FBC Chair: We Need to Make the Citizens of Davis Very Aware of Exactly How Large These Liabilities Are

Commission Talks about How to Address City Deficit, among Other Topics, in Joint Meeting with Council

The Finance and Budget Commission met jointly with the council last week, and one of the big topics of conversation was addressing the city’s ongoing budget shortfall.

Commissioner Ray Salomon began the discussion of the budget shortfalls that the City consistently faces each year for the next 20 years by saying, “Along with the council, we share the concern about ongoing budget deficits, including unfunded liabilities, OPEB (other Post-Employment Benefits) and other obligations.”  He then clearly outlined the alarming trend in this budget shortfalls over the most recent three years, saying,  “Our obligations are $10 million more than we take in each year (round number),” he said, and then continued “also of note is the unfunded needs for infrastructure.  In the 17-18 budget, it was around $156 million.  If you believe the Leland model, that’s now $258 million over the next 20 years.”

He concluded his comments by saying, “The ongoing budget deficits are a major concern and focus of the commission.”

Chair Michelle Weiss clarified Commissioner Salomon’s concluding comment saying, “The term budget deficit is probably a little misleading because obviously our budget’s balanced…  But that we have unfunded liabilities.”  Her comment is kind of like saying your personal bank account is not overdrawn if you do not pay your monthly mortgage/rent payment, but continued failure to pay your mortgage/rent will result in loss of a place to live.

She then noted the Pavement Condition Index that came up during the last council meeting and said that’s a big issue.

She said, “I don’t want to just admire the problem.”

Councilmember Dan Carson said that the subcommittee of himself and Gloria Partida were looking at those numbers and were exploring potential solutions.

“We’re going to vet the numbers,” he said.

Michelle Weiss responded, “I think it’s good to vet the numbers… But it’s still big.  Any way you look at them, they’re large.”

She added, “Whether they have one less zero or whatever, they’re large.”

Ms. Weiss pointed out, “We’re not alone as a city.  This is not due to some terrible thing that Davis did.  The notion of citizens being aware of where we stand.  Where we need to go.  And what efforts we would need to make things happen.”

She said that both she and commission believes, “We need to make the citizens of Davis very aware of exactly how large these liabilities are.”  She said, “The answer’s not easy.  It’s going to be some combination of things.  But it will also be some things that people will not like.”

Mayor Lee comments on budget shortfalls

Mayor Brett Lee agreed that whatever the exact number is – $7 million or $10 million, “It’s quite large.  It’s still many million above what we are currently spending.”

He did say, “I think there’s much more to it than – hey, let’s publicize the problem so that everybody is aware of it.”  He suggested that the value added from the commission could be in addressing “what are some of the best practices.”

He said, “I find it very hard to believe that we are doing as best as we can.”  He said that we should be asking “what are other places doing, what seems to be providing some results.”

Mayor Lee noted, “There’s so much more you can do to value-add rather than, hey, let’s let everyone know there’s this horrible unfunded liability.”

He said, “I think the real value is how do we help address this situation.”

The question is, he said, “What next?”

Mayor Pro Tem Gloria Partida said, “I think it’s very valuable that the public is aware of where we are, but there has to be a second part to that.  When we reach out to the public, we have to say this is the problem that we have and because of that, we are doing x – we have to start coming up with what those x’s are.

“We have to start putting some solutions forward to the community,” she said.

She suggested going to each of the departments, since they are most familiar with the budget and finding areas to save.

Mayor Lee added, “Every community in California is facing this problem of how you maintain the roads and bike paths and sidewalks.”

Possibility of Bankruptcy raised 

Commissioner Gurkern Sufi noted, “When it gets too big, and OPEB and the liabilities pop, you get Vallejo and Stockton.  Cities go bankrupt.”

He then asked the following focused question to the Council, “How can the funds that are sitting a little more idly with various interest rates be maximized?”

