Vanguard Commentary: One Tax, Not Two

Vote-stock-slideIn typical Davis city tradition, the city council is up against a deadline tonight – they have to act to put a sales tax measure on the ballot or by state law they would have to wait until June of 2016.  We can quibble that the city should have engaged the public process sooner.  They waited until the last moment to deal with this matter, and anyone who wishes to believe those things will have justification.

The bottom line, though, is that the city is $5.1 million in the hole for 2014-15, and that number will only increase in the coming years.  The city has worked hard to reduce its workforce by 20%, cutting $5.2 million from the budget in the process and another $5.8 million through its last round of MOUs.

The public officials are said to have very little stomach for more cuts and frankly, as we have suggested previously, the public bears responsibility for the fiscal mess just as the public officials and city employees do.  We have asked the city employees to take pay cuts while they have been asked to do more with less compensation, and now it is time for the public to step up to the plate.

For six years the city has balanced its budget through cuts and attrition and this is the first time the city goes before the voters asking for revenue increase.

The sales tax measure would generate around $5.4 million in revenue.  That is enough to cover the structural deficit.  However, the city staff has placed before the council a second proposal for a $130 parcel tax.  While that could go on in November, its timing has been undetermined.

We suggest the city council wait for a little bit on that.  We do not see any real possibility of the parcel tax going on for June – city staff has told council they need more time, and that buys time for the council to look at its options.

A sales tax has a huge advantage over all other options because it requires a simple majority.  Even with pushback from the anti-tax forces and the business community, the city figures to easily pass the sales tax and address the short term structural needs.

Why complicate matters by putting two tax measures on the ballot at the same time – even if they end up on different elections – one in June and one in November?

Recent history suggests it might be difficult to pass a parcel tax.  It requires a 2/3rds vote.  That means just 34% of the voters can block it.  Had the water initiative required a 2/3rds vote, it would have been defeated.

The school district managed to pass all five of its parcel tax measures between 2007 and 2012, but at times it got hairy for them when they requested new money.  Measure C passed by the skin of its teeth in 2011.  The city lacks the built-in PTA support network and it lacks the sympathetic call of “for the children.”

Waiting gives the city additional options.  The Enterprise last week called for the city to look into outsourcing options.  The Chamber survey lists about $2.5 million in potential cuts.  Both of these proposals at this time seem premature and potentially politically hazardous.  We cannot delay on the sales tax measure.

But what if the city passed the sales tax measure and then found $2.5 million in additional cuts that could go into infrastructure like roads and parks?  The city might then be able to pass, instead of a $125 a year parcel tax, another $50 one like the previous parks tax.

Furthermore, waiting until past November could allow the city to see if the public is willing to support a business park.  We expect to see Mace 200 on the ballot for November.  While the expected revenue boost would be further down the line, three to five years at minimum, the commitment showed by both city and public to address revenue issues might give voters additional confidence that things were moving in the right direction.

With all of that in mind, the city, following the November elections, would be able to draft an initiative that it could put on as an all-mail ballot in the Spring of 2015 that could help the city with its broader infrastructure needs.

The advantage of that strategy would be as follows: (1) separation in tax measures, (2) time to study the feasibility of additional cuts, (3) time for the city to get a business parks proposal approved, and then going into a parcel tax election with certainty of needs and a fuller backing of confidence.

But there are still two additional pitfalls that the city has to work out tonight.

First, the city has to make a commitment that tax money goes to fill needs, and does not go to increase the salary and compensation of city employee groups.  We see no problem with the notion that, if the economy improves, employees get a cost of living adjustment.  But what we do not want to see is what happened in 2005, when no sooner had the voters approved a half cent sales tax as an emergency measure when the council turned around and gave it to the firefighters in a massive 36% pay hike from 2005 to 2009.

Second, the city needs to put the water initiative on the ballot.  It is unclear at this point what such an initiative would even do.  The council would likely simply be able to put a new Prop 218 process out with new rates.  But why leave that process hanging a moment longer than necessary?  We believe the initiative, especially in a time of drought, will be soundly defeated, so get it over with and let the voters decide in June.

Bottom line, we urge the council to put the full three-quarters cent tax measure on the ballot for June, an advisory measure that makes it clear what the voters want and do not want, and the water initiative in June, as well.

The council should postpone action on the parcel tax, and deal with finding ways to further streamline city services and allow the voters time to decide on a business park.  The council should revisit the parcel tax issue in November.

—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. Michael Harrington

    Just say NO to new taxes at this time. The City city government is already sucking the life out of our little city with a huge and poorly planned water project. Now we see the budgeting negligence in other program areas.

    Say NO MORE until they make their case.

    A sales tax will end up going to the fire fighters and other VIPs in city government, like back in 2005 when Saylor threw millions at the FF because he needed union support for his political career.

    Road repair ? Use a parcel tax, but not before Nov 2014.

    1. J.R.

      I agree. While this council is not as irresponsible as past councils, they are still not taking the simple actions that need to be taken to get expenditures under control.

