Examination of Budget Proposals: Proposed Cut to Davis Media Access and Sales Tax Assumptions

citycatThe Numbers Do Not Appear to Add Up For Souza’s Projected Tax Revenue Growth –

Since looking at the entire budget proposals can be rather daunting, today I want to focus on two specific proposals, which in most respects are entirely unrelated.  The Vanguard has joined Councilmember Lamar Heystek in opposing many of the programmatic cuts for the city as embodied in the Tier 1 and Tier 2 reductions.  One of the big cuts in the Tier 1 and 2 reductions is the cutting of 27,000 dollars to Davis Media Access.

For the past year and a half, Vanguard Radio has operated on KDRT 95.7 run by the Davis Media Access.  In addition, Davis Media Access also operates DCTV.  While many do not take advantage of the community based television, we view it as another means by which to inform the community of Davis in a very intimate way via television.  Davis is in many ways a victim of being trapped in the Sacramento media market, there are no Davis-based television stations.  That pales to many other college towns and communities of this size that find themselves less a part of a larger city’s media market.  Growing up in San Luis Obispo, we not only had our own TV station and multiple radio stations, but there were nearby stations from Santa Maria and Santa Barbara that would also cover local news.  That does not occur in Davis very often unless there is a major burning issue.

Sacramento News will travel to Woodland for demonstrations against the killing of Luis Gutierrez, we got TV coverage of the opening of the new DHS Stadium, they covered the Woodburning issue, but the everyday events do not get coverage.  The Vanguard has utilized DCTV to record both our budget townhall meeting and our DJUSD Virtual Townhall Meeting and broadcast it to the community at large.  We have also been part of interviews and other broadcasting of local interest.  Without such a station, the Davis-centered issues and events would not receive coverage.  We would not have our classic election night coverage at DCTV, we would not have broadcast local candidates forums, we would not have little events and talk shows, in short, DCTV has been a huge part of Davis political life and it would be a tragedy if we lost it.

Right now, Councilmembers Lamar Heystek and Don Saylor have proposed we restore full funding and thereby avoid any reductions in City support to Davis Media Access.  Councilmember Souza has proposed restoring the Tier 2 reduction of $17,000, thereby limiting the proposed reduction to Davis Media Access to $10,000.

Andrea Jones is the President of the Davis Media Access Board of Directors.  On Tuesday night she told the council that while $10,000 would cripple the station, $27,000 would render it impossible to operate.

“$10,000, for us, would make a huge difference… With $10,000 we could survive, but it would be a very different looking organization.”

So why do it?  $10,000 is not going to make or break the budget.  It’s in many ways a drop in the bucket.  This is the entire problem I have with tier reduction concept–we are nickel and diming a budget that we need to address with larger structural issues.

And yet, the City Manager continues to recommend the $10,000.

From the staff report:

“The City Manager’s revised budget-balancing plan, as presented as an attachment to the staff report, includes a recommendation to restore $17,000 in FY2009/10 funding to Davis Media Access, and thus retains a $10,000 (Tier 1) reduction in city support for the organization.  This recommendation attempts to balance consideration of both the value that Davis Media Access provides to the community, and the impact that the original reduction of $27,000 would have on the organization with the compelling need to reduce citywide spending and minimize service impacts across all areas of city services and support for community organizations.”

I am opposed to any budget that fails to deal with the larger structural issues and instead attempts to balance the budget by cutting from vital city programs such as DMA or the Ombudsman or seeks to close public access to city services such as the Police Department.  We need to deal with the real issues which are the employee compensation issues.

Examination of Tax Receipts

This is an interesting issue, the issue of tax receipts.  The city received data on June 17, 2009 that fourth quarter tax receipts (February to May) have declined sharply.  They fell 11% from the previous quarter and 19% from last year.

“The city’s year-end sales tax revenues would be at $7,844,000, representing a 14% decline from the prior year, and roughly $356,000 below the already significantly downgraded current-year estimate of $8,200,000. Assuming flat sales tax growth for the upcoming budget-year, this result also increases the City’s projected General Fund deficit for FY2009/10 from $3.16 million to $3.52 million.”

There are three different assumptions for the next budget as to what will happen with tax revenue.  The city assumes zero growth, Councilmember Heystek’s alternative proposal assumes a decline in both sales and property tax revenues, whereas Councilmember Souza assumes a 1 percent growth in sales and property tax revenues in the upcoming year.

From the Davis Enterprise article which interviewed the Councilmember on Friday:

“Souza said he believes the opening of the Target store on Second Street and Forever 21 clothing store at the former Gottschalks location at University Mall, as well as higher auto sales and property tax assessments, will add up to an average 1 percent new revenue growth.”

That sounds good, but I don’t think that’s very realistic assumption by Mr. Souza.  Let’s suppose for the sake of simplicity that we are just talking about a 1% increase in sales tax revenues based on the addition of Second Street and Forever 21 over and above the loss of Gottschalks and over and above the amount that those stores will take away from other revenues in the city.

