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

City Now Facing Crisis of "Unmet Needs"

The Davis Enterprise on Monday ran a story entitled, "When to tax?" The general thrust of the story is two-fold. First, the city has a growing deficit of $1.2 million followed by as much as $3 million the next year.

On the other hand, the city has a long list of "unmet needs."

The city staff report for tonight's budget workshop says:

"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."

The general idea at this point, and it was shared by Finance Director and Assistant City Manager Paul Navazio, is that the city recognizes at this time that hey cannot ask for additional revenues. Last year they were proposing and exploring a number of new taxes to deal with some of the growing list of unmet needs. However, that is largely off the table now.

The staff report reads:

"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."

In other words, right now the city will be focusing on renewing rather than expanding the existing revenue base. That puts a tremendous strain on city resources and city services. One of the keys will be the round of negotiations that the city has to engage in this year with most of the city employees' bargaining units.

There will be a tremendous pressure on the city and the bargaining units to simply punt on these negotiations. Meaning that they would simply negotiate the same agreement as before and extend the current contract. The hope by the employees would be that in a year or two the economy will have improved and then they can negotiate a better contract.

However, many recognize that the current trajectory is not sustainable. At some point we will have fuller discussion of the retirement system, but the strain on PERS may necessitate changes in who funds the retirement pensions and the breakdown of employee payments to employer payments into PERS.

The city at this time would be better holding fast to the negotiations and go to the mat for changes even if that process takes two years and requires a de facto rather than a de jure extension of the current contract.

From our standpoint the biggest problem right now are the growing list of unmet needs. The growing list was concerning last year. The fact at that point was that the city separated this list of needs from the budget, meaning that it appeared we had a fund balance with a reserve. But that fund balance was an illusion. It belied the fact that the city lacked the resources to meet these needs.

These needs include infrastructure upgrade and repair, basic road maintenance, and a whole host of other short and long term needs. Allowing these to go unaddressed means more cost down the line.

Now the city finds itself in an operating budget deficit that will grow to large proportions in the next two fiscal years. The city cannot rely on the taxpayers to pay more during these very difficult economic times. So the city is in a real jam.

The city has really put itself into a tight place by being overly generous with salary increases and retirement pensions that occurred during better economic times. The city lacks the revenue now to be able to address serious needs and they also recognize that the taxpayers lack the resources and probably the inclination to vote for tax increases during these challenging fiscal times.

Where does that leave the city? We will have to watch as the council tries to grapple with these kinds of issues. It would have helped if a year ago, the council had been more upfront about the tenuous nature of the city's fiscal situation it was touting during the council elections of 2008.

The Vanguard has been warning about this impending problem for some time. The council is just now considering looking into it.

---David M. Greenwald reporting

Analysis: Further Examining Davis' Financial Situation

One of the issues came up last week with regards to the Budget discussion, was that of sales tax revenue. As a result, I wanted to look at total revenue for Davis per capita in comparison to other cities in region.

Assistant City Manager Paul Navazio provided me with that data, the only downside to it is that it is 2006 data from the State Controller's report. The upside is that it has a pretty good list of comparison cities, so it provides a pretty good picture and frankly I am not certain that much has changed in terms of rank order.



As one can see from the first slide here, the city of Davis is near the bottom in general fund revenue of the comparison cities. What is interesting is that cities like Vacaville, Chico, and Fairfield that have tremendously expanded their sales tax base in recent years by building a number of strip malls with big box stores, are almost identical in terms of general fund revenue (granted we are not looking at sales tax alone). Councilmember Greenwald's point is not far off that Vacaville does not have a tremendous difference.

Some have suggested that if we simply had a larger tax base, we would be in better financial shape right now. The problem is that larger tax base would mean more expenditures by the city. And once the economy reduces the revenue, the cities have found themselves in a deficit. And yes, I understand that cities should exercise greater degrees of fiscal responsibility, but the fact is they do not. Cities with greater revenue in fact are facing larger problems with the economic downturn.



The second point is really what I was trying to get at last week. Yes, Davis has lower sales tax revenues that other locales, but Davis is actually in a lot better shape that many other cities in terms of budget deficit.

Part of the reason for that is that more general fund revenue also means more general fund expenditures.

Now the expenditure data comes with a large caveat as Paul Navazio explained in his email to me. Basically no two cities are identical for purposes of this type of comparison. Some cities, for example, provide library services, paramedic transport, public health, etc. Very few cities operate there own water and sewer utility, whereas Roseville operates its own electric utility, some cities operate their own Housing Authority, etc. Navazio removed capital program expenditures, that will reduce the expenditures for some cities, for some reason Roseville is coming to mind, but it enables us to better gauge spending on comparable terms.