    1. Matt Williams

      keith, I met with one of the Council members last night, and he agreed that any analysis going forward should only authorize smaller amounts rather than a big $600,000 one-time authorization. Those smaller amounts would be closely tied to specific milestones that will be check pointed by Council prior to authorizing any funding of the exploration of the next milestone. The results of each milestone would in effect be a go/no-go decision on any further effort.

      The $400,000 amount is not a General Fund expenditure, and does not contribute a penny to the 2014-15 “hole.” it isn’t even in 2014-15 at all.

      1. Mark West

        It doesn’t matter one whit which account the money was paid from Matt. It is money coming out of the public’s pocket one way or another.

        Your justifying this as not ‘general fund’ money just allows the City to perpetuate their ‘hide the ball’ strategy to prevent everyone from knowing how much we are spending and for what. Stop facilitating their shenanigans.

        1. David Greenwald

          “It doesn’t matter one whit which account the money was paid from Matt. It is money coming out of the public’s pocket one way or another. ”

          The reason it matters is not where the money comes from but rather how the money can be used. The bulk of the city’s deficit is in the form of general fund expenditures. So if we pay for something out of the water fund, the enterprise fund, that’s not money that can go to pay salaries and benefits. So yes, you’re correct that it comes from the public, the usage varies.

          1. hpierce

            Excuse me… where do you think the money comes to pay folks in the water and sewer divisions? GF? Wrong!
            In fact, Finance, IS, HR, etc. have routinely “spread” their hours ( by assigning inter-department charges) to the utility funds, disproportionally, to avoid any hits to their operations when GF revenue was weak. Yet when certain departments generated more GF revenue than they expended in a given FY, even if the revenue would be expended for the services that would be performed in the following FY, Finance/CM would take the “cream”, and punish the department in the following year.
            At some point, might be illustrative to compare which departments have taken “hits”, and those that haven’t so much. Yet those who took the most hits were those generating the most revenue.

          2. Mark West

            I understand that David, but the water fund should be used to fund the water system (now in disrepair) and the road fund should go to pay for the roads (and not used to purchase property to give away to the Land Trust).

            Using the money for a purpose other than what it was collected for is dishonest accounting, and unfortunately, par for the course with our opaque City budget.

          3. Mark West

            What is the state of our current water system?

            If we have money in the water account we should be using it to maintain the infrastructure instead of allowing it fall into disrepair as we have been doing the past several years.

          4. Matt Williams

            Actually Mark, in a blue ribbon assessment of the City of Davis water system recently completed by Kennedy Jenks and Brown and Caldwell, the condition of the system was deemed to be significantly above average. The assessment team went out of their way to complement the City on its proactivity … and then made a long list of capital maintenance suggestions that totaled approximately $40 million over 6 years. The most common reason for the capital maintenance suggestions was because of the normal aging of the system.

        2. Matt Williams

          It is money coming out of the public’s pocket one way or another.

          Mark, so is the upwards of $6 million per year that the General Fund and Enterprise Funds will be spending for electrical power in 2013 based on the Cost of Service Analysis calculation of Variable Costs. Why are you willing to advocate for a one-time savings of $600,000 and at the same time turn your back on a recurring annual savings of $600,000?

    2. J.R.

      Raiding the wastewater fund to pay for this study is questionable at best. I would like to see an audit to determine the relation between the people pushing this project and the consultants who are getting one million dollars we can’t afford.

      Is it legal to take money from a wastewater fund to pay for something unrelated to wastewater?

      In the private sector, people go to jail for this kind of thing.

      1. hpierce

        Just a conjecture… city utilities, WWTP, water system, street and pathway lighting, storm drainage lift stations, consume a lot of electricity. I can get the concept of having those utilities funding an initial study, IF those utilities are reimbursed, proportionally, if the concept moves forward.

        That being said, wrong time and wrong concept (for an independent electric utility). I voted to join SMUD, and would be glad to do so again.

          1. hpierce

            And they’d need to take all the risks of the infrastructure… if you includes the costs/risks of the infrastructure, yes.

  2. Ryan Kelly

    In Davis, we are paying a higher rate for our electricity through PG&E than the average PG&E customer. Why be satisfied with this discrepancy, but go after water rates for some perceived unfairness? I know that Mike Harrington has solar panels on his properties. I don’t know how many other people here also have this. Obviously, these people were willing to pay thousands upfront to install these systems for anticipated savings later. We generate funding through the Public Purpose program, which PG&E uses elsewhere outside the community. Meanwhile, we have an aging system with frequent outages.

    Why criticize the Council for wanting to look ahead and find savings where ever it can? Why just say NO…to everything? No innovation / business park, no taxes to replace/repair infrastructure, no possibility of expansion of businesses, no, no, no. It is so tiresome.

    1. iPad Guy

      Please explain why our rates would be calculated differently than their other customers. Also, wouldn’t we be next on PG&e’s list for Public Purpose fund spending if our aging system needs upgrading?

  3. Frankly

    I expect the Council to vote yes on a 3/4-cent sales tax increase, and then it will be up to the voters to decide to accept or reject it come June.

    From now until June, there will be a debate about the tradeoffs. Either we cut more or tax.

