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Vanguard Analysis: Staff Report Offers No Clues on Revenue Decision, Leaves Them to Council

walletFor all of the fumbling of the roll out of the tax revenue community-based discussion, the fact that, while council knew of this impending crisis as early as June but did not publicly start to really discuss revenue possibilities until December, whatever goes down on Tuesday will happen in public with open discussion.

At this point that is about all we can ask.  Staff writes that council will be considering whether to bring forth a revenue measure for the June 2014 ballot, recognizing that February 11 is the last possible date that council can act.

Staff explains, “Under Proposition 218, general taxes, such as a sales tax, must be placed on the same ballot that council members are elected in the absence of an emergency. Therefore, a general sales tax would need to be placed on the June 2014 ballot, or wait until June 2016, unless there is an emergency.”

As we have previously noted, an emergency is a real emergency, a fiscal emergency, a declaration just short of bankruptcy, and the city attorney has already stated Davis would not qualify.

“There is general agreement that the City needs new revenue,” staff writes noting that they aimed at middle of the road revenue and expenditure projections.

Staff writes, “Sales tax growth was robust. However, we cannot continue to assume last year’s high growth rate will continue. Recent returns show that Sales Tax is down 1.3 percent from the same quarter last year.”

Staff adds, “In updating the fiscal model, the property turnover rates were examined and Davis has a 3-4 percent turnover rate, while it tends to be 7 percent or higher in the rest of the State, meaning that a greater than average number of local properties are generating property taxes at a lower rate. The City is seeing a $300,000 increase in property tax in the residual pass-through which was factored into the December estimate.”

On the expenditure side, while the city has achieved savings through the new MOUs and reorganization, staff argues, “There are other costs which are uncertain or unknown at this time. The City has been cutting positions for six years and there is less available salary savings. Also, what the City will pay for water is unclear because the budget charges were based on estimates and this year has been extremely dry. Other unbudgeted costs like expenses from negotiations are taking longer than expected have to be covered.”

All of this leads to the $5.1 million structural deficit which consists of an additional $2.5 million for infrastructure, “$360,000 for negotiated wage increase which resulted in employees picking up more of their costs and restructuring retiree medical benefits, removing a $447,000 salary savings factor and restoring a budget cut of $250,000 in Police. In addition there is approximately $1.2 million in various benefit costs largely outside of the City’s control.”

The city notes that these costs would have been higher without the current MOU, and they believe over the course of the contract the city will save $5.2 million.

Dan Wolk and Brett Lee convened the Focus Group, made up of 14 community members which met twice “and recommended a ¾ cent increase in Sales Tax and up to $150 in a Parcel Tax for a period of up to 10 years as part of a larger overall financial strategy to include targeted economic development activities.”

The Focus Group reasoned “that extended time frame will allow economic development efforts to take root and assumes that the City will continue to make spending reductions.”

However, several members of council, including Rochelle Swanson in her interview with the Vanguard, expressed concern about the ten-year time horizon.

There have also been some, including the Vanguard, that have questioned the feasibility of putting both tax measures on the ballot this year.

The sales tax seems most urgent in terms of the council’s limited ability to put a simple majority vote on the ballot.  Staff calculates that every 1/8 cent sales tax will add about $902,500 to the city’s revenue.  The full three-quarters cent sales tax would generate about $5.4 million, enough to cover the structural deficit.

The city has more options and flexibility with the parcel tax.  The parks tax currently raises about $1,359,995, which covers only 20 percent of the parks’ $6.8 million operating budget. The current general fund subsidy to the parks budget is about $4.2 million.

At the time the last $49 parks parcel tax was put on the ballot, we knew that was insufficient to cover the parks infrastructure costs which, along with roads, are the two largest of the deferred maintenance categories.

Writes staff, “A parcel tax could be targeted to address infrastructure needs such as recreation amenity needs like repairs and/or enhancements to existing pools, purchase of Nugget Fields from the Davis Joint Unified School District, etc.; money-saving irrigation expenditures in the parks, road and bike path maintenance and rehabilitation and other potential enhancements to the community.”

