by Robb Davis
Late last August I presented a “SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for our City. At that time I 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. Later in the same article I laid out the threat of rapid growth in City employee pension costs stating:
Despite statewide pension reform in 2013, our pension costs continue to grow. CalPERS, the state pension fund, sets rates based on returns on its investments. It has assumed it can achieve an annual rate of 7.5 percent. In years when it does not meet this level, it requires agencies to pay greater amounts. Over the past 20 years, CalPERS’ average annualized returns were 7 percent.
Since then, CalPERS has decided to lower its expected rate of return, meaning that cities like Davis will pay even greater amounts to cover pension costs. 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.
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.
We have a dire fiscal situation in our city.
The previous and current City Councils have begun to deal with this situation by seeking voter support of an increased sales tax (passed), and through increases in all city fees (inspections, parks programs, space rentals, etc.) and utility rates. These increases are not popular but they are part of our plan to address shortfalls using all the tools at our disposal.
We also continue to seek ways to increase revenue through economic development, but there is little systematic revenue growth from these efforts to date, which include plans to create municipal broadband and entitle new hotels to bring in additional transient occupancy taxes. 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.
Finally, during the first half of this year the Council will once again consider tax increases in the form of utility users’ taxes or parcel taxes. Any measure would have to go to the voters and it will be up to the Council to make the case how such taxes would be used to address the critical needs of the city.
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. I believe that in addition to seeking revenue growth, we must engage in a more strategic and comprehensive analysis of cost containment approaches if we are to move the city towards fiscal resilience. This analysis must include restraining employee cost growth, but must look widely for all manner of cost control measures. I would argue that these must include at least the following.
- Undertaking a full staffing analysis to determine match between service delivery needs and staffing. We have reduced staffing by a quarter over the past decade but that downsizing has been done in a non-strategic way—via attrition primarily. We must ask how this downsizing has affected our ability to deliver city services and how we might staff differently to deliver key services at lower cost
- Considering best ways to provide services going forward with a focus on training workers to take on multiple tasks, outsourcing of services where most appropriate, and analyzing alternative service delivery mechanisms such as using non-profits to provide programs
- Examining all means to further reduce growth in compensation costs including analysis of retiree medical insurance options (as other California cities are doing).
- Promoting a more aggressive analysis with the County and other cities, via the Local Area Formation Commission (LAFCo), of shared bidding, service, and consulting options to reduce duplication and obtain scale efficiencies.
- Determining what current city programs might be candidates for reduction or elimination and which we want to or must keep.
- Deciding what current city infrastructure we could sold for redevelopment (buildings, properties) to eliminate maintenance expenditures related to them.
- Examining our green spaces and parks to determine ways to reduce ongoing maintenance costs.
- Creating more transparent and accessible accounting and projection systems that enable a more precise estimation of costs of specific services so we can more accurately determine where our greatest cost savings can be found.
To fully explore these options, and enumerate others, will take a concerted effort of City staff and citizens. We have had great success, as a city, in appointing knowledgeable citizens to work on focused challenges and proposed solutions. Past and ongoing successes include the Downtown Parking Taskforce, the Sports Park Taskforce, the Community Choice Energy Advisory Group, and the Broadband Taskforce. Our community is blessed to have many residents with specific experiences and expertise to explore solutions to challenges and make recommendations to the City Council for action.
Given this, 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.
Your City Council is taking a comprehensive approach to dealing with our fiscal challenges. There is no silver bullet. There are no easy solutions. There is only a firm commitment to do everything we can to create a more fiscally sustainable city. Cost containment is one critical, if challenging, element of that commitment.
Sounds like a good idea to me!
As I believe the Mayor is saying, it should be a thoughtful process on cost containment, using more scalpels, and less chainsaw or leaving it to chance by attrition. But yes, cost containment is something easier, more predictable to achieve than revenue generation. Yet, we should be vigilant to avoid ‘unintended consequences’.
As a citizen and as a member of the Finance and Budget Commission, I wholeheartedly support Robb’s call to create a focused Cost Containment Task Force.
The Finance and Budget Commission meeting on Monday, February 13th includes an agenda item calling for an FBC recommendation to Council that they update the Fiscal Resilience Goal in the recently adopted 2016-2018 Council Goals to include the eight Cost Containment tasks Robb has listed , as well as several other Fiscal Accountability/Resilience tasks.
Wherever possible the Fiscal Resilience tasks of the Council Goals should have milestones and metrics so that the citizens, Council, and Staff can track progress toward completing those tasks. Creation of a Cost Containment Task Force is an overt step toward accomplishing that goal, rather than just talking about it.
