Dan Carson submitted the guest piece yesterday and opened it with the bold assertion, “New data suggest that the city’s once-formidable $5 million structural budget shortfall is, for all practical purposes, solved.”
There is certainly a lot of good news to report, including the facts that “the 2013-14 fiscal year that ended in June almost $850,000 to the better than had been assumed in the city’s prior forecast” and “property tax revenues were up $570,000 over the amount the city had been projecting for 2013-14 as recently as last April.”
It may even be true that we will get “continued gains in property tax revenues above the 2 percent rate that the city assumed for 2014-15 in its most recent budget.”
But none of that means the budget crisis is over or that the true structural deficit is solved. The first problem is that the structural deficit of $5 million was actually just a number. And here is the key take away: “This welcome news on continued city revenue gains doesn’t solve all our fiscal problems. The city will face continued pressures to come up with more money for infrastructure and personnel costs.”
Mr. Carson adds that “the city will have to maintain strong fiscal discipline lest the dramatic recent improvements in its fiscal condition be allowed to unravel. Moreover, the city must continue to be entrepreneurial and search out opportunities to gain additional revenues to support needed public services.” Part of the problem is that we have conveniently kept deferred maintenance and infrastructure costs off the budget. That means the hundreds of millions we owe for roadways, sidewalks, bike paths, parks, greenbelts, and city structures are not counted against the current structural shortfall, but that is money that we need to find somehow.
Second, Davis is not going to be growing a lot in terms of housing – most likely. Yes, we will have some 600 new homes coming online at Cannery and perhaps a few hundred from the other sites. These will add to the city’s property tax base.
However, the increase in property taxes is likely due to the recovery of the real estate market and the fact that after years of few housing sales in the city, the pent-up demand for housing sales took off last year. That is probably a short-lived expansion and not likely sustainable into the future.
That means to achieve real revenue growth that is sustainable, the city still needs to expand its base. Dan Carson undoubtedly does not disagree with that as he argues that the city needs to continue “its aggressive efforts for economic development and conducting a rigorous review of what city assets are needed and could be leveraged through sales, leases or concessions for the benefit of the taxpayers.”
Dan Carson mentioned pensions and the likely increase in their cost. This morning, the LA Times published, “California pension funds are running dry.”
They write, “A decade ago, many of California’s public pension plans had plenty of money to pay for workers’ retirements. All that has changed, according to a far-reaching package of data from the state controller. Taxpayers are now on the hook for billions of dollars more to cover the future retirements of public workers, with the bill widely varying depending on where they live.”
New data from a website created by state Controller John Chiang are now emerging to show just exactly what the bill is. Writes the Times, “Until now, the bill for those government pensions was buried deep in the funds’ financial reports.”
Back to the issue at hand. Here is what I would have said. First, I would have argued that new data from the city shows better revenue growth than had been forecast. However, the city still has daunting fiscal problems to solve.
The economy is finally clearly improving in Davis and elsewhere and that is alleviating some of the stress on the system. However, pensions and infrastructure needs are going to still require a parcel tax and a long term economic growth strategy.
I agree with the content of the argument by one of the posters that there is no guarantee property tax revenues will continue to grow as they have.
I also believe that we are going to have pressure now to start increasing employee compensation. Part of that is that the city manager position just got a raise and that will create pressure to increase compensation for senior staff, and once senior staff get increases, the rank and file will demand them as well.
As much as some want to argue that the city’s salary structure is out of line with the private sector, the city’s salary structure is not out of line, and, if anything, is on the lower side of municipal government compensation. That is the case in a community with higher costs of living than many other areas.
Is the council going to be able to hold the economic line when revenues are increasing, the economy is improving, and the city manager just got both a positional as well as a personal raise? I am very skeptical about that.
The bottom line, at least for me, is that I would not have run the story as saying we have solved the structural deficit – I think that is untrue and that the structural deficit was in many ways, even under Steve Pinkerton, an arbitrary number based on calculations about what we could spend rather than what the true costs were.
I would say that things have improved, but there are still key challenges, and anyone wishing to start raising employee compensation before we have solved the underlying problems is asking for us to be in trouble the next time the economy turns south.
—David M. Greenwald reporting