In its April 9 editorial, “Listening’s Great, But Keep Eyes on the Goal,” The Enterprise advises that, for the fiscal health of Davis, our elected representatives need to do more than hear ideas on innovation centers. The City Council needs to act. We desperately need the tax revenues that innovative industries will generate for the city.

“The sad fact is that Davis is facing a long-term financial crunch,” The Enterprise wrote. “Dealing with a structural budget deficit, the city has gotten by on service cuts and parcel taxes, but we need a new source of revenue. …

“What’s left? Davis’ last resource is intellectual; to leverage the brainpower coming out of the university to create high-tech industry.”

Unfortunately, higher revenues alone will not solve the fundamental problem with how our city does business.

The April 9 editorial may be right. But it is missing a crucial factor in the equation: How the city manages the growth of its expenses, particularly its hourly labor costs.

The city of Davis has gotten itself into trouble, building up hundreds of millions of dollars in liabilities, by increasing the total compensation packages it pays to its workers and executives many times faster than new income has come into its coffers.

You can argue, of course, that the problem Davis has with its long-term unfunded retiree medical liability, its pension burden and its infrastructure maintenance debts — particularly with roads — would be better if our city had improved its tax revenue stream.

However, that would only make the picture less bad. The real source of the problem is the short-term thinking of the Davis City Council with regard to labor compensation: No one has ever tried to strictly restrain the long-term growth of the total package.

A few council members have made small differences in cutting this or that here and there. But at the very same time, every one — including those who have pushed cuts — has ignored the relationship of the growth of labor costs to the growth of city revenues, where unit costs continually have grown faster.

The result of this imbalance has been a gradual decline in city services — as workers have retired and never been replaced — and an explosion in our debts.

In the 2005-06 fiscal year, the city of Davis had total tax revenues of $38.6 million. Two years later, on the precipice of the economic collapse, tax revenues peaked at $42.3 million. In 2013-14, total tax revenues were $40.5 million.

That’s an eight-year growth of 4.84 percent, an average increase of just 0.6 percent.

Granted, due to the Great Recession (and the drop in property taxes), this was an unusually bad period. But it still barely slowed the increase in the city’s hourly labor costs, as pension funding and medical insurance costs ballooned.

In 2005-06, Davis spent $48.9 million on total labor expenses from all funds. In 2013-14, the city’s employees cost us $54.3 million.

That’s an eight-year growth of 11.12 percent, and it’s an average increase of just 1.39 percent. In fact, total labor costs were $1.2 million less in 2013-14 than they were five years earlier.

But what happened between 2008-09 and 2013-14 was an 18 percent reduction in the number of the city employees.

As a result, annual labor costs per worker grew from approximately $92,347 in 2005-06 to $119,303 in 2013. That’s an eight-year growth of 29.19 percent, an average yearly increase of 3.65 percent.

In a period where revenues barely grew, hourly employee costs inflated six times faster.

Fortunately, our City Council can control its labor cost growth rate. They can take the four main elements — salary, pension, medical and retiree medical — and cap their combined annual growth in the next round of labor contracts. If revenues grow 2 percent per year, then labor costs should not increase any faster.

If pension costs or medical inflation are too high — the city has little control over those rates — then salaries have to come down or stay flat. Or if the employees prefer salary growth, then they can choose to pay for more or all of their retiree medical benefits.

The problem with ignoring the cost side and focusing on the revenue side is that, even if revenues go up dramatically, the pattern of using the new money to increase employee hourly compensation will continue. And when that happens, the city of Davis will, even with more revenue, be in the same sticky wicket.

At the end of this year, on Dec. 31, virtually all of the city’s labor contracts will expire. If our City Council continues the same business-as-usual pattern, the employees will be asked to pay a small amount extra for their pensions and medical benefits and so on, while salaries increase at 2 to 3 percent per year.

But we can no longer afford business as usual. It’s is bankrupting city services. It is destroying Davis. We need a City Council that looks at the total cost of its employees on an hourly basis and makes sure that number grows no faster than revenues grow.

If Davis voters allow innovation parks, and they bring in new tax money, then the city will be able to provide better services and maybe fix our crumbling roads. But that won’t happen if  the rate of employee compensation keeps growing faster than new money comes in.

— Rich Rifkin is a Davis resident; his column is published every other week. Reach him at [email protected]

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