Mayor Davis should be supported by all Davis citizens in his efforts to bring fiscal sustainability to Davis.
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The tasks for addition to the Council Goals being recommended in next Monday’s FBC meeting are as follows:
In the Cost Containment goal:
A. Proactively identify and implement short- and long-term cost containment options.
• Complete a full staffing analysis by July 1, 2017 to determine match between service delivery needs and staffing including comparison to nearby cities.
• Concurrent with the full staffing analysis, hire a consultant to complete a thorough Business Process Re-engineering to improve inefficient, ineffective service delivery.
• Based on the results of the full staffing analysis, during the July 1 – December 1, 2017 period, identify and implement best practices for providing services going forward with a strong focus on training workers to take on multiple tasks.
• Examine all means to further reduce growth in compensation costs including analysis of OPEB and Pension options (as other CA cities are doing).
B. Create more transparent and accessible accounting systems that enable a more precise estimation of costs of specific services — building on work done by the Cost Allocation consultants.
C. Promote a more aggressive analysis with the County and other cities, via LAFCo, of shared bidding, service, and consulting options to reduce duplication and obtain scale efficiencies.
D. Conduct a value analysis of all current city programs.
• Conduct a thorough community survey to determine which programs deliver high levels of value.
• Based on the results of the value survey, identify what current city programs might be candidates for reduction or elimination or expansion.
• Based on the results of the value survey, determine what current city infrastructure we could/should shed (buildings, properties) to reduce expenditures related to them.
E. Complete an analysis of all non-enterprise fund balances to determine if/how we can use these funds to meet current needs.
F. Overhead allocation: Continue to explore whether the “true cost” of city services is clear and (A) drives appropriate actions, e.g. do we include a full allocation of overhead, (B) frees up funds for high priority projects, and (C) reduces liabilities and backlogs in road and park maintenance.
In the Transparency goal:
A. Modify the annual Budget process so that each ongoing service delivery process shall include expected success metrics, as well as an anticipated budget.
B. Modify the annual Budget process to include an assessment of how successfully each ongoing service delivery process performed against the success metrics published 12 months earlier in the adopted Budget.
C. Modify the annual Budget process so that each capital infrastructure project shall include expected success metrics, as well as an anticipated budget.
D. Modify the annual Budget process to include an assessment of how successfully each capital infrastructure project delivered against the success metrics published 12 months earlier in the adopted Budget.
In the Revenue goal:
A. Assess whether the city is receiving its full share of sales taxes, particularly for large construction projects and internet sales. Consider joining forces with other local governments and agencies to direct sales taxes from internet sales to the jurisdictions where consumers receive their purchases.
I see many issues in your proposal, Matt… many can be resolved if one acknowledges the following…
It is said, Democracy is “messy”… so are demands for public service… hard to be ‘efficient’ when citizens demand actions such as “I demand the city stop my neighbor from having rain runoff come into my backyard”
McDonald’s employees can tell a customer very briefly that they serve no pizzas… think about how a City employee can tell an angry taxpayer that their demand is not something ‘covered’
A “business” model has informative value, but doesn’t fully translate into a “governmental” model… imagine a request for government ‘service’ requiring a caller to go thru 3 tiers of multiple choice ‘menu options’ (which is silly, because there would be so many times that the caller’s response would be “none of the above”) before they could actually talk to someone knowledgeable, and able to assist on an issue.
Concepts have no “fatal flaws”, at first glance, but I caution on “rigor”… even though Davis is a Municipal Corporation, it is inherently not a business… but yet, if it was a business, we could pretty much expect the business would not spend much time on weighing in on world affairs, ex., dog meat.
It would have already been forced into bankruptcy to either be restructured or liquidated.
Cost containment is the critical step in the process of creating a more sustainable fiscal future for Davis. Without it, no amount of new revenues will be sufficient to overcome the runaway costs of total compensation. Until we get serious about the issue, everything else we try is just a ‘band-aid.’
I strongly support Robb’s effort and approach and hope the City Council shows the foresight to implement the plan expeditiously.
No question on the issue of cost containment… yet to think that the City could adopt a “pure” business model, where no property tax for the city day-to day costs (personnel, etc.) was needed… well, be careful what you ask for…
Howard, where has anyone proposed, or even contemplated, no property tax for the city day-to day costs.
That idea isn’t even tangential to what is being discussed, it is in a galaxy far, far away.