They add, “A Parcel tax may be used for different expenditures such as infrastructure and will bring in approximately the same amount of revenue as the Parks Tax.”

Finally, staff notes that instead, the city could propose a General Obligation Bond that would address the same capital needs.  They write, “A General Obligation Bond requires a 2/3rd’s vote of the voters. A general obligation bond would be secured by an additional ad valorem property tax, which is usually structured as X cents per hundred dollars. However, the types of expenditures allowed with this type of financing are more limited, and maintenance costs would not be able to be funded via a general obligation bond. Road repair and reconstruction would be permitted under a general obligation bond. In addition, the tax would have to be imposed for the complete length of the bond repayment period, generally between 20 and 30 years.”

Finally, city staff addresses the advisory measure which “may be placed on the ballot that seek the voters’ input on how the general revenue raised by a general sales tax should be used by the City. Advisory measures are not binding. Under the California Constitution, general taxes raise revenue that goes into the general fund for general governmental purposes and are approved by majority vote. If a tax measure mandates that the revenue be used for a specific or special purpose, the tax becomes a special tax and requires a 2/3rd’s vote of the voters. Therefore, if there is a desire to seek the guidance of the community on how to use a general tax, the guidance must be in the form on a non-binding advisory measure.”

Alternatives

There has been some considerable pushback in the last two weeks.

Chamber Executive Director Kemble Pope cited a survey of chamber members with more than half having no idea about this public shortfall and another 15 percent were only somewhat aware.  Only 14% wanted no further reductions in city services.

“People are willing to feel the pain,” he said, at least referring to chamber members.  “A good sixty percent said cut expenditures, keep cutting, we’re willing to give up services.  We’re willing to give up programs.  I don’t think that you understand truly the desire for the public to actually feel a little more heat rather than take on more and more debt for a bunch of goodies that people don’t think we actually need.”

He said to deal with the structural deficit and short term needs, “but this is, I don’t think, going to fly with the community.”

Elsewhere we have pointed out the flaws of Mr. Pope’s survey which seems leading at best, and suggestive, if not outright directive, at worst.

The problem, as Brett Lee would quickly point out, is that there is no context for the respondents.

He then responded to Kemble Pope and suggested that, of course, the city should try to save money.  He then said, “Perhaps next time you do a survey maybe we can ask some specifics.  So when faced with a sizable deficit like the one we’re facing, perhaps you can ask your members if they would support closing a fire station and having a corresponding higher response time for various neighborhoods.”

“That’s the type of thing that would be required in order to bridge this deficit,” he continued.  “Or perhaps they would be willing to close all of the parks to stop all maintenance on them, close all the pools, and all recreation programs and see what the percentages are.”

“I think I could stand in front of the Safeway and ask people if they want a more efficient city government, I think I’d be surprised if I got many noes,” he added.  “I think on the other hand if I asked people if they were willing to pay more to maintain the current level of city services, such as fire and police, I think they would be supportive.”

The Enterprise last Sunday also pushed back, arguing, “Before the residents of Davis are asked to raise their taxes in order to stave off a catastrophe, the city should consider all options to stem the growth of employee compensation.”

“If Davis does not consider more affordable ways to provide services, but instead raises taxes on all of us to avert a calamity, it will be asking a lot of residents who don’t have such luxurious pensions or gold-plated medical plans to get by with less. Is that fair?” the Enterprise asks.

But so far, no one has proposed a way to get to $5.1 million in savings without new taxes, and though the city waited until the last possible moment, that moment is now upon us.

—David M. Greenwald reporting

  NorCal Homes Team  Serving All of Your Davis  - El Macero - Woodland Real Estate Needs

About David Greenwald

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

44 comments

  1. A .75% hike in sales tax will make Davis the highest of nearby cities, add to that the coming surprise when visiting shoppers find they have to pay for a plastic bag and likely have to pay to park.

    • So you are arguing the people are going to go out of town to purchase products because of a 0.25% difference in the sales tax? And by the way plastic bags are going statewide.

      • I’m saying ‘visiting shoppers’ from out of town who don’t know Davis policies until it smacks them in the face in way of paying a higher tax, paying for a plastic bag and paying for parking might just go elsewhere.

