My View: Is this a Budget to Celebrate?



This week, the Davis City Council approved the city’s 2015-16 budget. Let us be clear about one thing – the budget picture is definitely improved over where it was a year ago when we were facing $5 million in structural deficits. But let’s also be clear on something else – it’s premature to celebrate.

While I have seen references thanking city staff for their hard work, there are a few things I haven’t seen acknowledged. First, without the sales tax increase last June approved by 58 percent of the voters, we would still be in the red and eating into the general fund reserve. But I have seen no thanks given to the majority of the public who agreed to pay slightly more in sales taxes for making it possible for the city to be improve its fiscal standing.

And how about the hard work of the previous council and staff for making tough choices over the previous five years to get the fiscal situation into a more manageable position? We saw the long work of council and staff to deal with the pension crisis that was facing us, as the result of unsound fiscal decisions 15-16 years ago compounded with decisions to increase employee compensation to unsustainable levels in the last decade.

The MOU process that was completed in 2013 helped set the stage for the city’s ability to manage its budget. The city engaged in a year-long effort to reform the fire department, saving between half a million and a million. It put assets toward retiree medical to shore up those fund sources. It took steps to make sure that employees were paying their share of pension costs. And the city did an audit of roadway pavement conditions and mapped out a plan to deal with deferred maintenance there.

Despite all of these efforts – which saved millions – the city was still in a projected hole last spring and so the city manager, as he was leaving town, met with countless community groups and residents to explain the fiscal situation and why we needed the sales tax.

The sales tax passed with 58 percent of the vote – without which, despite improved revenues, we would still be in the red and be looking at cuts. And yet there is no acknowledgement of the hard work by the previous council, previous city manager and finance director, or the voters for making this year’s budget possible.

Some have described us as having a very healthy 15 percent General Fund reserve. It sounds good, but it reminds me of claims made in the spring of 2008 by incumbent city council members seeking reelection. Don Saylor and Stephen Souza, during various candidate forums, stated that we had a balanced budget with a 15 percent reserve.

Accurate to a point, but misleading. The problem, which was pointed out at the time, is that we only had a balanced budget because things like deferred maintenance, unmet needs, and unfunded liabilities were not included in the budget.

Ironically, in the fall of 2011, the city council approved a motion that the budget would not attempt to hide these hidden deficits anymore. To my knowledge, that motion has never been implemented.

The reality is that right now we do have a healthy General Fund reserve. However, the reason we have a healthy general fund reserve is the sales tax. We know from city projections that if the sales tax sunsets, we go right back into the red in 2020-21. We know that if the city employees get just a 1 percent COLA annually, we go right back into the red around the same time.

The projected budget did not include any increases to the employee compensation or any thought that our economy may dip back into recession sometime in the next ten years.

So yes, we have a 15 percent General Fund reserve in this year’s budget but it’s precarious at best, and really about as meaningful a measure as it was in April 2008, four months from the collapse of the US economy.

The good news is we have $4 million set aside for streets and roads.  As we reported earlier this week, that means we will have money for road repairs. However, as we noted and public commenters noted, looking at the map, the amount of needed road repairs is barely registered on the map. $4 million quite simply is not sufficient to reduce our growing deferred maintenance backlog on streets, sidewalks and bike paths.

As we reported this morning, we are looking at a User Utility Tax that would fund $5.3 million annually. The good news is that that tax would need only a simple majority. The bad news is that, as a general use tax, the tax revenue would be available for any use, not simply streets, sidewalks and bike paths. More on that in a future column.

Therefore, is it good news that we have $4 million in our budget for streets and roads, or is it bad news that we apparently need more than twice that amount to make a real dent?

We have presented our concerns about the budget process here before, starting with the fact that we appear now to be reliant on the renewal of a tax measure that was billed to the public as temporary” and “emergency.” However, it is clear that the city goes immediately back into the red as soon as the taxes expire after the 2020-21 fiscal year.

We also have not seen the fact addressed that our budget is barely holding into the black at a time where we are at a historic low in terms of number of full-time equivalent (FTE) employees. At 352, we are down a full 100 from the peak. Those cuts were largely done by attrition and without much regard as to services provided and workload. The question is whether we can assume that, over the next decade, we can continue to operate at 352 FTE. Again, it seems likely that we will need to grow the number of employees to a more workable level.

Finally, the precarious nature of the budget suggests that we ought to examine employee compensation once again to see if we can gain cost savings there, but the city manager precluded that possibility by stating at the budget and finance commission meeting that he will not seek any additional concessions from employee bargaining groups.

In sum, things have improved, but they are extremely precarious. It is not that we are still facing challenges, it is that the recovery right now leaves us with absolutely zero room for error, even with the current sales tax revenues in place.

Economic development is definitely the longer term strategy to pursue, but even if the voters approved the Mace Ranch Innovation Park in June 2016, it might be ten years before the build out is sufficient to start adding to our revenues, and 20 to 50 years before the build out is complete.

In the meantime, we go red – as it stands now – in 2021. That’s the reality that we face.

—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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13 thoughts on “My View: Is this a Budget to Celebrate?”

  1. Gunrocik

    In my mind, the sales tax measure was pitched as a temporary fix until the innovation park money started rolling in.