Ray Solomon added, “I’m not sure, down the road, federal help for California will be there.  As you correctly point out, every city has issues with infrastructure.  Every city is also having an issue with unfunded pension and OPEB.  So my concern is effectively we may be out there without a safety valve.”

He added, “In other words, it could be a widespread problem and no help in the offing.  At least Vallejo and Stockton had the state behind them.  I worry about the scenario, especially since the economy is about as good as it gets, where a bunch of cities go into distress at the same time.”

Other Issues discussed — Finance Director, Capital Improvement (CIP) Projects

The council and commission talked about a number of other issues.

The commission is concerned with the loss of Finance Director Nitish Sharma after just 15 months on the job, and talked about the need to be able to attract and retain a quality caliber of finance director who could continue Mr. Sharma’s great work.

In addition, there were concerns raised which Councilmember Dan Carson agreed with about the difficulty of tracking Capital Improvement Projects.

As the commission pointed out, CIPs are budgeted for one year, but continue down the road and some of the money is allocated before it needs to be.

Councilmember Carson agreed with the concern.  He noted a few years ago they looked at the budget, saw $30 to $40 million worth of projects appropriated and they wanted the status to know if they were on time and on budget.

“We couldn’t get that easily without an incredible amount of work by staff,” he said.  “That kind of snapshot was fairly inaccessible.  If you don’t have that kind of information at your fingertips, how do you manage?”

Interesting and Constructive Public Comment on Road Repairs

At the end of the meeting there was one very interesting public comment by Alan Hirsch about the fact that because of the Budget year ending on June 3oth each year, the prime road repair months of May and June are pretty much wasted with limited repair activity.  He pointed out the changing the CIP budget cycle away from a June 30th end date could eliminate that problem.

—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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23 Comments

  1. Richard McCann

    The Utilities Commission has been looking at the reserves policy for the enterprise/utilities funds. I was part of the task force that prepared this proposal using a set of transparent and flexible criteria (unlike the current kluge used by Davis and so many other cities of X%) that is shown here. This method would cut the current water and sewer reserves by half.

    http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/Utilities-Commission/20190220/Item-5B-URAC-Reserve-Policy-Report.pdf

    Ray Solomon had several good suggestions that could lower these reserve requirements further (although I looked and there’s almost no correlation between water and sewer usage, so the reserves should be derived independently.)

    The staff proposed a reserve target that largely ignores the Utilities Commission analysis and simply uses a kluge again that relies on what everyone else is doing (and no one has any idea of why those reserve targets were analytically chosen), although it does free up some of the current reserves.

    http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/Utilities-Commission/20191120/Item%206A%20-%20Enterprise%20Fund%20Reserve%20SR.pdf

  2. Mark West

    “This is not due to some terrible thing that Davis did.”

    Actually it is. Nobody forced the City to overpromise and underfund. Those were choices made by our elected representatives with the help of City Staff. Our fiscal situation is a direct result of our own decisions, both those in years past, and the ones we are making today.

    How many different people have chaired the FBC since ‘Project Toto’ first identified the vast extent of our unfunded obligations? Is it now four or five? Dan C. should know…

    1. Matt Williams

      Mark, I believe Michelle’s point was really focused on the fact that Davis is not alone in having this problem.  It is a problem that is very close to universally present in cities all across California.

      Regarding your final sentence, Jeff Miller was the Chair at the time of Project Toto, as well as one of the three key contributors to the Project Toto effort.  He was succeeded as Chair for one year by Dan Carson, then Dan was succeeded for one year by me, and Michelle has succeeded me.  So four Chairs is the answer.

      With that said, I think your question really should be how many different people have been on City Council since Project Toto first identified the extent of our unfunded obligations.  As City Council has made abundantly clear over the three year period since Project Toto drew back the curtain on unfunded liabilities, the FBC is only advisory.  Decision-making rests firmly on the shoulders of City Council and the City Manager.

