Sunday Commentary: City Revenue Problems Aren’t Going Away

photo by David M. Greenwald

By David M. Greenwald
Executive Editor

Davis, CA – Over the last decade, the biggest failure of leadership by the council has been the failure to address the city’s ongoing revenue shortfalls on a long-term basis.

While the city was able to pass and maintain a half-cent sales tax increase, all other revenue measures have failed to materialize—or in the case of a parcel tax for roads in 2018, failed to reach the two-thirds threshold.

In addition, three projects that contained economic development projects failed Measure J votes between 2016 and 2022.

The city council has also made some questionable choices with spending, most notably a decision to purchase a ladder truck with its ongoing added personnel costs for a fire apparatus that is duplicative with a similar apparatus available at the university.

The city’s roads, sidewalks and bike paths have long been under-resourced, and other city services and amenities have been struggling as well.

The failure of DiSC in 2022 drives home, once again, the failure of the voters and also the city council to come to terms with the city’s long-term revenue challenges.  Analyses have shown that the city remains on the very low end of other communities in terms of per capita sales tax.

The council assigned a subcommittee of Bapu Vaitla and Gloria Partida to look into the city’s revenue options and they have determined that a new revenue measure is a priority for the November ballot.

“The City Council has long wrestled with balancing the costs of quality of life programs and services, necessary infrastructure, growth and development to suit the interests of the community, and revenue to pay for these programs, services and infrastructure,” they write.

They note that the city “is in process to hire an Economic Development Director to help maximize current business health and to embark on an Economic Development strategic plan.”

In January, “the City Council reviewed the long-term plan to address critical infrastructure issues, specifically roads and bike paths.”

Staff reported that “although the City had developed and implemented a funding strategy to increase the amount of funds available to the pavement rehabilitation program by $31.1 million over a 10-year period, additional costs meant that even this increased amount would be insufficient to address desired pavement condition levels through 2029.”

In addition, the city council has discussed several other areas where current identified funding levels fall short, and these include: “city facilities, funding to support affordable housing and other services to low income households, urban forestry and more. The Council has discussed priorities in roads/bike paths and urban forestry that alone would require an additional $10 to $15 million per year.”

What are the revenue options?

The city has, as mentioned, attempted to increase the revenue base.  While efforts to develop R&D facilities have failed (again three times), the city has increased its TOT (Transient Occupancy Tax), brought in cannabis dispensaries, and added hotels—all of which will add revenue.

However, the city staff concedes, “Increasing the revenue base, particularly from non-residential entities, is possible, but it is difficult and takes time. The City is engaged in constant efforts to bring Davis-appropriate businesses to town, to generate sales tax, business license tax, and other revenues.”

That leaves a variety of revenue measures as possible solutions: parcel tax, Utility User Tax, Sales Tax, Transient Occupancy Tax, and a few others.

A big factor with the tax is that a parcel tax, which was attempted in 2018, requires a two-thirds vote, whereas a UUT, Sales, and TOT would be a simple majority—if the funds are unrestricted.

As staff explained, “General taxes intended for any legitimate government use require a 2/3 vote of the City Council to place a measure on the ballot. They are only allowed at municipal elections, with the next available election November 2024. Once on the ballot, a general tax requires a simple majority to pass.”

On the other hand, “Special taxes that are earmarked for a particular governmental purpose, including all parcel taxes, require a majority vote of the City Council to place on the ballot and 2/3 of the voters must support the measure for it to pass.”

I have always found this ironic.  I would generally prefer the council to put a tax on the ballot with a specific use designated so that the city can be held accountable, and we don’t get a situation like what happened in 2004, where a tax measure was put on the ballot to preserve services and then was used to raise compensation for city employees.

Why the state would make a specific tax a higher threshold makes little sense to me, when, as we saw a few years ago, a parcel tax received 57 percent of the vote—plenty of support to pass a general tax, but insufficient to pass the parcel tax.

All things being equal, again, a special tax makes a lot more sense from a fiscal accountability standpoint—but unless the community buys in, it’s a big risk

I have faulted the council for failing to make a concerted effort over the past decade-plus to educate the public about the city’s fiscal condition.

There was a brief time in 2014, before former City Manager Steve Pinkerton left, where he went to various service clubs and community organizations to talk about the city’s fiscal plight.  But since then there has been very little.

