Commentary: The Case For Economic Development Is Stronger Than Ever

DMG-Mori

This is not the strongest economic recovery we have seen and at some point in the next ten years it is likely to end and we are likely to see another recession. It probably won’t be the catastrophic “Great Recession” we saw in 2008, but it will be enough to drive our revenue growth into the negative.

The remarkable thing about the current budget is that, even with renewed growth, we are barely making it and even then it is because of the half-cent sales tax. The new city figures paint a much more ominous view than many want to tell – we are on the brink, still. Even in the midst of a recovery, our budget picture is fragile at best and loaded with pitfalls.

Worse yet is that not only do we have only a small margin for error right now – but we haven’t fully dealt with the last crisis.

While we have shifted some pension costs to the employees, we remain vulnerable to the whims of CalPERS on pensions.

While we have moved towards fully funding retiree medical, we are still paying to get even in that respect and we remain vulnerable to future increases to health care costs.

While we have moved money to put $4 million into roads annually, we have not scratched the surface on the total costs for pavement improvements.

While we have taken out an RFP (Request for Proposals) to learn the costs of parks and building infrastructure, that figure is still yet to be determined.

We are facing yet another round of MOUs that the city manager has at least implicitly signaled will include some sort of COLA (cost-of-living adjustment).

That is perhaps the most alarming part of all of this. Looking at the ten-year budget which assumed continued economic growth, and assumes the continuation of our sales tax and starts with the assumption of zero increase to compensation over the next decade – we still at the end of that period barely survive.

Staff remodeled that ten-year projection which shows that, as soon as the sales tax goes away, we are back in the red. If the employees get just a one-percent annual COLA, we go into the deep red.

The city remains as much on the brink today as it was a year ago. And yet the rhetoric has shifted. The Enterprise called this budget “boring” and we have been presented with various levels of rosy scenarios.

There are no proposed cuts in this budget and the city manager is promising no take backs to employee groups.

Some see this as a hopeful scenario – but I am not one of them.

There is critical work that must be done because, really, in the best case scenario – we are barely skating by.

So, here are my thoughts on how to stabilize things.

First, my preference is to engage the employees in another round of cuts. At the very least we should be asking the firefighters to give back some more as they have not accepted the city’s contract and there should be a cost with forcing the city to go to impasse.

The same, frankly, should hold true for DCEA (Davis City Employees Association), the only problem is that DCEA employees are at the very bottom in compensation and it doesn’t make tremendous amount of sense to impose more cuts on the group at the bottom in compensation.

Beyond that, there is probably no stomach in city hall either on the part of upper management or most of the city council to go much further than we have.

The best we can hope for is holding the line. One councilmember suggested a one-time, one percent COLA. That is far from ideal, but workable.

Second, we need to pass a parcel tax. Frankly we have lost a year in this regard and we have lost some of our rhetorical vigor with proclamations that the economy in Davis was improving. Fact is that we probably owe hundreds of millions in deferred maintenance and that need is leaking money from the general fund that could go to services or even employee compensation.

A parcel tax cannot be attached to special interest desires and luxury items. The city cannot afford a new pool or a sports complex. It most certainly cannot afford the message that the parcel tax might fund these luxuries, undermining the urgency that we need to shore up our infrastructure.

But the very bottom line that this economic picture tells us is that Davis does not have a strong enough economy to make a full recovery. Right now, if we can pass a parcel tax and keep our sales tax, we can keep our budget in the black until the next recession.

That is with a historically low employee base and holding the line on total compensation. During an economic recovery, the best we are going to do is barely scrape by if everything goes right.

That is no way to live.

And that is precisely why we need economic development. Quite frankly, we have lost our way there. We have squandered the momentum. It was a year ago when we had hope and promise in this regard. The city’s RFEI (Request for Expressions of Interest) process dug up two concrete proposals and even a third proposal that seemed a bit too good to be true.

