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Friday, January 30, 2009

City's Budget Hole Grows--Unmet Needs Will Go Unaddressed

A year ago the city basically identified around $13 million in what it called unmet needs. These were needed projects in a variety of departments that the city needed to undertake but lacked the available money to pay for them. As the Vanguard has mentioned previously, some of these are quite basic road repairs and other vital services.

Right now the city is projecting a growing budget deficit for the foreseeable future. It begins at close to $1.5 million for the current fiscal year and doubles to $3 million next year.

As Finance Director Paul Navazio stated on Tuesday night, the city is going to have to first address the structural and immediate budget problems. That means that these unmet needs will continue to be unmet needs into the foreseeable future.

From the staff report:
"While the growing list of unmet needs – both one-time and recurring – remains a significant concern, current economic and budgetary realities suggest that emphasis should be placed on securing existing revenues over seeking new revenue sources that could, potentially, jeopardize revenues relied upon to provide existing City services."
Right now the city is focusing on addressing existing revenues. They do not believe they will be able to in this climate get the voters to approve tax increases. Therefore the priority at this point is on renewing the existing tax measures--namely the parks tax and the half cent sales tax. One alternative would instead of the renewal of the parcel tax for the parks, combine the the parks measure with an additional quarter cent sales tax to produce the $1.5 million the parks tax is currently generating.

From the staff report:
"At this time, staff is suggesting that the highest priority related to future ballot measures should be the renewal of the ½ Sales Tax (Measure P), approved by the voters in June 2004, with a 6-year sunset provision. This measure currently provides roughly $3 million in General Fund revenues to the City.

Secondly, priority should be given to options for renewing or replacing the Parks Maintenance Tax (Measure G), which was re-authorized by the voters in June 2006, with a 6-year sunset provision. This measure provides roughly $1.3 million in dedicated funding in support of park maintenance activities. In the past, some concerns have been expressed over the appropriateness of assessing this tax on the basis of a flat $49 tax on parcels within the City. Staff has previously been directed to explore alternative funding mechanisms, to the point where the text of Measure G provides that the measure would be repealed in the event that the City secures an alternative means of funding parks maintenance activities."

What is driving this is the basic reality of the situation for the city. The taxpayers in Davis have already been asked to pass two parcel taxes for the school district and one for the library. They will be asked to pass another parcel tax by the school district in either late 2011 or early 2012.

The city does not want to be competing against the school district for tax funds. Right now they are simply looking to renew what they have. That would mean a June 2010 ballot measure to renew the sales tax or possibly fold Measure G into the sales tax.

The problem here is obvious but unavoidable given the city's lack of addressing the unmet need problem previously. The assessment of Navazio and the city is exactly right--the public is not going to approve the slew of tax measures that it proposed a year ago.

In December of 2007, the city was considering a public safety tax placed on the ballot sometime in 2009. At that time, Councilmember Souza even pushed for it by November 2008.

Second, they suggested a new sales tax on the ballot in 2010 with a quarter-cent increase. At that time it would not have subsumed the park tax but rather would have paid for street and road maintenance.

Finally in he called for a replacement of the park tax with an increase in the municipal services taxes.

Now the dilemma. Many will undoubtedly be pleased to hear that these taxes are essentially off the table. However, the downside is twofold.

First, the city is going to have to find a way to cut millions from the budget over the next several years.

Second, the city while cutting millions from the budget over the next several years, needs to find a way to chew into what is now $8.74 million of one-time unmet needs (including nearly $6 million for the fire department which I assume still includes possibly a fourth fire station and a new engine) and $7.35 million in recurring unmet needs, that one is more spread across the board.

In December of 2007 Councilmember Don Saylor said:
"Today we really can look at the structural deficit as we refer to so often as something within our grasp. The numbers are so small that they will be taken care of by small increases in the economic development plans that are already underway."
Councilmember Saylor was wrong. He did not foresee the magnitude of course of the economic crisis bearing down upon us. But he did not recognize that our failure to appropriately deal with the unmet needs would become a crisis just over a year later. The problem was that everyone assumed or at least three councilmembers at time assumed that we could simply tax ourselves out of our hole. Now that is no longer a possibility.

In the meantime, no one dealt with the longer term structural problem namely unchecked employee salaries, and this is not a general statement about employees. There are specific areas that are particularly problematic.

It turns out in December of 2007, that then-Mayor Sue Greenwald was the one who was correct.
"We have a structural deficit, we haven't really done anything to improve it, we've just changed our accounting principals, made them less conservative. But that also means it's going to be more sensitive to downturns in the real estate market and other potentially recessionary phenomena."
She continued:
"We have not only not reduced it [structural deficit] but we've also made ourselves more vulnerable to our PERS contributions."
Mayor Greenwald turned out to be exactly correct and the current Mayor Pro Tem was overly optimistic.

The system has imploded. We have seen our vulnerability to the real estate market downturns and for the first time really to a major recession. There is no light at the end of the tunnel. The unmet needs are still unmet and now there is no immediate plans to meet them.

It will be interesting to watch the impact on this community when the city has to cutback on vital city services. We have already seen push back on the issue of parks and recreation--and frankly that was mere pennies compared to what awaits us.

---David M. Greenwald reporting