Are City Budget Assumptions Too Optimistic?

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citycatThis week begins the long process of looking at the city budget where the City Council along with City Staff must deal with the short-term budget deficit and hopefully deal with the longer term structural issues dealing with employee compensation.

This article will simply look at the overview presented this week and wonder whether the numbers presented here are simply too optimistic.  Part of these figures are based on projected outcomes from negotiations with the bargaining units.  That process is ongoing and does not figure to be resolved prior to the budget’s passage on June 23, 2009.

The All Funds Proposed Budget for FY2009/1 0 totals $1 2 1,567,568 representing a decrease of $ 11.9 million (8.9%) from the FY2008/09 Adopted Budget. This reflects a reduction of roughly $10 million in capital improvement project funding support as well as $3.9 million in budget-balancing measures across all funds.

The Proposed General Fund budget for FY2008/ 10 is $36,95 1,064 reflecting a decrease of $3.2 million (8.0%) over the FY2008/09 Adopted General Fund Budget, reflecting $3 .7 million in General Fund budget-balancing measures as well as the inclusion in the current-year allocation of $442,000 in one-time funding in support of capital improvement and other priority projects. The proposed budget includes expenditure reductions across most all program areas, with resulting service-level reductions, and detrimental impacts on the City’S ability to advance many of the City Council’ goals and objectives for the coming year.

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The key question is where do the reductions come from?

The basic answer is to that question is that it comes from a number of different places including some cost-savings measures, personnel cost reductions, program and service reductions, and a small amount in some increased revenue items.

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We will briefly run through each of these.

The city is hoping to gain $30,000 by taking an audit of unlicensed businesses to enforce compliance with the city’s Business License Tax Ordinance.

“Based on the experience of similar audits in comparable cities, staff estimates that as much as $60,000 in uncollected Business License Tax could be realized. Staff recommends including approximately 50% of the potential incremental revenue in the revenue estimates for the FY2009/10 budget.”

The city hopes to get $255,000 for two police officers through a community-oriented police hiring grant.

“The City has applied for Federal Stimulus grant funding through the Department of Justice’s Community-Oriented Police (COPS) Hiring Grant to fund two Police Officer positions otherwise proposed for deletion as part of the FY2009/ 10 budget-balancing plan. Funding through this grant will be awarded to law enforcement jurisdictions based on a competitive process, with grant awards expected in late September. The City of Davis would only be eligible for a grant award under the criteria of retaining sworn officer positions otherwise subject to budget reductions. If successful, the City would receive 100% funding (no local match) for three years for up to two Police Officer positions.”

It’s also hoping for another law enforcement grant that would net around $25,000.

One of the major criticisms leveled toward the city is the use of overtime, particularly by the fire department.  The city is hoping to realize around $150,000 in savings on overtime.

They project that they can save around $100,000 in overtime for fire and $50,000 for police.

“This level of overtime reduction reflects successful efforts to reduce overtime in the current fiscal year. Additional savings may be realized through implementation of recommendations from a recent audit of FLSA overtime and management of vacation scheduling.”

This brings up a lot of issues as to why this has not been looked into earlier as a means of reducing ongoing costs.  In particular, we have questioned the use of overtime as it revolves around community-based activities for the fire department.  During a records request last fall, it was made clear that the city attempts to not pay out overtime for such activities, however, what happens is that those activities may bump employees into overtime down the line.

The city also seeks to save about $626K through a number of consolidations and reductions of city departments.  Most of this appears to be done through holding open or deleting vacant positions in the various departments.

From our perspective one of the more interesting projections is roughly $850,000 in savings based on new labor contracts with employee bargaining groups.

The City is in negotiations with several employee bargaining groups on successor labor contracts to agreements that expire June 30, 2009. The City Council hopes to achieve savings-relative to the assumptions currently in the budget forecast – as a result of these negotiations. While it is premature to predict both the extent of any potential savings, as well as the timeframe within which agreements on labor MOU’s will be reached, staff would propose including a place-holder estimate of potential personnel cost savings in the FY2009/10 proposed budget.

However, in so doing, it is also recommended that a specific contingency plan, representing equivalent cost savings, be identified for implementation if agreements are not reached, or savings not realized, within a specified timeframe.

One of the contingencies is that the city is looking for an agreement from employee bargaining groups to implement a time-limited mandatory furlough.

The City is seeking agreement from its employee bargaining groups to implement a time-limited mandatory furlough for possible implementation, effective July 1,2009, with the goal of yielding personnel cost savings from July 1st through implementation of new labor contracts.  The level of savings proposed in this category could be realized via a mandatory city-wide furlough of 10 days per year.

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The upside of the furlough as one can see is that it implements a decent amount of cost-savings to the city.  The downside is that it does nothing to restructure contracts longer term and thus only deals with the immediate cashflow/ budget deficit.

