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