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