And so when the city has had measures on the ballot—a parcel tax in 2018, three R&D projects in 2016, 2020, and 2022—they all have been voted down.

According to the staff report: “If the City were to place a measure on the November 2024 ballot, the Council would need to vote on a final decision by early July 2024 so the County could include the measure in a consolidated election. This gives the Council up to 15 months to engage in community outreach to determine whether there is community support for a revenue measure and if so, for what purposes and what kind of measure.”

That sounds good on paper, but the first step should be to commit to and outline a community engagement strategy.

In my view the city suffers from a triple crisis at this point—none of which are completely unrelated—a revenue shortfall, a housing affordability crisis, and perhaps the most series, a threat to its schools through declining enrollment.

The community needs to be engaged and the school district should be partners in reaching out to warn the community of the consequences of housing affordability (which impacts the district) and declining enrollment which threatens the overall vitality of our community.

Without this kind of effort, a revenue measure—even if it passes—is simply a band-aid that punts one of the crises down the road a little bit.

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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29 Comments

  1. Keith Olsen

    In my view the city suffers from a triple crisis at this point – none of which are completely unrelated – a revenue shortfall, a housing affordability crisis, and perhaps the most series, a threat to its schools through declining enrollment.

    It’s high time for the Davis school system to face reality and downsize.

    1. David Greenwald

      You can downsize the school system (possibly at least and not without causing huge problems for more than a decade, something no one is considering) but it still doesn’t solve the problem of declining enrollment.

      1. Keith Olsen

        Easy to say that Davis should keep its over bloated school system in tact instead of facing the reality of declining enrollment.  Sometimes the hard choices are tough to make.

      2. David Greenwald

        It’s worse than that.

        First of all, you have students coming to Davis whose parents are teachers, that’s an agreement in the CBA with DTA, which means you can’t change that without agreement from the teachers.

        Second, the majority of students who come in parents teach at UCD. You can’t kick them out once they are enrolled. So at most, you can prevent the next incoming class of students from enrolling in K or PK. But that means you are losing students at 70 or so a year over the next decade and a half. That’s even worse. You’re basically losing $700K a year in ADA. Plus whatever declining enrollment. That’s death by a dozen cuts.

        Third, even so-called right sizing the school district, you end up losing about 10 students a year to continuing declining enrollment, which means you are losing about $100K a year in ADA. That’s the real underlying problem and that’s not solved by downsizing the school district.

        This is the problem you face. And it is not solved by so-called downsizing, in fact, if anything it is exacerbated by it.

      3. Don Shor

        It would obviously be an elementary school. So the advocates for school closures are proposing, in effect, that either Birch Lane or Marguerite Montgomery school be closed. We’ve been through this process with Valley Oak. It doesn’t go well.

          1. Don Shor

            We know that, but the only way to “downsize” a school district is to close schools. So all we need to know from the persistent advocates of that practice on here is which one they want to close: Birch Lane, or Marguerite Montgomery?

          2. David Greenwald

            You know that Don – I’m not sure others recognize this problem. The other problem is as I outline before – there is no easy way to downsize in terms of cutting out out of district transfers, as I outlined above.

            This is a *solution* that sounds good, but quickly runs into legal, fiscal, and political problems.

        1. Ron Glick

          Or close Pioneer instead of Montgomery. Either way it would be a brutal decision.

          The last time they closed a school they had to address a proposal to open a charter school on the site. Doing so would have made things worse for DJUSD so they repurposed the site as a second high school.

    2. Richard_McCann

      Keith O

      I find it interesting that you’re advocating to reduce the value of your house because house values are tied directly to education system quality. (I’ve provided many citations proving this point beyond dispute.)

      And why are you so bent on reducing district size when it will save so little money to you? Most of the district’s funding comes from the state and downsizing will not change the total number of students in the education system, just reallocated them. In addition, the parcel tax you pay to the district is to repay bonds for capital projects–none of that can go to operating costs. Those bond payments are fixed and unavoidable for decades so there’s no cost savings there.

  2. Ron Glick

    The problem for the schools is Measure J. I know you think I’m beating a dead horse but it happens to be true. Back when Don Saylor, Marty West, Joan Sallee and Keltie Jones were on the school board  they planned for growing enrollment and built Montgomery, Harper and if I remember correctly Korematsu. After Measure J passed the projected housing got voted down at Covell Village and Wildhorse Ranch signaling to other landowners not to risk paying for an election they would likely lose. Enrollment has been declining ever since.

