Commentary: Council Declares Fiscal Emergency, but Have They Done Enough on the Fiscal Front?

Last week the council drew rare regional headlines by declaring a fiscal emergency.  But for the most part that was a pro forma move, designed to allow the council to hold a special election next March and place the one percent sales tax renewal measure on the ballot.

The move prevents the city from facing the “drastic effects” of interrupting their tax collection – but otherwise is a status quo move.

“This interruption to cash flow will exacerbate the inability to fund City services,” the staff report said – true enough – but the question is, what is the city doing to address the underlying problem?

On February 5, 2017, then-Mayor Robb Davis wrote: “We have a dire fiscal situation in our city.”

In his commentary, the mayor laid out three things that the council was doing.  First, seeking voter support for an increased sales tax and increases to city fees.  Second, through economic development.  And third through the consideration of more tax increases.

However, as we know, the tax increase occurred in 2014 – five years ago – and sunsets next year.  At the time it closed a $5 million budget gap.  But the problem remains with an $8 to $10 million annual gap between revenues and what we need to pay for basic infrastructure.

We also know that, in 2018, the voters voted down a parcel tax that would have gone for road repairs.

My argument is that we have not done nearly enough to address our “fiscal emergency” – if the city even believes we have one.

In 2017, Robb Davis argued, “It should be clear from the foregoing that we are taking a comprehensive approach to increasing revenue.”

However, I would argue that even there we have not done enough.

We passed a sales tax in 2014.  We passed a TOT (transient occupancy tax) increase in 2016.  We renewed the parks’ tax with an inflator in 2018.  We passed a tax in 2016 to allow us to collect taxes from cannabis sales.

All of those are good.  But we failed to even put a secondary tax measure on the ballot in 2014 or 2016.  When we finally did in 2018, it ran alongside the parks’ tax renewal and only garnered 57 percent of the vote.

In addition, while there is 71 to 77 percent support in polls for renewing the sales tax, we did not consider the idea of increasing it from one percent to 1.5 percent, which could have generated another $3 to $4 million annually.

The city has done some things to promote economic development.  We approved the expansion of the University Park Inn – although it has since decreased in size and scope due to some financing problems.  In addition, the Marriott is about to open and the Hyatt House has broken ground – combined with the TOT tax increase, those should generate some revenue.

The city has approved five cannabis dispensaries – three have opened and one will open later this week.  Those will also provide some revenue.

But back in 2010, the city identified the need for peripheral innovation centers.  We won’t rehash that history but, to date, the city has not increased the availability of commercially zoned property that could host additional revenue-generating business.  One of the results is that the city has actually lost some key businesses like Bayer/AgraQuest, Shilling Robotics is about to leave, and at least one more major tech company may follow suit.

As Robb Davis wrote in 2017: “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.”

While those efforts are ongoing, any measure to increase commercial space in the community will create considerable discussion and debate as it goes to the voters.

The Aggie Research Campus has re-emerged as a possibility – but has yet to go back through the planning process.

Finally, Robb Davis made the point in 2017:

“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.”

This is a critical point.  I have made this point a number of times – while I support revenue-generating measures like taxes and economic development because I do not believe we can cut our way out of this crisis, these measures do no good without cost containment.

Have we done enough there?  That’s an interesting question that I don’t completely have the answer to.  On the one hand, the city has capped employee compensation increases to 2 percent.  That is clearly better than it was a decade ago.  Some would argue that is too high.

If you look at the budget over the last four terms it goes from $58.2 million in 2017-18, to $66 million in 2018-19, and $68.5 million in 2019-20 but is projected to decline to $63.7 million in 2020-21.

Part of that projected decline is the drop in capital improvements from $9 million to $3.2 million – which is perhaps not a good thing and the current money is likely based on one-time sources.

Nevertheless, most of the departments are holding steady in terms of their costs.

In sum, right now the cost containment seems reasonable.  The city has not done nearly enough to generate revenue, however, through economic development or by passing tax measures.

—David M. Greenwald reporting


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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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37 Comments

  1. Ron Oertel

     One of the results is that the city has actually lost some key businesses like Bayer/AgraQuest, Shilling Robotics is about to leave, and at least one more major tech company may follow suit.

    This is an entirely unsupported claim.  It’s entirely possible that these companies would leave, even if peripheral farmland is annexed into the city.

    I believe another commenter (Don, if I’m not mistaken) noted that Bayer/AgraQuest received an extremely attractive offer in West Sacramento.  If I’m not mistaken, someone else on this blog mentioned that Shilling is also moving to that city. It’s not likely that Davis is going to compete on price, especially for companies looking for a lot of space.