Based on these data, I make two more general points. First, with regards to city employee salaries--and the biggest concern there is going to be both retirement and rising health costs. Davis has seen as we have presented in the past a meteoric rise in employee salaries over just the eight years in this decade. Total compensation to city employees rose from just over $27 million in 2000-01 to just under $50 million in 2007-08, which is an increase of $21.7 million over an eight year period.

At the same time, tax revenues have not kept up. That is a big concern.

Part of that has been driven by the need to compete with neighboring communities for quality employees. That is indeed a concern and it is one that we need to take into consideration. In fact, as Paul Navazio showed in October, Davis is in fact in better condition than it's neighbors in terms of city salaries. The problem is that we have still seen a large rise.

Last week the Davis Enterprise surprisingly called for greater transparency in the salary contract process. They in fact, questioned the practice of using recent labor agreements from other nearby communities as benchmarks to help determine Davis' wages and benefits in an effort to remain competitive.

"Unfortunately, some of our neighbors have been overly generous and, like lemmings, we have followed them over the cliff's edge."

That's actually a pretty good description and so I respectfully have to disagree with the conclusions the city made back in October that simply because we are somewhat better off than our neighbors is not a rationale to continue the same policies that will lead more cities to bankruptcy such as Vallejo has faced.

A final point, I want to make here is that I actually agree that we should expand our sales tax revenue. I see that as a longer term solution to the city's budget. That is a prime reason I now oppose residential development on a 100 acre parcel of land that is currently zone for light industrial uses. It is the largest remaining parcel within the city limits so zoned and it would be a mistake to take that out of the market.

One of the things we are learning is that the Lewis Properties much like the owners of Westlake, never really marketed the property for business uses. The result is that while they claim there has been no interest, they have not actually tested that theory, and in fact, if that site were to be marketed there seems to evidence that there is some considerable interest just as there are grocers who apparently want to come to Westlake.

While there are considerable differences between Davis and San Luis Obispo, one of the things I have looked at is their model for economic development. In terms of residential development, San Luis Obispo has almost not grown since 1990. I think the population in 1990 was around 42,000 and now it's around 44,000. What they have done is develop their economic base. I would like to see some of that in Davis.

As I have stated in the past, I am generally opposed to the kind of big box retail companies like Target or Wal Mart. In part, I think they are inefficient producers of tax revenue, often taking more resources out of a location than they bring in. Moreover, from a long term perspective, their policies are not sustainable. We need to move in a different direction.

I think as Councilmembers Sue Greenwald and Stephen Souza expressed pretty eloquently at the previous council meeting during the discussion on Lewis-Cannery, there is a huge and growing green technology industry. Davis is primly situated to take advantage of that. As Councilmember Greenwald suggested, we have missed out on past booms such as the dot.com one. We should not miss out on the green technology boom.

I would also like to see us expand some into retail, but I would prefer smaller and more sustainable types of business other than big box.

If we are smart and innovative, we can make a lot of the kinds of changes that we want without sacrificing the character of our community. Obviously there are some on this blog who do not give a darn about that and in fact want to get rid of that. One wonders why they have chosen to live if here if they dispise it so much. However, I think these people are in the very small minority of the populace in Davis who have repeatedly voted to continue relatively slow growth and strongly environmental principles. Many of these people are the same who derided Measure W and we found out that those people were in the very small minority of Davis residents. For much of Davis, the challenge is how to expand our base without sacrificing what makes Davis, Davis. How do we grow without becoming like Fairfield and Vacaville.

---David M. Greenwald reporting

Illustrating the Budget Woes For Davis

Last week the Vanguard covered the city's "Budget Workshop" where Assistant City Manager Paul Navazio presented the bleak forecast for Davis due in large part to the economic downturn that has impacted Davis in ways that Davis often does not see.

The Vanguard ran an article: "City of Davis Stares Down a Budget Deficit". At that time, the PowerPoint presentation was not available. However, Paul Navazio has kindly provided his PowerPoint slides, some of which will be posted here to illustrate the budget projections and where Davis falls short from the predicted.

---David M. Greenwald reporting

City of Davis Stares Down A Budget Deficit

At last night's Davis City Council Meeting, the city of Davis was presented data by Finance Director Paul Navazio that paints an increasingly bleak face on the city's fiscal situation. Once thought to be relatively immune to the rise and fall of the economy, the current economic crisis goes deep enough that Davis faces a $1.2 million budget deficit for this year and a $3 million budget deficit for next year.

