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to explore alternative funding mechanisms, to the point where the text of Measure G provides that the measure would be repealed in the event that the City secures an alternative means of funding parks maintenance activities."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

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