  3. Don Shor

    “The most prominent finding from the report is that, on average, there is less than one school age child per housing unit in the US: approximately 41 children per 100 housing units (all occupied units and vacant units). Other important findings from the analysis include the following:

    • Owner-occupied units have fewer children than renter-occupied units: 45.6 children per 100 owner-occupied units compared to 49.6 children per 100 renter-occupied units.
    • For most residential types, there are fewer children among households moving into new construction compared to those moving into existing units. In newly constructed single-family attached units there is an average of only 30.2 children per 100 units, compared to 45.2 per 100 existing units. In newly constructed multifamily developments, there is an average of 21.9 children per 100 units, compared to 26.3 per 100 existing units (as seen in Figure 3).”

    https://eyeonhousing.org/2017/02/the-average-number-of-school-age-children-per-home/

    We don’t know what the exact distribution of housing would be in any new subdivision, but the city does exert some control over that in the planning process. For simplicity sake, estimate 28 children per 100 units.

    Best estimate is that Palomino Place would generate about 175 units (6.6 units per acre excl ADU’s, 26 acres total).

    Yield: 49 students

    Shriners would generate about 1100 units. 

    Yield: 308 students

    This assumes that the city allows the builders to provide the kinds of housing that families want. 

    Note the higher # of children in manufactured housing. But, of course, that would never be allowed in or near Davis, right?

  4. Ron Oertel

    Hard to believe that the suggestion to “grow the city” to meet the desires of an oversized school district continues on here.  (But it’s even worse that this belief continues for some on the council.)

    No one cares if a school is shutdown, other than a small subset of the population – which is disproportionately represented on here.

    And the parcel tax will go farther, when it’s spread among fewer students.

    We know that, but the only way to “downsize” a school district is to close schools. So all we need to know from the persistent advocates of that practice on here is which one they want to close: Birch Lane, or Marguerite Montgomery?

    Doesn’t matter to me (or most people).  Get yourself a dartboard to select, or maybe close two or three of them if necessary.

        1. David Greenwald

          Forgetting that the area around Pioneer is among the wealthiest areas of community… There is also the math, closing a school is projected to save around $600K per year, but the offsetting costs of ending interdistrict transfers would cost the district more than that each cohort that gets denied/ reduced. People not dealing with the math here are throwing out unworkable arguments.

        2. Ron Oertel

          I’d say that most people (meaning the total population) doesn’t care which school is closed.  And had they known that much of the “justification” used to create the Mace Mess was due to Pioneer, they might lean toward closing that one.  (Plus, it’s pretty close to the edge of town, etc.)

          But more importantly:

          If the underlying assumption presented on here is made clear to the populace (e.g., a choice between sprawl, vs. right-sizing the school district), most people would choose right-sizing the school district.

          The specific school to close is of little importance, but would likely be driven by proportional need (e.g., the school that is losing the most students, or some other criteria).

          School closures are similar to military base or prison closures, in that choices have to be made by parties who don’t have a dog in the fight.

          That’s why Congress created a special (committee?) to determine “which” military bases to close, some time ago.

          All one has to do is to look at one of the California cities whose prison was selected for closure, to see how they reacted. Including the same type of false claims (e.g., it will “save money” to keep it open).

        3. Ron Oertel

          Forgetting that the area around Pioneer is among the wealthiest areas of community…

          I don’t think that the entire area around Pioneer is wealthy, nor do the wealthy sections necessarily comprise the majority of the source of students.

          But even if it did, so what?

          There is also the math, closing a school is projected to save around $600K per year, but the offsetting costs of ending interdistrict transfers would cost the district more than that each cohort that gets denied/ reduced. People not dealing with the math here are throwing out unworkable arguments.

          You’re depending upon assumptions and figures created by the organization which is interested in self-preservation.  (Also, interdistrict transfers is a different subject.)

          Rule #1 in audit work:  Do your own analysis, rather than depend upon what the audited organization is telling you. (If auditors relied upon the audited organization for this, audits wouldn’t even be needed in the first place. You could just “take their word” for it, instead. It certainly would make the audit process go faster that way, at least.)

          Analyzing all of the assumptions objectively is not something that lends itself to quick comments on a blog.  This requires analysis of budgets, spreadsheets, etc.

          But for sure, the parcel taxes will “go farther” when there’s fewer students.  Something that neither the school district (nor you) ever mentions.