The city also proposes about $1.5 million in program and service reductions.

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While this looks to close the immediate budget deficit, one of the key questions rests on the out year budget assumptions.

First, Paul Navazio calls this his “conservative” revenue assumption, but notice that it estimates only a single year of declining revenues for the city.  Is that realistic let alone conservative?

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Even with those relatively non-conservative revenue assumptions, he is forecasting a deficit due to rising expenditures.

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So he presents an even more conservative revenue projection and reflects personnel costs through existing labor contracts only.

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The problem as he admits is that those numbers are based on personnel costs through existing labor contracts only.  So basically these assumptions suggest what happens only if we hold salaries and compensation stable for four additional years.  As Navazio himself admits, this is a problematic assumption that will likely be corrected or adjusted in a future forecast model.

The assumption that revenues are going to grow in the out years seems equally optimistic at this point.  We still do not know what is going to happen with the economy, particularly with the state being in the condition that it is.

The bottom line here is that we can quibble over some of the details as to how to balance the budget short-term, there remains a good deal of concern that longer term issues are not being addressed and that a pretty bleak budget forecast over five years is actually pretty optimistic.

—David M. Greenwald reporting

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About The Author

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.

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17 thoughts on “Are City Budget Assumptions Too Optimistic?”

  1. Mike Hart

    They would be wise to flat-line revenue projections for the forecast into the future after taking a reduction in this year, any increases are no more than playing with excel. They MUST redo their employee contracts… Rich Rifkin should re-post his proposed cost savings.

  2. Anon

    This is typical of the City. Put their collective heads in the sand, don’t deal with real issues, and hope for the best. Well, with the state budget deficit looming/worsening, Paul Navazio had better pull his head out of the sand, look around as to what is really going on, and be more realistic in his projections. If he refuses to get real now, it will be more difficult to get real later on.

  3. SODAIte

    These seem like short term band aids which can be taken off later to go back to business as usual. As was discussed at the Vanguard Budget Panel, REAL CHANGES in how we do things is what we need, not mere decreases in staff, furloughs, etc. Any chance for that to happen this time around?

  4. Rich Rifkin

    David,

    I notice on the Tier 1 cuts they still list the ombudsman position. I was told (second hand) that this is no longer the plan. Do you know which way the wind is blowing on that?

  5. Rich Rifkin

    Martin,

    Per your request:[quote]1. All city employees have to start paying the employee share of their pensions. It makes no sense to charge taxpayers with this $1.7 million annual bill;

    2. Any increase in the pension rates charged by CalPERS in future years must be offset by equal reductions in employee salaries and benefits. That sounds adamantine, but the only alternative will be to fire scores of needed employees;

    3. For the next four years, there can be no salary increases for any city employees. From 2005-09, the council inflated city salaries far beyond the CPI. A wage freeze will help to bring us back to sustainability;

    4. All employees who received pay raises greater than 25 percent over the last four years need to have their base salaries decreased at least 8 percent beginning July 1. Firefighters, for example, got a 36 percent salary hike in their last contract;

    5. For all new hires, the PERS pension formulas must be reduced to sustainable amounts. That means no more than 2.5 percent at 55 for police and fire. For everyone else the new formula should be no greater than 2 percent at 60;

    6. The city of Davis can no longer pay for the cost of medical, dental and vision care for retirees under age 65. If someone who is healthy chooses to retire young, he can pay for himself until he qualifies for Medicare;

    7. We need to stop paying overtime to all employees who are managers and supervisors. The city of Davis gave one police sergeant $50,000 in overtime last year; we handed a fire captain $37,000 for his. High-paid managerial positions like police sergeant and lieutenant, fire captain and division chief, public works supervisor and parks supervisor need to be treated accordingly. They should not be costing us $1 million extra in overtime – yet they are;

    8. Davis needs to cap the number of paid holidays at 5 per year per employee. We currently grant every employee the day off for at least 12 holidays every year – in some cases it’s 14.5. The great expense in this is not shutting down offices; it’s paying those who work Presidents’ Day and December 24 and January 15 double-time;

    9. We need to get rid of all union bank hours. These are hours the city shockingly pays employees to not work for the city but to conduct the business of their unions, including taking trips out of town. How in the hell are union bank hours in the interest of the taxpayers?;

    10. We need to stop basing pay and benefits packages on what other cities give out. While a survey sounds benign, the result is deadly. One irresponsible agency raises its pension formula, and every other city in the survey is compelled to follow suit. That is why so many cities in California are facing bankruptcy. The relevant question is not how much Fairfield is paying its people. The question is how much can Davis afford?
    [/quote]

  6. Reader

    Mr. Rifkin espouses that some employees retiring in near future, after 35 years of service, have no city-paid medical benefit – ever…. oh, but he’ll say, “no I just said no medical insurance until they qualify for Medicare”. Fact is, there is a significant number of current city employees who will not qualify for Medicare. Interesting for those employees… they’ll need to start saving money for retiree medical while they have frozen salaries, an 8% reduction in effective current salary, plus whatever reductions there will be due to PERS investment results not covering the percentage of the employers share of retirement (which retirement benefit, following Mr. Rifkin’s advice will be 17% lower than what they would currently get, assuming they started with the City at age 25 and retiring at 60).

