The issue: Rising labor costs are unsustainable
Without a large tax increase or steep cuts in parks, police and fire, the Davis general fund is headed toward bankruptcy. New revenues coming in cannot keep up with higher and higher labor costs.
ON JULY 1 of this year, the general fund reserve will be down to $3.7 million. Before mid-2015, the money will run out and the fund will owe another $1.4 million.
The numbers are projected to only get worse in the years ahead. The general fund will be negative $28.4 million at the end of 2018-19.
Before the residents of Davis are asked to raise their taxes in order to stave off a catastrophe, the city should consider all options to stem the growth of employee compensation.
RECOMMENDATION: The Davis City Council needs to direct the city manager to produce a comprehensive outsourcing report before it contemplates any tax hikes on Feb. 11.
Every city function that can be outsourced needs to be identified. The council needs to know how much money the city could save by privatizing various services each year for the next five years. And then the council needs to decide the best way to proceed.
Since the 1990s, Davis has had a highly successful outsourcing program with park and greenbelt maintenance. Roughly half of that function citywide is done by private contractors.
The private landscaping crews are paid as well as city workers doing the same jobs. However, the contract employees don’t come with outlandish pensions or unending retiree medical expenses.
In July 2012, the city privatized its tree maintenance services. Outsourcing that function has saved hundreds of thousands of dollars, and the contractor, West Coast Arborists, does a better job. Now, city trees are being pruned more often for less money.
WHY LABOR COSTS are unaffordable: In addition to high salaries, overtime and excessive amounts of paid time off, the price of medical plans for employees and retirees has been rising at an astronomical rate for more than a decade. Over the past six years the cost of funding workers’ pensions has blown up, and through 2020 these problems will get much worse.
From 2002 to 2014, medical expenses for the city of Davis increased an average of 10.3 percent per year compounded. The Kaiser Family Plan is now 3.2 times as costly per month as it was 12 years ago.
The agreed-upon reduction of medical cash-outs will save the city some money moving forward for employees without spouses and dependents on their plans. That won’t, however, affect the ballooning problem of retiree medical costs.
In 2009-10, CalPERS charged Davis 12.542 percent of a non-safety employee’s salary to fund the employer share of his pension. That bill this year is 21.128 percent. CalPERS projects it will be 32 percent in 2019-20. That means for a $100,000 clerk, the city will owe another $32,000 per year to fund his pension.
For police and fire, the story is worse. In 2009-10, CalPERS charged Davis 22.755 percent of a safety employee’s salary to fund the employer share of his pension. That bill this year is 27.832 percent. CalPERS projects it will be 55 percent in 2019-20. For a $100,000-per-year cop, the city will owe $55,000 more to fund his pension.
A QUESTION OF FAIRNESS: If Davis does not consider more affordable ways to provide services, but instead raises taxes on all of us to avert a calamity, it will be asking a lot of residents who don’t have such luxurious pensions or gold-plated medical plans to get by with less. Is that fair?