          We also already know that each student is already creating a deficit, that has to be made-up for by those parcel taxes. (Or so it was decided.)

    1. Keith Olsen

      Hard to believe that the suggestion to “grow the city” to meet the desires of an oversized school district continues on here.

      It’s hard to believe Ron.  How many years will it take to “grow the city”?  The obvious solution is to downsize the school system to meet the actual student demographics of the Davis population.

      1. Don Shor

        How many years will it take to “grow the city”?

        Two of the development proposals currently before the city would probably provide about 350 students.
        Which school would you close, Keith?

  5. Ron Oertel

    The problem for the schools is Measure J.

    I’d reverse this order:

    The problem for Measure J is the schools (and those associated with them). They are a direct and repeated threat to Measure J.

    I’m not sure that the 83% of voters who support Measure J fully understand this, or that the council itself has sided with the school system to attack Measure J.

    I suspect that some folks “don’t want to” believe that school systems are driven by self-interests (e.g., self-preservation). This denial of reality is probably more prevalent in college towns.

    1. Keith Olsen

      It’s like any other issue, instead of looking at reasons why the schools can and maybe should be downsized you have people looking into excuses why it shouldn’t be downsized.  It’s all in the messaging.

      1. Richard_McCann

        Downsizing won’t save money on net as we’ve demonstrated in multiple ways. In addition the resulting decline in property values given a static housing stock and reduced education system quality will lead to a reduction in city property tax revenues. So to what problem are you proposing this as a solution?

        1. Ron Oertel

          Downsizing won’t save money on net as we’ve demonstrated in multiple ways.

          Trying to think of a word which describes a statement as “untrue”.  Can you help with that?

          Not only will total costs go down, the parcel taxes will go farther as enrollment declines.

          In addition the resulting decline in property values given a static housing stock and reduced education system quality will lead to a reduction in city property tax revenues.

          And yet, you claim that high housing prices are “the” problem in the first place.

          Which you care to pick a lane, as they say?

          So to what problem are you proposing this as a solution?

          I think you’re the one proposing a “problem” to a “solution”.

           

  6. Ron Oertel

    Closing down an elementary school generates a one time savings which does not solve for an ongoing slow decline of revenue.

    Closing down a school results in far more than “one-time savings”.

    When a school closes, teachers and staff would be laid-off, maintenance, heating and cooling costs would decrease, etc. Those are ongoing costs, not one-time costs.

    There would also be a one-time “profit” resulting from closing the school, and selling the site.

    And as the size of the district continued to decline, so-called “fixed” costs would ultimately become variable costs.

    As an extreme example, you wouldn’t need a principal, highly-paid superintendent, more than one teacher, or even a school if there was only one kid enrolled.

    Even if “per-student” costs temporarily increased during the downsizing, it’s total cost which matters – especially since each student is already creating a “deficit”.  A smaller total deficit is “better” than a bigger one.

    As a very simplified example, let’s say that 10 students cost $10/each per year.  Now, let’s say that enrollment decreases by 5 students, resulting in a “per-student” cost of $11 each.  Even though the per-student cost increases with fewer students (in this example), the total cost decreases.  And again, the parcel tax will go farther when there’s fewer students, since it’s unaffected by enrollment.

    But again, you simply cannot count on a self-interested organization to disclose the cost savings resulting from downsizing. And by “downsizing”, I’m referring to closing down a school (including all of the cost savings already described above).

    For sure, total costs go down as schools are closed.

    No school district would build an oversized school system in the first place, if they knew that enrollment would not continue growing. The reason being that it would not be financially sustainable, nor would it align with the needs of that community.

  7. Richard_McCann

    In my view the city suffers from a triple crisis at this point—none of which are completely unrelated—a revenue shortfall, a housing affordability crisis, and perhaps the most series, a threat to its schools through declining enrollment.

    These are all closely interrelated! Why is there any suggestion that they are not related? Declining enrollment is caused by rising housing prices that have driven away younger families that both turnover housing more quickly (leading to faster rising assessed values and property taxes) and purchase more locally leading to higher sales tax revenues.

    1. Ron Oertel

      Declining enrollment is caused by rising housing prices that have driven away younger families that both turnover housing more quickly (leading to faster rising assessed values and property taxes) and purchase more locally leading to higher sales tax revenues.

      Are you even trying to put forth a coherent comment, at this point?

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