The passage of Measure O does not end the budget discussion. In fact, all Measure O really does is temporarily stop the bleeding. Staff will introduce, this week, the annual 2014-15 budget. Measure O shores up the $5 million deficit, but does not completely close it.
In April, the Davis City Council authorized $1.2 million in cuts that produced no layoffs to close the remaining hole in the deficit. That works for the short term.
Staff notes that over the last five months “there has been considerable outreach with six public meetings and more than two dozen meetings with community and business leaders.”
They report that the consensus was “that the city needs to have long-term financial strategy which would include, but not be limited to, continuing to pursue cost-control measures; investigating alternative revenue sources and supporting economic development activities which are compatible with community values.”
The long-term projections are not good. The staff writes, “Assuming the base budget proposed for FY14/15 is maintained throughout the 5 year projection period, and including the new sales tax revenue, the current $5.2 million reserve will be virtually extinguished in the 5th year of the projection.”
They continue, “It must be noted that this assumes that the base budget going into the FY14/15 is maintained as is throughout the course of the projection period. The projection doesn’t contemplate new revenue sources, increased level of service or increased funding for maintenance or capital projects. Nor does it contemplate reductions in operating costs, reductions of service levels or changes in discretionary allocations. To a degree, some of these changes are likely to occur over the projection period but they are not predictable.”
From our standpoint, the longer term strategy must include a parcel tax this fall, an economic development strategy, and additional employee concessions.
While the city is floating the idea of a general tax in 2016 which would be a 50% tax, we would strongly urge that only as a fallback alternative, given that waiting two years to address roads will add millions if not tens of millions to the already-overwhelming cost.
The real question is what we can do in the short term to shore up the budget.
It is clear that the council has no real appetite at this point to lay off additional city employees. The $1.2 million in cuts are designed with the idea in mind of no additional layoffs. Obviously, had Measure O failed, we would have a different story on our hands as the 12.5 or 25 percent cuts would have produced a heavy string of layoffs.
The key to remember is that on June 30, 2015, the current MOUs expire. However, the city does not have to wait until then to gain additional savings. Fire and DCEA (Davis City Employees Association) failed to reach agreement on contracts in 2012 and at the end of 2013 had their terms and conditions imposed on them. However, that was not a contract, they are not under contract and that gives the city additional flexibility to negotiate further contracts.
Going forward, the 2015 MOUs will be critical. We have expressed this view before – the current council in 2012 and 2013 was hamstrung by the 2009 MOUs that contained only marginal fixes for the future.
As Rich Rifkin wrote in January of 2010 regarding the firefighters’ MOU, “The chagrin is that the fire contract ignores our future reality. As a short-term document, it is not bad. The concept of capping the growth of total compensation is commendable. But the reason two of the five members of the council gave it a thumbs-down is because it has no long-term reform.”
He would add, “By putting off a solution for at least three more years, the current council is guaranteeing that when the crisis comes in 2017, it will be far more difficult to disentangle.”
“Saylor and Souza point out, before the city started negotiating with the union, council members agreed to ‘guiding principles’ that they would follow. One of those tenets was: ‘Strive to reduce the long-term liability of retiree medical costs, while retaining progressive elements of the city’s retiree medical insurance benefit,’” he would add. However, “We did not reduce the city’s share of this expense… In short, the council dropped the ball. And the ball is going to land on the heads of the taxpayers in a few years.”
This is critical to understanding the problem now. I agree with critics that the current MOUs are not sustainable. Compensation or at least the cost to compensate employees continues to rise at a faster rate than the growth of city revenues.
However, how much further could the council have gone when the previous council left all of the heavy lifting on benefits to the current council?
The council’s approach was to get the employees to accept concessions on cafeteria cash outs, OPEB (Other Post-Employment Benefits), PERS (Public Employees’ Retirement System), and health care and then give them a below-inflation wage increase in exchange for it. That came with a modest cost, but, interestingly enough, the city measures that 2% COLA as costing $360,000 whereas the cost of just two bargaining units holding out was $447,000.
In other words, it was more cost-effective for the city to give a small concession for a COLA than it was for the city to go to impasse.
Just two bargaining units holding out cost the city half a million. The city was able to get five of the seven units under contract by December 2012 by offering those offsets.
Should they have gone to the mat and forced the concessions? How much would they have saved? How much more would it have cost the city to go to impasse? And what would the political cost have been?
Remember, these would not have been three-year contracts imposed, it would have been a one-year contract, they would have had to go back to the bargaining table and the relations at that point would have been poisoned.
And what would they have gained? It’s hard to know, but from this it appears very little.
We also have to understand that the contracts expired after June 2012. The bulk of the contracts were agreed to by December 2012. While we knew things were bad in that stretch of time, we did not recognize just how bad the roads would be until March 2013, we only discovered the impact of water rates last spring, and we had not been hammered yet by PERS, though we expected that to be on its way.
We still have not evaluated the park infrastructure needs, though we are now estimating it would take a $200 per parcel tax to deal with the park maintenance backlog.
We knew we had road problems, but did not realize until March 2013 that it would take $5 to $8 million per year, rather than $3 million, to solve that.
This is not to put the city off the hook for their failure to study the critical needs prior to 2012, nor is it to put the city off the hook for their lack of transparency or failure to communicate with the public.
But at the end of the day, I believe that the council in the 2012 MOUs got about what they could get without creating a huge mess of impasses and angry employees.
We get another bite at the apple in June of 2015. I think at that point we have to look at salary concessions, complete the structural changes to pensions and OPEB, create the second tier for DCEA and fire (hopefully getting them under contract), and look into a mechanism to cap the growth of total compensation.
It took an extra three years to accomplish this precisely because we did so little in 2009 and had to play catch up three years later.
—David M. Greenwald reporting