficient way to run an organization. So of the atritition, how has the city management moved around the remaining staff to best accomodate the shifts in workforce?
Good points. We seem to accept the argument that the loss of 103 FTEs is all we can do to reduce staffing without asking whether this leaves us effective as well as leaner. Although we fired a few tree trimmers, we shouldn’t be relying on attrition to determine our new staffing levels and ratio of supervisors, etc. What city services have we eliminated or substantially reduced, and have we eliminated the associated positions? What was the average salary of the 103 compared to the FTEs that remain on the payroll?
SODA (and iPad Guy), these are useful points. In the time of fiscal challenge in any organization there is an opportunity (indeed a need) to ask the questions: “What is our ‘core business’?” and “Are we staffed, right now, in a way that will help us achieve it?” One of the problems of cuts by attrition is that we may end up with staff that does not enable us to achieve our core mission. This is definitely a strategic question we must explore going forward. (This is not the only question we must ask but it should be one of them).
“2 is increased taxes and Door 3 is reduced services. ”
There is also door 4. Reduce pay and compensation to city employees and outsource whatever functions are possible to privatize. We can have both improved services to city residents and a balanced budget without tax increases. Many Davis residents cannot afford further payments to subsidize inefficient employment practices.
I agree. Aggressively outsource to shrink our future PERS commitment and move to defined contribution for new employees. We can maintain services and balance the budget. If any of this is not legally possible then change the law through new legislation or initiative.
Good luck with those changes. Meanwhile here in reality land there is a budget that needs to get balanced.
It happened with the private sector. It will just take time. Driving the city into bankruptcy will speed it along. And with some of the candidates for city council that day will come sooner than you think.
What increase in revenue creates a “balanced” budget this time? 5-10-15 million? Better make it 25 million if Sheila is elected. The fact of the matter is the city will always spend beyond it’s means no matter how much money they take.
The most rational choices for solving the budget problems may well be fiercely opposed by the overpaid city staff. But as the city runs out of money and other options evaporate, eventually we will converge on the simple (but not easy) solutions.
“The city needs to understand that the other communities that it compares its tax revenue to, especially retail sales tax, were in just as bad if not worse shape during the recession than Davis.”
This point is only that most cities overspent similar to Davis. And most of the reason for this comes does to the public sector employee pay and benefits arms race that has been endemic in California at almost all levels of government. It is the practice of politicians paying themselves and paying off their friends and paying off those that give them campaign money. It is a scam when it comes to public sector unions, because of the lack of adequate controls. Politicians control the purse strings, and also control the ability to hide what they are doing and what problems they are causing. So cities that acted normal pursuing economic development for increased revenue spent more than they took in. And quirky and weird Davis that took a path FAR outside even a standard deviation for sales dollars per capita, also spent more than it took in.
Luckily Davis is in better shape if we can get our collective heads our of our butts.
We are in better shape because of the deficit in business development and the availability of land around us to use for business development. Land use is the primary consideration here. Business needs land. Always has and always will.
Spending has been our problem. But unlike most other cities in California, Davis has more of a revenue problem due our historical lack of economic development. Davis has a revenue problem.
We have land. We need revenue. Either we develop some of the land as business to bring in the revenue. Or we increase taxes on residents so we can satiate our need to keep things always and forever just the same.
The Mace 391 decision was an example that even our city council thinks that the voters in this city either don’t understand the extent of our financial problems, or that there are enough that prefer tax increases so that we get to keep Davis, always and forever, just the same.
One point that needs to be made to those thinking we can remain the same.
IMO, we are going to be seeing a future decline in UCD college enrollment. The reason is the growth in less expensive quality alternatives to the old undergraduate college model. This is already happening today. And the only reason we are not hearing more about it is that colleges are offering more financial assistance to entice families that would otherwise be motivated to explore these alternatives. But the alternatives are growing in number and strength. 10 years from now UCD will be well into a national trend for declining enrollment in traditional undergraduate studies. That will have a significant impact on Davis’s finances.
The strategy of the university is to bring in more foreign students to replace the decline in domestic students. Two problems with this from an economic and market perspective. One, as the alternatives gain in number and quality, more foreign students will chose them. Also, as we can see today, emerging foreign economies are starting to shrink as their bubble of unsustainable, largely government-policy-fueled growth is expectedly starting to deflate. Countries like China that send so many kids to the US for a college education will start pulling back. And due to the decline in domestic enrollment, there will be greater competition for these students from all colleges suffering a decrease in enrollment.
To help combat the impacts of these future trends, Davis will need to do two things:
1. Work with the university to develop more local UCD-connected business to enhance the value proposition for attending. For example, if UCD becomes a college where a student is more likely to find work in his/her study area… either as an intern, or after graduation… it will increase the real and perceived value of that education and help justify or defray the costs.
2. Davis needs to develop other business to replace the declining economic impacts from a declining population of students.