      Anyone who watches the video of the joint meeting from start to finish quickly sees that there is no sugar coating of the current fiscal mess by the FBC … and there is no shortage of commitment on the part of the FBC to continue to illuminate the specifics of the problem.  In the joint meeting the FBC members clearly focused on the problems at hand, and the message(s) they sent were very clearly from all of them as a group, since all of them took a turn at putting forward coherent components of their message (see graphic below).

      https://www.davisvanguard.org/wp-content/uploads/2020/02/Joint-Meeting-Discussion-Topics-1.png

      One really interesting moment came at the 6:35 point of the discussion of Budget Deficits/Shortfalls when Gloria Partida said, ““I think it’s very valuable that the public is aware of where we are, but there has to be a second part to that.  When we reach out to the public, we have to say this is the problem that we have and because of that, we are doing x – we have to start coming up with what those x’s are. We have to start putting solutions forward to the community.”

      Both she and Mayor Lee seemed to be asking the FBC to expand their fiscal advisory charge and begin focusing on policy alternatives that look “holistically” at both the problems and its solutions.  Gloria’s words (at 6:30 in the Budget Deficits video) were “I think that seeing a very holistic assessment would be very helpful.  What is most important is that we have this problem and that is why we are doing this to address it.” If that is indeed what the Council wants from the FBC, not just fiscal oversight, but also operational policy recommendations, then they need to act on those recommendations more frequently than they have in the past three years. A good place to start would be to quickly implement the FBC’s recommendation that the City use performance metrics in its operations.

      JMO

      1. David Greenwald

        Matt – While I agree both that there was no sugar-coating and that there are problems across the state, the comment stuck out to me as well to the point where I have already drafted up a response that I will likely publish as a commentary over the weekend.

        1. Matt Williams

          David while I believe the intent of Michelle’s words were ““This is not due to some uniquely terrible thing that Davis did.” that doesn’t change the fact that suboptimal decisions have been made. Often the suboptimal decision has been to not make any decision at all.  Although it isn’t a decision per-se, the community has been guilty of excessive optimism about its prospects.

          I’ll give you a couple of examples.  At last year’s State of the City presentation (I attended the March 13th one hosted by the Chamber at El Macero Country Club), I was impressed with how forthright Brett and Mike were about the fiscal challenges the City faced at that time.  They were openly candid about the $8 million Budget Shortfall, and then went on to say that with Cannabis revenue and additional Hotels Tax revenue, etc. they expected that Budget Shortfall to be “cut in half” to $4 million per year at the same time next year.  I’m not sure who was providing the Kool-Aid that was needed to be that optimistic, but when Finance Director Nitish Sharma presented the Budget to Council three months later, the annual Budget Shortfall hadn’t dropped from $8 million to $4 million, but rather had risen from $8 million to $10 million.  Dan Carson tried to optimistically hang on to the $8 million when he talked about the Shortfall even though the Budget said otherwise.  Then on January 13th (exactly 10 months after March 13th) Bob Leland told the 20-year Budget Shortfall had risen from $201 million to $258 million.

          To put that into a non-Kool-Aid context instead of dropping from $160 million to $80 million the Shortfall has risen from $160 million to $258 million.

          At the Davis Progressive Business Exchange meeting yesterday, after seeing those numbers, one of the attendees asked, “What about the State money from SB-1?”  I had no choice but to tell him that the SB-1 money ($1.2 million per year I believe) is included, and if that State money (and the additional cannabis and hotel revenue) hadn’t been in there the $258 million would be even higher by between $20 million and $40 million.

        2. David Greenwald

          “ I’m not sure who was providing the Kool-Aid that was needed to be that optimistic, but when Finance Director Nitish Sharma presented the Budget to Council three months later, the annual Budget Shortfall hadn’t dropped from $8 million to $4 million, but rather had risen from $8 million to $10 million.  ”

          Point well taken here.  Although you wouldn’t know it from hearing the SOC yesterday

      2. Bill Marshall

        since Project Toto first identified the extent of our unfunded obligations.

        A bit of hubris?  Project Toto may have consolidated the “unfunded” obligations, but warnings on streets has been out for 35 years… by staff… warnings on PERS/OPRB for ~ 10 years.