    We understand what the tax impact will be… that is easy because we only need to think about our bank balance at the end of the month after paying all of our bills. It is never as high as we would like, and now it will be lower still.

    But the impact from cutting additional services is not really known at this point. First, we don’t know what those services are… and two we cannot easily connect the dots for all the secondary and tertiary impacts. I am willing to live with fewer city services, but I want the opportunity to learn more about the impacts of proposed cuts. Ultimately, if the residents reject additional cuts and vote to tax themselves, then so be it.

    Note that a sales tax increase will not really change buyer habits except maybe for large-ticket items like autos… what it does is reduce the amount of discretionary money in a family’s bank account at the end of the month. And that, combined with the feeling of being poorer, causes a drop in family spending. It is that monthly pizza dinner that goes away. Or that monthly trip to the movie theater. It is the decision that it is not the right time to go buy that new car. A sales tax increase will increase revenue to the city at the expense of these families and the merchants that would otherwise enjoy their business. So, we should not take a 3/4-cent sales tax increase lightly… it will negatively impact people.

    1. SouthofDavis

      Frankly wrote:

      > Note that a sales tax increase will not really change buyer
      > habits except maybe for large-ticket items like autos

      The sales tax rate for autos is based on where the car is registered (not sold). The few people that care about this (and that don’t want to deal with smog checks every two years) have been registering their autos in counties with a lower tax rate (and that don’t make you get a smog check every two years) for decades…

    2. Tia Will

      “We understand what the tax impact will be… that is easy because we only need to think about our bank balance at the end of the month after paying all of our bills. It is never as high as we would like, and now it will be lower still.”

      Yes, we understand that if the taxes are raised, there will be less money in our personal bank balance. But that is only half of the story. That tax money that we are not spending on a pizza, may be being used to purchase something of equal or more worth to us. It may be that this is money that will be used for park upkeep where our children play, or continued availability of a public pool ( my kids both swam competitively), or … your amenity that Davis citizens enjoy. Many times in reading posts, I get the feeling that there are some who somehow feel that money loses its value if it is not located in our own private account. Money on its own has no value. It is only worth the value or enjoyment it provides us whether it is spent on individually or community valued goods and services.

  4. Nancy Price

    The public needs a Finance and Budget 101 course. There aught to be a booklet that explains all the pots of income and how money is segregated into different account and how it can and can not be used; how it can be loaned and borrowed across departments/funds and how sales tax or parcel tax income can or can not be allocated. We need to be able to understand the payroll. We need to be able to understand city services, costs, etc. The public needs to know and the city and the Finance and Budget Commission must take responsibility for informating the public. There must be a full transparent accounting presented to the public. NOW!

    1. iPad Guy

      Good point. I’m so tired of hearing questionable spending justified by the claim that it comes from a certain pot. Wouldn’t it be great to know up front the options for various funds rather than hearing what they cannot be used for when someone has a pet project to promote?

    2. Phil Coleman

      Nancy, you are right, of course. But here’s my take on the “public need” point you raised multiple times. And I’ve been an involved part of the public finance process in multiple cities spanning multiple decades. The consistency in public sentiment towards your notion remains constant. It’s not a pretty picture.

      That considerable segment of the publc you reference may need, but they are not interested. Further, a notable portion of our public who have folks tell them, “they need,” THEY REACT by finding this insulting and patronizing, even in a sophisticated community like Davis.

      Every attempt I’ve ever seen to “educate” on the realities of public finance and dedicated accounts fail to adequate achieve their purpose. For the Davis community with the financial wolf at the door, there remains one viable option–a couragous council majority to impose some form of tax implementation or increase.

  5. Michelle Millet

    I prefer to get all my bad financial news at once instead of metered out, and I prefer to start dealing with the problems sooner then later. So I’d prefer it all to be on the June ballot. I do understand that this may not be the best way to handle this from a PR perspective though.

    I am concerned that people who are only marginally paying attention will recoil at passing a parcel tax in the fall after voting on a sales tax in the spring. Will they ask, “Why didn’t anyone tell us that a sales tax wasn’t going to solve all our finical problem? and “Why didn’t anyone tell us last spring that we were going to need any other tax?”

  6. Roger Bockrath

    Will a 3/4 percent increase in sales tax drive potential car buyers, who patronize the businesses that generate the lion’s share of sales tax revenue in Davis, some place with lower sales tax?

  7. Michael Harrington

    “Ryan Kelly: Mike, Do you feel the same way about the School Parcel taxes?”

    TO date I’ve always voted for them. THe school district does a great job with laying out the needs, and limiting the money to those specified needs. In contrast, the staff and Saylor led CC did a bait and switch in 2005, giving nearly all of that sales tax increase it to the FF and senior staff.

    I get so weary of this.

  8. DavisBurns

    The way I understand it, our property taxes will go up to fund the additional education costs from the Cannery project. The district had the option of taking a small one time payment from the developers or sticking property owners for the on foing costs and they chose more money over less money. I’ve voted for property tax increase in the past but will never vote for another for the schools.

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