Budget Released – But What Happens Next Really Depends on Measure O

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from city flyer sent out in April featuring 2013-14 budget breakdown.
from city flyer sent out in April featuring 2013-14 budget breakdown.

By Dan Carson

The budget package officially released late Friday afternoon by the City of Davis is, in a number of respects, a placeholder. (The Davis Vanguard provided its readers with the city manager’s summary of the plan on Saturday.)

Released as it was on the eve of a critical city election, the document does not attempt to offer a resolution of the structural budget shortfall affecting its $48 million General Fund. It simply plugs in $4 million from the city’s carryover reserve funds to balance the books for one more year. Under this scenario, the city’s General Fund reserve fund would become critically, and dangerously, low. This, of course, will wisely not be allowed to happen. What will happen instead?

If Measure O passes next Tuesday, city staff will quickly drop in the $2.7 million in revenues that the half-cent sales tax increase measure will generate in 2014-15. (A full year of revenues, $3.6 million, is projected to come the following year.)

The City Council will deliberate, probably in a few weeks’ time, on how the relatively small remaining structural budget shortfall of about $1 million should be addressed. The options include fine-tuning revenue estimates to account for a still-improving city revenue base, adopting further budget efficiencies, shifting special funds around, or some combination of the above. Exactly what should happen next is not spelled out in the new spending plan, however.

After knocking on hundreds of doors in support of the measure, I am convinced that Measure O will pass, and pass easily. But with no actual poll data to go on, and probably a low-turnout election in the offing in an atmosphere of great concern over city finances, you can never be sure about how things will turn out.

The budget plan does not clearly spell out exactly what would happen if Measure O loses. If it does lose, however, be prepared for months of chaos and uproar about how city finances can be rearranged to limp through 2014-15.

The city’s fiscal managers will dust off the $4 million in cuts remaining on its original list of $5 million in budget actions to see what will fly with the City Council. This includes proposed reductions in parks, recreation, police and fire services; staff layoffs; further fee increases; and a host of other severe budget-balancing actions. This will provoke every special interest group in the city will rush down to City Hall and agitate to save its programs and payroll.

Although City Council candidates have talked (and I think appropriately) about the need to scale back compensation for city staff, it would be just about impossible to deliver major givebacks from city contracts in time to bail out the 2014-15 budget. City labor negotiations are so procedurally complex and time-consuming, with state officials ready to pounce on any misstep, that it could easily take a year or more to hammer out fresh concessions needed to help close the budget gap, even with the real threat of layoffs looming. The pressure would be great to save city services and instead scale back infrastructure commitments, as has happened before.

A placeholder budget relying on spending down the city’s budget reserve could be put in place temporarily to meet the city’s legal obligation to pass a budget, but the real work of addressing the structural budget shortfall would go on well into the summer.

This would become the responsibility of a City Council that will include at least one, and possibly two, new members. As I’ve commented here before, the dynamic of the City Council could be significantly impacted by who wins those two council seats. There is no way to know for sure what they will do to solve the problem if Measure O goes down the tubes.

Just one more thing you may want to think about before you cast your ballots on Tuesday.

Dan Carson is a member of the city Finance and Budget Commission and a supporter of Measure O. This article represents his viesw only and does not necessarily represent the views of any other members of the commission.

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About The Author

Dan Carson worked for 17 years in the Legislative Analyst’s Office, a nonpartisan fiscal and policy adviser to the California Legislature, retiring in 2012 as deputy legislative analyst, and serves as a member of the city’s Finance and Budget Commission. This commentary reflects his views only and does not represent the position of the commission on this issue.

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30 thoughts on “Budget Released – But What Happens Next Really Depends on Measure O”

  1. Frankly

    The city reminds me of that never full developed adult-aged child that keeps coming back to dad and mom for money.

    Some people will never grow up until they are consistently told no.

    The city has all the funding it needs to arrive at a balanced budget. And if the city needs more money to go after groovy thinks like POUs, bike certifications and special programs, then the CC and city management can do two things:

    – Shrink the cost of city labor to equal the general labor market.

    – Grow the economy to bring in more revenue from business transactions.

    The points in support of this demand for CC to do these things are clear and simple to understand:

    1. We are paying compensation far in excess of what is required to staff our city labor needs.

    2. Davis generates about 30% of the taxable business activity as does the average comparable city.

    3. We are taxed enough already.

    And if you chicken out and accept the fear tactics used by this adult child to demand still more of your money, then he will never grow up. He will keep coming back for more and more and more of your money.

    We have to take a stand at some time. Be the adult and vote No on Measure O.

    1. Davis Progressive

      “The city has all the funding it needs to arrive at a balanced budget.”

      that’s an unsupportable statement.

      it ignores that even with this tax, we have to cut $1.2 million from this year’s budget. it ignores the fact that this does not include the millions for roads, the millions for parks, the millions for buildings. it ignores that we have another $3 million in water bills coming by 2018.

    2. Barack Palin

      “And if you chicken out and accept the fear tactics used by this adult child to demand still more of your money, then he will never grow up. He will keep coming back for more and more and more of your money.”

