Sunday, April 20, 2014
YOLO COUNTY NEWS
99 CENTS

Options for addressing the city’s fiscal problems

By Dan Carson

Based on my analysis of the five-year fiscal projections for the city of Davis made public in December, City Manager Steve Pinkerton has gotten it fundamentally right. The city faces a serious “structural shortfall” — a risk of spending substantially more money each year than it takes in — that must be addressed in the 2014-15 budget cycle.

Pension and health benefit cost increases for city staff, and recent commitments to improved water systems and road maintenance, threaten to outpace the money coming in to city coffers to pay for it all. Taking these factors into account, Pinkerton projected last month that the city’s structural shortfall could be up to $5 million in 2014-15 and could grow to $7 million by 2018-19.

In response, city staff and a council subcommittee came forward with recommendations to place a $5.4 million sales tax measure before voters in June to address city deficits and a second $4.1 million parcel tax in November to pay for city infrastructure and facility maintenance.

Last Tuesday, the City Council signaled its clear intention to proceed with timely solutions, but asked its staff to come back with various additional revenue options by Feb. 11, its last opportunity to place a ballot measure on the June ballot.

While that work continues, here are my suggestions for addressing the problem, drawn mainly from a recent letter I sent the City Council and the Finance and Budget Commission. The views expressed here are my own and I do not speak for the commission or anyone else.

* Take improving revenues into account. Some additional pain, in the form of new and higher taxes, is unavoidable if our city leaders are going to balance the city’s budget, address critical infrastructure needs and maintain deteriorating city facilities. But, since most every dollar in the government’s pocket comes from the pockets of its citizens and businesses, the economic pain that is inflicted on behalf of the common good should be no more than necessary.

My analysis indicates that marked improvements in revenues from the city’s two largest existing general fund revenue sources, the property tax and the sales tax, are already being realized and that less new money may be needed than first thought to address the deficit.

The Yolo County assessor announced last June that Davis’ 2013-14 property tax assessment roll had increased by 5.75 percent. That was a stronger performance than any other jurisdiction in Yolo County and much better than the statewide average. An initial payment received by the city on Jan. 23 from the county tax collector for secured property tax receipts (the bulk of the money the city receives each year from property taxes) showed growth of roughly 5.7 percent, right in line with the assessment roll increase.

All of this is well above the projected overall property tax growth rate of 1 percent for 2013-14 that was built into the city’s five-year fiscal forecast and the 2 percent to 2.88 percent growth city managers had projected for later years.

The city also has collected more sales taxes revenues than projected. The city manager’s five-year forecast assumes the city will receive sales tax revenues of $9.4 million in 2013-14. However, Davis is already surpassing these assumptions. Sales tax receipts reached almost $10.3 million in 2012-13 and collections for the first five months of this fiscal year so far have remained on track to provide the city comparable revenues in 2013-14.

I made alternative and, I believe, more realistic assumptions about the revenues the city will receive over the next five years. If I’m right, the city will have millions of dollars in additional revenues from existing tax sources over the next five years than first thought. This by no means solves the city’s budget problems, but could make them more manageable. If the City Council so chose, it also means more resources could be available to address the city’s infrastructure needs and deferred maintenance.

* Consider some additional budget reductions. My analysis indicates that city expenditures could be reduced below the level depicted in the five-year projections presented to the City Council last month.

For example, a technical correction to city pension contributions could reduce expenditure projections by $100,000 annually in 2015-16 and later years, by my rough estimate. If the five-year projections built in a 1 percent factor for salary savings, and included some relatively minor and mostly technical budget cuts, the fiscal gap could be narrowed by an additional $700,000 per year.

City officials have done some heavy lifting in recent years, achieving significant reductions in staffing and slowing the growth in employee compensation costs. The incorporation of some modest additional reductions into its budget-balancing package would assure voters who are weighing new revenue measures that city efforts to make their government more efficient are continuing and that the additional tax money will be well spent.

* How it all adds up. I incorporated my revised revenue and expenditure assumptions into an alternative five-year forecast. If my assumptions proved correct, the City Council could consider scaling back the new $5.4 million sales tax revenue measure to about $2.5 million annually to fill the funding gap. It could then tailor a separate parcel tax measure for infrastructure and maintenance of city facilities to whatever level city staff demonstrates is justified.

In the alternative, the City Council could stay the course with the proposed sales tax revenue measure in June of $5.4 million. After using roughly $2.5 million a year in tax proceeds to balance the budget, the council could earmark the remaining $2.9 million in annual revenues for infrastructure and maintenance of city facilities. That would provide at least some added monies for infrastructure and maintenance purposes if a parcel tax did not pass.

* Build public confidence in fiscal plans. City officials face a daunting but not impossible task of building public confidence and support for a new revenue package. Achieving a two-thirds vote for a parcel tax could prove especially challenging.

The case would be strengthened if city officials develop a specific and credible multi-year fiscal plan before the election that shows exactly where both new and existing tax dollars would go if tax increase measures are approved. The council could direct that either city commissions or a council subcommittee assess the city’s maintenance and infrastructure needs in a comprehensive manner and prioritize them to fit within the resources that will become available.

There will never be enough money to do everything every group in this town would like. The temptation will be strong to pile on eye-catching new civic amenities to attract support for tax hikes. However, the city’s critical infrastructure and deferred maintenance, often as unglamorous as fixing cracked sidewalks and bike paths and replacing faltering pool pumps, should be the priority and would help assure voters that the city’s fiscal house is being put in order.

— Dan Carson is a 25-year resident of Davis. He worked for 17 years in the Legislative Analyst’s Office, a nonpartisan fiscal and policy adviser to the California Legislature, retiring in 2012 as deputy legislative analyst. He was appointed last month to the city’s Budget and Finance Commission.

Special to The Enterprise

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