In 2008, the Vanguard was ahead of the curve, warning of unsustainable spending practices by the city, particularly on pensions and retiree health care – the Vanguard’s warning actually preceded the collapse of financial markets in September 2008.
In 2009, the Vanguard warned the city that the first round of “cuts” in the MOUs were insufficient. The Vanguard also began warning that roads and critical infrastructure was badly underfunded at a time when the council was using primarily attrition and a cut back in service hours to balance the budget.
That led to another and deeper round of cuts, culminating in a series of reforms on the fire department.
However, now in 2016, as revenues slowly increase, the Vanguard is looking more at revenue enhancement than additional cuts. A number of readers have privately and publicly asked why.
This column seeks to address some of those questions. In general, we favor holding the line on growth of city services, salary and benefits. However, even by holding the line, with the decline of return in the CalPERS pension fund, it is likely the costs for both pensions and retiree health will continue to increase.
Last year’s council decision to provide employees with a small increase in pay is problematic at best, and was, in our view, a policy blunder. Until funding is in place, the city should be holding the line on discretionary increases to payroll.
However, while the city may be able to cut expenditures on the margins to reduce some costs, the overall strategy probably needs to focus on revenue.
As Steve Pinkerton said in 2014 as he was exiting the city, the city primarily has a revenue problem at this point, not a spending problem. That theory is bolstered by the fact that Davis ranks near the bottom in per capita retail sales and per capita sales tax. With the exception of firefighter salaries, the city is near the bottom in compensation for its employees.
The council has little stomach for further cuts – choosing instead, last fall, to give a small pay increase. That of course is not justification not to do further cuts, but such cuts would run into numerous problems. When the city revenues were lagging, every bargaining unit except for the firefighters and DCEA (Davis City Employees Association) were willing to accept decreases in compensation.
While certainly the city has an obligation to see that both the firefighters and DCEA take their concessions, the rest of the bargaining units are likely to resist taking concessions at a time when revenue is nominally increasing.
There are marked differences between fire and DCEA. Fire sits at the apex of compensation, not just in the city but among all comparable cities, with some employees receiving well over $200,000 in total compensation in a given year. On the other hand, DCEA, while they have refused both the 2009 and 2013 rounds of concession, are at the very bottom in terms of compensation.
Moreover, while the city needs to be re-examining its future compensation system, especially in light of the latest implosion of CalPERS, there is little that the city can do about the current employees who are already vested in the defined benefits system.
In short, it seems difficult to gain much leverage over current city costs. And even if we did, the unfunded needs are at nearly half the city’s general fund budget. Any solution therefore needs to rely on a heavy amount of revenue unless we are willing to do across the board service cuts again.
Not only would further concessions at a time of growing revenue be politically difficult to achieve, there is a limit as to how much we can actually cut before the city becomes non-competitive for staffing positions.
We already see this problem with police staffing. When the city advertises for firefighting positions, it has people line up around the block to get a chance to interview – even with the cuts and imposed concessions. It is a different story for police.
Past articles have noted the huge gap in compensation for the two public safety positions, and political factors have made it even more difficult – with the police department seeking the right type of recruits, and quality recruits often reluctant to come to a city like Davis with relatively low crime but the perception of a highly critical and engaged citizenry.
The leveling factor could be pay, but right now Davis’ compensation, particularly on the salary end, is not competitive with other communities and this has resulted in a shortage of quality recruits for police.
The broader question is whether, across the board, Davis can recruit and retain quality city staffers in a highly engaged and challenging professional environment if salaries and compensation are not competitive with neighboring communities.
Finally, there is one additional point – why are we going to war against city employees at a time when revenue is moving upward (albeit slowly) and when we clearly are underperforming on retail and other revenue measures?
We support a multifaceted approach to solving the city’s ongoing and future budget challenges. By holding the line on current contracts, we allow inflation to slowly reduce costs. Can we cut costs on the margins? Probably, and we should continue to look at better efficiency models.
But at the end of the day, the city has opportunities to grow its revenue that will not harm the great assets of this community, will not greatly encroach on agricultural land and will not blow out our borders.
As we noted in Sunday’s column, just these five things would have cut into the ongoing shortfall by at least $15 to $20 million:
- Davis Innovation Center – withdrawn by the developers in the spring of 2015
- Parcel Tax and other revenue generating measures – not placed on the ballot by council
- Mace Ranch Innovation Center – twice withdrawn by the developers this spring
- Nishi Gateway – defeated at the polls
- Embassy Suites Hotel Conference Center – passed by council but held up in litigation
That amount may not have completely fixed our burgeoning fiscal crisis, but it would have gone a long long way in doing so. Add in some cost cutting and compensation control measures, and we get very close to solving our challenges while building resiliency into the future.
—David M. Greenwald reporting