Hope in a Time of Fiscal Impasse

Posted: 3 January 2014 in Local Issues

Note: this is another post concerning some issues of concern in my own “nearby”.  These are challenging times and as I think about the prospect of helping lead our city I realize that I must wrestle with these issues and offer imperfect solutions to intractable problems.

True hope…has not a grain of sense or of logic except when the worst is considered certain.

(Jacques Ellul in Hope in Time of Abandonment)

It may not be the “worst” but it is certain that our city’s fiscal situation is dire. According to the City Manager’s report to the City Council on December 17[1]:

In preparing its FY 2014/15 budget, the City will be facing a structural imbalance of up to $5.1 million in the General Fund.

That structural imbalance is on total General Fund expenditures of $47.5—about 11% of expenditures. Without changes we will have an aggregate General Fund balance of negative $28.4 million by FY18/19. Unlike the federal government, the City of Davis cannot run General Fund deficits, so something must be done.

Fund Balance

Before discussing options, note two additional points:

1. Four critical cost areas are driving imbalances:

  • increased costs to the city for water;
  • increased costs of retiree medical coverage;
  • increased contributions to employee pensions;
  • increased cost of employee cafeteria plans.

2. The situation is actually worse than the figures provided above indicate because of a fifth cost center: repair of deteriorating streets.  The projected budgets include a “front loading” of critical street repairs in the next two years of $25 million and $2 million per year for 18 years after that. However, spending this amount will leave our streets in 20 years time in a much worse condition than today.  Indeed, something approaching an additional $7 million per year would be needed to maintain our current acceptable “pavement condition index” in 20 years.

There is no magic bullet solution to these challenges. We have two broad options: cutting expenditures and increasing city revenues.

Cutting Spending

In his report the City Manager laid out staffing and program cut proposals that could fill the $5 million deficit. This level of cuts is not feasible practically or politically and there is no sense of a coherent set of criteria by which the cuts are being recommended. We have cut FTE by 101 (22%) over the past 5 years. Further FTE cuts, though possible, seem unlikely and program cuts will affect the life of every resident in the city—things like summer programs, park maintenance and the rapidity of response to non-emergency problems.

If we are to make further cuts City staff and the Council must first articulate the criteria they propose to determine which cuts are acceptable. We must willingly support our Council to make these difficult choices.

To contain employee costs the City must, unfortunately but necessarily, hold to a two-tier benefits plan that treats new employees differently from existing ones with new employees receiving less generous pension benefits than current ones.  In addition, we must continue to negotiate employee contracts that shift more responsibility for funding pensions and medical care to employees while holding compensation steady.

Growing Revenue

All of the following are necessary

  • In the short-term, we must seek a renewal of our current half-cent sales tax increase (set to expire in 2016) and an additional half-cent sales tax. Any sales tax increases should be strictly time limited and the City Council should lay out a set of guidelines for how it will use the increased revenue. Any sales tax increase require a 50% plus 1 vote to pass. Such a measure could raise an additional $3.6 million in revenue. Sales taxes are inherently regressive but the rates proposed here would place Davis’ rate of 8.5% at about the median rate for California cities.
  • We must ask seek approval of an “ad valorum” property tax of $0.55 per $1000 of assessed home value for infrastructure improvements.  Current estimates place the revenue generated from such a tax at $3.6 million and it must achieve 2/3 vote to pass.
  • The City must move aggressively to assess the recurring revenue potential of the three sites indicated by the Innovation Task Force. Revenue from these sites will be a minimum of 3 years in the future, so this option does absolutely nothing to address the $15-17 million deficit over the next 3 years. City staff must provide estimates of the revenue that might be expected from such development.  All assumptions used to generate the assumptions should be clearly laid out so they can be tested. All of the proposed innovation park sites would require a Measure R (or equivalent) approval for development to occur on them.
  • We must also move aggressively to assess barriers to the redevelopment and densification of our downtown and revitalization of underperforming neighborhood shopping centers.  This will enable us to increase sales-tax generation within the city (reduce sales tax leakage). Densification of downtown is critical given that demand for downtown properties is now outstripping supply.
  • We can also enhance revenue from sales tax by developing a “Buy Davis” campaign that helps citizens understanding that shopping locally improves our city’s fiscal situation. 

Where is the “hope” is in any of this.  Even as Ellul articulated that hope is operable only in the face of great challenge, he also noted that Hope… is headed toward a future.  Either it is dynamic or it does not exist. In other words, hope comes in moving together towards our collective future.

In the years ahead we will be a different kind of city and the changes required now create the necessary “bridge” to the city we will become. Our greatest resources—our spirit of volunteerism and our deep well of social capital—will carry us across the bridge.  My hope is pointed towards what I believe will be the discovery that we can collaborate to achieve much as a community, and that this period of testing will make us more resilient as we mutually reaffirm our many gifts.

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