Earlier this spring, former City Manager John Meyer made his case for why we need to “double down on economic development.” Since then we have lost a project, lost a well-respected chief innovation officer, and the entire process seems to have lost momentum.

There are lot of reasons behind the scenes for these changes, but at least one thought is that without an economic crisis, many believe that the citizens will not affirm a Measure R vote. The rhetoric coming out of city hall and published in the local newspaper was that the crisis was over and the storm had passed.

But the economic projections that we see do not support such a conclusion. I see a crisis precisely because, in the best case scenario, we barely skate by.

This city desperately needs a more vigorous and diverse economy. The way we have set forward to solve that problem has been the dispersed innovation strategy which calls for the city to utilize existing space, whether it be in the downtown or the new Panattoni development in south Davis. It calls for the passage of Nishi. And it calls for the city to explore peripheral sites that can become research and technology parks.

The crisis has not passed and we need more tax revenue through economic development – more than ever.

—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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22 Comments

  1. Jim Frame

    One councilmember suggested a one-time, one percent COLA. That is far from ideal, but workable.

    Before we look at a blanket COLA I’d like the city to do a top-to-bottom review of staffing to see how well current positions match current needs.  If there’s a significant mismatch — for example, highly-paid managers with little that needs managing — we might be able to eliminate unnecessary positions and bring down overall staffing costs.  Once staffing is efficiently distributed, then it might make sense to implement a COLA plan in the interest of retaining staff and improving morale.

    1. hpierce

      In the meantime, sounds like a CORA.  Employees absorb all med/dental rate increases, all additional PERS assessments to the employer, perhaps fund a portion (if not all) of the backlog of PERS/PERB costs.

      And absorb any inflation to their net income expenses.

  2. Anon

    Second, we need to pass a parcel tax.

    We may “need” it, but I very much doubt a parcel tax has a tinker’s da_n chance of passing, especially in light of the city’s poor messaging, as you have noted:

    The rhetoric coming out of city hall and published in the local newspaper was that the crisis was over and the storm had passed.”

    The interesting thing is that I feel not all members of the City Council are necessarily responsible for that poor messaging.  Hence why some City Council members called for a “redo” on the budget forecasting to include the scenario of no sales tax increase extension; and a 1% COLA.  Some City Council members are very aware the city is hardly out of the fiscal woods by a long shot.  The question is, how many City Council members, and can they ultimately coalesce with one voice, to present the true picture and the crucial need for economic development?

    This city desperately needs a more vigorous and diverse economy. The way we have set forward to solve that problem has been the dispersed innovation strategy which calls for the city to utilize existing space, whether it be in the downtown or the new Panattoni development in south Davis. It calls for the passage of Nishi. And it calls for the city to explore peripheral sites that can become research and technology parks.

    The crisis has not passed and we need more tax revenue through economic development – more than ever.”

    The only thing I would add to this is the need for WELL PLANNED innovation parks that generate substantial tax revenue – that makes the problems they may cause far less than the benefits they will generate to the community.

    1. Davis Progressive

      i largely agree with anon’s perspective here.

      first, i think the parcel tax is highly unlikely to be successful.  we have fumbled the messaging badly and the mayor in his quest for higher office has ironically badly damaged the city’s ability to achieve fiscal sustainability.

      second, anon is correct that the council led by brett lee, rochelle swanson and eventually robb davis pushed back on the city manager to push for a more realisitc budget protrayal.

      third, agree on the emphasis on well planned…

    2. hpierce

      Moderator and all… the word “damn” isn’t that damn objectionable unless used to suggest someone is sent to hell/gehenna, etc.  Or unless used multiple times in a single sentence or post….  oops!

  3. Davis Progressive

    this is really a powerful piece that clearly lays out the dilemma that we face.  contrary to the rhetoric from november and into the early part of the year, i see things are not in good shape and likely will not be in good shape over the next several years.

  4. Gunrocik

    As I noted in an earlier post, the Council majority is in a tough spot with the machine now controlling the messaging and controlling city staff.