        • The tax isn’t going to be sufficiently higher that anyone is going to notice, most surrounding towns have higher taxes than Davis currently and if Davis enacts this the tax would be 8.75 compared to 8.5 for most surrounding communities. So that is not going to be a huge impact.

          California is going towards a statewide system like Davis has on plastic bags. And paying for parking occurs in many places, and you can avoid paying for parking by parking in the garage and walking. Right now the lack of available parking is likely to have a far greater impact.

        • G.I. you are a “visiting shopper” in other communities. Do you know what the sales tax rate is for any of those communities? The vast majority of people never check the sales tax amount when they pay a bill. They check the items on the bill. The check the tip amount, but rarely the sales tax. It is simply background noise in their daily activities.

          Unfortunately for people with limited incomes, the sum total of all the sales tax they pay on their collective purchases does add up.

      • They already do anyway.

    • G.I., as paid parking is currently being envisioned, shoppers will continue to park for free because they will get a parking rebate on their purchase. Their cash flow will change, but their net monetary outlay will continue to be $0.00.

      Similarly, the businesses that sell products and services to those shoppers, and give rebates when presented with a shopping receipt will see their cash flow change, but their net monetary outlay will also continue to be $0.00 because they will be reimbursed for the rebates from the money collected by the parking meters.

      • Matt, this is the kind of thinking that gets us into holes.

        You place no value on people’s time.

        Nobody wants to fiddle with receipts and vouchers and reimbursements. In some ways this is worse than simply charging for parking.

        I will avoid shopping downtown if this is implemented, and I’m sure many others will also do so.

        There are simple solutions for parking problems, such as more 30 minute and 1 hour spots, that do not involve creating extra paperwork and will not irritate shoppers and visitors.

        Why d we keep shooting ourselves in the foot?

        • J.R. what proportion of downtown parking spaces are currently used by shoppers and visitors? I bet it is less than half. The other half are used by employees of the businesses themselves. If 30 minute spaces were vigorously enforced by the City and parking tickets were expensive, then the problem would solve itself, but I daresay that everyone who got a ticket for being in their space for 35 minutes would be much happier to have a slightly more time consuming solution that helps them avoid an expensive parking ticket.

          How much time do you think that solution would consume in a typical shopper/visitor’s trip downtown? I use the parking machines in Sacramento and the typical amount of time it takes me to get my sticker for my car window is less than two minutes. Is two minutes of your time that valuable to you? The amount of time the rebate process in the store would take is zero. You hand the cashier your parking receipt when they ring you out and voila’ the amount they charge on your VISA card is reduced. No muss, no fuss.

        • Matt, this is the kind of thinking that gets us into holes. You place no value on people’s time.

          J.R., I brought up your concern about time in a meeting I was in today and every single person in the meeting (almost 20 in total) vehemently agreed that the amount of time currently wasted circling the downtown blocks looking for a parking space will exceed the amount of time it takes to insert the coins (or credit card) in the parking kiosk machine.

          Some of those 20 people said the driving around time saved would be at least 10 times as much as the time spent paying. When I responded to you initially I hadn’t thought as holistically as those people were thinking. What are your thoughts about that aspect of valuing time?

      • Matt -
        Envisioned by whom? Every conversatiion I have heard is that the purpose of paid parking would be to generate an income stream to pay for the equipment required with anything leftover used to finance a new parking structure. If not, what is the plan to pay for the new structure?

        • I’m unaware of any proposal in the parking task force report about merchants providing rebates for parking. Maybe i didn’t read it carefully enough. I doubt it could be mandatory and I’d expect participation by merchants would be very low, for a number of reasons.

          I also think any proposal for a new parking structure is basically dead due to lack of funding at this point.

        • Doby, envisioned by some (but not all) of the people who I have been in conversations with when teasing out how the concepts of “The True Cost of Free Parking.” might apply to the Davis parking milieu.

          You asked the question for a reason. Can you elaborate on that reason?

