Monday Morning Thoughts: Toward More Balance in the City

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Even before COVID the Vanguard for years has been warning that Davis was in a precarious position and ultimately unsustainable.  For years we were carrying deficits in the ability to meet basic infrastructure needs that we were able to keep off our official balance sheets.  The result was we had a balanced budget, but we had a growing gap in infrastructure needs.

Ultimately this will come down to a quality of life—can we continue to keep our roads in repair, can we continue to maintain our parks and greenbelts, can our schools survive in a community where the middle is rapidly vanishing and the community is either under 25 or over 60?

That was before COVID.  Will COVID be the force that pushes us over the edge or the nudge we need to get ourselves back in balance?

Balance is the key word for Davis.  We need enough housing to restore the balance in demographics, but not so little as to create huge shortfalls—and not too much to turn this community from Davis into Natomas.

We need to create a balance for our economic sector as well.  We need to be able to generate sufficient revenue to pay for basic services and infrastructure needs  without fundamentally destroying the things that make this a great community to live.

Ten years ago, as Davis struggled during the Great Recession, segments of the community came together and realized that a city reliant on auto sales and lacking revenue-generating business was ultimately unsustainable.

While we have had some great discussions over the last ten years, the fundamentals have not changed.  Council will point to the revenue generated from cannabis sales, the new hotels and the TOT (transient occupancy tax) increase as paths toward more sustainability.

And yet, now we know that we are facing something in the way of a $22 million loss due to the economic shutdown of this community.  A huge hit has been in sales tax.  People are not using hotels.  Retail is largely shutdown.  We are hurting like other communities.

The corrective actions the city looks at are all on the spending side.  They are looking probably at taking that money that was going to go for road repairs and put it toward general funds.  They will again freeze hiring and hope that over time positions are reduced through attrition.  They will defer COLAs and probably have furloughs.

The problem that we have, of course, is that we already did all of that.  During the last recession the city managed to reduce FTE (full-time equivalent) by over 100 positions.  Can we do that again without impacting city services?

We are going to defer maintenance on our roads… again.  Sound familiar?  Indeed.  That means that when we emerge from this crisis, we will have probably $200 million or more in road maintenance.

This is a problem of balance.  Just as it was in 2010 when the city budget was bloated by unsustainable labor contracts and decimated by the collapse of the real estate and auto sales markets.  We vowed to fix it—but we didn’t.

To be honest, the severity and suddenness of this crisis was going to make things painful, regardless of what we did.

But there are things that we should have done in the last ten years, that we didn’t.

The fiscal picture is balanced on a three prong approach—spending, taxes and revenue.

The city in my view deserves credit on the spending side.  They reduced the size of the city workforce (we can question how they achieved that, but they did) and they have largely kept smart policies in place.  Cost containment probably could have been improved, as I think going to a two percent COLA was not wise without better revenue measures being in place, but the comparison from 2005 to 2020 is pretty stark and overall the city has learned a lot of valuable lessons.

On the tax side, I’m critical of the city.  They did pass their long-term sales tax increase and made it permanent.  But they delayed and failed to get the parcel tax passed.  How big would that be?  That may end up costing the city $100 million if the road maintenance costs explode over the next five years as we can’t pay them.

On the revenue side, we have largely failed.  In my conversations with some of the council earlier this year, they pointed to hotels and cannabis as tools they have added to their toolkit.  But the elephant in the room was high tech economic development.

The one industry that is still resilient right now is high tech.  Silicon Valley is hiring.  Why?  Because the demand for technology has gone up immeasurably as everyone has been forced to go to high tech in their telecommuting.

Meanwhile, we would expect auto sales to plummet once again.  And, frankly, at some point the auto market simply may not rebound.  We still have to deal with climate change.  The world is realizing that it can move more and more to telecommuting.

The hotel industry has collapsed.

And brick and mortar is in deep trouble, though I still think they can adapt by going to a hybrid model.

The city’s discussion focused heavily on the immediate need of cost cutting.  But the need for revenue is omnipresent.  The more diverse we are, the more resilient we become to the booms and busts.

COVID represents the second really bad economic hit in the last 20 years.  This one is tricky to predict.  But the immediate impact is sudden and severe.