The culprit is lower-than-expected property and sales tax revenues. For instance, the city expected a 6.5 percent growth in property taxes but they have only seen a 3 percent growth. Moreover, and just as devastating is what happened on the sales tax side where the city typically assumes a 2 percent annual sales tax growth but instead is looking at a 5 percent decrease in revenue from sales tax primarily coming from auto sales, gas, and restaurants.

A few weeks ago we reported that the city of Davis was looking for immediate cost containment which included a five-fold strategy of a hiring freeze, closer scrutiny of overtime, travel and training control, tighter control of contracts, and a limitation of non-essential spending.

The budget forecast for the next five years looks bleak for the city. With the $1.2 million debt for 2008-09 increasing to $3 million next year, $3.8 million in 2010-11, $4.49 million in 2011-12 and $5 million for 2012-13. Part of the problem is that the structural deficit that some have claimed the city resolved, has asserted itself.

The current year sees the need for continued cost containment measures with the balance of the gap being bridged through the use of the General Fund reserves.

Next year becomes critical with the need for expenditure reductions, service reductions, revenue enhancement, and state budget contingencies.

Navazio believes that the once time cost savings could save up to $900,000 which would require the city to eat up to $330,000 from their reserves. That seems rather optimistic on the face of it.

Unfortunately, the city did not provide PowerPoint slides (we believe that this would have been a great slide to show) but basically, police and fire make up about half of the general fund budget. The city is talking about a 5 to 7 percent reduction across the board in departmental budgets. A five percent reduction would save $2.2 million and a seven percent reduction would save $3 million. Of that between $400,000 to $600,000 would come from fire and $700,000 to $1 million would come from police.

The alternative would be for the city council, city manager's office, community development, community services, parks, and public works to take a 7 to 9 percent cut and allow police and fire to only take a three percent cut. The rationale for this is protecting public safety. That would place fire at a $263K cut and police at a $436K cut.

But again this really understates the budget hit we are facing. Last year we identified up to $13 million in unmet needs. These unmet needs were taken off the books so they were not considered part of the deficit and it appeared that the city of Davis had a balanced budget. These again include key infrastructure needs and repair work.

Because of the immediate crisis, they did not spend much time on the long-range financial plan update.

The first priority is the renewal of the half-cent sales tax which generates roughly $3 million per year in June of 2010. The second priority is to replace the parks tax, perhaps by 2011, since it sunsets in June of 2012. Finally they need to look at additional revenue options as well. One of their concerns to look at funding options prior to the sunset of the DJUSD parcel taxes.

There should also be a reminder that some proposed taxes do not include a variety of fee increases. The big ones are going to be water and sewer due to the capital improvement projects.

City Manager's Memo

On December 5, 2008, Bill Emlen sent out an updated memo to all city employees on the city's budget situation.

Here are a couple of key points the City Manager brings up.

"We have worked with individual departments on cost cutting measures including a hiring freeze, and reductions in various travel, training, overtime, and contractual service expenditures. Individually, these actions are relatively small but cumulatively they can add up to something substantive. They are important first steps, but it is clear that more work needs to be done. We are still determining how much savings were accomplished with these initial efforts. As I noted, current estimates are that revenues will likely be down about 1.5 million dollars this year."

Furthermore:

"In terms of our budget, we are now projecting that next fiscal year’s shortfall could be in the 2.5 to 3 million dollar range. Add to that the uncertainty over the potential impacts the State budget crisis will have on local government, and you get a sense of the potential challenge we will face with the FY 09-10 budget."

One of the strategies is to retain as much budget reserve as possible.

"Our initial goal is to retain as much of our current budget reserve as we can going into the next fiscal year. To accomplish this, we will need to continue to find ways to reduce expenditures this year. If we are successful, it does not necessarily solve the problem we face in 2009-10, but it does provide some flexibility to cushion some of the budget impacts we are likely to face, particularly if State shifts of local funds become part of the equation. That said, the type of deficits projected by our current budget forecasts make it unlikely we can balance the budget without reductions, and they may be significant."

Here is the red flag:

"In our budget instructions for next year, we are asking departments to develop reduction scenarios in the 5-10 percent range. This information will then be evaluated on a City-wide context considering such factors as equitable impacts among departments, Council priorities and extent of use of budget reserve."

Most of this backs up what was said at the city council meeting, but it underscores the severity of the problem. Council wants to look at recently allocated expenditures and evaluate program priorities.

The unfortunate aspect of this crisis is that even if they cut five to ten percent of their budget, that will just get them by until 2010. The long-range problem is that the budget deficits will increase rather than decrease after 2010. Complicating things are the impracticality of revenue enhancements from new commercial ventures at this point plus a tough credit market precludes other revenue enhancement that is not related to tax increases.