  2. “Sales tax growth was robust. However, we cannot continue to assume last year’s high growth rate will continue. Recent returns show that Sales Tax is down 1.3 percent from the same quarter last year.”

    It’s really frustrating to have them repeat this single data point without releasing the full data trend. As we’ve asked again and again.

    I’m beginning to think staff doesn’t want to release sales tax data, in spite of their promises.

    It’s hard to make an informed decision when you don’t have information.

    • They told me they were going to release what you asked for – I suspect things have gotten a bit bogged down in the last week.

    • Don what information is in the sales tax data? I’m assuming it’s just what store generated in sales tax? You alluded once that some of this data may be confidential, I’m confused about why? I’m still unclear about why people have to ask for this info, instead of it just being made publicly available on the city’s website.

      • As it was explained to me, years ago, making sales tax revenue from Business A available, can give their competitor, B, information where B could undercut A. Hence, confidential. If you are not a public employee (where the income, benefits, etc. are on-line), do you want all your income, taxes paid, etc. on-line for everyone to see? If yes, I think you lack situational awareness.

        • I lack lots of awareness, situational or otherwise, which may be apparent in my next question.

          Couldn’t they release the numbers with out naming the stores.

          • Perhaps I misunderstood.. if so I deeply apologize… are you looking for sales tax by business type? In agregate? What sales tax info do you seek that is not provided? If individual businesses are not named, or readily identified, I support your desire for more information.

          • Sales and use tax revenue totals over time, plus broken down into the different categories that the BoE has codes for. They can’t give individual business info, nor would I or anyone have a valid interest in that. And during specific conversations recently on the Vanguard we asked about the percentage of sales tax that is from auto sales, which I had also asked for in 2010 and 2012. For some reason in city reports that is usually lumped in with another category (building materials, if I recall). So we don’t really know what percentage auto sales provide.

            As has been noted, sales tax from auto sales go to the residence city of the buyer. But presumably the BoE has the actual data as to how much sales tax from auto sales goes to 95616, 95618, etc.

            We know the city staff is projecting 2% revenue increase in sales tax, and that the state budget office is projecting 5%+. What we don’t know is the extent to which city revenues from sales tax have been tracking along with the state’s economic recovery. A single data point about one quarter being lower is not useful. The history of the sales tax trend is what the council and the voters need in assessing what future needs will be.

      • The Board of Equalization reports to the city by category and by entity. They can’t release the information about particular businesses, so someone on the staff would have to separate that out from the BOE report. The useful information would be the total numbers, the trend, and the aggregate totals by category.

        • Again my lack of awareness may shine through when I ask this question, but isn’t this the type of thing an excel spreadsheet could do in seconds?

          • I don’t think the problem is how long it would take to provide the information. Yes, some data entry and a spreadsheet would be simplest. I think the problem is staff actually getting around to it. I just hope the council members have access to the sales tax totals. They need to know what the trend and projections are in order to assess how big a sales tax increase would be appropriate.
            My advice would be to go for the lowest amount possible, for the shortest duration possible. Such as a 0.5% increase for 3 – 4 years. That would give the voters a chance to see if the other parts of the fiscal strategy actually get implemented, and to see how the actual revenue streams go.

          • Listen, if you want this type of thing then stop pushing the city to chase environmental rainbows and other feel-good policy issues while Rome is burning. There is a resource capacity for getting things done.

  3. “Writes staff, “A parcel tax could be targeted to address infrastructure needs such as recreation amenity needs like repairs and/or enhancements to existing pools, purchase of Nugget Fields from the Davis Joint Unified School District”

    Correct me if I’m wrong but couldn’t the city have set up Nugget Fields to go to the city instead of DJUSD? All along I’ve heard that site was never big enough for a school anyway. To me using a parcel tax to now in part pay for Nugget Fields seems like another de facto school parcel tax.

    • hpierce alluded to some sort of deal, i assume he knows what he’s talking about.