As the city moves forward I would replace the word resilience with balance.  We need a balanced approach to our fiscal policy and a balanced approach to things like housing and growth.  In my view, that balance will lead to better resilience.

—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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35 thoughts on “Monday Morning Thoughts: Toward More Balance in the City”

  1. Don Shor

    The problem that we have of course is that we already did all of that.  During the last recession the city managed to reduce FTE by over 100 positions.  Can we do that again without impacting city services?

    If I recall, the total cost of payroll didn’t go down with that reduction.

    1. Doby Fleeman

      Don,

      I’ll tackle that answer.  There are several major components which explain why total costs didn’t decline accordingly:

      1) Unfunded Accounting – where benefits were conferred, but inadequate contributions were made to keep the funding accounts actuarially in balance.

      a) This had a state component as the Governor, in 2000, raised the retirement benefits calculator by 1/2% with no corresponding source of funding to backfill the new unfunded benefits liability thus created.

      b) Hefty compensation increases passed by CC in 2004-05 with no corresponding plan as to how the new, underfunded deferred compensation portion would be filled.

      c) New GASB mandated “full disclosure” reporting standards in 2007 which began forcing agencies to begin calculating and reporting underfunded pension plans.

      d) New GASB mandated “full disclosure” reporting standards which forced agencies to begin calculating and reporting previously unfunded post employment benefits – primarily healthcare.

      2) CalPers targeting a higher (riskier) rate of return by seeking new asset classes and investment vehicles  previously considered too risky for a pension portfolio.   All came tumbling down in the Great Recession.

      3) New GASB mandated requirement to employ more realistic calculations for future projected “rate of return” on retirement investments – stepping down from 8% to 6.5% and possibly lower – resulting in dramatically higher annual contributions by member agencies.

       

      Add all those together, and you have your answer.  And, it’s certainly not going to be getting any better this year.

      1. Bill Marshall

        Doby… I may not agree in all details, but essentially you are ~90+% correct… a movie I’ve never seen, “Perfect Storm”… yeah, the fit hit the shan, in relatively short order…

        This episode with covid, and implications, well, might be the same, might not… too early in the game…

        But I reiterate, the focus should not be JUST on the City, but rather, City/County/DJUSD… a constellation… just saw in the paper that DJUSD is looking to the City for “cost-sharing”… that would be a one-way street, based on 40 years of past experience… but hey, “it’s for the kids!”

  2. Ron Glick

    “Just as it was in 2010 when the city budget was bloated by unsustainable labor contracts and decimated by the collapse of the real estate and auto sales markets.  We vowed to fix it – but we didn’t.”

    Instead we renewed Measure J that year. Is it any wonder then that Davis has failed to address its structural deficit? Measure J/R is the chokehold on development that prevents Davis from addressing any of its fundamental needs.

    1. Doby Fleeman

      Yes Ron, “we vowed to fix it” – but we never had a conversation about a plan or strategy for realistically attacking the problem.

      We talked about the problem with DSIDE and made an effort to approach the challenge (challenge of entering into an earnest discussion and analysis) with a “Visioning Strategy” approved by City Council in 2011, but it died for a failure to fund.

      The city has never been serious about “fixing the problem” – or even addressing its underlying causes –  in the cold light of day.

      1. David Greenwald Post author

        Part of the problem is what I was pointing out at the time – the process involved only half the room and the other half was conspicuously absent from the discussions on innovation parks and economic development. That led to a problem – there was no community-wide consensus on a direction. That remains a problem to this day.

        1. Doby Fleeman

          Couldn’t agree more, but the Innovation Park discussion began as a solution to a problem – a problem for which the root causes (other than the symptoms of a unbalanced budget) have never been addressed.

          In very real terms, a solution looking for a question.   The question was never really posed – we jumped that step in avoiding the Visioning discussion – and moved directly to the proposition of an answer to help address the budgetary shortfall.

           

           

      2. Richard McCann

        We need a set of truly visionary leaders in this City, and I’m afraid we don’t have that at the moment. The Council and Staff leadership have been captured by the status quo and belief that it could somehow go on and on. The Climate Emergency resolution the Council passed a year ago should have been the first signal that we need to take a much bigger step toward a new direction. The debacle of the BrightNight solar deal revealed the apparent incompetency of that leadership in negotiating with outside parties and an unwillingness to bring in citizen input on the best way to move forward. This is the moment to start a much more fundamental discussion on a new economic framework for this city.