The city of Davis is far better off than other cities or even the state at this point, but the severity of the current crisis compounded with the questionable past accounting practices with $13 million in what is really some sort of deficit stored as unmet needs puts the city in a quandary in terms of how to continue to provide a high level of services to the public.

---David M. Greenwald reporting

Davis Enterprise Joins in Call For Open Contract Talks

In a surprising twist, the Davis Enterprise Editorial on Sunday Morning, "Contract Talks Should Be Open" called for transparency in the city's budget and contract process to city employees in order to "prove to us that the salaries and benefits we promise city employees won't drive Davis into insolvency."

The editorial states:

"FOR TOO LONG and to ill effect, the Davis City Council has gone behind closed doors to bargain with the city's employees. The agreements produced in these sessions have not served the fiscal health of the city. Our council must end this practice and negotiate on behalf of the public in front of the public.

The people who are paying the bills have a right to not only know how much a labor contract will cost them, but the people should be permitted to express their views on each deal before it is a fait accompli.

Most of the budget of the city of Davis goes to its workers. By concealing themselves in locked rooms with labor negotiators, the members of the council don't get the input from citizens they need to make fully informed decisions on the most financially important decisions of the city.

To date, this lack of input and oversight has been costly."

The Enterprise then questions the practice of using recent labor agreements from other nearby communities as benchmarks to help determine Davis' wages and benefits in an effort to remain competitive.

As the Enterprise writes:

"Unfortunately, some of our neighbors have been overly generous and, like lemmings, we have followed them over the cliff's edge."

From the city's perspective, here is Finance Director Paul Navazio's staff report from October 14, 2008 that he offered at the budget workshop.

"First, the City Council has expressed a desire for a more transparent process leading up to formal negotiations with each of the City’s employee bargaining groups. To that end, the presentation will review organizational goals related to employee compensation, summarize the various elements that comprise the city’s compensation package, and discuss the role of comparative market studies in establishing appropriate levels of compensation.

In addition, the City - as well as most other public agencies - has come under heightened scrutiny over the level of compensation paid to employees. Over the past year, selected elements of City personnel costs have been the subject of numerous news articles and editorials. Moreover, the City continues to receive an increased number of formal public records act requests from various entities, ranging from main-stream news organizations, governmental watch-dog organizations, as well as private citizens. As a result, staff believes that much of the information being presented to the general public fails to provide a complete (and sometimes accurate) picture of the City’s compensation structure, and is rarely provided within the context in which the City tackles important policy questions related to employee salaries and benefits.

It is important that the City provide a competitive compensation package in order to recruit and retain qualified city employees, while managing overall personnel costs. At the same time, it is equally important that the public have a clear understanding of the City’s overall compensation structure, and the process by which the City determines appropriate compensation levels."

As the Enterprise makes clear, one of the key failing of this policy, is that if one city goes over a cliff fiscally, it takes all city's over the cliff with them. On the news just last night was the prospect of four major area cities including Sacramento facing possible severe fiscal crisis and possibly bankruptcy.

As they write:

"THAT IS HOW DAVIS ended up with unfunded retiree medical benefits, extremely early retirements and spectacularly expensive pension plans. The other cities gave them to their workers, so we did, too. No one on the outside was paying attention, because no one in the public was allowed to participate in the process.

A cop or firefighter who retires from the city at age 50 takes home up to 90 percent of his final salary plus cost-of-living increases for the rest of his life. If he's married and has a child age 22 or younger, the taxpayers of Davis continue to pay his full medical and dental insurance, now $15,860 a year. Even without the current economic downturn, there is no way the city can afford these lavish promises. "

While we appreciate that the Enterprise has come around on this issue calling for full transparency and a public process, we would be remiss if we did not point out that the Enterprise endorsed those candidates last election who promised to continue more of the same. They endorsed the three candidates also supported by the Davis Firefighter Association who have pledged to continue this unsustainable fiscal practice. And they opposed the member of the council, namely Sue Greenwald, who has been fighting for changes to this policy for five years.

The key question is how we get out of this mess.

The Vanguard joins our Davis Enterprise counterparts in the call for transparency:

"The council needs to invite the public into the process and prove to us in the full glare of the sunlight that the salaries and benefits we promise city employees won't drive Davis into insolvency."

But transparency alone is not enough.

The Vanguard offers three additional suggestions.

First, a freeze on pay increases other than normal step and column increases that have been negotiated into the collective bargaining agreement.

