My View: A Sales Tax Increase Is a Giant Band-Aid for the City’s Fiscal Bleeding

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By David M. Greenwald
Executive Editor

Davis, CA – In my view there was a lot of anger and frustration thrown around the city council meeting on Tuesday evening—some of it revolves around the proposed revenue measure, but most of it appears to bleed from other grievances.

For all of the complaints, the idea that even a one percent sales tax increase is going to have much impact on people’s personal finances is a bit farfetched.  Whether the city is at 7, 8 or even 9 percent sales tax is largely immaterial to people’s collective financial impact.

From a practical perspective, you are talking about a single additional dollar every time you have spent $100 on taxable merchandise.  That means if you spent $1000, you pay an extra $10 and if you spend $10,000 you pay an extra $100.

We are simply not talking about a big enough difference that anyone is really going to notice the increase locally and few will have the incentive to relocate their spending and purchasing as a result—as the rest of the region is largely within that one percent range of each other.

Yesterday someone asked me why I’m not more upset about the city’s fiscal situation than I appear to be.

The truth is that I am very frustrated with the city’s fiscal situation—but I think it is more complicated than simply looking at a single tax measure that looks to stop the city’s fiscal bleeding.

In 2016, the Vanguard ran a series of articles showing, at that time, the city had among the lowest per capita retail sales in the region and also among the lowest among.  That was in 2016, nearly eight years ago.  Since then, the voters in Davis have voted down three economic development projects that could have generated revenue plus a parcel tax in 2018 that would have closed the gap on roads.

Naturally, the city needed to find an immediate revenue source—since building and achieving economic development is a long process—and needed to do so in a way that they knew it could get passed.

I agree with outgoing Councilmember Will Arnold—the state laws are strange with respect to general versus specific.

As Councilmember Arnold stated on Tuesday, “It’s always been counterintuitive to me that a tax where you identify the use of the funds is the one that has a higher threshold. I always think it should be the reverse that if you’re going to do a general tax should maybe be two thirds because there’s more discretion about how those funds get used. But if you identify ahead of time the use of the funds, that ought to lower your threshold in my opinion.”

I agree but that’s not the law right now and that means we actually get less in the way of transparency and accountability when we pass a simple majority tax.

In the bigger picture, I believe that the city needs to do more in the way of economic development and needs to do more to improve the retail environment of the downtown.

There is plenty of blame to go around here—the city did not do a good enough job of moving the community with them during the critical 2010 to 2014 period when there was clear energy and momentum on this front.

I would also say that the city has been slow to move on its Downtown Plan and slow to launch its General Plan Update.

Some of that is due to the unique situation with respect to the pandemic, but a lot of it is the general general anti-growth sentiment in the city—a few years ago, the Vanguard warned that without approval of economic development, the city would have to resort to revenue measures, so this should come as no surprise.

The argument was put forward on Tuesday that the city should talk with UC Davis before going to the Davis taxpayers.

It’s a curious point overall and continues an attitude that UC Davis is primarily a taker rather than a benefit to the community.

The city staff and some council members pushed back on this notion, noting the impact of UC Davis as an employer and investor in the community and the multiplier effect.

But what troubles me here is that a segment of the population seeks to blame UC Davis for our own fiscal and housing choices that have had detrimental impacts on this community.

UC Davis has basically punted on a lot of new investments in the community.  There was a big deal made out of the MOU with UC Davis with respect to housing and other impacts—and past leaders pounded their chests when UC Davis agreed to the MOU.

But, like many things, these are perhaps pennywise and pound-foolish.

UC Davis is largely the 800-pound gorilla in our community.  It does what it wants.  It’s willing to work with the local community when it’s to its advantage.  But the idea that we can force the university to do things is absurd.

Moreover, every time we try, we harm our relations with them.

For example, we may have gotten the MOU out of the university; when it came time to plan and locate a major new investment like Aggie Square, the university decided to go to Sacramento.  Sure, you can argue that that specific investment makes sense in Sacramento, but, at the same time, there is the fact that they didn’t have to fight the community to get it approved and built.

The fact is that UC Davis wouldn’t even put its full force behind any of the proposed innovation centers in the city—even when they weren’t called to do anything other than support them.

Is the city better off having the MOU or is the city better off having a version of Aggie Square generating ongoing revenue and bringing in millions in jobs and other multiplier effects?

So yeah, maybe we can ask the university to pay more for things that the city should be doing—and the university can push more of its investments to Sacramento or Solano County.

At the end of the day we do have fiscal problems in Davis; we have also made a lot of choices as a community that have made those fiscal problems inevitable and more severe.

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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7 Comments

      1. Keith Olsen

        Just like everyone’s household finances, they should budget for what they can afford.