That would be the goal of a “fully” business model… was contrasting the two extremes of models… except, come to think of it, many businesses nurse on state and federal subsidies/tax credits…
Maybe hotels will benefit as much as tobacco, sugar, other ‘farm’ subsidies in the next few years…
Howard said . . . “That would be the goal of a “fully” business model.”
You have lost me in several different ways. First, is the term “fully business model” defined anywhere. Its a term I’ve never heard before. Second, it appears to be a rather absolutist approach (if my guess about it is even close). Who in this community has advocated for any form of partial or “full” absolutism?
Just reading the above questions shows you how completely you have lost me.
Looking forward to some enlightenment.
A fully business model is to make a profit, after all expenses… otherwise, the business fails, right? [why would a business go for a ‘break-even model’, given the investment to create/maintain it?] By law, government cannot ‘make a profit’… there must be a nexus as to fees, charges… no… cannot think of definitions, per se, but hell, Matt, why do you seek definitions from me in the face of the obvious…
KVIE is a “fully” business model, as is Capital Public Radio. PBS, NPR, etc.
I simply don’t know what the obvious is in this case. You still have me deep in the dark.
The entities cited in you’re 10:22 p post are almost constantly having phone-a-thons (aka pledge drives), appeals by mail, etc. for fund-raising. This that what you’d recommend? Now you’ve got me scratching my head as to what you envision…
Couldn’t find it right off on charity navigator, but KVIE only get two stars (out of 5) on the financial considerations… was looking for what % of their budget goes to admin and fundraising as opposed to program content…
Howard, once again you have lost me. I’m totally in the dark as to the point you are trying to make. Perhaps this is something better discussed over a cup of coffee.
I see that the article above mentions selling-off city property.
Oh my gosh, regarding selling off the old city hall (see link, below):
http://www.davisenterprise.com/local-news/state-forces-city-to-sell-sell-historic-city-hall/
According to the article, selling off the old city hall would “free up” bond proceeds currently frozen by the state. And, these funds could then be used to help fund the “tight diamond” project on Richards Boulevard. (I presume that this would make it easier to “justify” the proposed Lincoln 40 development.)
Also – check out Rich Rifkin’s comment below the article above, regarding the connection to the California Teachers Association.
And – the “tight diamond” makes it easier to “justify” Nishi?
Has nothing to do with Nishi, the city has long needed to redo the freeway interchange on Richards, but without RDA money and without Nishi, they don’t have the funding to do so.
Actually, David, the City could meet its share if UCD followed thru on commitments made during the last LRDP… but that ain’t happening…
And remember, CALTRANS will be funding the bulk of the interchange… City just needs to put up a share…
Explain please
Which part do you not understand? The local/state split, or the previous UCD commitments?
The previous UCD commitments
Seems like a truly sad day, when the city is forced (by the state) to sell off a valuable asset like old city hall. (Really, the city can’t keep its own property/heritage?) Why aren’t cities protesting this new law?
Note the comments from Jim Gray (in the Enterprise article) regarding the rent that this property brings in, each month. I haven’t seen too many situations where it makes sense to sell off a property such as this, for short-term gain. If it’s good for investors (as Jim is noting), it’s also good for the current owner (the city)!
(Sort of reminds me of what Shwarzenegger tried to do, by selling off state buildings that actually housed state agencies, with a plan to “rent them back” from the new, private owners. Not sure of the status of that. Truly a stupid idea.)
Wondering if the city can occupy a small portion of the old city hall (to satisfy this crazy, short-sighted state law), while still renting out the majority of it.
I suspect that Rich Rifkin is right, and is essentially an example of corruption. (Benefiting a particular group in the short term, at the expense of the greater public interest.)
I’m also not convinced that the “tight diamond” should be the highest priority of the city, regardless. (For reasons already discussed.) The “optics” of this don’t look good, to say the least.
I see no value in having the City operate as a landlord. We should sell off all properties that the City does not have a reasonable expectation of using itself in the next 10-20 years. This includes commercial buildings and residences. When the City owns the property we have to pay to maintain it and hire City employees to manage it. By divesting of excess properties we collect the current market value and begin collecting property taxes for the land, buildings, improvements, and equipment inside (commercial property), plus get rid of the salaries, benefits, and pension costs for the employees. With the ‘overhead’ costs for total compensation that the City currently experiences, I doubt that the revenues from the leases fully cover all of the real ‘costs’ of owning and maintaining those properties. Divesting should save taxpayers considerable ongoing costs and bring in significant one-time revenues to pay down our obligations.
Mark:
The city would neither collect nor PAY property taxes on it. Nevertheless, they could still charge a market rate to tenants, without the burden of (essentially) sharing that rent with a tax-collecting agency.
