Yesterday’s article on potential revenue from new hotels triggered another side discussion on employee compensation. The problem that the council now is going to face is that all revenue measures and all economic development projects not only are going to face traditional concerns over land use issues, but now revenue-based justifications are also going to face skepticism that the fruits of these projects are not going to go to ongoing needs, but rather to the bottom line for city employees.
What was already an uphill battle on some of these projects was just made ten times harder in my view. As I stated yesterday, my growing concern is that these revenue measures really will just feed back to increased employee compensation. That is something that we should not be doing until the city is on better footing fiscally.
That prompted a legitimate question from a reader who asked, “So what is the tipping point for you? Where does the city specifically have to be, to be ‘on better fiscal footing’ before you are willing to grant city employees COLAs?”
That is admittedly a difficult question to answer. The easier question is why not now.
The answer to why not now is straightforward. First, even the modest three percent COLA (Cost-of-Living Adjustment) for four of the bargaining units costs at least $1.1 million, and probably more when you consider the longer term PERS (Public Employees’ Retirement System) and longevity pay issues. Using the most recent projections from June, that modest budgetary hit actually pushes us into the red within two years.
Second is the fact that council just passed a revenue measure in June 2014. That revenue measure pushes us from the red into the black. And, as projections continue to demonstrate, when the revenue measure expires, we end up back into the red.
Council, in laying out the need for that revenue measure, stressed roads and infrastructure costs along with increased state-imposed costs for labor. They did not tell the voters a portion would go for employee raises. In fact, they discussed putting an advisory measure on the ballot that would have precluded the revenue going to employee compensation.
Finally, council is still debating another revenue measure for infrastructure. In light of the collapse of the oil market, projected inflation has decreased from eight percent and council is using the four percent mark for now, which I think is a bit too low looking at a 20-year horizon. But if that held, the council might be able to get away with spending, instead of $10 million per year, closer to $5 to $7 million.
Of course, there are other infrastructure needs as well, and that probably means the council should put a revenue measure on the ballot – however, it looks like if the council wanted to avoid another revenue measure, they could have used that $1.1 million (that was supposed to go to roads anyway) and bring current road maintenance funds up to $5.1 annually.
The bottom line is that the city had committed the money elsewhere, had other needs, and is looking to ask the public for more revenue at a time when the city budget does not show us in the clear by a long shot.
There are three other considerations as well. First, we saw a tremendous growth in employee compensation from 1998 to 2005. That created a huge strain, not only in terms of salaries but also on pensions and health care, and we need to allow inflation to reduce that strain over time.
Second, while the city has cut, mainly through attrition, about 100 positions, it is my understanding that, per capita, Davis is still on the high end in staffing numbers and it would be instructive to see a staff analysis. I still recall the time when former Councilmember Lamar Heystek walked me through an organizational chart that had 11 layers between the director of Parks and Recreation to the staffer who at that time ran the teen center.
His point to me was that there was a huge layer of middle managers who are tasked with duplicative tasks and responsibilities. Does that still exist? I haven’t seen any kind of audit on this.
Finally, along the same lines, we have often used one comparative, average wages, to show that Davis is not at the top in employee compensation, but, if over-staffing is the case, perhaps the bigger problem isn’t average wages but per capita staff expenditures.
In short, I would like to see the city’s study of needs, an audit on staffing, and an analysis of per capita budget before increasing compensation.
This exercise was intended to show that now is not the time for employee compensation increases, as well as the fact that we still have a lot of questions about budgeting and spending first.
So what would it take for me to support employee compensation? That was the original question. First, we need to have the funding in place to deal with infrastructure needs, whether that is a tax measure or a transfer of general funds from other uses.
Second, we need to understand where we are and therefore we need staffing studies and audits. We need to look at our spending compared to other communities and we need to assess the level of service we want in this community and what that is going to cost.
Finally, we need to ensure that we never again do what happened from 1998 to 2005. That means we need to take steps to keep health care costs and pensions in line. We need to be cognizant of the impact of salaries on future retirement costs, and we need to ensure that increases to total compensation are capped at revenue growth which is more pertinent to inflation.
In addition, we need to make sure we can afford the increased compensation. The biggest problem right now is that the proposed compensation cost increases are larger than our revenue surplus and so we are pushing ourselves from the black to the red.
We need to be able to afford those increases and build in a margin of error, just in case revenues come up short with projections.
—David M. Greenwald reporting