        David, do you believe this new tax is only going to sure up current city deficits or do you think they’re going to dip into the funds for other programs such as the housing fund, etc…?

        1. Walter Shwe

          Just like everyone’s household finances, they should budget for what they can afford.

          Then why do so many Americans incur so much debt? Actually spending within your means is more difficult that just sayin so.

          Bankruptcy Filings Rise 16.8 Percent

          to statistics released by the Administrative Office of the U.S. Courts, annual bankruptcy filings totaled 452,990 in the year ending December 2023, compared with 387,721 cases in the previous year.

          https://www.uscourts.gov/news/2024/01/26/bankruptcy-filings-rise-168-percent#:~:text=According%20to%20statistics%20released%20by,cases%20in%20the%20previous%20year.

          U.S. Household Debt Is at an All-Time High

          Household debt across all categories grew by 4.8% from Q3 2022 to Q3 2023, according to the latest statistics from the Federal Reserve Bank of New York (FRBNY). This includes mortgages, home equity revolving debt, auto loans, credit cards, student loans and other consumer lending such as retail cards. The total household debt of $17.3 trillion entering 2024 is a new high for the U.S.

          https://www.marketwatch.com/guides/banking/american-debt-2024/#:~:text=U.S.%20Household%20Debt%20Is%20at%20an%20All%2DTime%20High,-Household%20debt%20across&text=The%20total%20household%20debt%20of,which%20federal%20data%20was%20available.

           

        2. David Greenwald

          I think a government entity is not a good analogy with a household. The job of the government is to provide public services to the community. But if you want to use the household as your point of comparison, budgeting works both ways. Some families take out loans for short-term needs and some times people take on extra jobs to get more income to expand their budget. Cities are limited in how they can go about doing that.

          In terms of your second question, the city has presented a number of goals – bringing their reserve up, meeting current budgeted obligations and also they have stated explicitly their desire to put money into the housing fund. So I think they have answered your question up front as to their intention. Your vote should depend on whether or not you believe those are the proper priorities.

        3. Matt Williams

          David said … “I think a government entity is not a good analogy with a household. The job of the government is to provide public services to the community.”

          I believe David has described a rather narrow view of what the job of the government is.  A much less narrow view of the job of the government is (A) to efficiently and effectively provide public services to the community, and (B) to steward the assets of the community … both capital assets and good will assets … here too, efficiently and effectively.

          The best way to address the “efficiently and effectively” aspects of the government’s job is to create a culture of accountability.

          In providing affordable housing “services” to the community, what is the historical track record of the City? It is rife with abandoned deed restrictions that resulted in affordable units reverting to market rate status.  I don’t have an exact number of times that has happened, but I’m pretty sure it is well over one hundred times.

          In providing parks and recreation services staffing shortages, failure to keep pools in safe, working order has resulted in service denials almost every year.

          In providing street maintenance services, one need look no further than the Macde Mess to see a project that is $7 million over its original $3 million budget.

          Page D-11 of the City Budget provides the Unfunded Liability amounts that support the graph David posted earlier this week.  The Unfunded amount reported for Capital Infrastructure alone is $225.21 million over 20 years. That number gets worse when you add in the impact of the Budgetary problems that were reported in the recent 3rd Quarter Budget Update, where the funding for Capital Maintenance was slashed just to balance the Budget … with a precipitous decline in the General Fund Balance, which will need to be replenished.  That will add at least $20 million to the $225.21 million Unfunded.

          Then there are ongoing programs/services whose current funding is of limited duration. As soon as the current funding runs out (for example American Rescue Plan funding) the annual cost of those ongoing programs/services gets added to the $225.21 million as well.

          Pensions and Healthcare Benefits are rising faster than inflation.  Expecting those not to add to the $225.21 million is foolish.

          Bottom-line, the analogy for the City is very solid.  We need our government to be honest with us about how we have gotten into the current dimal state of affairs.  Once that honesty is put out on the table, illuminating just how bad our problem is, then we can begin to collectively formulate efficient and effective solutions.

    1. Matt Williams

      Keith, David has chosen a very appropriate metaphor with “a band-aid.”  The City has blood gushing from a severed artery, and instad of addressing the magnitude of the situation with an honest disclo0sure of why “the bleeding” is so very bad, it is politics as usual … sweeping reality under the rug and hoping the voters stay uninformed about the true state of the City.

      It is also interesting that the Council has chosen to put forward one of the most regressive taxes … one that places a significantly heavier burden on lower income residents.  People with lower incomes must spend larger shares of their income just to meet their basic needs, leaving them with less ability to pay taxes.

      A fair tax system should take a smaller fraction of the income of low-income households, but the Council doesn’t seem to care as much about low-income households as they care about high-income households.  The Council seems to be advocates of Social Injustice.

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