After years of decline or stagnation, the good news is that revenues are rising in the city of Davis. However, the problem that the city faces is that expenses continue to rise faster than revenues. This is in part due to the fact that, while the city has resolved the contracts for two-thirds of its employees, it still needs to approve new contracts for two bargaining units.
But there are other pressing issues, as well. The city has chosen to undertake not one but two major capital projects simultaneously. Writes the city manager in his message to council: “In the upcoming year, through the joint-powers agency, a new surface water treatment facility will take steps toward construction and the City will be working on a design-build wastewater facility. Most cities have one utility capital improvement project every twenty years: Davis has two underway simultaneously; the surface water and wastewater-treatment projects.”
An additional strain on the budget is that the council needs to address infrastructure backlog. The result is an expected new structural deficit, this time caused by deferred maintenance and capital expenditure rather than declining revenue and soaring labor costs.
There are some critical issues now facing the community. One of those is the need to identify “a stable source of revenue for the General Fund. Writes the city manager, “Expenses are rising faster than revenues. Reductions and cost-avoidance measures continue to be used to control the City’s climbing costs but is not the sole solution. Additional resources are going to be needed to provide services.”
The City Manager argues, “To try and grow revenues and to assist with economic development, the City hired a Chief Innovation Officer in partnership with TechDAVIS.”
As we have already noted, the council directed staff to look at front-loading about $25 million in repairs for roads and bike paths. “Planning ($500,000) and public outreach will occur in the upcoming year, with debt-service anticipated to start in FY 2014/2015.”
The water project figures to add a lot to the general deficit, as the city has to figure out ways to water parks and greenbelt facilities. “Due to the new rate structure, the City will see a large increase in its water bill,” the city manager writes.
Last year the city’s nearly $850,000 water bill was largely offset by $800,000 in lease revenue. However, by next year, the costs will rise to $1.47 million, meaning the city’s costs for water will rise to $670,000. The city manager explains, “This is why the sum of $500,000 has been budgeted in FY 2013/2014 for the capital costs for water conservation.”
And that is just the tip of the iceberg, with the costs of water ultimately going to go up 2.5 times in the next five years.
The city’s current fiscal year 2012-13 budget has a net increase of approximately $1.8 million “as a result of additional overtime spending in Police and Fire and a decrease in development revenue. This will decrease the amount of carryover that will be available next year and the amount available for the reserve.”
The city manager writes, “I have asked departments to rein in spending for the remainder of FY 2012/2013 in order to conserve money. The forecast change has a minimal impact on the FY 2013/2014 budget because carryover was not anticipated to be used to balance the budget.”
However, for the next budget, the city manager is asking departments to develop General Fund reductions that result in five percent cuts to public safety and eight percent for all other departments. He writes, “This yielded slightly less than $1.8 million in reductions across all funds of which $1.3 million was from the General Fund.”
The budget does not contain any layoffs, however. There is a net nine position reduction in the General Fund where vacant positions were eliminated and some filled positions had hours reduced and “there were position reclassifications and transfers across departments.”
The 2012-13 budget assumed a savings of $4 million in all funds from labor costs. However, the city manager argues that this created an artificially low budget as “the amount agreed to with the labor groups turned out to be less on an annualized basis.”
In short, it appears that the budget has been increased for the next year. What really happened is that the city assumed an 11.8% decrease in total compensation. The city then agreed to contracts that essentially backloaded most of the cuts.
The city manager notes, “The addition of the Chief Innovation Officer will be reflected in the FY 2013/2014 budget, but not the FY 2012/2013. This means that the City Manager’s budget will most likely show an increase in the FY 2013/2014.”
The city manager notes, “It was discovered that in FY 2012/2013 and FY 2013/2014, the initial amounts budgeted for Other Post-Employment Benefits (OPEB) were too low because they were being calculated as a percentage of payroll rather than using the actuarial dollar amount which needs to be paid.”