    Now, I’m not hearing that pitch at all from the Mayor or his lackey.  Instead, we’ve replaced our Innovation Officer with another political operative, we’ve been told sports parks and pools should be our priority, not our crumbling infrastructure and apparently our long term solution to fiscal health is to tax ourselves into oblivion.

  2. #me

    Was there any discussion about whether or not Davis is still sending $3,000,000 a year to Yolo County?

    This issue is especially relevant given the $5,300,000 annual UUT being contemplated.

  3. #me

    DG: Do you know the answer? Does the financial arrangement from the old pass through agreement still exist in some form – i.e. is Yolo County still getting annual payments from the City of Davis?

    This is a huge fiscal issue. The last document I could find online (from a couple of years ago) showed that the payments were exceeding $3,000,000 annually.

    1. Frankly

      The last I remember hearing it is more like $3.7MM and is still being paid.

      This is an interesting one because the city is still paying it even though the agreement is apparently null and void following Governor Brown’s killing of RDA so he could stuff more dollars into the pockets of the teacher’s union members that ensure Democrats are elected in the state.  The pass-through is really just bribery money to prevent the country from developing on county land next to Davis.

      The interesting thing here is that a 200 acre business park built on county land would return more like $6-8MM in annual county tax revenue.

      So, let’s play this out.

      Saylor and friends seeing the potential dollars and glory, note Davis’s Measure R and the risk that the West Davis Innovation park would be killed at the ballot box.  He works with operatives within the city to replace those working on the Davis peripheral annexation approach, and gets additional operatives in place to help increase the risk that the peripheral annexation approach would not work.  He talks with the west Davis innovation park developers and convinces them to pull out, and then later work with the county that will tell Davis they can keep their $3.7MM and the county will move forward with the innovation park instead.

      Saylor would make some enemies in Davis because of this, but Davis’s regional and state political cachet has been declining for years as the rest of the region has grown and is on the brink of taking things to the next level.  Saylor knows that his political career would be bolstered by this move because the rest of the region sees Davis as stuck-up, elite, and unwilling to do their part in support of regional opportunities and needs.  There are a lot of big money people that would slap the back of a politician able to make something like this happen.  Money would likley flow to that politician’s campaign chest.

      This is probably just the beginnings of (a much, much lower quality) John Lescroart novel, but then there is a lot of dollars at stake here… and big money tends to cause more complex strategies and bigger gambles.

      1. #me

        The question about whether or not we are still making a >$3,000,000 annual payment to Yolo County is a simple yes or no question. I hope the answer is forthcoming from the powers-that-be. It’s a big issue.

        1. Matt Williams

          Unfortunately #me, the answer to that question is elusive. I asked Yvonne Quiring that question as part of public comment in a Finance & Budget Commission (FBC) meeting and she deftly ducked the question (IIRC, I was not yet a FBC member at the time). Yvonne’s answer was that neither the Pass Through Agreement revenue nor the Pass Through Agreement expense were shown in the budget because the revenue never makes it to the City, but rather goes from the State to the County, which extracts the Pass Through Agreement payment amount from the total and then passes on the net remainder to the City. After her explanation, I made the strong request that the City’s accounting methods be adjusted to reflect both the revenue and the expense each year. That request disappeared into the ether.

      2. #me

        Frankly: No time to challenge your assumptions now, but I think the claim from the city of $6-8MM in annual tax revenue needs to be carefully deconstructed. The variables are adsorption rates and tax revenue per square foot. A frank discussion about realistic demand is also in order. I suspect that the technical reports may be telling a different story, and that may be the motivation for the suspension of the NEQ proposal. To bad that the peons don’t get to take a look at the documents. I don’t think Saylor is even close to smart enough to pull off the kind of maneuver that you are speculating about.

        1. Frankly

          Does not have to be that smart… just have to be in the right place at the right time and have smart people that are telling him what to do and offering rewards for doing it.

          This innovation park debate has been raging for three years, and the work has already been done to estimate the annual tax revenue.  There are also studies out there for existing research park developments and those have been used to validate the assumptions.

          Of course it is impossible to estimate within a wide standard deviation because different types of business have different tax footprints.  You have to make assumptions, but over a 20-year build out, the end result should average $6-$8 million.   There will be some upfront fee revenue for the development and population of the park, ,and then a fully populated park would provide that ongoing revenue stream.

        2. Frankly

          Oh… and if made an assessment district (not sure about how that works with a county) for the City of Davis the estimate was $12MM per year.

        3. #me

          “the work has already been done to estimate the annual tax revenue”

          Have you personally seen the studies? For that matter, have personally you seen the studies that validate the assumptions?


  4. #me

    On the $12MM from assessment districts, that sounds like a Pinkerton scheme. It assumes full buildout of both sites and cooperation from the developers.

    Good luck convincing the Mace project to tax itself. They’re the only game in town and I’m not convinced they are all that motivated to even do the project.

  5. Anon

    Gunrocik: “In my mind, the sales tax measure was pitched as a temporary fix until the innovation park money started rolling in.

    This is the key point.  The sales tax measure was supposed to be a temporary bridge until the tax revenue generated from innovation parks started coming into Davis city coffers.  It was to be paired with a specific parcel tax to fix roads.

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