        Project Toto was harvesting the results of seeds sown (warnings/concerns) long before it was a glimmer in anyone’s eyes… the project did not “pull back the curtain”… but it did confirm and illuminate what was behind the curtain… there was nothing new under the sun… but project Toto does deserves lot of credit for pulling the threads together.

        It is a disservice to those who pointed elements out originally, that project Toto built on, and added to… credit where credit is due, works two ways…

        1. Matt Williams

          No hubris on Mark’s part at all.  Mark was not part of the Project Toto team.  He believed in the message though.  If believing in a message you have read is hubris, then you are right.  Otherwise his words stand as written,

          Mark West February 5, 2020 at 10:17 pm
          .
          “This is not due to some terrible thing that Davis did.”
          .
          Actually it is. Nobody forced the City to overpromise and underfund. Those were choices made by our elected representatives with the help of City Staff. Our fiscal situation is a direct result of our own decisions, both those in years past, and the ones we are making today.

          How many different people have chaired the FBC since ‘Project Toto’ first identified the vast extent of our unfunded obligations? Is it now four or five? Dan C. should know…

        2. Bill Marshall

          Matt you accepted, and reiterated, as to Project Toto being the first disclosure.  Just saying…

          With that said, I think your question really should be how many different people have been on City Council since Project Toto first identified the extent of our unfunded obligations.

          As I said, Project Toto should be credited with taking the various threads, long known of, and completing the tapestry/quilt… pick your metaphor.

          But I still opine that there were “voices crying out in the wilderness”, long before Project T… but I guess, no prophets are heeded in their own City.

          If you feel it is all Project Toto to first discover/disclose the facts, fine… untrue, but fine.

        3. Matt Williams

          Bill, I think you are confusing the rhetorical device of simple word (Job Title) substitution with “accepted and reiterated.”

          With that said, your point that staff had long been conducting internal discussion (even pleas) regarding the unfunded liability consequences of deferred maintenance, as well as the capital assets deterioration consequences, is well taken.  However, staff also played the role of  “good soldiers” and never transformed those internal discussions and pleas into external disclosure to the public.  So if you define your audience as only internal, your point stands in spades, but if you define your audience as both internal and the public, then not so much.

          If you believe that is hubris on my part, then my bris has plenty of hue. It certainly did in 1947.

      3. Mark West

        Matt W: “Mark, I believe Michelle’s point was really focused on the fact that Davis is not alone in having this problem.”

        That doesn’t change my point one whit. We made the decisions that put us in this position. The fact that others made similarly poor decisions does not change the facts. I grow weary of this justification for poor choices. 

        Matt W: “So four Chairs is the answer.”

        It was a rhetorical question. 

        Bill M.:“It is a disservice to those who pointed elements out originally, that project Toto built on, and added to… credit where credit is due, works two ways…”

        Bill – How much of the information was made available to the general public by the concerned employees? Project Toto’s did not create the information, I never claimed they did. What they did do was put the information into an easily digestible form and started presenting it to the public. From my perspective, it was that very real threat of having the information made widely available that resulted in the CM hiring a consultant to prepare an ‘official’ version. Project Toto should be credited with bringing the information out in to the light. 
         

        1. Bill Marshall

          City employees are charged with reporting concerns to CM and CC… they did so…

          Nothing I can recall (since it was all public record, staff reports, etc.) was “internal only”… going to media is not an option for public employees, unless there is egregious wrong-doing… and even then, anonymity is generally needed… a chain of command thingy…

          You seem to have an animus against public employees in this post… but think I know you don’t have that, generally… at least that was not the sense I got when I met with you…

        2. Mark West

          Bill M: “You seem to have an animus against public employees in this post”

          You seem to have a penchant for inferring other’s ‘intent’ with little or no evidence.

          Information is power, and competent CM’s know the value of controlling it. No one on Staff makes a public statement to the CC without the CM knowing generally what will be said. It is far better to be the source of bad information than to be left responding to it, which was the position the CM found himself in with this case. Considering the CM in question, I expect there would have been little if any public discussion of the issues without the influence of Project Toto. You are welcome to your own interpretation.