He adds, “As a result, for both years, the rates had to be increased a total of $957,000 across all funds of which $574,000 will be applied to the General Fund. Therefore, although the actuarial amount decreased as a result of the negotiated labor agreements, it will not show up in the budget as a decrease because the amount of money being collected was insufficient and had to be increased.”
There were also one-time costs such as the DCEA settlement, which cost the city $1.1 million across all funds but just $400,000 for the general fund.
More importantly, “The Mid-year budget assumed that all units would be settled by July 1, 2013. This does not appear to be the case for DCEA and Fire and an additional $456,124 across all funds has been included in the budget to offset the cost. The General Fund portion of this amount is approximately $273,674.”
The new budget will reflect 11 firefighters per shift. The city manager notes, “The budget reflects the new staffing structure and the overtime was increased by $268,753, which was the amount approved at the April 30, 2013 meeting. It also assumes the current Memorandum of Understanding (MOU) costing for the part of the year and new MOU provisions for the remainder.”
As we reported on Saturday, the city has begun impasse procedures, but those would be expected to take a few months.
The city manager concludes his synopsis of the budget, stating, “The past few years have been challenging for many cities. Part of the new reality is that fewer financial resources are available and costs have been rising. Some of these changes are outside the City’s control.”
There are more challenges ahead, as CalPERS (California Public Employees’ Retirement System) has announced that rates are likely to increase 50 percent in the next five years.
The city manager notes, “We will need to make inroads on the negative balance in the employee benefits fund which was established in FY 2009-10, but not funded.”
He adds, “Financial uncertainty continues to be before us. The Council, labor partners and staff can make changes to the cost side and redirect funds to services residents expect and need, but not all of the increases are under the City’s control.”
He then buries his lead, concluding, “This is why I am recommending that we explore additional revenue sources in the upcoming year.”
—David M. Greenwald reporting
i’m interested in what kind of revenue the city manager will seek and whether the voters would have to and be willing to approve given the water rate hikes. it seems they are trying to get blood out of a turnip.
agree if you mean revenue = taxes/fees/etc.
Where’s the analysis from the Finance and Budget Commission on these items?
Sounds to me that the city manager….. Has a more than at he can handle!
First the DCEA problem was to be $800,000, now it ends up being 1.1 million, plus now they are lay-ing off more employee’s.
SUCKS to be him.!!!!!!
Do we want someone that buries his lead (I think you mean Head) when problems arise? Sounds like he really needs more revenue.
“….it seems they are trying to get blood out of a turnip.”
The City Manager’s statements are identical to the public statements made by Sue Greenwald concerning the inability of Davis’ future revenue stream to support the surface water project at this time given the other capital improvement projects that are also needed. Councilperson Greenwald was consistently accurate in the facts that she offered the Davis voters while on the Council. Her knowledge and experience on the Council has been a significant loss to Davis.
we have done more in the last six months than we did in the entirety of sue greenwald’s twelve years on council. whatever knowledge and experience she had was negated by her utter inability to work with anyone or form coalitions of three.
How could she form coalitions of three when she was almost always up against the “Gang of Three”?
“more revenue”, “more revenue”, “more revenue”… it is the cry of the ignorant and a false solution. Just look at the spending trends over the last 50 years. Overall spending per capita, per home, per business, per student, per… everything you can think of… has exceeded the consumer price index by orders of magnitude. Until we figure out a way to reduce our spending to sustainable levels, and then manage our finances so that spending per appropriate metrics does not exceed the rate of inflation, we will forever be in the predicament we are in today.
last two years there was no gang of three. did she lead the way? what did she accomplish in that time?
frankly: or figure out ways to increase our revenue faster than inflation, it’s not that complicated once you have an economy that’s actually moving
I’m not in favor of any general budget spending greater than the rate of inflation. Projects are fine. Projects must have expected benefits and costs disclosed and accounted for and funding secured before the first and last dime is spent.
No more deficit spending should be accepted except for disasters and wars.