Sunday Commentary: Davis’ Fiscal Emergency

When the city polled residents, the vast majority of those residents were willing to back a renewal on the city’s sales tax measure, but at the same time most did not seem to recognize just how bad the city’s fiscal status is.

But while in one sense the city declaring a fiscal emergency is less an admission of a problem and more of a pro-forma declaration by the city in order to keep the sales tax on schedule and not produce a three-month lag – underlying that declaration is an acknowledgment of just how bad things are.

It seems ironic that it took a quirk in the state law to get the council to declare the obvious, and probably reluctantly so – the city of Davis is in a fiscal emergency.

The reality is that because the city is being forced to go to district elections and move the election to November, the council faces a dilemma. In order to keep the election a general election, it must coincide with the normal council election schedule, which would move from March to November.

However, if they put the sales tax renewal on the ballot due to other quirks in the state law – the 110-day period for example – there would be about a three-month gap in funding, which would cost the city about $2.2 million.

The city’s staff report did not explain what constitutes an actual fiscal emergency, but does explain it takes a unanimous vote from council to declare one.

My first point here is that the city probably could avoid declaring a fiscal emergency if it really wanted to do so.  The city can put a measure for taxes on the ballot any time it wants – it just can’t have a general tax that can be passed by a simple majority when it does so.

But why the need to do that in this case?  After all, the sales tax renewal is polling between 71 and 77 support.  If it receives that, the tax measure would pass even in an election where two-thirds of the vote is required to pass it.  This is what happened with the parks tax renewal.

My second point is that if the city really is bent on putting this on the March ballot for a majority vote, why not at least attempt to get more tax revenue?  After all, going to 1.5 percent rather than 1 percent would increase the tax revenue by over $4 million.  That would make up for the loss of the roads tax and get the city far closer to what it actually needs – about $10 million to close the long-term budget shortfall.

I understand being risk averse, but it strikes me that the city here is almost afraid of its own shadow – as if unwilling to take even the slightest risk even when the polling suggests it should be able to get away with, by either going to a two-thirds vote in March or keeping a majority vote while expanding the tax.

As I have pointed out previously, since 2014, the city has wasted one opportunity after another to close this deficit, either by failing to put a tax measure on the ballot (2014 and 2016) or putting two on at the same time without running a robust campaign (2018).  The result is, the city has done very little to solve the gap.

The reality is that the city does have a fiscal emergency and, in a way, we can argue it is worse than they are willing to admit.

The case the city makes is a simple and straightforward one.  The delay in implementation of the sales tax, just for three months, would lead to a loss of $2.2 million anticipated to be collected from January 1 to March 31 of 2021.

According to staff’s analysis, this “would require the City Council to determine how to reprioritize among critical city services, reducing or cutting numerous City programs including public safety (Police and Fire); maintenance of city roads, sidewalks, bike paths and parks; and community programs, such as recreation for youth and seniors.”

The fiscal emergency here then is the one-time loss of tax revenue over a three-month period.

It seems rather unfortunate that the city makes absolutely no mention of the ongoing $10 million annual shortfall in the budget.  It makes no mention of the fact that the city is about $200 million short of what it needs to provide for basic infrastructure needs over the next two decades.

It seems to me that this would be an excellent opportunity to level with the public – particularly since the council is going to impose a permanent tax on the community, if 50 percent approve.  Particularly since at some point over the next 20 years they will have to come back and ask for more.  Particularly since they will be asking the voters at some point to approve economic development projects like ARC (Aggie Research Campus).

But perhaps the most astonishing part of this is that $2.2 million really does represent an emergency.  The emergency, however, is not necessarily the funding gap.  The emergency is that if the city really does have a $2.2 million funding need, it does not have the funds.

I was thinking that, while the city lists the need to reduce or cut city programs starting with police and fire, the reality is that the city could probably take from infrastructure needs to plug that one-time gap.

And it probably can.

According to the city manager, the city has about $3.7 million in the Operations and Maintenance program budget.  This is primarily for general street maintenance, sweeping, striping, traffic signals, and street lights.  They also have about $5.8 million in the 8250 budget, which is the general transportation infrastructure program.  There is some carryover there.

The city also has a variety of CIPs (capital improvement projects) that are focused on road improvements.  That total is therefore about $11.7 million.

So, in a heartbeat, they could probably put off some of these projects for another year to cover the $11.2 million gap.  Remember as well, we are not talking about this year’s budget but rather the 2020-21 budget, in which they could reallocate $2.2 million for roads toward the immediate shortfall.

Given that declaring a fiscal emergency does not seem to carry with it any negative consequences, it seems to make more sense to go ahead and do that.