Last year, we roughly had a $9.1 million sales tax revenue.  This year that is expected to fall by roughly $1.28 million down to $7.8 million.

In order for there to be a roughly $78,000 rise in sales tax, we would actually have to see a pretty dramatic decline in the sales tax losses for the rest of the city.  Target was projected by the city of Davis to produce around $600,000 in sales revenue, but that was during a good economy.  It is not reasonable to expect it to produce $600,000 in this economy.  Moreover, we do not have a full year of Target, as Target opens in October, several months after the beginning of the new fiscal year.

Let’s suppose we assume Target adds about half of that projected $600,000 net benefit which is a pretty liberal assumption given the fact again that there is not a full year of tax revenue and also given the state of the economy.  That would mean the rest of the city would have to lose less than $200,000 in tax revenue from this year.  Could it happen?  Possibly.  But it does not appear likely.

Councilmember Souza also seems to be assuming that Forever 21 will produce a net increase in tax revenue over the departing Gottschalks, that probably does not make a lot of sense either.  It’s probably more likely to break even.

But even if they both produce additional revenue, the rest of the city would have to break even over the next year in terms of tax revenue for it to produce 1% gain.  How likely is that?  Given that the recession is continuing, that California is cutting billions from its budget, that the city of Davis is reliant on state jobs either through the university which will be cutting staff and salaries or through Sacramento which is cutting staff and salaries, I would say it is not likely at all that sales tax in the rest of the city, sans Target and Forever 21 will only lose $200,000–and in fact, it seems more likely that the next fiscal year does at least as bad as this one, if not worse.  The reason for that is that the base for the city in terms of state jobs and university salaries was hardly touched this year, whereas it might be dramatically altered in the coming the coming months.

Thus while Councilmember Souza can say as he did on Friday:

“We base the budget on assumptions – sales tax, property tax or negotiations with our labor groups – and you have to have place holders as you put together your budget,” Souza said in a phone interview Friday. “Only time will tell if our assumptions are correct.”

But he said some assumptions can be reasonably relied upon, such as the confirmed arrival of new stores that are expected to open this fall.

“Forever 21 is coming to Davis, Target is coming to Davis. Those are concrete facts and there are concrete numbers that can be associated with them,” Souza said.”

Right now, I do not think the math is there to support that assumption. 

Councilmember Souza does raise a good point though about the addition of Target.  The question is how much additional revenue will it generate arriving in October.  And how much of that revenue will be offset by losses in sales from other existing stores–particularly if the arrival of Target ends up driving some out of business.

The city’s assumption of break even, would mean we would probably have to lose only about $300,000 which I think is a more reasonable assumption for the net revenue of Target at this time given the economy and the fact that it will not have a full twelve months on the next fiscal year.  Even that may be way too high.

Are we likely to only drop $300,000 in sales tax for the rest of the city next year, about a quarter of what we lost this year?  It’s possible.  It is also possible given our reliance on state jobs, that next year will be worse than this year.

In conclusion, I think the safest assumption even including Target in the analysis is to go with Councilmember Heystek’s assumption of a net loss in tax revenue.

—David M. Greenwald reporting

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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  1. Don Shor

    For Steven’s numbers to add up, sales from Target and Forever 21 would have to compensate for
    — continued decline in auto sales, which is the largest generator of sales tax revenue in Davis;
    — continued decline in retail sales due to the recession;
    — additional loss of sales at retailers that compete with Target’s inventory (9 – 10 different retail sectors).

    In addition, Forever 21, which is teen-oriented, would have to make at least as much money as Gottschalks, which had a broader market demographic.

    All this would have to happen during a time when Davis residents are disproportionately affected by the state budget crisis.
    I don’t know of any predictions that California’s economy is going to turn around in late 2009 or even 2010. The council would be wise to use the most conservative budget projections.

  2. Anonymous

    Don Shor is exactly right. Souza is doing what Souza always does – paints an unrealistically rosy picture for his own personal gain. For instance, remember last election, when Paul Navazio put employee benefits, salaries and road repairs in the “unmet need” category, waved his magic wand, and declared a “balanced budget” – to assist the incumbent campaigns of Souza and Saylor? Wouldn’t want to show a budget deficit on their watch, which Sue Greenwald has been harping on for years.

  3. progressive observer

    DPD states:

    “I am opposed to any budget that fails to deal with the larger structural issues and instead attempts to balance the budget by cutting from vital city programs such as DMA or the Ombudsman or seeks to close public access to city services such as the Police Department. We need to deal with the real issues which are the employee compensation issues.”

    DPD, you have clearly identified the main reason we are in a severe budget crisis: employee compensation issues–beginning with the overly compensated firefighters, their perks and senior management at city hall.

    Not to speicifically address employee compensation issues in a meaningful way as Bill Emelen & Paul Navazio are doing is simply employing “smoke and mirror” tactics and “passing the buck” to future years.

  4. stevem

    For another view on cable-channel spending:

    “Is 470k a year for cable tv too much”


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