In 2014, the Davis City Council acted to close an immediate $5 million hole in the budget with a new half-cent sales tax. Since that time however, the council has had several opportunities to put a tax on the ballot to address infrastructure needs and has not done so.
The council, in July 2014, opted not to put a parcel tax on the ballot in the fall after polling showed less than two-thirds threshold support. In 2016, the council opted not to put major revenue measures on the ballot other than a small increase to the hotel tax and a placeholder for a cannabis tax.
The council at that time could not agree on either size or the targeted funding (parks versus roads, for example) and opted to not rush a tax on the June ballot. The council then apparently deferred to the school district in November and allowed the school parcel tax to stand alone.
With the revenue discussion scheduled for July 11, there should be plenty of time this time for the council to figure out their revenue needs and what the ideal tax would look like.
Helping them along their way is more robust modeling forecast projections for the budget, that have produced a more accurate and long-range model for city funding needs.
Last month, the staff report introducing the budget concluded, “The average annual shortfall in funding is $7.8 million.” To put this into perspective, “this amount is roughly equivalent to the current 1% Measure O sales tax, or to a 6.0% utility users tax on power, communications and water/sewer/sanitation services, or to a $270 parcel tax.”
And this is still a low number, as the park maintenance cost remains a work in progress.
As we have reported, the source of this shortfall is not surprising ̶ with pension costs, road repairs and parks being major sources of budget shortfalls.
City Manager Dirk Brazil summarizes the situation in his transmittal letter to the city council. “We continue to see stability in our revenue streams, with notable growth in property and sales tax,” he writes. “Although revenue is currently stable, the City’s expenditure obligations continue to grow. CalPERS announced a change to its pension discount rate over the next three years, effectively increasing the city’s annual pension obligations going forward. While the city continues to fully fund Other Post Employment Benefits (OPEB), also known as retiree medical, those costs will also continue to rise in coming years.”
He continues, “Outside studies show the city needs to commit up to $8.3 million annually toward transportation infrastructure to maintain a suitable pavement criteria index, compared to the $4.4 million proposed for the budget in 2017/18. Finally, the City is in various stages of negotiations with all employee bargaining units, creating some uncertainty related to the 2017/18 budget and beyond.”
While a $270 parcel tax might seem modest at first, that is probably a low number for several reasons. First, it does not include the needs for parks.
Staff writes, “This is a work in progress. Parks and Community Services staff has been updating the Kitchell study to better identify park facility needs. The forecast currently assumes an annual average unfunded need of $555,000 for parks and structures, $100,000 for pool equipment replacement, $175,000 for park irrigation/conservation, $250,000 for wildlife habitat maintenance and $100,000 for urban forestry, for a total of $1.18 million.”
Second, right now the city is being expected to perform at a low point in staffing and a low funding for other needs.
Staff notes, “In addition to infrastructure concerns, the City should endeavor to keep staffing levels per capita relatively constant so that workload increases caused by population growth and other service demands can be adequately addressed. This will avoid diminishing levels of service over time.”
Staff adds, “Currently, most services are provided by City employees, but even if services were contracted for, additional funding will be required over time. The forecast funds one FTE increase a year, although two FTE would be required to hold staffing levels per capita constant over time. Thus, 50% of the $87 million in service increase costs over the next 20 years would be funded.”
The council has consistently talked about the need for more police officers and there is a shortfall in police equipment, as an example.
Third, part of the budget problem is that the city of Davis lacks revenue generated from sales tax. There is a transition taking place around retail tax as commerce shifts from local retail outlets to more in the way of online sales.
There is also the fact that the city is heavily relying on auto sales for its sales tax take – not only ironic for a progressive community, but potentially to be a losing venture into the future.
Finally, there are other community needs like addressing the homeless population, which could require revenue sources.
Still, a $270 a year parcel tax, perhaps bumped up a notch or two, seems like a good starting place to address long-term revenue needs.
The question is, will this community support the city as it has the schools? A parcel tax would require a two-thirds vote ̶ that has the advantage of being able to hold the city accountable for spending as it promises, unlike general revenue measures like the sales tax that could be diverted to employee compensation increases.
On the other hand, as we saw in 2014 with the polling, at that time even a $150 parcel tax would fail to gain two-thirds of the vote.
Those are big looming questions for the city as it attempts to deal with an ongoing shortfall of funding.
—David M. Greenwald reporting