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Wednesday, November 12, 2008

City Manager's Memo Warns That City Projects Revenue Shortfall

Davis has always been more insulated to economic downturns than surrounding communities and to some extent that remains true. However, according to an internal memo from City Manager Bill Emlen that is starting to change. Given declines in property values and reduced levels of consumer spending (both of which make up the majority of the City's revenue's), the city is projecting to end the current 2008/09 fiscal year in a $1.5 million deficit.

Moreover, they are concerned longer term, about the severity of the stock market decline and its impact on CalPERS contribution rates.

Moreover the city manager warns that while the immediate concern is impact on the City's General Fund, economic conditions suggest that other city funds could be impacted.

The city manager calls for establishing at least five cost-controls measures for the remainder of this fiscal year.

While these are obviously needed steps, there are several points that really need to be made.

First, while the city remained on paper in the black prior to this economic downturn, the city was actually absorbing a deficit in terms of the the services that it was providing. As such, revenue shortfalls were absorbed into unmet needs--things that the city really should have been spending money on like road repairs and infrastructure upgrades, that they could not afford. Obviously the situation has worsened since the last evaluation, but it seems that the city could have been doing some of these things all along.

For example, the city manager asks for all departments to "closely monitor overtime use." Overtime has been an issue for some time, why would they not have been closely monitoring overtime in the past?

Along the same lines, if the city was unable to meet some critical needs, why not place more limits on non-essential travel and training prior to this? The same can be said for discretionary spending.

Why wouldn't you want all new contracts to be approved by the City Manager in advance of commitment under normal circumstance?

What I want to know is how much money they would expect to save through these cost-cutting mechanisms. My guess is this is probably more symbolic than anything else, on the other hand, my concern is why not implement this sooner.

Again two reasons to really questions this. First, the unmet needs problems of previous budgets. Second, it is not like this current budget crisis should have caught the city unaware.

After all, the city was prepared at one point to take a $3 million hit through the state budget. However, what finally materialized was a $760,000 hit to the redevelopment agency rather than the general fund.

What is also interesting is the timing of this memo which came out on Monday. On Thursday, the city council will have a special closed session meeting negotiating the city's new contract with department heads and the assistant city manager. This group received an 18% increase in salary in their previous contract with various colas built in over the course of the three year period. Thus someone making $100,000 a year to start the contract would be making $118,000 at the end of the contract.

Will this announcement about the budget troubles along with previous concerns about the out-of-control growth in city salaries lead to a more prudent contract from the city council?

That is going to be a key question because right now we are cutting back on unmet needs even before this critical economic downturn. Will the city continue to increase the pay to already well-off city employees or will they put our resources into maintaining the parks, repairing our roads, and continuing to provide transportation for various citizens?

In the meantime, the state budget picture if anything looks even more bleak than a few months ago. The city needs to prepare to take a huge hit, however, the real question is what they have been doing up until now to prepare? To me this memo suggests that the first steps are only just now being taken.

The memo closes on the standard note basically saying our situation may not be good, but we are in better shape than others.
"One final note worth considering is that while we are facing budget difficulties, our situation is not nearly as severe as those being experienced in many jurisdictions throughout the state. Through proactive actions now, I believe we can further soften the budgetary impacts of the economic downturn on our city."
This would have been a great memo perhaps six months, now it seems to be a little too late as the first canary appears to be at the very least in critical condition.

---David M. Greenwald reporting