While the Council Vacations… The Clock is Ticking on the City’s Fiscal Bomb
The only problem with that scenario is that it simply is not true. With the exception of the one holdout, Davis City Employees Association (DCEA), the city of Davis has completed its round of employee MOUs. While they were able to coddle together enough short-term concessions to produce a relatively balanced budget this year, the bulk of their work is not done.
Now, four councilmembers including the two new ones who were elected to bring forth better fiscal management, somehow believe that the MOU that they agreed to with the Police Officer’s Association moves a step in the right direction.
I want to run through these numbers yet again. Currently the city is projecting about $42 million in general fund expenditures by 2014/15, which is only about $4 million more than it is spending now. That means that growth is projected to be pretty flatline for the next four years. That makes sense. We can quibble as to whether it should be completely flat or just mostly flat. I mean that is about a 2.5 percent annual growth rate which is pretty close to inflation, which means that we are really looking at flat growth in very real terms.
Here’s the problem, we are going to be paying more for our PERS fees and our financing of the unfunded liabilities. A lot more than say $4 million.
But there’s more, folks. Right now, as we have reported, we have built up a cadre of about $5.7 million. Now, if we maintain previous funding levels just by 2012, that unmet need will increase to $11.7 million. But right now we are looking at maybe $250,000 to $400,000 in spending on repavement the next year. That means that this number will only increase as our roads decay. We have not had to spend money out of the general fund for street maintenance, but that may start happening. If the situation continues to decay, we are looking at crisis levels for road conditions.
Moreover, salaries are not frozen. As we know, about 71% of the city’s general fund goes to employee compensation. All of these MOUs which are supposed to fix the city’s short-term fiscal problem have an interesting caveat, in that they all essentially put in a COLA in the out years. Which means that while the first year’s salary is some degree of a pay decrease, they are given pay increases in the second and, in most cases, the third years. What that means is that a lot of that four million in additional revenue will be eaten up just with COLAs.
In short, no one is willing to tell the people of Davis this, but de facto, the city’s budget realities means that there will have to be continuing cuts in order for the city to stay afloat fiscally. All of the city services that people support and like will be cut in order to pay for city employees’ retirement.
What has the city done to stop this? Very little. As we have pointed out, all the city has done in this round of MOUs is that for some groups, they have traded a salary increase for an increased share pick-up of the employees’ share of the contribution. That is it.
Obviously the city council is going to emerge from their vacation with a plan to fix this problem. The problem is that the next round of MOUs will not take effect until 2012-13 fiscal year. If you are counting at home that is only two years before real doom hits this city.
One priority that everyone has is economic development. It is very important that people understand that I am not against economic development. But I will tell you this right now, economic development is not going to save us here.
We had a bit of a discussion about Target yesterday, and there was a good point made by one of the commenters. “A typical Target store sells $316 per sq ft. — 1.5% of this goes to Davis,” he said. He continues, “That means a Target with average sales would generate $4.74 in sales tax dollars per sq. ft. which actually gets you to revenues over $600,000 since this store is 137,000 sq ft (including garden center).”
But part of the caveat is that Target sells groceries, most of which is not taxed. And, as you will recall, the size of the grocery section is actually a good deal larger than was originally projected. That means that the projected sales tax revenue will go down.
That does not even go to the fact that Target will displace at least some of the existing sales that would have stayed in the city as well.
Here’s the problem with the city’s economic development plan. Right now, the city has no plans, nor if they had plans would the voters approve them, to bring in more large-scale retail. The city generally produces general fund revenue either through property taxes or sales taxes. The city stayed afloat in the last decade due to double-digit annual growth in property taxes plus a $3 million boost in the form of the half-cent sales tax increase.
The problem with the economic development plan is that the city is talking about high-tech and green research and development spinoffs. All great things that we should support. But they will not net the city additional tax revenue. Right now the economic development plan really is not calling for the development of revenue-producing industry.
Even if we did, the marginal increases would be declining. The next Target would not produce the same revenue as the first Target. And when you are talking about this Target producing $600,000, that is a good number, but it pales in comparison to the hits we are taking with regards to retirement pensions and health care for our city workers.
If the council wants to argue that it was not the right time for the DPOA MOU, that is fine, but the plan needs to be in the works. It has to be fast because we do not have much time.
The last round of MOUs was a disaster because we lost three years and did not address the core problems. The core problem is actually quite simple, it is retirement age. Most of the problems go away if we simply increase the retirement age. The other thing we have to fix is the pension formula. Right now we are giving away 3% at a retirement age of 50 for our safety employees. If we simply reduce that to 2.5% at 55, we would save millions. The same goes for non-safety employees who get 2.5% at 55 now, if we simply reduced that to 2% at 60 we would save a bundle not just on pensions, but also on retiree health.
The city has floated the idea that they can change the formulas for new employees outside of the current MOUs. There are two problems with that. First, it is not clear that they can. Second, even if they could, saving the money on new employees does not address the 2014/15 budget crisis that is looming. Somehow the city has to find a way to save millions on the retirement of current employees or face the very real prospect of severely cutting back on city services.
The council may be on vacation now, but the clock is ticking very loudly . Too bad too many of our citizens do not realize or recognize the severity of the problem we face.
—David M. Greenwald reporting
DG: Thanks for quoting my estimates yesterday which I believe are accurate.