    Are we sure this goes far enough?

    Perhaps we should go back to Social Security, dump the PERS. At least that way ALL employees could have some sort of medical benefit in retirement. Currently only those hired after ~1986 are covered.

  7. rick entrikin

    I’ve often disagreed with Rich Rifkin, but think he is right on target regarding the City’s budget mess. Be ever-vigilant, though, because even as we discuss the overall budget, the City’s foxes (who constantly and unjustifiably increase our city utility bills to fill the coffers) are “guarding” the hen-house. (As a famous, local columnist might write, “trust me on this.” If you have doubts, just take a close look at your current City utility compared to the past five years. Inflation? CPI? I don’t think so).

  8. Rich Rifkin

    [quote]Mr. Rifkin espouses that some employees retiring in near future, after 35 years of service, have no city-paid medical benefit – ever…[/quote]Bobby, you have the right to your own idiosyncratic opinions. You don’t have the right to your own idiosyncratic facts.

    I have NEVER espoused, said, written, implied, thought or otherwise communicated that “some (City of Davis) employees retiring in near future, after 35 years of service, (should) have no city-paid medical benefit – ever.” For you to say that is sad, because it implies you are incapable of either reading common English or making an honest argument. It also implies that you think everyone reading this blog is stupid, because they can read exactly what I posted (per Martin’s request) above:[quote]6. The city of Davis can no longer pay for the cost of medical, dental and vision care for retirees [u]under age 65[/u]. If someone who is healthy chooses to retire young, he can pay for himself until he qualifies for Medicare;[/quote]Assuming that you do have trouble understanding English and that you are not as dishonest or stupid as you appear to be, Bobby, I will explain this further. If a City of Davis employee retires before reaching retirement age (65) and is not retiring due to a medical problem, that person should not expect the taxpayers to pay for his medical insurance until he reaches age 65. However, once he is 65 or older, the taxpayers of Davis would pay his full benefit for medical, dental, vision and spousal coverage until he dies, which in many cases will be 30 or more years. To any fair minded person, what I propose is very, very generous. [quote]oh, but he’ll say, “no I just said no medical insurance until they qualify for Medicare”. Fact is, there is a significant number of current city employees who will not qualify for Medicare.[/quote]Every City of Davis retiree age 65 or older qualifies for Medicare, AFAIK. However, this is a completely irrelevant point. The real question is [i]when should the taxpayers begin paying for this benefit[/i] for retirees? My answer is age 65. If someone who is healthy retires young, he will have to fund his own insurance (with his six-figure pension income) for a few years, until he reaches age 65 and the (lower income) taxpayers take over his expense.[quote]Interesting for those employees… they’ll need to start saving money for retiree medical while they have frozen salaries[b](1)[/b], an 8% reduction in effective current salary[b](2)[/b], plus whatever reductions there will be due to PERS investment results not covering the percentage of the employer’s share of retirement (which retirement benefit, following Mr. Rifkin’s advice will be 17% lower than what they would currently get, assuming they started with the City at age 25 and retiring at 60).[b](3)[/b][/quote](1) If they want to retire early, then, yes, they should start saving, just like all working people in the private sector need to save for retirement. Keep in mind that those who are retiring young are in many cases retiring with a pension paying them 2-3 times as much as the average [i]working[/i] person person makes in this country. The highest paid teachers with advanced degrees in the DJUSD make [i]far less[/i] per year in salary than the pension that a Davis Fire Captain will retire with. That’s how generous those pensions are now.

    (2)The only people I have recommended an 8 percent salary reduction for are those who got a pay increase greater than 3 times this percentage over the last four years. Even if their pay is cut by this amount, in CPI terms they will have had over the 8 year period, 2005-2013, a pay increase at twice the rate of inflation (est. at 3.5% per annum for 2009-2013). [i]How many City of Davis employees not in our Fire Department received a pay increase greater than 25 percent over the last four years?[/i] None. However, [b]the firefighter got a 36% increase in salary!!![/b] It sure pays to fund city council campaigns, Bobby.

    (3) What is the better alternative? If we don’t start asking non-safety employees to pay their employee share of their pensions — which is what the majority of local government non-safety employees in our state must do — then we will end up having to lay off dozens of needed employees who will lose 100% of their incomes. That, to my mind, is a far worse alternative, Bobby.