  3. Keith Olsen

    can we continue to keep our roads in repair

    A good investment for all Davisites thinking of planning for the future might be the purchase of off road tires.

        1. Ron Oertel

          You’ve got to wonder if the popularity of SUVs (and mountain bikes, for that matter) means that people “care less” about road conditions, without being “car less”.

          And with cheap gas, sales of these types of vehicles will likely continue.

          As a side note, I’ve recently learned how well Model T’s perform in the rough conditions which existed, back-in-the-day. They are practically “off-roaders”, to some degree.

          The wheels and tires on modern vehicles do seem to be getting larger, and better-able to absorb potholes. Recently, I had trouble finding the right size, for my older vehicle.

          Motorcycles beat them all, regarding ability to travel over rough terrain (and – bypass traffic).  “Fun”, as well!

          Tongue in-cheek, somewhat.

        2. Ron Oertel

          By the way, aren’t Ford trucks the best-selling vehicle in America?  And, that American automakers are reducing or eliminating sedans?

  4. Doby Fleeman

    Even today, you can’t effectively or convincingly tell me WHY the community NEEDS more jobs or more housing.  You can only tell me that a well executed development plan will deliver more net revenue to the community.

    Hey, I’m your biggest advocate for that answer – but nobody has effectively yet made the case as to WHY we NEED more jobs and HOW they will serve to make Davis a better version of itself.

    1. Jeff Boone

      There are two domains of consideration.   One is simple… tax revenue derives ONLY from commercial activity.  The lack of commercial activity in a community means a lack of tax revenue.

  5. Doby Fleeman

    Many in the community, and to an even larger extent in our region, observe that Davis already enjoys an overflowing bounty of wonderful jobs, great schools and community amenities – courtesy of UCD and the Capitol – and without further evidence to the contrary – may conclude  that this discussion is more about pursuit of greed by a selfish and tone deaf minority of pro-development acolytes.  Is that Joni Mitchell I hear in the background?

    Given all that – Do you think they really care if the City can’t manage to balance its books?

    How would you propose that the community get past these hurdles?

    1. Ron Glick

      “that this discussion is more about pursuit of greed by a selfish and tone deaf minority of pro-development acolytes.”

      I guess the counter narrative would be that we should only entertain projects that don’t create a positive return on investment. Any takers? We actually have such a program with the J/R exemption to an annexation vote for Affordable housing. Any wonder why nobody has taken advantage of that exemption in twenty years?

      1. Doby Fleeman

        Don’t misunderstand my hypothetical arguments, but also please let’s not “underestimate” the potential of such arguments to derail and hijack critically important elements of a very useful, constructive and important discussion about our future direction and trajectory as a community.

        In contrast to the negativity that can befall discussion of new development – what we are largely missing is the opportunity to further discuss why and how Davis has gotten itself into this hole.   But, even more importantly, we are missing the opportunity to envision and embrace the limitless opportunities, relying on our own resources as a community, to foster amazing new industries, new products, exciting new careers, initiatives to help feed the world – simply by identifying and embracing our core competencies and key strengths as a community – and then working collaboratively, together to determine and define our best pathways forward to achieving our full potential (including fiscal sustainability and a balanced budget as a side benefit).

        And, yes, that conversation deserves and requires some heavy lifting and spirited leadership within the community.

  6. Jeff Boone

    Before the [pandemic], Palo Alto was forecasting a general fund net operating surplus in 2021 the deficits based on an expectation of economic downturns, with 2026 being the year where their plans pay dividends in driving an extended annual surplus.

    However, their forecasting was done with a very conservative adjusted discount rate related to pension costs… basically correcting for the know intellectually dishonest ROI used by CalPERS.

    One key paragraph in this report:

    Since the great recession, the City has approved many strategies to mitigate rising costs, especially the rising increase in salaries and benefits. Strategies that have been used include: a second pension tier, employees sharing in health plan cost increases, and shifting from employer-paid member contributions to employee pick-up of a portion of the employer share for pensions. Since 2016, rounds of negotiations with bargaining units have included employees not only paying their full portion of CalPERS contributions but also beginning a cost-sharing program wherein employees contribute a certain percentage of the City’s required employer pension contribution. These strategies have helped to create the financial capacity to invest proactively in the City’s Pension Trust, supporting the City’s commitments to employees while ensuring fiscal sustainability.

