Lost in the shuffle, of one of the busier weeks I can remember where there was no city council meeting, was a story we ran on Monday where Mayor Pro Tem Robb Davis noted that, while the innovation park remains “a huge opportunity for us to diversify our economic base,” in order for this project to pencil out, we have to deal on the cost side as well as the revenue side.
While this falls slightly shy of a game-changing revelation, it is critically important from both a land-use perspective as well as a city fiscal perspective.
There is considerable pushback in the community against the innovation parks, with many people seeing them as unnecessary expansion into farmland. They see the 200-acre sites as huge changes in city policy.
Part of the concern here was that the city was developing these parks as a way to enable them to raise employee compensation. In the last decade, compensation to city employees exploded, led by the firefighters for whom the city used a half-cent sales tax in order to give firefighters a 36-percent pay increase from 2004 to 2009. Other employee groups benefited as well, but most of them got less than half that increase.
The fiscal analysis offered by the mayor pro tem debunks that fear. Right now, the fiscal analysis shows that, while the project has on the conservative side a gross revenue at buildout of $3.75 million, the net revenue is just $2.1 million – with $1.5 million going toward city services.
One of the biggest problems that the city faces is that our current revenue is only increasing by 1.1 percent each year, while the costs are going up by 2 percent.
While I think there are good cases to be made that the net revenue projections are on the low side, what is becoming increasingly clear to me is that the innovation parks will help the city budget projections, but they will not be ongoing game changers – even if the city is able to simultaneously increase the net revenue, hold costs down, and add an assessment.
Ironically, as the city faces a situation where it could be back in the red by 2022, passing additional taxes could actually enable the city to increase employee compensation far more than an innovation park. A parcel tax, at least, has its money directed by the tax, but nothing would preclude the council from shifting other monies to go to employee compensation.
Robb Davis pointed out that there is a bigger picture than simply revenue. The mayor pro tem argues that “we went into this for a whole lot of reasons.” While revenue for the city was one of those reasons, “creating good jobs for the community was another. Diversification of our economic base may be the most important.”
But from our perspective, the most important takeaway here is that, while the city’s fiscal picture has improved mainly from the passage of the sales tax and somewhat from the improvement of the economy, we are far from out of the woods.
As we pointed out last July, we currently 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 note any possibility that our economy may dip back into recession sometime in the next ten years.
Robb Davis quickly points out that our costs are increasing at nearly twice the rate as our revenues. And yet, as we are about to enter into a new period of MOU negotiations, City Manager Dirk Brazil took the possibility of more employee concessions off the table.
The reality is that this analysis shows that, if we do not control costs, innovation parks will not save us. The revenue generated by the parks will be offset by higher costs for service if we cannot find ways to, at the very least, reduce that 2 percent annual cost inflation.
The city does need to address our shortfall in roads money. One thing that is clear from the back and forth in Sacramento is that we just cannot count on money from Sacramento to repair our local infrastructure.
There are undoubtedly a lot of land-use questions that have to be worked out by the community before the Mace Ranch Innovation Center can be approved, but one thing I do like about the economic analysis is that, in order to derive any benefits from the new development, we have to find a way to cut our employee compensation costs.
The innovation parks will not enable us to increase employee compensation because we would end up cutting off the very revenue stream that would sustain the increase in the first place.
—David M. Greenwald reporting