  9. Reader

    El Wrongo, Mr. Rifkin

    1. I ain’t Bobby, nor am I a Firefighter.
    2. You said, “The city of Davis can no longer pay for the cost of medical, dental and vision care for retirees under age 65.” The City, years ago, left Social Security AND Medicare. ~ 1986, employees hired later paid Medicare Taxes and are covered. Pre-1986 employees were NOT grandfathered in. You said, “… because it implies you are incapable of either reading common English or making an honest argument.” My honest argument is that, when you say “If someone who is healthy chooses to retire young, he can pay for himself until he qualifies for Medicare…” , following the plain meaning (common english?) of your words, if a pre-1986 retires from the City, at age 60, after working 35 years for the city, the city would never pay one cent toward retiree medical, as that employee never qualifies for Medicare. Am I missing something?
    3.”Every City of Davis retiree age 65 or older qualifies for Medicare, AFAIK.” AFAIK? You are wrong (see 2, above) but why should facts get in the way of a good spiel, right?
    4.”The only people I have recommended an 8 percent salary reduction for are those who got a pay increase greater than 3 times this percentage over the last four years.” I wrote: an 8% reduction in [u]effective[/u] current salary. If, as you propose, non-safety employees pay 100% of the employee contribution, that amounts to 8% of salary that will come out of the paycheck. That “common english” is pesky isn’t it. Or, were you unaware that 8% was the contribution rate for non-safety employees (another AFAIK issue?).

    Since I ain’t Bobby, nor a public safety employee, (AFAYK, I may not even be a city or public employee) I believe you may owe Mr. Weist an apology for some of your venom. Save some of it for us non-safety, non-public, whatever employees.

  10. Rich Rifkin

    And since you don’t work for the City, you must be unaware of the fact that the City of Davis pays the FICA tax for Medicare for its employees. That is why its cost of retiree health benefits is cut in half for retirees over age 65, Bobby. You are just misinformed.

  11. Rich Rifkin

    Since you are so agitated with me, and you are claiming you have some kind of authoritative opinion, why not just tell us who you are, Bobby? Why are you so afraid to use your real name when you attack me, Bobby?

  12. Reader

    I am not attacking you, Mr. Rifkin. I am questioning your “facts” and the “tone” you use when they are at all questioned. The most recent one is “… you must be unaware of the [u]fact[/u] that the City of Davis pays the FICA tax for Medicare for its employees. That is why its cost of retiree health benefits is cut in half for retirees over age 65…”. You’d better check your sources again, and try to find someone knowledgeable. For employees hired by the City of Davis prior to 1986, the City pays NO FICA. A city employee who fits in that category, has worked for public agencies for nearly his entire career (had earned 8 credits prior to that service), shared his most recent Social Security statement with me. The statement says that he would need at least 32 more credits of work [under Social Security] (credits = quarters of year, I think) to qualify for either Social Security or Medicare. It goes on to say “… if you don’t have enough credits when you reach age 65, you may contact Social Security to learn if you are eligible to [u]buy[/u] Medicare coverage.

    I dare you to check with the city’s Finance department (needs to be someone familiar with payroll) and ask “what is the FICA rate paid by the city for pre-1986 employees who have no medicare contribution deducted from their paycheck?” and then post the answer to the discussion. For my part of the dare, if the answer indicates that the city makes contributions (FICA) whereby that employee would be eligible for Medicare, I will share my “identity”. I wouldn’t think it matters tho’ particularly where I am primarily arguing matters of fact.

    Hope you get a hold of this “Bobby” person (you are correct, it was presumptuous of me to think you were referring to Mr. Bobby Weist [sorry, Bobby, if you’re out there, for inadvertently dragging your name into the discussion]) so you might resolve your issues with him/her.

    Again Mr. Rifkin, I have nothing against you. I do have serious issues with incorrect “facts” being used as the community struggles with the economic situation, and come to grips with solutions that will result, I’m sure, in sacrifices. I do not care for some of the “scapegoating” that has postured as “debate”.

    Pacem

  13. Anon

    “Rich Rifkin: Assuming that you do have trouble understanding English and that you are not as dishonest or stupid as you appear to be…”

    Rich: who died and made you Darth Vader? We don’t need personal attacks of this sort. Just stick to arguing w logic rather than name calling. I happen to agree with some of your arguments, but have a hard time reading them at times bc they are loaded w venom.

  14. Anon

    “Rich: who died and made you Darth Vader?
    You did.”

    No, I did not. I am not arrogant enough to think I have that kind of power. My advice to you, kindly meant for everyone’s sake, is to tone down the venom, and argue w logic. You often have a good command of the facts, sometimes not (but we ALL make mistakes – certainly I do, and more often than I would like). Frequently you criticise people who use personal attacks, but are guilty far too often of doing the very same thing. Practice what you preach. Civil discourse if far more productive in the marketplace of ideas. A commenter should want other commenters engaged, not turned off.

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