    Every company that leaves Davis provides a vacancy for another company to fill. There is no net loss, unless the city converts the space for other uses.

     

    1. Ron Oertel

      Also, note that Sierra Energy apparently “found a way” to remain in Davis, even though tentative plans to locate at Nishi fell through. (Although I understand that the space that they plan to occupy is likely being converted from entirely commercial to mixed-use. Perhaps once again demonstrating that housing is the primary goal of developers.)

    2. David Greenwald

      “This is an entirely unsupported claim. ”

      It’s not an unsupported claim at all. I spoke with people contemporaneously, they were expanding and had no place to go in Davis. They didn’t want to leave, but had no choice.

        1. Ron Glick

          Yes he did but it was right before the  collapse in oil prices at the end of 2014 that slowed down the need to expand. FMC then merged with Technip and now has been reorganized and is awaiting the spin off of its construction business. I have no idea what will happen next with the subsea robotics division but if it expands its unlikely to be in Davis simply because Davis is not a business friendly environment due to Measure R.

      1. Ron Oertel

        Can you provide any details regarding the lease amounts (or any other financial incentives) in West Sacramento, for any of these companies?  (But in particular, Bayer/Agraquest.)  Pretty sure that Don mentioned that they received an extremely attractive offer, there.

        And then, can you provide the expected commercial lease rates at ARC?

        Nothwithstanding the single example, developers have a built-in incentive to work behind the scenes with possible tenants.

        1. Ron Oertel

          Also, can you provide any information regarding the space that Bayer/Agraquest vacated, in Davis?  Has it been occupied by another company, is it vacant, or was the space converted?

          You did not initially provide any evidence regarding the claim in your article. However, you’ve now provided some possible evidence (from 2014) regarding one company’s expansion plans – Shilling.

          Recently, you noted that another business in town “changed plans” (Redrum Burger), from what they previously stated.

          1. David Greenwald

            More importantly, they announced last year at the West Sacramento location a new research facility that is 160,000 square feet and has more than 200 researchers. That’s what we lost out on, not a lateral trade for the previous space.

        2. Ron Oertel

          Again, what are the details regarding the lease (or any other incentive) that they received?

          Repeating what one company said back in 2014 does not provide “evidence” regarding what another company chooses to do. In fact, it doesn’t even provide definitive evidence for the company that you’re citing, 5 years later (after 2-3 other innovation center sites failed).

          Again, I recall that Don is the one who mentioned something about the deal that Bayer/Agraquest received.

          Are you suggesting that these companies don’t consider lease rates, when making decisions?

          And again, what was done with the space that they vacated, in Davis?

          It may be that Davis just can’t compete on price for large-scale commercial operations. Even with housing subsidizing the commercial component. West Sacramento (in particular) seems well-positioned to handle such needs.

          1. David Greenwald

            If you are interested in those issues, you are welcome to research it. I’ve provided the basis for my opinion. I have other things I have to work on right now.

        3. Ron Oertel

          Perhaps you wouldn’t mind clarifying this, in reference to my post above. Not sure if my earlier post was entirely correct:

          Is Sierra Energy occupying (or planning to occupy) a separate (commercial-only) space from the planned mixed-use University Research Park?

        4. Ron Oertel

          Though in reference to your clarification, the University Research Park site is not entirely vacant (17 existing commercial buildings, according to your article below).  If I’m understanding it correctly, the following will simply be added to the vacant portion of the site:

          ” . . . a vertical mixed-use proposal containing 160 apartments units, situated in four buildings, and an additional nearly 27,000 feet of tech space on a roughly 4.5 acre parcel.”

          “In addition to the apartments, the site will contain 214 parking spaces and 216 bike parking spaces – 148 long-term spaces within the buildings and 68 short-term spaces scattered throughout the site.  There will also be 40,000 square feet of open space within the project.”

           
          https://www.davisvanguard.org/2018/10/workforce-housing-proposed-university-research-park/

        5. Rik Keller

          This is amazing: “if you are interested in those issues, you are welcome to research it. I’ve provided the basis for my opinion. I have other things I have to work on right now.”

          The person who spends article after article making false statements about this topic such as Davis has “no (commercial) space” available for development (when the reality is there is enough vacant commercially-zoned land for more than 2 million sf of floor area)  wants other people to do research for his unsupported claims and falsehoods.

        6. Rik Keller

          Ron O.: you comment about the claims made being ‘unsupported” is spot on. A single anecdote is not evidence. And there is capacity for over 2,000,000 sf of commercial development on vacant commercially-zoned land in Davis.

  2. Alan Miller

    “We have a dire fiscal situation in our city.”

    In his commentary, the mayor laid out three things that the council was doing.  First, seeking voter support for an increased sales tax and increases to city fees.  Second, through economic development.  And third through the consideration of more tax increases.