We just need to add this to the debate of those so determined to prevent any significant change from occurring, that change is inevitable and out of their control. So, we better not ignore our opportunities to make the best of them. We already failed with Mace 391. Let’s not do that again.
I disagree about future demand for UCD education or research. Perhaps we will see reductions in certain disciplines but other dynamic areas that are increasing will make that up. There may be changes in education where technology redefines delivery but the type of education UCD provides will be in great demand for a long time. We are now considered to be one of the premier ag research institutions in the world. Our biotech, medical, health, environmental and engineering education and research opportunities are stellar. UCD also has land to develop, lots of it. UCD is a dynamo envied throughout the world. It will continue to grow. Its biggest obstacles are not educational technological changes. Instead the biggest obstacles for UCD are the same as for the city itself, its unwillingness to accept, embrace and enhance its growth. Fortunately for UCD the forces of opposition to change are more easily worked around than those that undermine and inhibit the city from being the best it can be.
Or, of course, we can do both, which is what most people are proposing.
Undergraduate enrollment may level off within ten years, but it is going to increase for the next seven at least and total enrollment has increased by 600+ students each year for the last three. And it is very unlikely that overall enrollment at UC Davis will decrease over the next two decades because UCD is strong on specialized graduate programs. UCD is in a very good position to compete for education dollars, even in a shrinking market.
Who is hiding the magnitude of the problem David? I doubt there has ever been more transparency in Davis finances. According to your story yesterday Dan and Brett have been working on how to proceed and Pinkerton laid it out pretty well in his presentation to the council. Rehashing Saylor, Souza and Sue Greenwald battles of the past may provide historical context for those unfamiliar but your story fails to transition to the present and makes it appear that there is some denial or cabal sugar coating and obfuscating what needs to be done. All you and the other conservatives who post here pounding your chests and making obnoxious, unreasonable, counterproductive or impossible demands are simply putting at risk the possibility the city gets its finances in order and doesn’t deteriorate into the small town version of “Bladerunner.”
While you decry the financial reality you make demands about what kind of development you will accept. You have it backwards. The people who demand only certain types of development excluding housing and peripheral retail or exploitation of the I-80 corridor to bring in revenue from travelers ought to embrace paying up for the lifestyle they demand instead of writing stories that rehash yesterday’s battles and cast everything in a bad light. The good news is that the vast majority of Davis residents are optimists who will recognize that we need to pay up for the community we love because doing otherwise means a fate worse than peripheral growth.
“While you decry the financial reality you make demands about what kind of development you will accept. You have it backwards. The people who demand only certain types of development excluding housing and peripheral retail or exploitation of the I-80 corridor to bring in revenue from travelers ought to embrace paying up”
Except that the only reason we need to be paying up for the lifestyle choice is that in the past we made unsustainable promises to employees and that needs to be corrected. It would be oddly ironic if Davis were given no choice but to grow because ten years ago we decided to greatly increase employee compensation.
Two sides of the same coin David. I could make the exact opposite argument that because we didn’t grow we can’t afford to pay good middle class salaries. So pay up.
This is not a chicken and the egg. If you want to pay employees more, first you have to have the steady revenue stream and then you can pay them. We did it backwards and now you are trying to use that as justification for residential and retail growth.
I’m not doing anything. I’m arguing for how we pay our obligations either we tax ourselves more or we tax others more. If you don’t want to do it one way then pay up the other way.
Are you confident that the “only reason” for our fiscal dilemma is our history of “unsustainable promises to employees”? The years of Vanguard coverage reveal that a mix of many poor budget decisions brought us to this point.
It would be more ironic if Davis would be forced to grow in the future partly because of the times we have refused to grow in the past, most recently by giving away our Mace property for a pittance.
I thought I laid it out pretty well in the article today – three critical decisions, I would not say our “only reason” was unsustainable promises, but it’s two planks on the table. I also believe if we had more retail, more tax revenue, we would have given away that money as well.
Dang, where did I ever get the idea that you thought that “the only reason we need to be paying up for the lifestyle choice is that in past we made unsustainable promises to employees and that needs to be corrected”?
I agree that today’s article (and all you past coverage) contains a much broader view of our dilemma, and that you didn’t come to your “only reason” contention until 1:13 p.m. today.
Toad, I agree with your doubts whether there has ever been more transparency in Davis finances. However, that improved transparency still has a long way to go. The Streets:Pavement report given to Council by Staff on December 10th has given us a good sense of the magnitude of the fiscal challenges in that area of the Budget. The Staff Report clearly tells Council that the fiscal challenge is $342 million over the next 20 years ($213 million in expenditures plus a $129 million backlog) just to keep the streets at their current compromised level. There are alternatives for dealing with that $342 million (which actually rises to $617 million if we continue to defer maintenance), but Council has not, as yet, formally/officially chosen which alternative to pursue. Therefore, the streets pavement expenditures are not in the “transparent” Budget presented to Council on December 17th.
That is the first “magnitude” issue.
There are a lot more “magnitude” issues in Davis finances, and each of those issues needs some level of (1) quantification, (2) verification and (3) formulation of a “deal with” plan.
