In the time that I have been working in Davis (about a year and a half), the discussion about the concept of innovation parks has evolved considerably. Though not a new subject – the city has planning documents demonstrating that business parks (and then research parks) have been being discussed as far back as the late 1980s – the reasons for considering innovation parks has considerably changed.
In the past, we have discussed the potential of research parks as a way to retain the startup and small businesses that have been created as a result of work at or with the university. It was very much a simple economic development discussion about retention and expansion of existing businesses. And this seemed very logical and appropriate considering the context.
But conditions in Davis have been changing over the last decade, even if it wasn’t being widely discussed, or even recognized. What we didn’t “know” broadly was that our community had gone dramatically out of balance on the fiscal side of the three part equation of sustainability (environmental and social being the other two pieces).
Most specifically, there has been an ever increasing gap in the city finances that has created a significant (and urgent) need to increase revenues. The reason for this urgency is the growing realization by the community that the infrastructure and facilities that have been the backbone of the quality of life enjoyed in Davis have been deteriorating due to avoidance of needed maintenance and have now reached a point that replacement is the likely outcome for much of these assets.
To David Greenwald’s credit, he recognized some of this several years back, but I would hasten to guess that even he has experienced a little sticker shock over the last few years as the true tally is being figured.
And though I don’t disagree with previous posts about needing to be a regional leader for business growth and that some of these local businesses might be well-suited in other parts of the Sacramento region, these comments do not address two current facts: 1) Davis has an increasingly poor fiscal position with respect to the City’s budget and the services it delivers; and 2) In the State of California, there are four primary ways a local government can correct that – increases taxes, charge fees, cut budgets or grow the economy.
On the first item, I believe this blog and the editor has made a long-standing case for looking at the real budget, including things we pay for on a daily basis as well as deferred costs. The City Council has proactively began dealing with the structural imbalance of the issues through cuts, some raised taxes, and discussion of economic development.
To use an analogy, most of our household budgets deal with the immediate needs first (food, clothes), then recurring bills that help us live more comfortably (utilities, perhaps entertainment), usually a few wants (a new laptop or smart phone)… and then, for what I suspect is most of us… way down the list, those pesky deferred maintenance and long-term items. Like painting the exterior of the house a few years past when we should, or fixing the fence only when it blows over in the wind, or dealing with that slow drain in the kitchen that has backed up just one too many times.
It is these deferred items that usually cost a lot of time and money to address and it is harder for many of us to justify saving for them. Or quite possibly, we just can’t get there because our budgets are so stretched (partly due to the last economic downturn). And in some cases, we see them every day but we think to ourselves, ‘I am too busy to deal with that now, I’ll do it later.’ In some respects, we keep hoping the issue will just go away if we don’t pay it enough attention.
And I know at least one of our community on this blog use medical analogies, so let me attempt to use one here: How many people let a small nagging ailment go on too long to where it becomes a crisis or a major issue to deal with instead of just being able to address it with less invasive measures? As a Kaiser member, I am aware of their push for prevention as a way to deal with long-term and catastrophic costs (as a member since 1991, I see the member literature and emails regularly). So I suspect that much of the medical industry similarly is trying to get patients to address their issues early while they are likely to avoid significant costs.
But the city’s fiscal crisis should not be news to the readers of the Vanguard anymore, so I won’t belabor it anymore.
On the point of how we raise money for local government service delivery, this too should not be news to longer-term Vanguard readers. To simply recap, and be specific to the City of Davis, we generate revenue primarily in the following four ways:
* Taxes – the major taxes are property, sales, use and utility. Davis has the first three. The Davis general fund budget of about $48 million, and its total adopted budget for FY 2014/15 is about $204 million. The reason there are two different numbers is that certain parts of the city’s operations (like water and wastewater) are delivered through what is called ‘enterprise funds’ – e.g. there is a rate charged the user that pays for the operations, maintenance and long-term replacement of the system. For the $48 million general fund, over 61% of the revenues come from property and sales/use taxes. You can see more about this at the city’s website, under the City Manager’s budget presentation for FY 2014/15: http://administrative-services.cityofdavis.org/Media/Default/Documents/PDF/Finance/2014-2015-Budget/Presentation-Proposed-Budget-2014-06-10.pdf
* Fees – these are generally permits and other fees that usually have to do with building, business licensing, planning, etc. These permits and fees are typically set to be a reimbursement for the staff time and administration of regulations and ordinances that have been set by state/federal law or city/county actions. Davis also charges some nominal fees for some service delivery for recreation programs, but these fees are typically a minor percentage of what it takes to really deliver the service.
