Budget/Fiscal

For those who have not read Rich Rifkin’s column in the Enterprise, it was an outstanding piece.  The idea of declaring impasse in the current labor negotiations is probably an increasingly necessary step.

As Mr. Rifkin explained, once a council declares impasse in its labor negotiations state law then allows the council to impose its “last, best and final offer” on the city unions involved in collective bargaining negotiations.  Davis has a particularly labor-friendly ordinance however, and under current law it could take four to six weeks to impose its contract terms after declaring impasse.

Word trickled out prior to the Tuesday’s meeting that several of the bargaining groups had reached agreement with the city in principle on new contracts.  As it turns out that news was premature, but it seems very likely that in the coming weeks those contracts will be finalized.

There was suggestion on Tuesday however, that those contracts would fall well short of even the modest savings proposed by the council in June which placed the figure at 1.25 million dollars.  In fact, City Finance Director Paul Navazio indicated that there might be a 350,000 dollar shortfall in the projected savings based on the current trajectory of discussions.

At last night’s city council meeting the discussion on reorganization of the fire department began with an announcement by City Manager Bill Emlen that this matter has taken on a new urgency as three top positions in the fire department, including the Fire Chief have gone vacant due to retirements.  For much of the rest of the night, City Manager Bill Emlen pushed the issue of the Battalion Chief Model forward arguing that it is a necessary change from a management standpoint that will enable more effective deployment than the current model allows.  He wrapped the conversation within the guise of cost-savings that would be exposed by the end of the evening as nothing more than a shell game.

However, that did not stop the council majority, a trio that has received tens of thousands in contributions from the fire fighters, at least twenty of whom were sitting in the audience to make their numbers and presence felt by the council, from voting by a narrow 3-2 margin to proceed looking into the reorganization.

On Sunday, the Vanguard a full story on the proposed staffing changes for the fire department which includes the fire department getting their long-sought after battalion chief position.  We noted several problems at that time with the staff report and the combination of two separate changes to create the illusion of cash savings.  However, we have with further examination and upon further information, there are additional problems with the staff report and the accounting.

We will go through several of them here to re-emphasis the points ahead of tonight’s meeting.

Last month the city of Davis’ Budget and Finance commission began to look at the city’s model which is used to evaluate the fiscal impact of new development.  Last month they discussed the overall model and the various assumptions and interpretations of the model. 

From last month’s discussions, there are three types of fiscal impacts.  There are projects that are always positive in terms of fiscal impacts, we could think of these as economic development projects.  There are also projects that will always have a negative impact, for example a zero tax affordable project will always have a negative fiscal impact.

In June, the city received a report from the consulting firm Citygate on that looked into ways the city could restructure the fire department’s staffing.  In most ways, the report was a disappointment in that it failed to recommend any major reform that would result in real cost savings.

However, even within that report, there were still a few items of interest including the fact that an increased relationship with UC Davis, along with a more realistic response time requirement of 7 minutes rather than the current 5 minute standard, would result in no need for a fourth fire station for the foreseeable future short of a large amount of growth in the north of Davis–the result probably of fully developing both Covell Village and Cannery Park.

On September 30, the Vanguard first broke the story on the troubles of DACHA questioning city actions in the summer of 2008 as the city council authorized a loan to the Davis Area Cooperative Housing Association as part of its refinance.  Since that time, two law suits against DACHA by Neighborhood Partners and Twin Pines Cooperative have cast serious doubt on the efficacy and legality of that refinance.  To this point the city has not been forthcoming as to their role in this and it appears their actions have made the cooperative less secure rather than more secure.

Last week’s council meeting was supposed to shed light on what had occurred but for most it raised more questions than answers, particularly the baffling decision by council, by a 3-2 vote, not to look further into the problem by means of third party review.  Moreover, for the first time the city acknowledged that DACHA rests on very shaky ground and is in danger of defaulting on its loan to the city and therefore the city could end up foreclosing on the homes of affordable housing residents.

When examining the impact of long-range budget figures, no issue is more important than the impact of retiree health benefits and retirement pensions.  However, at the city level there has been relatively little discussion of changes to the pension system.  What discussion has occurred has focused on the likely increase in cost due to losses that PERS took last year when investments collapsed.

The city’s budget focus has necessarily looked at the next five years where the immediate impact of the economy and economic forecasts are most important.  However, modeling now suggests that if the city increases its personnel costs by 5% over the next 15 to 20 years, the city is either going to be looking to substantially cut services or find new sources of revenue.  Currently the city spends around 71% of its general fund budget on personnel costs and that number is expected to rise in future as the city shifts to a more realistic model for dealing with retiree health benefits, it continues to grapple with the pension costs, and salaries continue to rise.

Nearly three weeks ago, the Vanguard brought to light serious problems of potential misuse of approximately $4.15 million in public funds that were used to loan the Davis Area Cooperative Housing Association.  In particular the organization is accused of illegally redistributing cooperative funds to its members.

In July of 2008, the city of Davis and the Davis City Council responding to complaints from DACHA members of high monthly carrying charges and unaffordable share costs as well as an audit that showed that DACHA was in financial distress and not sustainable in the long run, provided a loan to help DACHA refinance their debts, reduce their share costs from $22,000 to $6250 and reduce their monthly carrying charges that ran as high as $1800 per month.

One of the issues that came out of the Finance and Budget’s Commission meeting on September 14 that looked at the fiscal impact of the Wildhorse Ranch project was to review how the city evaluates new developments.  The result last night was a two hour discussion that left more questions than answers about how the city evaluates development projects.