Here is a partial list of issues that each have their own inventory of impending Maintenance expense (some of it deferred, some pay as you go).
• Buildings and Structures
• Parks
• Pools
• Fleet
• Transit
• Property
• The non-pavement parts of Streets (sidewalks, signals, street lighting and striping)
There are additional issues that are accounted for under the various Enterprise Funds that are also paid for by the taxpayers/ratepayers.
• Storm Water / Storm Sewer
• Waste Water
• Potable Water
• Irrigation Water
• Solid Waste
The good news is that we are indeed working together so we, as a community, can come up with a better sense of the magnitude of those additional issues, as well as coming up with a comprehensive, coherent message that (A) communicates with our fellow citizens, (B) creates an environment where neither staff nor Council can sweep items under the rug, tell partial stories or backslide, and (C) provide support to efforts by both Council and the City Manager to make the tough decisions necessary to do the right thing.
Mr. Toad,
“The good news is that the vast majority of Davis residents are optimists who will recognize that we need to pay up for the community we love.”
Perhaps you are correct in this observation, and the majority of Davis residents would gladly pay more to retain the Davis they know and love – without the intrusion of increased traffic, more congestion, and bunch of new jobs.
If that is to be our approach, however, it will be imperative for some of our residents to glean a better understanding of exactly how we got so deep into this mess, how we know when we’ve found bottom, and what we can do to avoid a repeat in the decades ahead. Others still will want to insist that, out of fairness to our future generations of young Davisites, we are not simply passing along the current unfunded burdens of our generation – born of chronic overspending and a general unwillingness or inability to pay for the programs we have chosen to embrace.
And that’s where the reality of our collective conduct over the past twenty years does come into the conversation.
If we are going to ask “the community” to pick up the tab for our past failings, we had better have a pretty good story. This is precisely why it is important for the community to understand how we got into this position, why we are not alone in this predicament, and what our leaders can do to help move us towards a truly sustainable model of responsible self-governance that does depend upon our pushing out debts onto the backs of our kids and theirs.
And, so that I might better understand your position with respect to our current fiscal condition, would be your position that:
1) We continue the current “system” which allows our employees’ pension assets to be valued with an assumed rate of return the is 50% higher than the average across the country? If not, what do you propose?
2) We continue to cut into staffing and do away with other desirable programs in order to continue our “pay as you go” system of funding our current program for post-employment health care benefits for which no funding has been set aside to insure its long term integrity? If not, what do you propose?
3) We continue to operate using a system of public accounting that does and cannot require our cities to properly pre-fund their defined benefit programs? If not, what do you propose?
4) We continue to operate using a system of public accounting which has no conventions for establishing dedicated maintenance funds to insure proper maintenance and integrity of our major infrastructure investments? If not, what do you propose?
Whatever your answers, these aspects of systemic failures in government oversight are largely beyond the powers of either out city council or our city manager to amend – they are simply baked into the system.
If we, as a community, are unwilling to face facts and make a strategic assessment of what we need to be doing and where we need to be going – please don’t ask me to pass the Band-Aids. And, more importantly, please don’t ask me to impose yet an additional non-competitive sales tax component on our retailers and our citizens while the state is busy awarding special development zones to Amazon and its online peers to convert massive sections (1,100 acres) of farmland into dedicated retail sales tax annuities (a full percent lower than what’s being proposed for Davis) for our small town brethren in Patterson, California.
It been done before by previous Davis City Councils – where we have unanimously passed resolutions asking our government and out state to recognize injustices around the world. When it comes to our own community and issues over which we have a much greater ability to influence, is there any reason that our community and our leadership should not stand up, speak out and demand an end to the systemic failings that have brought us to where we are today?
I don’t know how you deal with those issues for those already vested with those benefits. That ship has sailed. We should change things for new hires and do what we can for those covered under existing contracts through negotiations over new contracts.
As for sales tax increases i actually agree but for different reasons. Let me explain. Sales taxes are the most regressive taxes and in Davis where you have low sales taxes on a per capita basis because of historic opposition to exploit I-80 for sales tax capture and no growth policies in general. It would be more progressive to impose additional property taxes. Sadly since sales taxes can be raised with a simple majority and parcel taxes need a supermajority the path of least resistance is with sales taxes. Another consequence of Prop. 13.
While the ship may have sailed, did they offer any guarantees regarding the quality of accommodations that would be provided? Don’t know if you saw it in the news, but in the case of Stockton Lines, they recently modified some of those reservations, reportedly owing to only partial payment of the original fare. For those who had signed on as “space available” basis for the related tour package, requiring no deposit whatsoever, all of the reservations were subsequently cancelled.
Is that any way to run a business?
No, but if you want to rechristen the HMS Davis as the HMS Titanic vote no in June.
A request to David Greenwald. Can you include a pie chart or similar graphic showing categories of City spending in one of these budget stories? And maybe one showing revenue sources?