Yesterday’s Sunday Commentary breaks down the school district’s long term fiscal picture – and based on that I conclude that, long term, we are in trouble trying to resolve the school district’s finances. We might be able to, through a parcel tax in 2020, forestall immediate problems, but without structural changes to how districts are financed and without commitment from the state, we are probably fighting a losing battle.
Ironically, while the city’s fiscal picture remains vexing, I do believe it is more solvable long term than the school district’s. That is not to paint a rosy picture locally.
We figure that, over a 20-year period, the city is probably over $200 million behind on infrastructure ranging from roads to parks. The city has managed to balance its budget over the last ten years by removing such spending from consideration and greatly slowing the growth of the budget.
But there is going to be pressure on the city to increase compensation which has largely been flat for the last decade. And we have had the benefit of a decade worth of positive economic growth that most experts believe will end at some point in the relatively near future.
The challenge for the city will be how to close that gap and manage future downturns in the economy.
The good news is, while that will be a major challenge, it is doable.
We need to look at this in terms of three planks: cost containment, tax increases, and revenue generation.
On cost containment. I disagree with those who don’t believe we have done it over the last ten years. Have we done enough? Probably not. I’ll grant that. But following the recession, we reduced our workforce by nearly a quarter and we have kept it that way for the best part of a decade.
While we have not completely capped spending increases, we have greatly reduced them over the decade of 2000 to 2009.
On the other hand, I don’t believe the right solution is to reduce spending further by $10 million a year. That will cut deeply into city services and cause the city to have to close parks and greenbelts, and probably leave streets and bike paths in disrepair.
I don’t view cost containment as a tool that we are going to use to directly balance the total budget. Instead, I believe it has to be used to slow the growth enough to allow revenue growth to close the gap.
That’s a big difference from what we did 2000 to 2008, when basically the city was growing revenue in double-digits each year but increasing spending even faster.
Second, long term we are not going be able to tax our way to solving the budget problem. But taxes are an important tool. A modest TOT (Transient Occupancy Tax) tax increase, for example, has increased our TOT take to $2.5 million before we have opened two new major hotels in town. The new hotels coming on line with the expansion of the University Park Inn is projected to generate another $1.4 million in the next three years.
The one percent sales tax is up for renewal – that accounts for between $7 and $8 million in annual revenue.
The one measure that the city does need to undertake is the roads tax. In 2018, that measure failed by garnering 57 percent of the vote and needing 66.7 percent. That would add about $3 million to the annual roads needs.
Finally, economic development needs to be looked at to bridge the rest of that gap.
I think the first point that should be made here is that economic development is not all about ARC (Aggie Research Campus, formerly MRIC or Mace Ranch Innovation Center). That’s an important piece, but it’s not the whole picture.
The city has added several cannabis dispensaries and already they are projected to add about half a million to the tax rolls. That is without having the stores all open and/or the industry mature.
Second, as mentioned, the two new hotels and the expansion of the University Park Inn are expected to add about $1.4 million in TOT over the next three years.
Then you have the Downtown Plan which could add tax revenue from sales, property and economic development. You have the potential expansion of Sierra Energy as well as the University Research Park.
But we need ARC for a number of important reasons to close this circle and complete the picture.
When the city did an analysis of available commercial space, they found about 125 vacant acres in the city. But when we looked at the availability of that land, we found about 50 acres truly available, most of it small. There is only the one 14-acre site around Cowell and it is not clear that that would be developed any time soon.
Forget adding sites – just as big a threat is losing key properties. AgraQuest/Bayer left Davis in 2013 because we lacked available land for their growth needs. The same may happen with Schilling Robotics. Others may leave as well.
That means a loss of current revenue plus the loss of potential increased future revenue generated by growth.
People worry that ARC is big and could lead to sprawl. But the reality is this. First, ARC would come in at roughly 200 acres. It would most likely solve our economic development needs for the next 20 to 50 years. It does so on land surrounded by conservation easements.
It is not going to lead to sprawl because the land around is locked into conservation easements.
Estimates for revenue are going to vary. I have seen $2 million a year on the low end. I could see with CFDs (Community Facilities Districts) and other revenue generation, easily in the $5 to $10 million range.
If you couple that revenue generation with cost containment that holds our growth in city costs to the rate of inflation, the renewal of parks and sales tax, and the addition of a roads tax, I think you end up in a place where we can manage our budget, maintain our services and pay for our infrastructure in a way that doesn’t irreparably alter this community.
It is a simple calculation, and yet, this is what we are likely to debate over the coming six months to a year.
—David M. Greenwald reporting