* Budget cuts – this usually refers to programs and services that are either trimmed or eliminated, including the staffing, administration and delivery. As has already been discussed, the City has reduced its staffing from an employee count of 464 in FY 2007/08 to about 355 currently (FY14/15). That is more than a 23% reduction in 7 years. Or put another way, we had a ratio of about one city staff to serve 133 residents in 2007, whereas we now have one staff serving 186 residents. Staff have taken on many additional duties due to the reduced employee count, attempting to ensure there is not a significant loss in services to the residents. But as we look at the potential for more cuts in the future, this trend will be unworkable and services and programs will need to be reassessed.
* Grow the economy – in all California cities, we are stuck with a broken model of revenue generation. That means the surest way to impact the city’s revenue equation in terms of economic development is to attract significant new sales tax generators. For most cities, these are typically big box retailers, auto dealers and retailer power centers. Unless I am mistaken, the majority of the Davis community is not largely in favor of this approach. But what we are blessed with is a growing tech community – agtech, medtech, biotech, cleantech, advanced manufacturing – that wants to be in Davis. These businesses typically generate significant property and sales tax (considering their size), they often have expensive equipment that is assessed an unsecured property tax (similar to what boats and planes are assessed), they generate jobs with disposable incomes that result in at least some of those dollars being spent in our community (regardless of where the employees live), and they are likely to attract global investment (which imports dollars into our community, instead of just mixing them locally). It is these functions of supporting our existing businesses with more patrons and importing new revenues from outside sources that will grow our revenues. There are many other positive outcomes to list under this topic, but I have covered many of them in my past articles.
And because we are at a place where we spent the majority of our previous annual budgets on the then current list of immediate needs (to use the household metaphor), we now have a fence in need or replacement, a house that desperately needs painting, and significant repairs throughout the house. If you think this is not true, take a walk around town. We have splitting sidewalks, roadways with potholes, dying trees and landscaping in need of maintenance.
Out of immediate view we have whole sections of roadways that need replacement, deteriorating city infrastructure and public facilities in need of renovation. And in some cases, beyond our public facilities not being up to our high community standards, we have several facilities in desperate need of replacement. Come visit city hall as a start, where the cooling and heating systems cannot keep up with even marginally acceptable outcomes. Or visit our pools and parks and take note of the cracking, deteriorating condition of the surfaces and hardscapes. Not to mention much of the playground equipment and ball courts.
Though I think you get my point, the issues created in today’s fiscal instability were choices the community made many years ago. We spent all of our revenue on current needs and did not address the larger, more costly needs of infrastructure and maintenance. This is a tough scenario to have to reckon with, but it is a fact made obvious through direct observation.
Though I understand the desire to keep Davis “small and quaint,” I want to highlight that the past decisions of the community have created a situation where the residents need to realistically assess their options for a path forward. I certainly don’t like spending my money on painting my house, but at some point the damage to my home will become so dramatic that the fix will be insurmountable financially. And having a desire that the need goes away and that the current condition would just stay as it is today will not really address the realities.
My point all along (since arriving) is that Davis is blessed with an incredible opportunity. One that most communities will never enjoy. It has a university that is reaching a global apex in its areas of research and the companies (local and global) that want to be part of that really want to be in Davis. And this ‘gift’ of new revenue options is completely consistent with our existing economy based on knowledge, research and technology. We can of course refuse this gift and these business will go to other cities in the region or perhaps other states (in which case we really get no lasting benefit from having been the host city while they grew).
In the case of being a city that grows the tech businesses and then let’s them go other places in the region as they expand, this is fantastic regional community building… and is a completely detrimental condition to increasing the local revenues in Davis that will help pay for services, programs and maintenance. Our current catalogue of small and medium sized businesses (even if we were to add 10%) will not meaningfully address the financial issues in our community.
But more importantly, there are outcomes no matter what the choices (or lack of choices) – both positive and negative.
I am not suggesting that new research parks won’t have impacts to all of Davis. They will. But just like the university has grown from a small, farm research outpost for UC Berkeley into a significant and well-integrated part of the Davis ecosystem, research parks scattered around the city in small clusters will help to mitigate large scale impacts while creating a draw for new investment and ultimately new revenue for the community amenities that Davis enjoys.
