The Davis City Council approved unanimously on Tuesday night the funding and budgeting strategy for pavement maintenance, in concept, for the multi-year effort in which a huge amount of money would be spent up front with smaller ongoing payments.
The plan comes with a concession that the city will have to reduce its Pavement Condition Index (PCI) goal normally set at about 70 to 63 on average, with higher scores and better pavement on arterials and main thoroughfares, and lower scores on lesser used residential streets.
The pavement management scenario B-Modified would see frontloading of payments at $15 million in year 1 and $10 million in year 2.
In his presentation, City Manager Steve Pinkerton showed, “Regardless of the 20-year maintenance scenario chosen, funding paving up-front will reduce the City’s backlog and future expenses.”
“Budget projections have assumed future costs of $2 million to $4 million annually for infrastructure. Incurring $25 million in capital costs over the next two years would translate into $2 million annually in debt payments,” he said. “Additional annual funds dedicated towards pavement would need to come from growth in existing revenue, new revenue or cutting of other programs.”
Costs have gone up dramatically in the last 13 years. Part of that is that payments have deteriorated rapidly and the other part is that asphalt prices increased eight-fold since 1999. The result is that we must either pay a lot of money now or pay more later.
“Back in 2001, 2002, 2003, first of all our roads were all newer and the backlog was not nearly as intimidating,” City Manager Pinkerton said on Tuesday. “Then just about the time 2007-08 that suddenly this thing came up and grabbed us, it was the time when we were all broke. It was just kind of the perfect storm.”
“It is a new world that we live in now where the cost of our roads” have gone up exponentially, he said, and that’s why “we recommend a long term commitment to this because… it’s only going to go up exponentially.”
Ideally the council would want to pursue Scenario A, where the basic concept was to frontload the vast majority of the paving projects over the next few years.
By spending most of the money in this scenario in the first six years, City Manager Pinkerton argued that costs were far less impacted by the 8% inflation factor for construction.
This option would also ensure that as many roads as possible were repaired at points where major reconstruction was not needed.
Unfortunately, City Manager Pinkerton concluded there was no way the city would be able to invest the $55 million over six years needed in this scenario.
Even if the city debt financed this amount, the debt service payments would have to exceed $4 million per year and Mr. Pinkerton did not believe that the city would ever be able to guarantee setting aside that much money annually over the next 30 years.
The B-modified approach allows the city to set aside a more comfortable but still taxing total of $2 million per year in debt service. City Manager Pinkerton argued, “I’m confident we can find that in the budget, even if we aren’t able to get a revenue enhancement via an increased sales tax, parcel tax or maybe a gas tax increase if the legislature would ever allow us to do that.”
“Even if the $2 million per year is all we can ever spend over the next 30 years, it is worth bonding against these dollars and doing all the work up front,” he argued.
What this means is that Davis has to lower its standards on pavement. No longer is the goal going to be to get to PCI 70. Instead we are looking at something closer to PCI 63, where key streets of community value are prioritized at a higher level than local streets.
We are looking at values of PCI 68 for arterials, 65 for collectors, and the remainder of local streets at 60.
Even at this scenario, we are looking at not just the debt financing, but the ongoing commitment of millions each year for street maintainance.
Mayor Pro Tem Dan Wolk asked where the city would come up with the kind of money needed to finance these repairs, given that we do not have a new revenue stream, asking, “Has staff thought about where this is going to come from?”
City Manager Steve Pinkerton responded, “I think like in any city, most of us have lost our other funding sources… it’s just a general fund expense just like a lease on a building or anything else.”
He said when they look at the overall budget on June 11, they’ll look at where, overall, they need to tighten their belt.
“The reason I kept it at $2 million is I knew that the $83 million number where you’re looking at $6 to $7 million a year wasn’t realistic, but we feel comfortable that within our budget we think we can handle two million particularly it doesn’t necessarily have to all be general fund,” the city manager said. “I think this was a very conservative estimate looking at maybe three percent of the general fund going towards roads.”
The city manager explained the reason they picked the option known as B-modified “was an understanding that we can’t put a real shock in the annual payment stream of the budget, you have to build up to these things over time and potentially look at new revenue sources.”
Councilmember Lucas Frerichs said, “We know we need to spend far more money than we had been for the past number of years on roads, there’s no question. The evidence is there as far as I’m concerned.”
He added, “But it feels like we do this in a vacuum every time.” He argued that they were asked to approve this tonight not knowing the bigger picture on the budget. “We’re going to spend this money on roads but we don’t know where this amorphous money is going to come from. It’s certainly a general fund issue, so there are going to have be inevitable cuts.”
He said it’s “frustrating” and it “feels like it’s done in a vacuum.”
City Manager Steve Pinkerton, however, responded, “We can’t present everything to you at once. We have to give you scenarios and then as the decision comes forward you will have gathered other information.
“This will come back to you two or three more times,” he said. “I think we’re doing exactly what you’re asking. We have to come up with a construct and then you can choose from that construct.”
Mayor Joe Krovoza agreed with Mr. Pinkerton, “When we do get to the big budget and we see the dollars there for roads work, we will know that what that is, is to build up funds to pay for bonds that will be leveraged in a high upfront investment to reduce our long-term costs.”
At that point, he said, “then we really can say, we want to pull that down by $250,000 or in some scenarios we can say we want to move that up a little bit because we want to make more of an upfront investment that’s going to then make sure that our long-term investment is lower.”
Councilmember Rochelle Swanson, “We’re spending this money whether we’re doing it on interest rate or whether or not we are doing it because we’re running in a backlog.”
She said that it was not that long ago when we used to bond up for “cool” projects, now “we’re talking about bonding up for something that is the very core piece of our fiscal responsibility. It’s basic basic basic infrastructure.”
“I don’t think anybody’s really thrilled about the big numbers,” she said. “This is kind of what happens.”
As noted in the discussion, with the council approving staff recommendations, this will all come back to the council June 11 in the overall budget.
—David M. Greenwald reporting
Once again this council confronts a significant community challenge and takes decisive action instead of kicking the can down the road. They’re in for some difficult budget decisions in June.
-Michael Bisch
Why not use that parking structure money?
The graph shows pavement costs increasing substantially with substantial fluctuation over ten years. “exponentially” is a stretch, especially with the recent decreases. If these costs were increasing exponentially, no city could afford to repave in the future. It would be back to dirt roads.
What parking structure money?
I assume he’s referring to the money from the RDA that the city council encumbered by borrowing when the RDA’s were being abolished, which is now sitting in an account somewhere and costing the city lots of money every month for interest.
Don: exactly right. Under current city management, seems like there is nothing they won’t borrow for, and kick the can down the road. Fantasy downtown parking structure on the E/F, 3rd and 4th block, 100% bond financed water project, now roads ….