The risk of a general use tax is that the voters have no say over how that money might be spent. As we presented yesterday in the case of the Utility User Tax, that risk is two-fold. First, while council can advertise the money going to core needs like roads, sidewalks and bike paths, there is no protection against the council, under pressure from special interest groups, to take the money and put it toward a 50-meter pool and a sports complex.
Worse yet is the fact that nothing would prevent the city from putting it toward employee compensation.
Impossible, you say? Well, there is the tale of the 2004 Sales Tax Measure. While we have referenced the issue many times in the last several years, I think we actually need to re-tell the full story so people can get a sense of the magnitude of the issue.
In 2004, the ballot measure was Measure P.
In the argument in favor of Measure P on the ballot the signers, that included Lois Wolk (Assemblymember), Helen Thomson (Supervisor) and then-Mayor Susie Boyd, argued: “The City faces increasing costs. We will face higher expenditures if we are to provide the additional police protection and meet park and recreation and open space commitments we have made to our citizens.
“Without Measure P revenue,” they argued, “given the uncertain state support to the General Fund, we would be faced with very deep service cuts in police, fire, and parks.”
In the city’s newsletter sent out in the winter of 2004, they claimed the money would go into the city’s General Fund and be considered “discretionary” revenue. They mentioned public safety and emergency services, street maintenance, parks and recreation, and neighborhood and community services.
The proponents argued, “The city faces increased costs to run city programs and services. Needs in the city have grown with the population. Programs, parks and other services have been added. As with other local businesses and organizations, basic program costs, including staff costs, have increased. The city has absorbed many of these increased costs into existing budgets, but this process cannot be sustained indefinitely.”
From 2003 to 2009, city staffing levels increased but, according to the city’s finance director at the time (2010), Paul Navazio, city staffing levels had gone up at a rate less than that of population growth and thus, on a per capita basis, the city had lower staffing levels than it did 2003-04.
Five years later, of course, staffing levels are at historic lows. And it has been pointed out, despite the fact that staffing levels have dropped by more than 100 FTE, we are still paying about what we paid for total compensation in 2010.
In 2004, “City officials are concerned about Davis’ financial situation with forecasts showing the city’s budgeted expenditures are greater than its revenues.”
They argued that if Measure P did not pass, “[i]t will be difficult to maintain the current level of services, programs and staffing.” They continued, “Building of parks and greenbelts, as outlined in the adopted General Plan (e.g., Mace Ranch), and anticipated by city of Davis residents, may have to be deferred.”
“It will be challenging to pay for increased staff costs, such as medical benefits, workers compensation and other insurance premiums,” they continued. “The city will have an even tougher time responding to State of California budget uncertainties.”
Moreover, they argued, “If local revenues continue to be shifted to the State or the shifted revenues increase, it will be a challenge to maintain a prudent city reserve. It will be difficult to continue to maintain the current level of service, programs or staffing. City Council will have to determine specific budget reductions to services and programs.” Finally, “The likelihood of all departments facing reductions is high.”
The result, of course, was that the voters would approve Measure P. The voters approved the Measure 68.5 to 31.4 percent, which was about ten points higher than Measure O passed last spring – which is itself something to consider.
So what happened as the result of Measure P’s passage? In 2004, the firefighters agreed to a new MOU which gave them a 36 percent pay increase. All of the other bargaining units in the city would receive between a 15 and 20 percent pay increase.
Sales tax revenue was $5.46 million in 2003-04 and went up to $9.1 million by 2007-08. Property tax revenue nearly doubled from $7.38 million to $14.3 million. The real estate boom coupled with the sales tax increase fueled the largest increase in total compensation in city history.
From 2004 to 2009 total compensation for the firefighters went from $4.92 million to $8 million, a $3.15 million increase on a staff that did not add a single new firefighter. That compensation increase was more than the maximum annual sales tax revenue from Measure P, which peaked in 2008 at $2.999 million.
So, while Measure P was passed – on the guise that without the new taxes it would be difficult to maintain the current level of services, programs and staffing – the city would see the council take all of that extra money and put it toward increased compensation with almost no per capita growth in services, staffing or programs.
While the city might not have anticipated the huge increase in real estate tax revenue when it put Measure P on the ballot, the city was also not eager to keep campaign promises or return the tax revenue it no longer needed for existing purposes.
The magnitude of the fiscal mismanagement is staggering. By 2008, it was evident that the city’s finances were precarious at best. However, despite huge and growing unfunded liabilities and unmet needs (despite the nearly 40 percent revenue growth from 2003-04 to 2007-08), councilmembers were claiming that we had a balanced budget with a 15 percent reserve and they ignored the coming tsunami that would hit just months later starting in September 2008.
The council will undoubtedly argue that times have changed and that this council has shown fiscal constraint. While that is largely true, we still see council pounding their chest over the modest success of the current budget. We still see the city manager refusing to talk about more concessions, as longer range projections show potential pitfalls down the road – and the fact that, but for the sales tax, we would still be in the red.
And, of course, the council will likely point out that, unlike in 2004, the Vanguard will be watching. All of which is true, but the lessons of 2004 show that giving the council a blank check is a recipe for fiscal disaster.
No one has been arguing longer than the Vanguard that the city needs money for infrastructure longer. But a general use tax is not the way to go. I understand why the city would want a Utility Use Tax, and there is no reason that the city cannot use that form of tax along with specified usages. The cost would be the two-thirds requirement.
I understand why they want to avoid the two-thirds threshold, but avoiding that puts the community in the position of having to trust the city council to properly manage their money. History shows that might be a bad idea.
—David M. Greenwald reporting
The post Sunday Commentary: The General Use Tax and Tales of 2004 appeared first on Davis Vanguard.