According to the staff report, the tax currently generates $2.9 million in annual revenues, which represents around 8% of the City’s overall General Fund Revenues.
“As a general purpose tax, a measure to renew this revenue source can only be placed before the voters on a ballot where members of the legislative body are up for election. The upcoming June 2010 ballot presents the only opportunity for the amendment to continue the local sales tax, prior to its scheduled expiration in December 2010.”
The tax was originally proposed as a means to address historical structural budget shortfalls, as well as provide funding for a variety of expanded service demands.
In the argument in favor of Measure P on the ballot the signers that included Lois Wolk Assemblywoman), Helen Thomson (Supervisor) and then Mayor Susie Boyd argued:
“The City faces increasing costs. We will face higher expenditures if we are to provide the additional police protection and meet park and recreation and open space commitments we have made to our citizens.”
“Without Measure P revenue, given the uncertain state support to the General Fund, we would be faced with very deep service cuts in police, fire, and parks.”
What they did not say, is that the money would go largely to increased salaries, particularly for fire who in April 2006, were retroactively givens an annual increase in compensation of 8.46% per year, or 34% over the course of their four year contract.
While the city sold the public that this would pay for additional protection for police, it actually went for increase salaries, and fire got by far the largest increases in salaries. And while it billed it as a way to meet park and recreation commitments, in fact, we had to pass a parks parcel tax just two years later because we had used the entire sum to pay for employee compensation.
Vanguard analysis shows that the city’s expenditures increased nearly 33% over a five year period from 03-04 to 07-08. The sales tax accounted for about 30% of that increase, while the rest of that increase was fueled by the real estate boom.
Property tax revenues from 2003-04 to 2007-08 nearly doubled. Almost all of that increase went to employee compensation which also increased by huge margins.
The key problem that we face now is that with the real estate market tanking, with the fact that the increase in property taxes during this period were unsustainable, in the previous go-round, the council acted inappropriately by increasing employee compensation by as much as they did.
Not only did they increase salaries and benefits which were short-term problems, but they created unfunded liabilities that will sap future budgets that likely will not grow as robustly.
Current Sales Tax Measure
The question that the Davis City Council has to make but also the public has to consider is the current sales tax measure. Measure P in 2004, was used almost exclusively on increased salaries and almost none of it went to greater police protection or parks as advertised. With the salary increases, even with the property tax revenue boom, the city did not vastly increase services during this time, instead it merely paid more for existing services.
It is interesting to note that during good times, the council expanded compensation far more rapidly than it expanded service. However, now that times are lean, as we have seen with the MOU, council is acting quickly to cut services rather than cutback on the salary increasing enjoyed during the roaring 00’s for public employees. To add to the problems, the council is also failing to deal with the longer term structural issues that have now been pushed off to the next council.
The voters are left in a conundrum. They can vote to preserve the tax and reinforce the wastefulness of previous councils and reward the stubbornness of the current council in dealing with the tough issues. Or they can vote to repeal the measure and face another $3 million in service cuts.
It is a tough decision to make. Only Councilmember Lamar Heystek has expressed any desire to oppose the measure. At the December meeting, Councilmember Heystek issued a long statement in opposition to the renewal of the sales tax measure:
Said Mr. Heystek:
“At this moment in time, I’m not currently in favor of the extension of the existing sales tax override if our financial system isn’t fundamentally overhauled. “
He concluded by saying:
“I don’t feel that after this round of negotiations we’ll be at a place where we want to be and making our target. For that reason I don’t feel we can do this at this time.”For me it is difficult to reward fiscal waste and dishonesty. The previous tax bill was clearly billed as a way to expand services and avoid service cuts, instead it helped fuel the largest employee compensation increases we have ever seen. And it was based on a bubble that was inevitably going to burst and no one back then had the foresight to see that.”
In fact, Mr. Heystek was spot on, the current round of bargaining negotiations did little to solve either the long or short-term problems. They will have to do an additional round of service cuts.
Will the market ever return to where it was? Doubtful that we will ever seen an increase in property tax revenue over a five year period like that. Without that type of revenue increase, it is hard to sustain these levels of salaries.
There is a very simple concept that seems missing. During good times we are very quick to increase salaries and benefits. But when bad times hit, we do not contract them very easily, instead we cut services. So we pay more in the long rum for far less.
Those who suggest that failure to pass this measure will result in service cuts are correct, but in the end, it is just too distasteful to reward past short-sightedness and incompetence.
—David M. Greenwald reporting