I begin with a little background and details on the model itself.  The model was first developed in 2004 to analyze the potential General Fund impact of the Covell Village development project but was intended to be flexible and dynamic enough to be used for all major development projects.  It consists of three parts–assumptions, revenue calculations and expenditure calculations.

On October 20, the Davis City Council will receive some sort of update on the city’s budget situation.  It is not clear at this time whether that will merely be an informational item or whether it will include additional action items for consideration.

The majority of this story is informed conjecture based on what we do not and what we expect to result from that.

At Monday evening Finance and Budget Commission meeting, the City’s Finance Director Paul Navazio briefly updated the commission on the status of the employee bargaining.  While Mr. Navazio did not get into specifics, overall he seemed to present a rather bleak picture of the prospects that there would be agreement any time in the near future.

He remarked that if the process went along much longer, the prospects of the city being able to realize savings from the  process would be greatly diminished.  At the end of June, the Council by a 3-2 vote passed a budget the reflected $1.25 million in savings from employee compensation cuts or less than a 4% overall cut.

When the city council voted by a 3-2 margin to approve the 2009-10 budget, we were critical that the effort was heavily reliant on more positive assumptions for future revenue and economic recovery than perhaps was warranted.  To add to that concern was the heavy reliance on cutting city services as opposed to dealing with the longer term and more pervasive structural problems that the city faces in the form of employee compensation and a variety of unfunded liabilities.

To make matters worse, the state in creating a bigger mess than necessary out of their own budget quagmire, decided to transfer a portion of their debt, roughly $2 billion, from the state to local government.  The staff estimated impact of the city’s budget is roughly $4.5 million.  However, before you completely fall out of your chair, only $1.3 million will impact the general fund.  The $3.2 million is coming out of the Redevelopment Agency.  This by itself could be a huge problem should it continue down the line.

One of the most pervasive myths in the debate over pension for public employees has been the justification for receiving the enhanced safety benefits.  There is a legitimate argument that says that since public safety work is more hazardous and physically grueling than other work, that employees should received the enhanced benefits of 3 percent at the retirement age of fifty.  I do not quite buy that argument, but it is a legitimate argument.

However, time and again, we hear another justification, that public safety employees do not live as long as other employees.  In fact, the union President of the local firefighters has often thrown out the number 7 years as the life expectancy upon retirement.  That number has been thrown around on the Vanguard as well on the comments section.  When asked to substantiate that claim, apparently one can find various websites that show that police in the US have a considerably shorter life expectancy than the average male and there are firefighters sites that show the same for firefighters.

News about the ongoing negotiations with the city’s bargaining groups have been slow and quiet.  While the Vanguard clearly understands that bargaining cannot take place in a public setting, there also could have been mechanisms put into place to have public updates on the process to hold our leaders accountable for the decision that necessarily have to be made behind closed doors.

The state pension crisis in the meantime is beginning to take on a life of its own.  There is huge amounts of political pressure coming to bear to reform the pension system.  This is exactly what some of us who remain pro-union but also believe that the current system is unsustainable have feared–a solution that will be draconian and will harm the people who are really not causing the current problem, those who make less than $40,000 and struggle for their meager paychecks and hope for enough to have a secure retirement.  It is those people that I worry most about and who are most at risk with the current political culture that will likely throw all the babies out with the dirty bathwater.

Last night the Davis City Council held another noticed closed session meeting to discuss possible labor contracts.  Davis like much of the rest of the state faces a multi-fold crisis that has been exacerbated by an economic collapse and an irresponsible state legislature that has taken resources from local government in order to balance their own books.

But the more serious threat lies in the longer term and it may be a ticking timebomb.  Ed Mendel who runs a blog, Calpensions had a piece appear in the Capitol Weekly Wednesday.  In it, he quotes Cal PERS chief actuary suggesting what many have been saying for months or even years.  He admitted things were unsustainable.

I should state here at the outset that what I write has nothing to do with support or opposition to a Davis Bicycle Hall of Fame which I fully support and very much believe to be one of the best things to happen to Davis.  The question is always one of where and how.  And I find it very interesting that on May 5, 2009, Councilmember Lamar Heystek was the only Councilmember to question why close down the teen center in order to make room for the Bicycle Hall of Fame.

What becomes more fascinating is that in the past few weeks I have had two separate emails from separate people asking me to investigate what happened.  During the same time, the Davis Enterprise has had three separate letters to the editor that have questioned the decision.  For me that is somewhat odd given that we are really nearly three months after the council decision was made and at the time the only person who seemed to care was Councilmember Heystek.

All eyes in the past few weeks have been on the current budget crisis in the state of California.  There are many good reasons for that as the state figured to try to balance part of the budget on the backs of local government.  Fortunately, unlike the past, local government proved to be effective lobbyists and put enough pressure on state legislators to win back some of the worst cuts.

At the same time, the city has had to close an immediate 3.5 million dollar deficit.  We have spent a good deal of time detailing that deal and criticizing it for looking at the budget in terms of a short-term budget shortfall rather than dealing with the longer term structural issues.  The state of California, for what it’s worth, now faces similar criticism.

On Tuesday night, Finance Director Paul Navazio briefed the Davis City Council on the impact of the recently agreed upon budget on the city’s finances.  As he pointed out however, at this point they only have a vague notion of what is in that budget which was scheduled to be voted upon on Thursday, however, on Tuesday complications arose about a prison release plan the Republicans claim not to have known about.

At this point this is preliminary information that is subject to approval by the legislature.  The intent of the item on Tuesday was to translate what has been talked about into the impact on the Davis City Finances.