From my perspective, there really is a fiscal emergency here – but it is not the loss of $2.2 million that can be cushioned or even avoided by taking another approach.  It is that the city really does lack the flexibility in an emergency to make a $2.2 million unexpected cost without crippling city services, and it is the long term fiscal challenges that the city still has not adequately addressed.

Finally, if the city does do this, they better use it as a teaching moment for the community, because the polling shows that most people do not know the fiscal challenges we really face.

—-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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  1. Ron Glick

    “My second point is that if the city really is bent on putting this on the March ballot for a majority vote, why not at least attempt to get more tax revenue?” 

    Perhaps because they don’t want to put a tax on the ballot before they put themselves on the ballot.

    Or perhaps they sense that Davis voters are getting tired of never ending tax and fee increases while receiving fewer services i.e. the claw and the failure of the road tax.

    1. David Greenwald

      Perhaps, but given the level of support and the need for revenue, the city seems remiss in not seeking to at least look into the possibility of raising the tax to 1.5 percent.

      1. Bill Marshall

        The level of support for increasing the rate by 50% has not been demonstrated… it is a potentially dangerous assumption that support of a renewal will translate over… might cause the loss of the whole enchilada…

        An increase also calls into question the “emergency” nature…

  2. Ron Oertel

    Are teachers still seeking a raise, via another parcel tax?  If so, perhaps that explains the city’s reluctance to seek an increase regarding the sales tax rate.

  3. Matt Williams

    from what I’ve been able to glean, shovelful by shovelful, the City is making progress towards filling in the hole it created

    The above quote is from an e-mail I received on Friday.  Here is the response I sent back in a return e-mail.

    Regarding your bolded words below, the FY 2019 Budget reports the cumulative annual shortfall at $201 million over 20 years, the FY 2018 Budget reports the cumulative annual shortfall at $172 million over 20 years, and the FY 2017 Budget reports the cumulative annual shortfall at $156 million over 20 years.

    The cumulative hole got bigger by $16 million from 2017 to 2018, an over 10% increase, and even bigger by $29 million from 2018 to 2019, another 17%.  The aggregate increase in the size of the hole over two years is $45 million an increase of just shy of 29%.  That is real change, but it isn’t progress.  NOTE: the FY 2019 numbers reflect new revenues of over $1 million per year from Cannabis Tax and a new hotel’s TOT.  If you remove that incremental revenue to see how well the City is doing in its cost containment efforts the $201 million Shortfall goes up to well over $220 million and the Shortfall increase over two years balloons to over 41%.

    Whether the Davis voters are “getting tired of never ending tax and fee increases while receiving fewer services i.e. the claw and the failure of the road tax” is correct of not, the numbers do not lie.  Davis is facing an unpleasant fiscal reality regardless of whether they are tired or not.

      1. Matt Williams

        Bill points out something that is very important.  The City website states “The sales tax provides approximately $8,700,000 annually”

        If the sales tax is not renewed the $201 million cumulative annual shortfall increases by approximately $174 million to a new level of $375 million.  That is more than $5,300 for every man, woman and child living in Davis, and more than $15,000 for every one of the 25,000 households in Davis.

        1. Ron Oertel

          So, in 20 years, each resident (if the city had a population of around 70,000) would “cumulatively owe” a one-time amount of approximately $2,870 – assuming that the existing sales tax is renewed (and the projections are accurate).

          Is this really an existential crisis?  Wondering what the number is in other cities (and in unincorporated areas), throughout the state.

          1. David Greenwald

            Except of course, that’s not how you would be able to collect it since a good portion of that 70,000 are minors. Realistically, you are looking at about an additional $1000 parcel tax to cover the needs. Maybe you could get away with $500. Given that the city doesn’t want to extend the sales tax and the voters voted down the last parcel tax, that makes it more tricky. Furthermore, the real danger is that we have this deficit in good times and during a period of time when we managed to hold employee costs largely static as opposed to last decade when they grew very rapidly.

        2. Ron Oertel

          Yeah, it’s not like parents are responsible for their kids. (In all seriousness, this is actually true in many ways.)

          In any case, the ratio of children to adults will likely be lower in 20 years.

          I hadn’t previously thought of breaking down the cost in this manner, before.  It seems much less overwhelming this way.

          And again, I wonder how this one-time “payment” of $2,870 (in 20 years from now) compares for residents in other communities.  Not likely that the challenge is going to be solved on an individual, community-by-community basis.

        3. Ron Oertel

          Seems strange that the city is not even considering raising the sales tax rate, to match Sacramento’s rate.