Second, the City Council and Finance Director Paul Navazio need to get innovative. We cannot realistically cut salaries, but what we can do is look for creative ways to scale back and rollback other benefits, particularly retirement benefits to those employees who are due to get 3% at 50 or 2.5% at 55.

Third, the Davis Enterprise is right, we need to stop basing our labor negotiations on the standard practice of surveying "recent labor agreements in nearby communities to determine what wages and benefits." That practice simply drives all cities into fiscal crisis. This is the heart of the problem from the Vanguard's perspective. On a regional basis, all cities are hurting. The city is engaging in a hiring freeze right now as it is, so recruitment is not the most pressing issue, fiscal responsibility is.

Even if we were hiring, would fiscal conservatism harm us in recruitment efforts? We know for example when a fire fighter position opens up, there are hundreds of qualified applicants, that clearly suggests we can slow down the rate of growth in salaries and still get good prospects. Police are more problematic, although there is a suggestion that this is a professional issue as opposed to a local issue. Regardless, one suggestion would be to examine our ability to hire field by field and make determinations of salaries and compensation on a field-by-field basis.

The one good thing is that not only are we not alone, but we are probably better off than some other localities. We will talk more about this later however because things are catching up with the latest fiscal reports suggesting an increasing deficit in Davis as well.

---David M. Greenwald reporting

City Budget Plan A Tax and Spend Mirage

If you read the Davis Enterprise's Wednesday addition you would have seen a small and scant article depicting the discussion from Tuesday Night on the City's Budget. This article glossed over some very serious concerns with the city's fiscal situation to paint a fairly rosy picture. The picture fails to inform the public of the magnitude of the fiscal problems facing the city or the fact that the city council majority's plan to deal with these problems is in essence their own version of tax and spend while at the same time they ignore serious structural problems with the current budget.

City Finance Director Paul Navazio is recommending that the city consider three separate tax increases.

First he wants a public safety tax on the ballot sometime in 2009. Now City Councilmember Stephen Souza wants that on the ballot by November 2008 and made an impassioned plea as to why we need to fund police and fire immediately, however, that did not seem feasible to Mr. Navazio .

Second, Mr. Navazio wants a new sales tax on the ballot--asking for a renewal of the sales tax and an additional quarter-cent increase to pay for street and road maintenance. This would be placed before the voters in 2010.

Finally he wants to replace the parks tax with an increase in the municipal services tax in June of 2011.

So, the Davis voters will be looking at three new taxes over the next four years.

Mayor Sue Greenwald warned that seniors and others on fixed incomes are already stressed by the sales tax system, this increase could potentially put them at risk while really not adding much in additional revenue to the city.

However the most alarming statement came from Councilmember Don Saylor who proclaimed the end of the structural deficit.

"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 Lamar Heystek remains very concerned about the structural deficit and is reluctant to support new taxes without a demonstration up front that we have improved things with current funds before we ask for additional funds.

The bottom line is that we really have not even dealt with the issue of a structural deficit.

According to Mayor Sue Greenwald

"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."

In fact the problem is far worse than that. She continued:

"We have not only not reduced it [structural deficit] but we've also made ourselves more vulnerable to our PERS contributions."

If a problem occurs our payments may go up greatly increasing our structural deficit

We have also not begun to account our unfunded liability which would take $4.2 million a year to pay off.

The 800 pound gorilla, according to the Mayor, is the combined water and sewer capital improvement costs; current projections place costs around $335 million. What this means is that the tax increases in the next four years being proposed by council will be in a way dwarfed by the "fee" increases we will have to pay over the next 20 years in order to simultaneously expend money on a new water supply system and a sewer capital improvement system.

As one councilmember explained to me, we have not even really dealt with the structural deficit that is really looming--that of unfunded mandates in terms of employee retirement pensions. These are not even included on the books. So to suggest that we have solved our structural deficit is very misleading. We have not even touched on the real problems.

All of these tax increases are basically what is necessary to maintain current level of service with perhaps a small increase in police and fire with the public safety tax. None of these will deal with the ballooning entitlements we are handing out to city employees upon retirement. These are lifetime benefits that we are handing out and they are right now not even on the books. That does not mean that the problem is gone. It is simply a matter that this council is trying to get reelected and push off this problem to future councils and future generations.

To me that is the heart of fiscal irresponsibility. And, when the city's budget director says:

"Our revenue and expenditures are getting pretty well balanced."

And when the city's only newspaper agrees with it and does not dispute that information:

"The city has slowly and diligently chipped away at that budget gap, bringing its spending plan more stability and reliability."

We are not being well-served and we are really not aware of the burdens that are headed our way down the road.

---Doug Paul Davis reporting