    Aside from this, the key point about Davis’s situation is that we are unable to fully benefit from economic boom cycles because we don’t have but a pittance of commercial business that a community like Palo Alto benefits from.

    And yes, reliance on tax revenue from local business connected to the overall private economy means that a downturn in the economy results in lower tax revenue, but that is why long-range budget and financial plans like this included that economic forecast.

    But to reject commercial business and economic development because it risks a downturn is a fools argument.

    Is Davis just stuck in the minor leagues here.  Talking a big pants game, but never owning the right stuff to actually get something done to ensure long-term financial viability?

    https://www.cityofpaloalto.org/civicax/filebank/documents/74173

    1. Ron Oertel

      Palo Alto doesn’t address it’s own housing needs via the demand it creates.  Nor does it experience the resulting costs of that housing.

    2. Doby Fleeman

      What gets me is there isn’t any curiosity or interest in even looking under hood to see what’s wrong with the 480hp engine, nor to understand why its not running.  That just seems to defy logic in a community like Davis – where curiosity should be the hallmark of its DNA.

      I can tell you one thing from experience, back in 2011 with economist and long time Davis resident Mark Siegler as Chair, the Finance & Budget Commission challenged findings and pushed back against recommendations of the then Business & Economics Development Commission over two key issues.   I had great respect for this commission, particularly their willingness to engage in discussions about the economy and their ability to assert clear, well defined challenges to basic assumptions of the BEDC.

      The points, as I recall, revolved around the premise that Davis was somehow “underemployed” and that this should be used as basis to promote further development, and secondly, the essential proposition offered by the BEDC that Commercial Development somehow offered a greater “net benefit” to Davis fiscal condition than any other type of development (namely residential).

      Difficult to refute either challenge – particularly with the City demonstrating no curiousity about the first challenge, nor willingness to pursue the research.   On the issue of “greater net fiscal benefits”, it was more of a technical matter at the time because the City’s Financial Modeling program was geared almost exclusively to analysis of fiscal impacts associated with single and multifamily housing and didn’t have a suitable module to reflect impacts from Commercial development.

      Almost a decade later, but fortunately we now have those more sophisticated economic modelling tools which allow EPS and others to properly evaluate potential fiscal impacts associated with new Commercial development alongside new Residential.

      Unfortunately, however, we still do not have the tools or the basic research required to address the first of their challenges – concerning whether we have the appropriate balance of jobs-housing ratio.  The other, critical element of this key discussion would be the quality, mix and geographical distribution/location of  such jobs within the City of Davis and their ramifications for the City’s tax revenues to support essential municipal services.   Why the City has be disinclined to pursue this basic research is well above my pay grade.

      It’s a new day for the Finance & Budget Commission, but this legitimate, age old challenge appears to remain out of reach for purposes of their discussions, analysis and deliberations.

      1. Jeff Boone

        Ultimately this is a problem of ineffective leadership, and because we in this community accept direct democracy decision-making, a problem of community voter mindset.

        I see a more fundamental challenge in forging progress.   I think the leadership problem is one where we need more private-sector business type on the city council.   However, that is unlikely to happen because of the second problem… community voter mindset.   With respect to the that problem, I break in into two camps: ideological and ignorant.   The ideological are those committed no-growers… it is their belief system and/or their selfish pursuit to block and prevent growth.  These are people that cannot be reasoned with on the topic of development.  We need to just accept that they are never going to alter their stripes… they don’t like change in the community and don’t want change.  Even the most brilliantly-designed smart development will be shot full of holes, and then challenged with endless CEQA lawsuits.  Provide a compelling economic study and recommendation and they will claim you got it from Donald Trump or Barack Obama.

        So, the last and final cohort here is the ignorant.   And I don’t mean that as a slight.   We are talking about otherwise very intelligent and educated voters… but with little connection to the private economy and frankly little understanding of how it connects to their well-being.