I strongly suspect that the city can easily make as much money (by renting out this property) as any private owner. Maybe more so. (And, they’ve apparently been doing so, for years.)
Not to mention the benefit of capital gain in the value of the property, over the years (which eventually translates into higher rent). Also, from my understanding, the allocation of property taxes received (if the property is sold) is not a straightforward process. (And, with a lot of the taxes going to schools, instead of the city itself. Not sure if it even goes to the immediate/local schools.)
And, it’s the old city hall, with a history/identity behind it. Privatize it, for what?
Again, read the Enterprise article. You’ll see that the city gets the smallest percentage of funds (21%), from the forced sale of the property.
(Not sure what percentage of property taxes go toward school districts, but I believe that it’s significant.)
Ron – You completely ignore the cost of City employees needed to maintain and manage the property, which is the main reason for divesting – getting rid of the unnecessary employees and compensation costs. At the very least, we should outsource all property management responsibilities to private companies to lower our costs.
The old City Hall already has a privatized function, with controls in place to maintain the historic facade. That would not change after a sale. The City has no demonstrated need for the property so it should be returned to the private marketplace.
The City may not generate as much total revenue selling as renting long-term (considering the required sharing with other entities that you point out) but taxpayers would receive the complete ‘benefit’ of the sale as we pay taxes to all of those same entities. Increasing revenues to those other entities reduce the demand for greater taxes. Taxpayers gain little or nothing from having high-cost public employees manage and maintain properties that are no longer needed by the City. The same is true for County and State-owned properties that are no longer needed.
Mark:
I don’t think that you’re correct, regarding the “reason for divesting”. This is being forced by the state.
How many “high-priced” city employees does it take to manage a property? (Sounds like the beginning of a joke.)
The management and maintenance of it might already be privatized, for all I know. (No objection to that, regardless.)
Assuming that the city currently receives all (or most) of the rent, this appears to be a big loss for the city, a sudden windfall for school district(s), since they stand to gain the most from the sale – and probably from property taxes, and an overall loss for taxpayers (as they are forced to sell a valuable publicly-owned asset). However, at least a “private investor” will gain, over the long-term.
Sounds eerily similar to the “Schwarzenegger Plan”, to sell state buildings. (Granted, those buildings were actually occupied by state agencies, while the city is “only” apparently collecting rent from the old city hall building.)
“I’m also not convinced that the “tight diamond” should be the highest priority of the city, regardless. ”
So you believe that the city should leave the interchange as it is and forgo a chance for state funding because you oppose Nishi? The interchange has nothing to do with Nishi, it’s dangerous. There is a multimodal meshpoint that dumps traffic from I-80 into an immediate merge with bikes, buses, peds, and cars.
David:
I’m not sure that the “improvements” will solve the existing problem, there. I’ll leave that to others, to make that case. (Seems like there’s another article regarding that on the Vanguard today, which might have been removed by a hacker? If so, I’m guessing that you’re working on that.)
Regardless of the existing situation, I do suspect that improvements to that intersection will encourage a “push” to develop both Nishi and Lincoln 40. (In general, I don’t support using tax dollars – from any source – to subsidize private development.) I’ve also seen many examples in which road improvements have apparently encouraged even more development, resulting in no net improvement to existing traffic flow. (In fact, this seems to be the “norm”.) That’s why many freeways around the country are a mess. Assuming that improvements do lead to more development around the Richards/Olive intersection, why would it be any different, this time? (In other words, no net improvement, and perhaps a worsening of traffic.)
I thought we had some roads in town that are actually deteriorating. Should that be the priority?
Then to me the discussion should be whether the corridor plan will help – it will certainly make the interchange safer. Whether it helps with traffic flow – I cited the consultant report in today’s lead article.
On the roads that are deteriorating, the city has set aside some money, but they are hundreds of millions in the hole. The $5.5 million could go to some of that, but frankly that’s just a drop in the bucket and we have other needs like the corridor fix.
I’ll look at that other article, but I’m already wondering if the consultant considered the likelihood of road improvements leading to more development (e.g., Nishi and Lincoln 40). If not, the consultant’s report might not provide an accurate picture of the probable long-term outcome.
“Purposefully” Off-Topic:
Holy crap, what a comeback (Patriots)! Tom Brady – better than Montana?
Yes, cost containment should be a central focus in decisions that the council makes. I hope that appointing a task force doesn’t become a way of just “kicking the can down the road” To that end, I think that giving the task force one year is way too much time. I’d like to see recommendations within a few months.