    • Yes, it could have been set up differently, but the school district wanted to use state laws and the City’s leverage to acquire an asset, which they knew they would never use, and then sell the property to a developer for a nice “payday”. The City played along. If the City acquires the site, rest assured that DJUSD will value the property as if it was zoned single family residential, the City will pay it (after all, it’s for the children), and there will be a de facto parcel tax that infuses a bunch of money into the DJUSD coffers (big raises or bonuses all around?), and the district can say that they did not ‘impose’ any parcel taxes. Brilliant, but then again they are in the knowledge business.

      • Why would the City want to own Nugget Fields rather than have the DJUSD own it?

        • Because the District could sell it to a developer, and the City would need to ‘backfill’ the field area need elsewhere, and develop a field anew. It’s all about money, Matt.

          • Shouldn’t have said “may” sell it… should have said “intends to sell it” @ maximum value (one the real estate market is at, or near, a peak.

          • The only difference hpierce is it will be you and I paying for it not some developer. Why couldn’t DJUSD lease it back to the city for say $1/year (another poster came up with this idea) to show good faith to the city and its citizens who have repeatedly bailed them out?

          • They could… the question is will they. I know not the answer to that question, but suspect they will leverage their asset for all they can.

      • An excellent example of how the school board and city council work together (or work against each other) to the ultimate disadvantage of taxpayers. This is not the only piece of public property squeezed from developers (and, of course, paid for by the original housing buyers) now being considered for resale for purposes other than originally stated.

        School board and city council members thing they’re just so sly they can outwit developers, but I suspect developers are one step ahead at every point.

        What zoning did the city put on the “school site” also known at Nugget Field? How could the district claim a subdivision price? Are they just trying to get even for the city screaming about the way King High encroached onto city property after it was constructed?

        Why, oh why, doesn’t both bodies’ work reflect a spirit of cooperative planning and trust?

        • Believe the zoning was/is “public/quasipublic”… as was the Grande site before the City was requested to rezone, which the City did.

          • Why would the city agree to change the Nugget Field zoning in order to have the greedy school district outrageously maximize the amount Davis taxpayers have to pay to maintain it in “public/quasipublic” use?

            Does the city council really think that voters would welcome a parcel tax justified by such Wall Street Banker-type, phony paper shenanigans? And, maybe the school district could get our money in a more transparent way, like seeking another parcel tax for their legitimate needs.

          • Politics, including the argument that it’s for the kids. They did it before on the Grande site.

        • History… the cooperation has pretty much been one way, almost always in favor of DJUSD.

    • Clarification, the District required the ‘minimum’ “required” acreage. The Grande site was the one that was adequate when it was acquired, but became inadequate when the site standards were ratcheded up. Perhaps that nuance is why there may be confusion/misperception.

  4. Matt -
    Most certainly I do have your answers, but I am intrigued by Shoup’s analysis. In all of his research, he acknowledges a nexus between different classes of downtown uses and their corresponding impacts on automobile parking demand factors – generally citing as his reference the standards as established by the Institute for Transportation Engineers.

    In other words, even Shoup seems to acknowledge that different types of business produce differential demands on downtown parking infrastructure?

    When a community undergoes a significant change in the composition of its demand profile – as has Downtown Davis – over the past decade, with a proliferation of new business uses, specifically the 50,000 SF+ in expansion of Downtown restaurant/bar, with parking demand factors 4 to 5 times higher than the uses they replaced – who should on the hook to furnish the additional required parking infrastructure

    • Hopefully everybody appreciated my humble reply to Matt’s query. That should have been “don’t have the answers”. But I am willing to ask the question that nobody seems inclined to explore.

      • I imagine most people aren’t aware of the parking fees downtown businesses already pay, nor how that money is used. Are you thinking the city should explore other forms of revenue to provide parking?

        • Don,
          Just over the past decade we have “overdrafted” parking capacity by 500-600 spaces through repurposing of uses (think office/retail to restaurant) with no plan for corresponding increase in parking capacity/infrastructure.

        • Don,
          As regards annual, employee parking X & D permits – there is a very mixed record of employer participation. There is relatively small number of employers who regularly purchase permits in numbers commensurate with their actual staffing levels. This would be an interesting report to post up on the city website. Some of the most conscientous employers seem to be the national chains who seem to recognize the impact of their footprint on the local parking infrastructure.

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