I would suggest this as a far better overall outcome than continuing to hope that the structural fiscal imbalance will be addressed through some incalculable mechanism of fortune. It won’t. And the facts are in evidence. Just like I don’t want to believe how much my school loans have amounted to over the course of my education, the statement from the loan companies is pretty sobering and would be hard for me to ignore.
Why rehash this past dialogue? The City is at a crossroads. One that will require either deliberate action by the community… or circumstance will dictate the outcome and we will need to live with those circumstances. I am not being a pessimist, nor an alarmist. I simply present the facts of the fiscal situation plaguing the city’s budget and the community can decide what it wants to do.
A last (but new) point. There are many communities that enjoy a high quality of life, have infrastructure that is being maintained, have many amenities and programs, and have significantly sized research parks (100s of acres) that do not overwhelm the character of the community. These research parks have become part of the community fabric, just like the university is part of our community fabric. And these research parks generate significant local jobs (at all scales) and opportunities for residents. I am sure you can think of a few on your own, but let me offer some off of my own list: San Ramon (CA) (where UC Davis has a GSM program), Palo Alto, Champaign (IL), and Cambridge (MA).
With respect to San Ramon, Bishop Ranch is “a major mixed-use business park that accommodates office, retail, restaurants, lodging, etc., developed in the 1980s and 1990s on 585 acres along Interstate 680 in San Ramon. Located in the southwestern corner of the City of San Ramon, Bishop Ranch is one of the premier business parks in the Bay Area, indeed in California. Bishop Ranch is home to more than 550 companies and features office, retail, restaurant, and hotel uses. It offers tenants and their employees a wide range of amenities and on-site services, including vanpool and ridesharing fleets, and UC Davis Graduate School of Management. Among its roster of tenants are many high tech and bio tech companies including IBM, Affiliated Computer Services, Inc., Aon eSolutions, AGIS Network, Cognizant Technology Solutions Corporation, MRT, Systems America, Inc., Six Dimensions, and Austral Biologicals. Other prestigious companies within Bishop Ranch include the Chevron Corporation, Toyota, AT&T, Bank of the West, Del Monte Foods, Hill Physicians, H.J. Heinz, Robert Half, and Chubb Insurance. Tenants occupy from 200 square feet to well over 500,000 square feet of space, marking a wide range of options for varying company sizes.” http://www.bishopranch.com/assets/pdfs/BRfactsdemographicstudy.pdf
If you have not been to San Ramon, I encourage you to go. It is an amazing East Bay town that has many of the same quality of life attributes as Davis, but is lacking a major university. In my view, if the city of San Ramon can achieve a long list of environmentally and fiscally sustainable outcomes at Bishop Ranch (started back in the 1980s and 1990s when the world was not generally focused on sustainability), the research parks being envisioned for Davis can take the best practices of these places and improve on them with current knowledge and create a place that is a show piece of Davis ingenuity.
Can we keep Davis the way it is? I think my educated guess would be no. No matter what the choices or decisions made by the community (or lack of decisions). I am sure this seems controversial to some, but I hold up the example that even without significant housing construction within the city in the past decade, there has still been significant change. Some positive, some not so positive. But change nonetheless.
If we choose not to do any significant economic development (not add new revenues sources), then we will see the continued deterioration of our infrastructure and public places due to lack of enough tax revenue. If we add new taxes (parcel or sales taxes), we are still unable to keep up with the need, as the total additional taxes needed will be several hundred dollars per parcel more than currently collected just to meet current demand (but not fully address infrastructure replacement). And if we cut the budget more, we will need to make choices about what programs and services we no longer want as a community (which all contribute to the quality of life discussion).
I obviously advocate for keeping Davis similar to its current community character while growing the opportunity for increased revenue to meet current and future demands. And I think there are several templates from around the US that show that it can be done. But the choice will really be up to the voters.
To finish my analogy, wishing my house would not need painting or that the costs weren’t so much actually doesn’t change the facts. Wanting Davis to not have current fiscal issues, or hoping that the economy will miraculously improve to make up for millions of dollars in current needs and $100s of millions in infrastructure and facility maintenance and replacement costs, is also not going to change the facts.
I do not want to “change” Davis. That has never been the reason for my position nor the tasks I am charged with executing. I do want to amplify the community’s opportunities and hopefully provide a set of reasonable solutions to our fiscal issues (that have been decades in the making). This includes utilizing the fortuitous situation of having an emerging tech university sited next to the city, one that can help us turn the corner and make a positive, sustainable shared future – environmentally, economically and socially.
Thanks for considering my thoughts. Your reactions and questions are always welcome. My email is email@example.com if you choose to email me directly.