Commentary: Getting Serious about the Budget Again

For several years, the most burning issue in Davis was getting the budget in order.  Indeed, from 2011 until 2014, it was the issue.  However, once the voters passed a half-cent sales tax increase in June 2014, the city was able to close its immediate budget hole, and quickly the talk from the dais changed from fixing the budget to talk of a Davis Renaissance.

The problem is that, while we were able to fix the short-term budget hole, the city’s longer-term budget picture is problematic at best.  The good news is that Mayor Robb Davis understands, “We have a dire fiscal situation in our city.”

In August, he noted, “Our inability, given current revenue, to pay for the maintenance and replacement of critical city infrastructure is a weakness. Over the past 15 years, total general fund revenue has grown by 95 percent while general fund expenditures have grown by 92 percent. Revenue appears to have kept pace with expenditures. However, when we dig into the expenditures — or rather what is not in the expenditures — we see that the picture is not positive.

“I concluded that current revenues are millions of dollars per year behind needed expenditures on things like roads, parks, and city-owned buildings.”

With CalPERS (California Public Employees’ Retirement System) continuing to realize their unsustainable course, the situation has only become more urgent.  CalPERS’ decision to lower its expected rate of return means “cities like Davis will pay even greater amounts to cover pension costs.”

Robb Davis on Sunday argued, “The most updated analysis by the City-contracted actuary (done before the most recent reductions) indicates that even if employee salaries do not grow at all over the next five years, our required pension contributions across all employee groups (police, fire and miscellaneous) will grow by over $5.5 million.”

He adds, “And these extra millions cover ONLY pensions.  They do not include medical costs and non-employee cost increases related to City services. It is no exaggeration to say that over the coming 5 years (and beyond) we need $15-29 million each year to cover all these costs combined.”

The first challenge is to determine what kind of shape we are actually in.  For too long we relied on the basic budget picture and projections to make that determination.  However, as the Vanguard and others have noted, such projections do not incorporate long-term issues like unfunded liabilities and deferred maintenance of infrastructure.

Toward that end, Project Toto has attempted to pull back the curtain on Davis’ city finances in order to “demonstrate the impact of budget inputs on the long range Davis Budget Project.”

Here is the Project Toto Presentation from last week to the Vanguard:

The Vanguard’s view remains that there is no single solution to the budget crisis.  Indeed, we believe what is needed is a combination of approaches, from adding revenue – whether from hotels, parcel tax, or economic development – combined with cost containment approaches.

The presentation from Project Toto shows the possibility that hotels combined with a roughly $200 parcel tax and other factors could result in a more balanced budget, but that doesn’t include the costs of parks which would probably necessitate more economic development.

But none of that works unless the city is able to limit the increase of its costs.

Robb Davis in his Sunday column argues, “We also continue to seek ways to increase revenue through economic development, but there is little systematic revenue growth from these efforts to date.”  Indeed, “Several projects that could have opened the door for the creation of new commercial space have not gone forward and there is constant pressure to convert existing commercially-zoned spaces to housing. The process of increasing revenue through economic development is slow and requires ongoing efforts.”

He writes, “It should be clear from the foregoing that we are taking a comprehensive approach to increasing revenue. What we have not yet done is critically analyze the role of cost containment in meeting our fiscal challenges.”

The mayor lists out eight proposals, including a “full staffing analysis, retraining workers on multiple tasks, reducing growth in compensation costs, shared services, reducing or eliminating current programs, selling city infrastructure for redevelopment, reducing maintenance costs of green spaces and parks, and creating more transparent and accessible accounting and projection systems.”

While these are good ideas, they have challenges.  For instance, in late 2015, the newest employee contracts included COLAs (cost-of-living adjustments), and we have moved backward this week with the end of shared management of fire.

The mayor’s ultimate idea is: “I would propose that we form a cost containment task force and give it the mandate of 1) finding immediate ways to reduce City expenses and 2) providing recommendations about how to reduce the growth of costs and further cost reduction approaches over time. The purview of this task force should be broad and it should be given up to a year to develop a full set of specific recommendations.  It should seek out best practices around the state and the nation and clarify which options are and are not possible for our consideration.”

I fully support this idea, as it acknowledges the urgency of the matter and the need to change the way we do business.

At the same time, I would like to see the council and city go a step further.  From my perspective, the biggest problem is that, while some people recognize the urgency of the situation, the public does not.

When the Project Toto group presented to the Davis Downtown, a large percentage of people in the room were unaware that the roads situation, for example, in the city is problematic.  Even in 2014, a majority of people polled believed that the city’s fiscal situation was good or fair rather than fair or poor.

We need a way to educate the public on our fiscal challenges and make them aware of the magnitude of the situation.

—David M. Greenwald reporting