by Robb Davis
Late last August I presented a “SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis for our City. At that time I noted:
Our inability, given current revenue, to pay for the maintenance and replacement of critical city infrastructure is a weakness. Over the past 15 years, total general fund revenue has grown by 95 percent while general fund expenditures have grown by 92 percent. Revenue appears to have kept pace with expenditures. However, when we dig into the expenditures — or rather what is not in the expenditures — we see that the picture is not positive.
I concluded that current revenues are millions of dollars per year behind needed expenditures on things like roads, parks, and city-owned buildings. Later in the same article I laid out the threat of rapid growth in City employee pension costs stating:
Despite statewide pension reform in 2013, our pension costs continue to grow. CalPERS, the state pension fund, sets rates based on returns on its investments. It has assumed it can achieve an annual rate of 7.5 percent. In years when it does not meet this level, it requires agencies to pay greater amounts. Over the past 20 years, CalPERS’ average annualized returns were 7 percent.
Since then, CalPERS has decided to lower its expected rate of return, meaning that cities like Davis will pay even greater amounts to cover pension costs. The most updated analysis by the City-contracted actuary (done before the most recent reductions) 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 $5.5 million.
And these extra millions cover ONLY pensions. They do not include medical costs and non-employee cost increases related to City services. It is no exaggeration to say that over the coming 5 years (and beyond) we need $15-29 million each year to cover all these costs combined.
We have a dire fiscal situation in our city.
The previous and current City Councils have begun to deal with this situation by seeking voter support of an increased sales tax (passed), and through increases in all city fees (inspections, parks programs, space rentals, etc.) and utility rates. These increases are not popular but they are part of our plan to address shortfalls using all the tools at our disposal.
We also continue to seek ways to increase revenue through economic development, but there is little systematic revenue growth from these efforts to date, which include plans to create municipal broadband and entitle new hotels to bring in additional transient occupancy taxes. Several projects that could have opened the door for the creation of new commercial space have not gone forward and there is constant pressure to convert existing commercially-zoned spaces to housing. The process of increasing revenue through economic development is slow and requires ongoing efforts.
Finally, during the first half of this year the Council will once again consider tax increases in the form of utility users’ taxes or parcel taxes. Any measure would have to go to the voters and it will be up to the Council to make the case how such taxes would be used to address the critical needs of the city.
It should be clear from the foregoing that we are taking a comprehensive approach to increasing revenue. What we have not yet done is critically analyze the role of cost containment in meeting our fiscal challenges. I believe that in addition to seeking revenue growth, we must engage in a more strategic and comprehensive analysis of cost containment approaches if we are to move the city towards fiscal resilience. This analysis must include restraining employee cost growth, but must look widely for all manner of cost control measures. I would argue that these must include at least the following.
- Undertaking a full staffing analysis to determine match between service delivery needs and staffing. We have reduced staffing by a quarter over the past decade but that downsizing has been done in a non-strategic way—via attrition primarily. We must ask how this downsizing has affected our ability to deliver city services and how we might staff differently to deliver key services at lower cost
- Considering best ways to provide services going forward with a focus on training workers to take on multiple tasks, outsourcing of services where most appropriate, and analyzing alternative service delivery mechanisms such as using non-profits to provide programs
- Examining all means to further reduce growth in compensation costs including analysis of retiree medical insurance options (as other California cities are doing).
- Promoting a more aggressive analysis with the County and other cities, via the Local Area Formation Commission (LAFCo), of shared bidding, service, and consulting options to reduce duplication and obtain scale efficiencies.
- Determining what current city programs might be candidates for reduction or elimination and which we want to or must keep.
- Deciding what current city infrastructure we could sold for redevelopment (buildings, properties) to eliminate maintenance expenditures related to them.
- Examining our green spaces and parks to determine ways to reduce ongoing maintenance costs.
- Creating more transparent and accessible accounting and projection systems that enable a more precise estimation of costs of specific services so we can more accurately determine where our greatest cost savings can be found.
To fully explore these options, and enumerate others, will take a concerted effort of City staff and citizens. We have had great success, as a city, in appointing knowledgeable citizens to work on focused challenges and proposed solutions. Past and ongoing successes include the Downtown Parking Taskforce, the Sports Park Taskforce, the Community Choice Energy Advisory Group, and the Broadband Taskforce. Our community is blessed to have many residents with specific experiences and expertise to explore solutions to challenges and make recommendations to the City Council for action.
Given this, I would propose that we form a cost containment task force and give it the mandate of 1) finding immediate ways to reduce City expenses and 2) providing recommendations about how to reduce the growth of costs and further cost reduction approaches over time. The purview of this task force should be broad and it should be given up to a year to develop a full set of specific recommendations. It should seek out best practices around the state and the nation and clarify which options are and are not possible for our consideration.
Your City Council is taking a comprehensive approach to dealing with our fiscal challenges. There is no silver bullet. There are no easy solutions. There is only a firm commitment to do everything we can to create a more fiscally sustainable city. Cost containment is one critical, if challenging, element of that commitment.