It comes as little surprise to the informed observer that Davis’ sales tax per capita is much smaller than that of other comparable communities. Of that sales tax, a large percentage is generated by auto sales – a fact that is deeply ironic, given Davis’ sustainable claims on the environment.
We will have some numbers to illustrate just how bad off we are here later this week, but in the meantime, I want to discuss some implications of this.
While the short-term budget picture has improved, indeed the city right now has about $8.6 million in one-time funds that it is going to put toward paying down some of the city’s liabilities. But, as anyone who has read these pages knows, the city faces ongoing challenges to fund infrastructure maintenance and repair across a range of areas.
The recent news on CalPERS suggests that there will be additional adjustments to profit projections that are likely to add additional millions in costs for pensions.
The city is currently projecting about a 2.6 percent annual revenue growth from this year until 2022 when the sales tax increase is set to expire. Allowing the sales tax increase to expire would reduce the annual revenue base by $5.6 million in 2022-23. This would push the city back into the red by 2022-23.
Those numbers do not allow for the city to add revenue in order to deal with hundreds of millions in deferred maintenance for roads, greenbelts, parks, city buildings, and other infrastructure.
The ongoing question is how to pay for those and other community needs. Right now the city has done well to find about $4 million in general fund money for roads. Most analysts believe that the city needs about twice that annually. There was a time when it appeared that the state might fund at least some of that – but a bipartisan roads package fell through last fall.
The city at this point has not put a revenue measure on the ballot for November. Back in February, there was significant discussion on the type and amount of tax we needed. However, disagreement on the type of tax, the target of that tax, and the amount, convinced the council to push off that discussion for probably two more years.
The council seemed to have little appetite for putting a tax measure up this fall that would compete with the school’s $620 a year parcel tax. Moreover, the Finance and Budget Commission had asked council to forestall any parcel or other tax increases until they could fully analyze the need and cost.
There has been a discussion that ultimately, between the schools and the city, the need for a parcel tax could reach as high as $3000 per year. That would allow the city to collect its $30 million while ratcheting up the school’s take to fund the programs it needs.
Clearly, that number is a non-starter for all but the most wealthy residents. But that’s the point actually.
The question is where does the city get the money it needs to provide at least current levels of service, while funding its pension and OPEB (Other Post-Employment Benefits) liabilities to retired city employees and funding infrastructure projects?
One area where the city thinks it can expand its revenue is in the hotel industry. Already, voters approved a modest increase in the Transient Occupancy Tax (TOT), but that figures to have only a modest impact of perhaps $300,000. That’s nothing to sneeze at but not a game changer.
However, there is a belief that the Embassy Suites Hotel Conference Center could generate $500,000 if the city ever settles the lawsuit. Moreover, the city may look at a second hotel that could also generate additional revenue.
As the Vanguard reported earlier this year and other reports seemed to confirm, there are some questions as to how many rooms the current system can accommodate, and also the belief on the part of some that there is leakage to other cities.
Nevertheless, this is not going to fix our revenue problem, but it may help it at the margins.
When the discussion of innovation centers came up a few years ago, one of the abiding beliefs was that Davis needed to diversify its economy. Its sales tax base is too reliant on auto sales, and that may be a diminishing return market at some point.
Moreover, there is an belief that the community will not support a huge expansion of peripheral retail. There has been general support for the notion of protecting the downtown. Target was the one big box that Davis appears to have considered adding.
Without an expansion of retail, that leaves the innovation park proposals, with the idea that adding commercial space at Nishi and in one or two spots on the periphery might add up to $10 million annually to the revenue.
Others have suggested that we are under-utilizing the downtown and that densification of the downtown could generate additional revenue.
What is clear right now is that Davis is well below average for sales tax revenue. Bringing Davis up to closer to what some other cities bring in per capita will greatly close the gap. That appears to be something that the community can accomplish without throwing down strip malls on ag land.
But, as the city seeks to embark on a General Plan update, part of the vision should be economic and commercial development – where is the city going to get additional sales tax revenue from, how are they going to do it, and what is the city going to look like as a result?
All of that needs to flow from an accurate and honest assessment of our needs and how we can better utilize our strengths.
—David M. Greenwald reporting