    Here’s an idea that was passed on to me that I am more than happy to share:  A great way for the Council majority to re-establish their authority — is to make one tweak to the budget.

    While the Council can’t hire and fire employees, they do have the authority to approve what staff positions are budgeted.

    With TechDavis funding out of the picture, they should take a hard look at whether or not to continue to fund the Chief Innovation Officer position.  The City already has a very qualified Deputy Innovation Officer–in fact one that is far more qualified than her future boss.

    Why waste over $150,000 of General Fund Dollars on someone unqualified for the position who was clearly hired to allow further infiltration of City Hall with machine operatives.

    Eliminating the position will send a clear message to Dan and his sidekicks that the Council majority still calls the shots.

     

      1. hpierce

        Ouch!  My bad… was ‘scanning’ and missed the ‘author’… comment remains, as it was my opinion… person I responded to should be considered revised.  Mea culpa… [and, a fair criticism of my lack of attention…]

    1. Anon

      I’m not sure eliminating the CIO position is the right “message” to send to citizens, the region, or developers of innovation parks.  It might be pennywise and pound foolish in the long run.  We should have kept Rob White, who was doing a fabulous job.  However, let’s see how the new CIO does before we call for the elimination of the position if the city is truly serious about innovation parks.

      1. Davis Progressive

        i don’t know what the right move is at this point.  i do know that cutting a well-respected cio, who had regional ties and hiring someone at a substantial cost savings looks cheap at best.  how do we fix this?

        1. Frankly

          It wasn’t just the removal of Mr. White that told the entire story.  It is possible that, even with his CV, he was not a good fit for the management team being formed by the new CM.  And so if another similarly-credentialed replacement was brought in, I think we could all get over it and move on.

          Or when considering the drop in ED qualifications, if the CM had the kind of credentials to back the assumption that he himself would step more to the plate in the absence of other qualified talent, the changes would be easier to digest.

          But with the replacement of highly-credentialed actors with much lower-credentialed actors, it is clear that political strings are being pulled for political reasons and not for what is in the best interests of the community.

          How do we fix this?

          Elections.

        2. TrueBlueDevil

          Doesn’t this actually cost us an extra $150,000 the first year as the former CIO will be paid his contract?

          Given the large step-down in relevant experience and this little drama, maybe a less lofty title is in order.

  5. Gunrocik

    Anon:  I’m not sure eliminating the CIO position is the right “message” to send to citizens, the region, or developers of innovation parks. 

    I appreciate Anon’s point — but when you unceremoniously dump one of the most respected economic developers in the region and replace them with someone with no prior experience — the “message” has already been sent.

    It is now time for the Council majority to send the message that they are serious about Economic Development — and the only way they can do that is by telling the City Manager how insulted they were by his power move to put a loyalist instead of a professional into this critical position.

     

    1. Don Shor

      If the council majority were to micromanage the city manager’s personnel decisions and act in the manner you are suggesting, they might as well just ask for his resignation instead. Agree with his decision or not with respect to the CIO, the city manager has a right to establish his own management team.

      1. Davis Progressive

        i actually agree with this point – i think the cm made serious errors here.  i guess you can contort to make the case that the council believes this move in error but overall likes brazil, they could take the approach, but i think you’re right ultimately – fire him or accept the move.

      2. Gunrocik

        Don Shor:  If the council majority were to micromanage the city manager’s personnel decisions and act in the manner you are suggesting, they might as well just ask for his resignation instead. Agree with his decision or not with respect to the CIO, the city manager has a right to establish his own management team.

        The Council has the unilateral right to dictate staffing levels.  That isn’t micromanagement, that is their right as the governing board.  It is part of the checks and balances between the legislative and executive branches, which is currently out of balance due to the CM functioning as a politician instead of an administrator.

        Next thing you know, he will be sitting next to Dan on Tuesday nights.

  6. Davis Progressive

    it is interesting that the article overall was pointing out the need for economic development while the comments have focused on the ousting of the cio, suggesting that there are still hard feelings beneath the surface.

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