        It is my opinion that detailed visioning and general plan design isn’t a worthy effort at this time… until and unless we correct the problem of ignorance about how the private-public economy works or does not work, and then get some more private-sector minds working in positions of city leadership.

        I am reminded of the historical challenges for people fighting for independence.   You can draft a detailed battle plan in including a future vision, but if you don’t have ground support for the actual fight, you are wasting time working on the plan.  I don’t think a plan, and its supporting analyses, creates influence as much as it creates material for the ideological foes of growth to spread FUD.

        However, any work to create material that can be used to influence the ignorant into knowing and to increase support for actions to remedy the problems…  that is what we should be doing.

        IMHO

      1. Doby Fleeman

        Not intending to speak for Jeff, but I don’t think he is “comparing” the two.  Entirely 2 different.

        Stanford and Palo Alto both honor, encourage and celebrate local jobs creation.  They don’t apologize for it.

        If they have fared poorly in managing that success, in terms of improving their community, at least its there to learn from.

        And, it appears from Jeff’s numbers that they are managing to pay their own way.

         

         

         

         

        1. Alan Miller

          Srsly!?? Palo Alto is in the middle of Silicon Valley, the city couldn’t stop job creation if they filled it with the entire belt of a machine gun round and stuck a wooden stake in its heart.  They are completely socked in on all sides by other cities, a bay and hills, and the rent is double the rate-per-room as Davis.  You can’t compare the two.

  7. Bill Marshall

    I’m critical of the city.  They did pass their long-term sales tax increase and made it permanent.  But they delayed and failed to get the parcel tax passed

    And the city was negligent in not ‘forcing’ voters?  Really?  How so?  Just wondering…

    1. Bill Marshall

      I note that you opined that DJUSD didn’t ask for ‘enough’ on the employee compensation measure… yet, you appear to not be ‘critical’ of DJUSD, much… hey, “it was for the kids!”… got it… 

      “Balance” applies to City, County, DJUSD, to my way of thinking… but pretty sure you have a heavy thumb on the ‘balance’ of DJUSD, even if it means losses to City and/or County… “it’s for the kids!” right?

      1. David Greenwald Post author

        You mean, for my kids?

        Regardless, I have pushed for economic development for the last seven years, supported additional parcel taxes for the city, I think you’re barking up the wrong tree here.

    2. David Greenwald Post author

      As I have explained before, the council should have pushed a roads tax back in 2014. In 2018, they did, but unlike the school district that ran a full campaign for their parcel tax, there was no robust campaign effort. The result was DJUSD passed their measure, the city’s stalled at 57%.

  8. Ron Glick

    “…what we are largely missing is the opportunity to further discuss why and how Davis has gotten itself into this hole.”

    I think Davis has gotten here by misinterpreting the message of the limits to growth mantra and the un-sustainability models of Paul Ehrlich and the Club of Rome that date back to the 60’s and 70’s. The big problem with those models is that they failed to understand how technologies like the Green Revolution and transistor design following Moore’s Law would enable us to keep ahead of the resources demands of a growing population. With a mindset that more people are bad Davis residents chose to repel growth. At the same time UC Davis seeing itself as an engine of the development of both human capital and needed advances in technology chose to embrace its role in the race to outpace the available limits envisioned by a growing population’s demand on resources. The UC Food Initiative is the clearest call on this path of how UC sees its role.

    These divergent paths have reached a breaking point exemplified by the land use battles that surround the City of Davis; MeasuresJ/R, Spring Lake, West Village, Aggie Square, ground water vs river water and infill vs. peripheral development. As these conflicts have proceeded, with passion instead of consensus, the consequences of these conflicting visions have played out in unintended ways. Those areas that have embraced the change are achieving a degree of financial prosperity while the City of Davis has been unable to balance its budget or maintain its infrastructure because of its inability to embrace even enough of the prosperity to maintain itself. All the while the opposition to growth has helped drive financial inequality between the home owner and renter classes.

    Even though I agree with Doby, that until we have an honest discussion about where we need to go as a community we won’t reach consensus about how to get there, I’m doubtful that those who oppose growth have any interest in seeking consensus. It seems to me that those that benefit from the current state of affairs are more interested in preserving their privileges than engaging in any meaningful discussion of how Davis can take a more holistic approach to addressing its financial, cultural or environmental needs in a continuously growing region.

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