The council had their first discussion this year about taxes and there is already pushback. Part of the problem is the lack of community understanding that the city faces an $8 million annual shortfall in funding over the next twenty years – a shortfall that includes hundreds of millions of needs in roads, bikepaths, greenbelts, parks, and city buildings.
Some have suggested the need to deal with employee compensation first – but there is no “first” here – there is only ongoing. There is no final solution.
As the mayor put on Tuesday, “I think what we need to work on is a revenue measure and some clear actionable items on cost containment for this council to act on before the ballot.” He argued that we need to show good faith that we “are going to be good stewards.”
I couldn’t agree more, but given that we have a large and growing deferred maintenance cost, deferring taxes is actually only going to cost us more in the long run.
Yesterday, Bob Dunning quoted Ronald Reagan saying “taxes should hurt,” adding “if taxes don’t hurt, power-hungry politicians will feel free to tax us willy-nilly to fund every pet project they have in mind.”
Mr. Dunning spent most of his time, of course, discussing the soda tax, but did reference the parks parcel tax as the “most likely measure to appear on a future ballot.”
But nowhere did Mr. Dunning talk about the $8 million shortfall, the $100 million we need for roads, the millions we need on other infrastructure needs. He then simply launched into a polemic against the soda tax.
This is a good reminder that the council needs to completely separate the question here. Soda tax is fundamentally different than a parks tax or a parcel tax.
The goal with the soda tax is not to fund ongoing city needs. Instead, it is to discourage a certain behavior. There needs to be a discussion about that and an understanding of what impacts that will have and why it is important.
But having that discussion within the context of a broader revenue discussion makes no sense. I would suggest to the council that they not only separate the question, but that they have the discussions at separate meetings if possible, to create as much separation as possible.
The purpose of the soda tax has nothing to do with any of the other taxes we will be discussing.
So the fact that Bob Dunning can jump to the soda tax, I think, hurts the need for the broader discussion – and that is something the council can and should mitigate.
However, the fact that Mr. Dunning fails to situate the need for the taxes – fails to explain to his readers how grave the city’s financial position is – is a disservice to his readers and the broader community. I would criticize the Enterprise as a whole for failing to adequately report over the years on the city’s fiscal position, and the result is that many of their readers are simply not aware of the looming crisis.
Alan Pryor points out, “I do not think any large parcel or sales tax measure will be approved in the City until the City proves it is properly managing itself with respect to employee compensation.”
He may be right about this, and certainly the Vanguard has long been a critic of city compensation, but it ignores that the city has actually done quite a bit on this front in the last seven years or so.
Mayor Robb Davis has led the way to argue for cost-containment. As stated above, he said, “I think what we need to work on is a revenue measure and some clear actionable items on cost containment for this council to act on before the ballot.” He said we need to take actions, along with the ballot measure, that will contain costs. And he argued that we need to show good faith that we “are going to be good stewards.”
As he pointed out in response to compensation to the firefighters, the firefighters last agreed to a new contract in 2009 and, when the council imposed a contract on them back in 2013, they imposed a two percent pay cut.
However, despite this, compensation to the firefighters continues to increase and this is due not to actions of this council, but rather past council decisions along with the increased costs in the pension system.
The key point he made is that, in order to get out from those cost increases, the city would have to get rid of the defined benefit system – something he argued that was not feasible. He said that they would have to bargain to end the city’s involvement in CalPERS (California Public Employees’ Retirement System) and a defined benefit pension system, and he said that “there is not a bargaining unit in this state that is going to go along with that.”
In fact, the mayor has long argued this point. In early 2016, he pushed back on Mayor Wolk’s claim, “Our budget is balanced and resilient.” He noted the large and growing unfunded needs and argued that “we also face the challenge of keeping our annual recurring operating expenses in check. Employee compensation is a large part of these operating expenses.”
He pointed out that, while staff had dropped over the previous decade by 100 positions, “[t]he cost of compensating staff has increased from just over $100,000 to over $150,000 per employee in the same decade.” But, “The vast majority of staff in the city has seen the amount of their take-home check decrease over the past five years, principally due to increased employee contributions for healthcare insurance and pensions.”
In sum, he writes that “total and per employee costs to the City have increased even while employees take home less AND we have 100 fewer employees.”
In February 2016, Robb Davis put forward a seven point plan for cost containment.
In August, the mayor wrote, “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.”
In November, Mayor Davis told the Vanguard, “The most updated analysis by the City-contracted actuary 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 $4.8 million per year compared to today.”
In February he would add, “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 mayor writes, “We have a dire fiscal situation in our city.”
He adds, “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.”
Yesterday a reader wrote in, “Respectfully, you are nuts to support $200 new parcel tax without dealing with employee compensation.”
The problem I have with that view is that, first, I completely support the mayor’s call for tangible and actionable steps to be taken on cost containment.
However, as I argued back in the winter, cost containment alone will not solve our fiscal problems.
Without cost containment any revenue measure is likely to be eaten up by other needs. In 2004, the voters passed a sales tax sold to them as necessary to keep funding fire and police and parks. The tax measure went to increased employee compensation.
So I completely agree that we do need to contain costs. But I see cost containment as a strategy that caps the growth of expenditures – it is not going to close the funding gap.
To close the funding gap we need to increase revenues. In the short term that will mean taxes, but my hope is in the long term that means economic development.
At the same time, simply raising tax revenue is not enough. That revenue will easily be crowded out by increased expenditures and costs to provide current levels of service and current levels of compensation.
As Mayor Davis put it last December, “[W]hile it is true that we are ‘keeping up’ as things stand currently, the cost of ‘keeping up’ continues to grow and that crowds out funding for other projects our community needs to maintain the level of service citizens expect.”
The Vanguard fully supports a new revenue measure, but there must be with it a commitment to contain costs, otherwise the new revenue won’t be going to pay down the current $8 million annual gap – it will go to keeping up with current costs and commitments.
—David M. Greenwald reporting