          I guess they don’t think there’s a problem. O.K., so be it.

        4. Ron Oertel

          On that, I agree.  It doesn’t sound like “leadership” to me.

          It’s not “their” money – why not just let the voters make such decisions, and let residents deal with whatever consequences arise – either way?

          It’s not like any decision is necessarily permanent.

  4. Tia Will

    I would find it useful to know exactly what we are talking about when discussing an “emergency”. We need some objective criteria to know that we are talking about the same thing. It is my opinion that both the city and those who write & comment about it use this word as though its meaning were self-evident and objective, while it is neither. I would love to hear a dollars and cents evaluation of what constitutes an “emergency” and what does not, and why. We can argue about what is prudent, what is feasible, what is desirable all we like. But until we have an agreed-upon definition of “emergency” you will not be able to get people to agree on how it should be addressed.

    1. Ron Oertel

      On this blog, I’d define an “emergency” as a long-term challenge that virtually every other city, county and the state has, but which don’t necessarily have a wealth of analyzers and/or those with various agendas using those challenges to push for their preferred “solutions”.

      Or, was that the definition of a “crisis”.

    2. David Greenwald

      I think it is important to understand that the state has created the designation for the city to declare and there doesn‘T seem to be a set definition other than the requirement that all members vote in support of the resolution.  The resolution itself doesn’t define an emergency other than what we already know – $2.2 million shortfall.

    3. Bill Marshall

      Tia…  roots of words (the meaning of which clearly morph in time and with ‘biases’)

      Emerge + ency.   Source (if one didn’t already know)

      The fiscal challenge/issue is nothing new… the roadway condition issue was identified by PW staff in the early 80’s… so,by definition (unless one uses geological time frames), that is not “emergent”… warnings were not heeded… money was spent for “feel good”, “politically correct” things instead.

      All buildings/infrastructure have a ‘design life’, and needs routine and preventative maintenance to extend the useful life, but ultimately, everything that was needed, and still is, needs to be replaced.  All responsible folk who know this (again,this has been known by engineers, and finance folk for like 100 years… when you build something, a responsible person would start a ‘sinking fund’, to put away money to extend the life, and eventually, replace.  I am no economist, but I’ve known that for ~ the last 40 years.  Not an “emergent” concept.

      The problems with PERS pension and post-retirement benefits, costs, and ways to finance that responsibly, are somewhat more “emergent”… PERS depended on investment results, and actually told agencies “no payment required… not even your contractural obligation”… that has not turned out well.  But am thinking that a thinking person would not have seen that there would be real risks.  Barely “emergent”…

      So, I see no “emergent-ency”.  But words have morphed, laws and facts have changed, and ‘it is what it is’.  BTW, a class V hurricane hitting California (or anywhere else) is properly, an “emergency”.

      To be clear, I support a renewal of the existing sales tax. Undecided as to any increase… would want 100% of the increment (no shifting of funds elsewhere) to pay down the ‘debt’…

      1. Mark West

        “would want 100% of the increment (no shifting of funds elsewhere) to pay down the ‘debt’…”

        With the current culture of City Hall, this will never happen and the proof is in your own words…

        “The fiscal challenge/issue is nothing new… the roadway condition issue was identified by PW staff in the early 80’s…warnings were not heeded…money was spent for “feel good”, “politically correct” things instead.” [emphasis added]

        although I would add staff total compensation to the list of things the money was spent on (perhaps you included that in ‘feel good’?).

  5. Alan Miller

    Regarding all this “define an emergency” BS.

    Here’s how government works:

    You need $$.

    The funding source says:  “In order to get $$, you need to declare that you have “Blue Moon Patreon Dog Biscuit on Dark Sundays”.

    Those requesting the form fill the box with:  “We will Blue Moon Patreon Dog Biscuit on Dark Sundays”.

    The person checking the box at the funding source declares:  “They will Blue Moon Patreon Dog Biscuit on Dark Sundays”.

    Money granted.

    And so it is with “emergencies”.

  6. Tia Will

    Sorry Alan. But I completely disagree. I believe it is possible to define “emergencies” from “needs”. Bill, in his response to me, made clear that there are some we could agree on. A Class 5 hurricane, or Paradise type wildfire threatening the city would probably encounter little resistance to being defined as an emergency. However, Bill then, like nearly everyone else decides not to define his words precisely.He states: “money was spent for “feel good”, “politically correct” things instead.” Without bothering to tell us what he defines and “feel good” or “politically correct” things. 

    When writing or commenting on items that are quantifiable or at least clearly definable, would it really be too much to expect authors to tell us what they are talking about?

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