        3. Bill Marshall

          Project Toto should be credited with bringing the information out in to the light. 

          Actually, thought I did credit them… at least twice… but the implication was that project Toto was first (and only?)… the record clearly shows that is untrue.

          I met and discussed Project Toto with the folk who were preparing it… I helped “vett” their assumptions and info… Matt W knows this… he was the one who invited me. [as does Mr Fong, and others]

          Now, and then, I pointed out that it was a reasonable, and basically correct model (we differed on details, but relatively minor)… another infrequent poster, who I respect (but don’t always agree with), also knows this… we all met @ Crepeville, as I recall… [no Brown Act issues!]

        4. Matt Williams

          Nothing I can recall (since it was all public record, staff reports, etc.) was “internal only”… going to media is not an option for public employees, unless there is egregious wrong-doing… and even then, anonymity is generally needed… a chain of command thingy…

          But it isn’t in the public record.  When the Council made the decision to defer budgeted capital maintenance (IIRC the amount was $3 million) because actually spending it (as budgeted) would have resulted in reducing the General Fund Reserve below 15%, was any of that dialogue ever made before the public?  No it wasn’t.  It was simply an administrative decision implemented at the direction of the City Manager by the actions of the staff.  The orders came from above and they were executed … and the public was left totally in the dark.

           

        5. Matt Williams

          Bill, pardon my incredulity, but you appear to be saying that you believe the following to be true:

          (1) the Council actually discussed as a Council agenda item, its decision not to spend at the end of the fiscal year $3 million for capital maintenance that it had budgeted at the beginning of the fiscal year?

          (2) that discussion explained that the reason that Council (and staff) gave for that decision not to spend the money (and defer the maintenance to a later date) was that they had already spent the money on other goods and services different from capital maintenance?

          (3) that discussion explained that Council was doing so contrary to the recommendations of staff

          and

          (4) that discussion explained that spending the budgeted capital maintenance money would reduce the General Fund Reserve to below the 15% level that Council members had included as part of the promises of their political campaign for election to Council?

          Is that what you really believe?

          If that is what you truly believe, then I strongly encourage you to contact City Clerk, Zoe Mirabile, ad ask her to retrieve the agenda(s) and minutes of such Council meeting budget discussions from the archive.

          I am 100% confident that staff did voice their objection to the planned decision, but I am much, much less confident that that staff objection made it to a public discussion in Council Chambers, or in any public meeting. I also sincerely doubt that the Finance and Budget Commission was apprised of the decision to defer maintenance. While you are contacting the City Clerk, I will reach out to several of the people who were FBC members at the time and see what their thoughts are on that subject.

  3. Bob Fung

    I’m glad that Project Toto is still in people’s memory.  In fact in Matt Williams’ talk this week to the Progressive Business Exchange, he referenced Project Toto extensively.

    But I’m also very glad that the City, (I believe that Robb Davis as Mayor played a significant part in that) commissioned  the development of a 20 year forecast for the City, (one of the important features of Project Toto), and has been updating the model over the last 3-4 years. 

    I think more attention should be placed on the results of the City’s Long Term Forecast model and the City (staff, FBC, city council) should present analyses within the framework of the model.   For example, the FBC , as one of their 5 points, called for more communication of the “ongoing budget deficits”.  This should be done by  using the Long Term Forecast Model as well as other data sources.  In analyzing how much the City should budget towards roads and bike paths, a good portion of the analysis should be scenarios in the Long Term forecast model.

    1. Matt Williams

      Bob is correct.  I did mention Project Toto in my Progressive Business Exchange (PBE) talk on Wednesday.  Ironically, I did so because the press/news releases explicitly referenced Project Toto.  Like Bob, I feel the real emphasis by the public should be one the official City numbers presented in public meetings and public documents.