    Y’see, here’s the thing.  If someone is handling money well, I am more likely to give them more money to use.  If they are mis-managing money, I am sure as h*ll not voting for “increased sales tax and increases to city fees”.  So many seem to automatically think that the reward for bad budgets is give more money.  I see it exactly the opposite.  I don’t understand why so many people think – “If we give them more money, they’ll give me the stuff I want”.  I see it the opposite — we give them more money, the more they will squander it.  That goes for all levels of government.  So, WHAT ARE YOU DOING, PEOPLE?!!!?????!!!!!!!!

    PS.  Anyone want to join me phantom cold-patching potholes at 3a.m.?

    1. Alan Miller

      Why is my comment awaiting moderation?

      [Moderator: because you wrote “sure as h*ll” and we have to go in manually to make certain words pass the auto filter. So please don’t swear.]

      1. Alan Miller

        So please don’t swear

        What is this, the olden days?

        And . . . “h*ll” is swearing?  I regularly use sh*t, f*ck, d*mn, so as not too, but “h*ll” doesn’t pass the test?  WTF?  Or should I say WT*?

    2. Mark West

      It is telling that the Mayor listed three things the CC was ‘doing’ but none of those involved cutting expenses. The ’emergency’ here is that there is not enough of other people’s money available for the Mayor, CC, and CM to spend.

        1. Bill Marshall

          It would be good if the fiscal issues are front and center for 2020… [a 20-20 vision?]

          New/enhanced programs/promises have costs.

          Existing services (obviously) have costs.

          Fiscal issues should be #1 for candidate questions/responses… the more concrete, the better… particularly, but not limited to, GF revenues/expenditures…

          A good question would be along the lines of, “what should the City add to services, and/or where would we make cuts?”

        2. Bob Fung

          In 2016 Matt Williams made financial state of the City a major part of his campaign and talked about unfunded liabilities of the City at election forums.   In 2018, Dan Carson, who was the chair of the finance and budget commission won a seat in a crowded field of candidates.  I think many voters thought his financial expertise would be useful on the City Council.  CivEnergy asked as part of its election coverage, asked the candidate several financially related questions including this one about cost containment (following up on Robb’s comments on cost containment).

          As Mayor, Robb worked with staff to develop a 20 year forecast model of City finances, a significant improvement over what the City had before.  The City has for the first time in many years, hired a finance director, Mr. Sharma.  The forecast model has been updated annually for several years.  The model could potentially be used to update citizens on the current and forecasted state of City finances.

          But, I would say that most citizens of Davis do not have an idea of what the financial state is of the City.   Why?

           

           

           

        3. Bill Marshall

          Ron G and Bob F comments…

          Could be, like another thread re: DJUSD,  City may be an interim step up, but not a ‘destination’ for highly qualified employees… never met Mr Sharma, but have heard nothing than good/great things… his decision, if there is one, may not be related to compensation… but, it might… might well be personal reasons, unrelated… mine were usually one and the same (personal [family] and compensation)… but that was me…

      1. Robb Davis

        What the (weak) Mayor said “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.”

        1. Bill Marshall

          Yep.

          Beyond that, the City should also look at what functions are “low-value”, and via attrition and/or job elimination, stop doing the “low-value” things… hard to do on a few levels, but still should get serious consideration…

      2. Bill Marshall

        Do not disagree with the “cutting expenses”, but at what “cost” (somewhat philosophical)?

        “Cost containment” (vs. “cutting expenses”) is a good place to start, but ‘low-value’ services and/or programs should be seriously looked at for cuts/elimination.  Savings that can be applied towards un-funded current obligation/’needs’/liabilities…

        The danger is, along the civic lines of ‘nature abhors a vacuum’… 5% (pick your #) reduction in existing costs will likely create/foster demands for funding things we are not doing now.  Zero net savings… at best.

  3. Jim Frame

    I guess they’re planning to leave the existing buildings in place, for now.

    A very knowledgeable little bird told me that the mixed-use plans have been shelved indefinitely due to an inadequate projected ROI.

     

    1. Ron Oertel

      Wow – that is definitely some interesting news.  Thanks for sharing it.

      Seems like the Vanguard might be interested in exchanging some “tweets”, from that bird!

  4. Bill Marshall

    Ron G and Bob F comments…

    Could be, like another thread re: DJUSD,  City may be an interim step up, but not a ‘destination’ for highly qualified employees… never met Mr Sharma, but have heard nothing than good/great things… his decision, if there is one, may not be related to compensation… but, it might… might well be personal reasons, unrelated… mine were usually one and the same (personal [family] and compensation)… but that was me…

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