In another blog I suggested we consider a measure somehow limiting the Council’s ability to spend money we don’t have. There are a number of ways to do this but since labor appears to be the main issue I think the measure should focus on labor costs.
Unfortunately our Council (Sue excepted) has proven its inability to be fiscally responsible. This should not surprise anyone since its a nationwide phenomenon–its perfectly rational for politicians to spend now and pay later. The former Prime Minister of the UK, Harold Wilson once remarked “two weeks is a long time in politics””–implying that politicians have a very short run bias.
Its not ideological either–Republicans has shown themselves every bit as capable of spending, despite their rhetoric (think W) as Democrats and Sarah Palin is no exception.
JoRo are acting rationally taking the easy way out and kicking the can down the road. But we know the problem is festering and will get worse.
We limited growth by passing Measures J, X, P, R.
Unfortunately our CC is proving itself irresponsible and needs to be limited. Measures to restrict spending are never perfect, but our CC has proven it is incapable of sound financial stewardship. We need to reign them in before its too late. Bringing in more tax dollars is a fine idea, but we have plenty of examples of wasteful spending in Davis (start with our fire dept).
WE need a measure, call it measure F for fiscal responsibility.
I think you mischaracterize DCEA’s position. They have not been dealt with honestly and have been trying to get the city to negotiate only to be slapped by the council imposing the”last, best and final offer.” The city has purposely avoided mediation and arbitration attempts. The deal cut with DPOA rubs more salt into the wound. Saylor, Souza and Greenwald choreographed this dance, not DCEA.
dmg: “One priority that everyone has is economic development. It is very important that people understand that I am not against economic development. But I will tell you this right now, economic development is not going to save us here. We had a bit of a discussion about Target yesterday…”
Target has nothing to do with the issue of unfunded liabilities. Any tax revenue it brings in will be a positive for the city. Less tax dollars are leaking out of Davis to go into the coffers of Woodland via their Target store. In short, responsibility for the failure to address the unfunded liabilities rests with those on the City Council who voted for contracts that did not include serious fiscal reform…
dmg: “Too bad too many of our citizens do not realize or recognize the severity of the problem we face.”
Too bad too many of our City Council members do not realize or recognize the severity of the problem we face!
What’s the status of Harriet Steiner?
Until some Californians show some spine and like demand that Schwarzenegger, Herr Scumbag, be put on trial for bankrupting the State (and other white collar crimes), nothing much will happen. Whine, kvetch in typical centrist fashion.
when Megzilla beats Jerry Moonbeam (as she probably will), the shit will just get worse
Don’t worry, while the council is “on vacation,” the city staff likely is cooking up more sweetheart deals like giving Hanlee’s Volkswagen $1-million of our money to move from Napa to Davis.
By the time they return it with cash that otherwise would be coming to Davis as tax revenue, Hanlee’s might get a more favorable offer to move somewhere else.
Speaking of Harriet Steiner, I hope she analyzed and structured the deal so we won’t lose out if this business fails like many other dealerships have.
[i]”What’s the status of Harriet Steiner?[/i]
She’s taken.
“Until some Californians show some spine and like demand that Schwarzenegger, Herr Scumbag, be put on trial for bankrupting the State (and other white collar crimes), nothing much will happen. Whine, kvetch in typical centrist fashion.”
I’m no Arnold lover but why don’t you get your head out of the sand and look at who the real budget breakers are, the Democrat union beholden State congress.
“Target has nothing to do with the issue of unfunded liabilities. Any tax revenue it brings in will be a positive for the city”
Elaine, I love you but sometimes I just have to question your reading comprehension skills. Target is a revenue generator, the purpose of mentioning them is not that they have anything to do with unfunded liabilities but rather in addressing the possibility of the city recouping some of that money through a strategy of economic development. I conclude that we probably cannot raise enough revenue that way to offset unfunded liabilities.
dmg: “Elaine, I love you but sometimes I just have to question your reading comprehension skills. Target is a revenue generator, the purpose of mentioning them is not that they have anything to do with unfunded liabilities but rather in addressing the possibility of the city recouping some of that money through a strategy of economic development. I conclude that we probably cannot raise enough revenue that way to offset unfunded liabilities.”
Let me speak more plainly. I agree with your point that a strategy of economic development will not be enough to offset the city’s unfunded liabilities – so it is not a total solution. But what has that got to do with Target? If Target makes even one cent in NET tax revenue, it will be a good thing for the city. Why single out Target over any other business in Davis? You seem to repeatedly attack/trash Target even if it is not really the issue you are addressing. The impression I am getting (rightly or wrongly) is that you would like to see Target fail bc you so dislike big box retail. If Target brings in even $100,000 in tax revenue, it is $100,000 to the good for the city coffers that can be used to fill some of those potholes you are always complaining about… Love ya’ too! Friends can always agree to disagree 🙂
just saying: “By the time they return it with cash that otherwise would be coming to Davis as tax revenue, Hanlee’s might get a more favorable offer to move somewhere else.”
I’m not sure I am understanding your point here. The money loaned to Hanlee’s is from the RDA, and cannot be used for anything but removing blight. Hanlee’s VW would generate tax revenue to the city…
Elaine: It doesn’t have anything to do with Target per se. I’m using Target to illustrate relative amounts of revenue that new retail could generate.