      The public record of those meetings and documents is consistently available on the City website.  The Budgets are available at https://www.cityofdavis.org/city-hall/finance/city-budget. The January 13th Budget Forecast update presentation by Bob Leland to the FBC is available at http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/Finance-and-Budget-Commission/Agendas/2020/2020-01-13/Item-6B-Financial-Forecast-Model.pdf. The FBC’s presentation slides for their joint meeting with Council on January 28 are available at http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/CouncilMeetings/Agendas/2020/2020-01-28/02-Joint-Discussion-FBC-Presentation.pdf and the staff report for that joint meeting is available at http://documents.cityofdavis.org/Media/Default/Documents/PDF/CityCouncil/CouncilMeetings/Agendas/2020/2020-01-28/02-Joint-Discussion-FBC.pdf.

    2. Bill Marshall

      Bob reiterates important points, as to long-term projections… there is stuff that happens… two major sewer trunks collapsed while I worked for the City… very expensive 1 year costs…

      Deferred maintenance is like some diseases… easy to cure problems if caught early… not so much if they ‘fester’… high cost/benefit implications… as I posted earlier, a penny of prevention is better than a pound of cure… believe that Tia used a different, but completely analogous metaphor.

      There will be ‘blips’ on the spending side (and potentially on the revenue side)… one or even two years does not necessarily mark a “trend”… the 20-year view, modified annually (“rolling average” concept) is well-known as a prudent model.  It was not “practice” 10-15 years, except in ‘fits and starts’.  At least @ CC level… where they were more focused in the ‘here and now’, and how to “look good”, instead of being wise stewards.  Have served under several CC’s composed of folk who were more focused on ‘doing right’ than ‘playing to their base’… same is true for City Commissions (Planning, SAC and Bike are the ones I was most familiar with)… some of the great ones focused on public service, using their knowledge and experience (and listening)… many others saw their ‘service’ as being ‘bully pulpits’ to espouse their personal views/agendas (maybe ‘hearing’, but not ‘listening’)… that has been a disturbing trend…

      IMHO

      1. Matt Williams

        Bill Marshall said . . . Deferred maintenance is like some diseases… easy to cure problems if caught early… not so much if they ‘fester’…

        I agree 100% with Bill’s analogy.  And there is a simple way to achieve the “easy to cure problems if caught early”  . . . don’t defer the maintenance.

        The City hires experienced, knowledgeable professionals like Bill to put together a well-thought-out plan based on the “expected useful life” of the various components of its capital infrastructure.  A FBC Commissioner Ezra Beeman has said in multiple FBC meetings, and FBC subcommittee meetings with staff, there needs to be a plan that spans the useful life of the components, which in some cases is as much as 30 years (sometimes even more).  That creates a time horizon of end-of-useful-life “events.”  Then based on staff’s (and sometimes consultants’) professional experience with cost history of such “events” a year-by-year capital maintenance forecast is put together.

        I suspect there is a good chance that the major sewer trunks that collapsed were actually past their end-of-useful-life date.

        When you reach an “event” in the capital maintenance forecast, and the particular capital infrastructure component(s) are still going strong, you look at the cost/benefit implications of extending the life of the components rather than replacing them at that point.  If you do decide to take the risk of use beyond the end-of-useful-life point, you know that the chances of what Bill has described as a “blip” suddenly happening are significantly increased, but if you are managing your budget proactively, you will have increased the amount of the Capital Infrastructure Maintenance Reserve Fund by the amount of money that was in the Budget for the anticipated maintenance for that “event.”  That is what Reserve Funds are for.

        FBC has begun a proactive campaign to get the City to think and act and budget that way.  It is part of the Metrics item that they presented in the joint meeting with Council.

  4. Bob Fung

    I think Bill makes some good points about “the stuff that happens” like the  Feb 2019 closure of the gym at City Hall to the identification of possible structural issues.  In meetings with City staff, similar scenarios were raised.  If these kinds of events are not currently modeled, I think it would be useful for the City to try to model these kinds of events  in the Long Term Forecasting Model.

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