A growing view for solving Davis’ financial problems is to kick the can down the road and hope that the state will come in and fix our problems. Interestingly enough, I have heard this view expressed in numerous places, including indirectly from a councilmember whom I might have considered among our most fiscally responsible, and from other segments of the community as well.
For instance, one poster wrote, “The reason I mention this is because it seems likely that some of this will have to be addressed on a system-wide level (beyond Davis). If Davis is somehow able to ‘resolve’ all of these challenges for itself (on its own), it would likely be one of the ONLY communities to do so.”
A similar view was expressed last month when the Toto Project was presented in the Davis Downtown.
Should we wait for the state to bail us out? As one reader pointed out to me, given the fact that the state is in just as bad, if not worse, fiscal shape than Davis, given that the federal government is unlikely to be jumping in to provide funding any time soon, it is unlikely that the state will be the sole source of saving Davis from its fiscal woes.
There are two competing points that need to be addressed – one is whether Davis has self-inflicted wounds and the second is whether the state can jump in to save us.
Davis, through more resilient property values and an overall lack of debt, survived the Great Recession without having to declare bankruptcy. Once again, someone called me this week and suggested that Davis should declare bankruptcy, but the reality is that bankruptcy is not going to solve Davis’ problems because only a portion of Davis’ problems rests in compensation and unfunded pension/health care – a bigger problem is how Davis got into and chose to deal with the Great Recession.
Leading up to the Great Recession, the Vanguard was warning in early 2008 that the city’s compensation system was unsustainable, but that didn’t become evident to our leaders until it was too late. Decisions to put four fire personnel on an engine, increase pensions to 3 percent at 50 for public safety and 2.5 percent at 55 for others and then to give massive increases to compensation between 2000 and 2008 meant that, even with a sales tax revenue, the city revenues could not keep pace.
The city doubled down on the problem starting in 2009 because, instead of fixing compensation, it simply stopped investing in infrastructure – which ended up generating what is now a several hundred million dollar shortfall in deferred maintenance, for everything from roads to parks and greenbelts to city buildings.
Contrary to what anyone says, these were conscious decisions that Davis made that it did not have to make.
The result was that, by November 2014, while the whole state had a problem with roads, Yolo County was below average in the state in the rating system and Davis’ roads were worse than their counterparts in Yolo County – Woodland, West Sacramento and Winters. Yolo County in 2014 had a PCI (Pavement Condition Index) of 60, while the state had a PCI of 66.
Those who argue, well the roads aren’t that bad, are missing a point – as the roadway conditions deteriorate, the cost of repair goes up quickly.
The first chart shows how quickly in the life of the roads the conditions deteriorate:
The second shows how the costs go up from simple repairs to reconstruction:
The second problem that is Davis-specific is that we lack our own revenue sources to recover from shortfalls. As we reported this past year, Davis is near the bottom in terms of per capita retail sales tax, with the city generating about $8400 in a year per person in retail sales.
Woodland, West Sacramento and Dixon are really not that different from Davis in terms of tourism and geography, and yet they are racking up 2.5 to 3.5 times more per capita in retail sales.
The bottom line here is that, while Davis is worse off than others in the state in terms of roads and infrastructure, the city lacks its own economic base to overcome these problems.
Will the state bail us out?
Let us start with the pension problems. In December Mayor Robb Davis called the city’s unfunded liability situation “urgent.” For pensions, the unfunded liability has increased from $85.3 million up to $98.3 million in just a two-year period.
As Mayor Davis told the Vanguard on Thursday, “The most updated analysis by the City-contracted actuary indicates that even if employee salaries do not grow at all over the next five years, our required pension contributions across all employee groups (police, fire and miscellaneous) will grow by over $4.8 million per year compared to today.”
CalPERS (California Public Employees’ Retirement System) has been adjusting its expected contributions from unrealistic and unsustainable modeling to more realistic assumptions. While that is a good thing, each quarter percent decrease in their expected rate of return actually costs cities like Davis another million, which puts Davis more and not less in the hole.
There is little way out of it.
A year ago, Jerry Brown called CalPERS irresponsible for not going fast enough in its revisions to the expected rate of return.
“The CalPERS Board reversed course and adopted an irresponsible plan that will only keep the system dependent on unrealistic investment returns,” Gov. Brown said in a statement. “This approach will expose the fund to an unacceptable level of risk in the coming years.”
The result of that statement from the governor? Nothing. CalPERS ignored the governor.
So is there going to be a state solution here? Not likely, and certainly not one we can count on.
What can we do locally? Probably not too much. Observe that we put in place some reforms that have not yet taken effect for new hires with DCEA (Davis City Employees Association) and the fire department, because these groups have not agreed to a new contract and the city cannot impose new pension systems or rates on bargaining units.
Those who think we can do something more radical like change our pension system are missing this fact.
Finally, there are the roads. Will the state legislature finally pass a roads bill? Here things are more promising. There is progress here, in that Senate Bill 1 cleared a major hurdle this past week, which would generate $6 billion for California’s local and state transportation network.
That sounds good, and the League of California Cities continues to support “the $2.2 billion in additional revenue annual for local streets and roads and provisions expanding the streamline review for projects in existing right of way for all cities.”
The problem is that state and local roads have a maintenance backlog of about $130 billion, and motorists are spending $700 annually on car repairs due to poorly maintained roads.
The League notes, “This backlog is divided between $59 billion for state highways and $73 billion for local streets, roads, and bridges. Without additional funding, this shortfall is projected to grow by $20 billion in the next decade.”
But, given that Davis is in worse shape than most communities but is likely low on the pecking order, even if signed is Davis going to get enough to make a difference? Maybe.
Right now we are spending $4 million from the general fund. We probably need to spend $8 to $10 million, and so another $3 million from the state could be huge – if we get that.
Should we wait for the state to bail us out here and elsewhere, or should we come up with our own solutions and then use state funding to enable us to shift priorities if and when it comes?
More on this shortly.
—David M. Greenwald reporting