      Frankly, excellent analogy. The fear tactics employed by the city and their operatives is like the adult child that says “if you don’t give me some more money you won’t ever get to see your grandkids”.

      It’s time to say …..OH NO O.

  2. Davis Progressive

    “Although City Council candidates have talked (and I think appropriately) about the need to scale back compensation for city staff, it would be just about impossible to deliver major givebacks from city contracts in time to bail out the 2014-15 budget. ”

    agreed. i think the pressure needs to stay on the council however to do the right things.

  3. Tia Will

    “Be the adult and vote No on Measure O.”

    I would say that the adult action on Tuesday is to vote Yes on Measure O.
    Frankly’s analogy conveniently ignores that it is not the same child returning for money. It is not the current city council that burdened us with the compensation packages .. It was former council’s that are responsible for that. The better analogy here would be to deprive a responsible child doing their best to clean up after an irresponsible sib of what they need to be productive for the family. And not only will it handicap this council, but will hurt the city. This is not scare tactics. This is reality.

    1. Davis Progressive

      it’s a weird comment that equates maturity with a certain position. my view is that a mature approach to the city’s budget could be to come up with a multifaceted approach. there is no such thing as a black-and-white, one-size-fits-all, now that’s just immature.

  4. Mark West

    “It is not the current city council that burdened us with the compensation packages”

    Really? Who do you propose then as the responsible party for the last round of unsustainable MOUs?

    My recollection is that they were approved by this Council.

    1. Davis Progressive

      so you believe that the council could have extracted more? i question your experience in handling complex negotiations if you really believe that.

      1. Mark West

        It matters not what you think of me…the question is whether or not the CC is responsible for the contracts they signed. This Council agreed to the MOUs, and therefore take responsibility for the fact that they are unsustainable.

    1. Mark West

      What number are you referring to Tia?

      I stated that the MOUs were unsustainable, which is based on the fact that total compensation is increasing at a faster rate than the growth of City revenues. I also believe that this Council is responsible for the MOUs that they approved, so your claim that they are not responsible is in my opinion, complete hooey.

      Yes, I believe that they could have obtained more concessions, in fact I believe that they had the absolute responsibility and obligation to do so. They failed. I am sure that doing so would have caused a great deal of screaming, hand wringing and general angst from folks like you and DP, but the fact remains that this Council knew that they needed to stop the growth of total compensation and they did not do it. They are responsible.

        1. Mark West

          David: I was not a party to the negotiations so your question is nonsensical. Rich Rifkin has been talking about the need to cap the growth in total compensation for years now, so the idea was not new during the negotiations. Had the CC wanted to stop the unsustainable growth in total compensation they could have. They chose not to, simple as that.

          1. David Greenwald

            So if you weren’t party to negotiations, how could you possibly know if they could have extracted more. Rich has talked about that idea for a long time, but the city decided the best approach was to get the employees to accept concessions on cafeteria, opeb, pers, and health care and then give then z below inflation wage increse in exchange for it. could they have gotten a deal without the wage increase? they thought no. you’re telling me, in effect, that despite not being privy to the negotiations, that they would have agreed to it.

          2. Don Shor

            Just curious: who did the negotiating for the city? And at what stage did the council give guidance as to what was an acceptable bargain?

          3. Mark West

            No David, I’m telling you that the City Council had an obligation to get total compensation under control. They failed. Their next option was to reduce the number of employees to a level that resulted in a decrease in total compensation. They failed at that as well.

            The problems we are facing today are a direct result of the failures of the current CC to control spending AND increase economic development. While I agree that previous CC’s were equally incompetent with these fiscal matters, blaming our problems on someone else, or claiming that the current CC had no other option, is nothing but a lame excuse.

          4. David Greenwald

            Don Shor: Tim Yeung negotiated for the city. The Council laid out guidelines early in the process and then of course had to agree to where the negotiations took them.

          5. David Greenwald

            Mark West: The problem here is that you believe that the Council could get total compensation under control in one round of negotiations. You’re blaming the current councill, but the real problem was in 2009-2010, and I said this at the time, that the city council at that point barely moved the needle on pensions and retiree health. That left all of the heavy lifting for this council. They chose to tackle four areas and then used a slight wage increase to bargain that away.

            Interestingly enough about half a million of the current deficit is due to the fact that DCEA and Fire held out for a year and a half. Had seven groups held out for a year and a half and gone to impasse, we’re probably looking at $2.5 to $3 million in additional shortfalls.

            We get another crack at the apple next year. With most of the concessions in benefits in place, council needs to tackle a second tier for new hires for fire and OPEB, since they could not impose that, and then limit growth in total compensation to inflation. They couldn’t do that all in one round of negotiations.

        2. South of Davis

          David wrote:

          > What concessions do you think they could have gotten? Be specific

          A 10% pay cut*, since EVERY person working for the city would take an even bigger cut if they quit and looked for a new job.

          *While forcing this cut would be good for the city it would kill the political career of any council member that voted for it…

          1. David Greenwald

            A ten percent pay cut on top of the more substantial benefit adjustments would have meant seven groups going to impasse, there is no way the council could have done that politically, I don’t just mean ending their political careers.

          2. Mark West

            David: Had the City been honest about the total extent of the fiscal crisis, and had the CC laid out the reasons honestly and transparently for why they needed to impose the compensation cuts across the board, the voters would have been unhappy, but I believe would have supported the decision in the end. The problem we have is that neither the City, or the current CC, have the will to be fully transparent and honest with the taxpayers.

          3. David Greenwald

            Yes and no on that. I agree with you that the council wasn’t as transparent as they could have been.

            That being said. The contracts expired in June 2012. The bulk of the contracts were agreed to by December 2012.

            The worst stuff in the budget now wasn’t known at that time.

            We only found out about how bad roads were in March 2013.
            We only found out about the impact of water rates on the general fund in the spring of 2013.
            The city was trying to get out in front on pensions, but there were several rate hikes by CalPERS that occurred after December 2012
            The impact of impasse was obviously unknown
            We still haven’t evaluate park infrastructure costs though we knew in June 2012 when we asked for $49 in parcel tax that wouldn’t be enough
            We still don’t know how much in building infrastructure

            One of the things that Pinkerton did when he came on board was try to get an honest assessment of the budget realities. That required for instance, Scott Kenley to audit the fire department. Yvonne Quiring audited the full budget. The city hired a company to audit the roads.

            None of that was available in December 2012.

            I’m the first one to criticize the city for lack of transparency, but part of the problem is things were so bad, we didn’t know how bad it was until after the five contracts were signed. You want to blame that on the current council, but that really falls on previous councils, this council had to clean that up.

          4. Mark West

            No David, I do not blame the current Council for the poor decisions of their predecessors, I blame them for their own poor decisions. You and Tia seem to want to give them a free pass, blaming the entire problem on previous administrations. I am trying to point out that the basic situation that got us into this mess, the complete lack of an honest and transparent budgeting process, continues today unabated. The current Council is responsible for that ongoing failure.

            The lack of transparency is part of the culture at City Hall, something that we still have not cleaned up. Pinkerton should not have had to demand new audits since they should have been part of the annual budget process. How can you possibly run an organization the size of the City government without annual audits to show how we are actually spending money? How can you effectively run a City government with an arcane accounting system that should have been replaced more than two decades ago? How can you effectively run a City government where no one can answer the question of how much it costs to provide a specific service because we do not perform even the most basic form of cost accounting.

            The City has been, and continues to be, operating in a manner designed to prevent taxpayer assessment of performance. The entire operation as it is currently established is inherently opaque and dishonest, and in my opinion, needs to be dismantled and rebuilt. The current City Council is responsible for allowing this dishonest system of operations to continue.

          5. David Greenwald

            I think my body of work over the last six months indicate that no one is getting a free pass. But there is a difference between a free pass and voting to cripple the city’s finances as well as having an unrealistic review of how they could have acted better.

            “How can you possibly run an organization the size of the City government without annual audits to show how we are actually spending money?”

            I’m pretty sure the city has at least two audits, but under previous councils, the assessment has been limited and not very accurate.

            I really believe that only in the last year do we have a semblance of accurate accounting.

  5. Tia Will

    ““The city has all the funding it needs to arrive at a balanced budget.”

    I would love to see a breakdown of the numbers that you are using to arrive at this conclusion, preferably represented in the same pie chart format posted by David. If you are correct, that would be great. If you are not correct or cannot demonstrate that you are, then I think this sentence is very misleading.

    And, if you really believe that the city currently has all the funding it needs to arrive at a balanced budget, a point that you have contradicted in many previous posts, then why would you and Mark be pushing so hard for economic growth. If we don’t need additional revenue, why push it ?

  6. Mark West

    “why would you and Mark be pushing so hard for economic growth”

    Better job opportunities for residents.
    Increased economic activity within the City, increasing support for local businesses.
    Lower tax rates for residents due to the higher revenues derived from economic activity, making the City more affordable
    More funds available to support the extra services that make Davis unique.*

    These are a few of the reasons why I am pushing for more economic development.

    *We would not have many of these ‘extra services’ had we honestly addressed all of our fiscal responsibilities over the past two decades. These ‘extra services’ include many of the amenities that you state you most appreciate about Davis. Increased economic development allows us to actually afford these extra benefits without making the City un-affordable to young families, unlike your preferred approach of increasing everyone’s taxes to pay for your favored amenities.

  7. Tia Will

    Mark

    Fair enough. I appreciate your response and agree. However, it did not address the central question I was asking.
    Frankly had stated “The city has all the funding it needs to arrive at a balanced budget.”
    Do you believe that this is true ?

  8. Davis Progressive

    i think a lot of people support economic development as a long term strategy, but in the short term i don’t want to see city services slashed. i’m going to be much more reluctant to support peripheral business parks if we can’t pass measure o and a parcel tax in the short term.

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