Failure to Make the Hard Financial Decisions on the City’s 2025-2027 Budget

By Elaine Roberts Musser and Dan Carson

During the last few years the city has consistently failed to make the hard decisions needed to manage its finances. The proposed new city budget released on Friday is more of the same. What follows are just a few examples of how the latest city budget proposal for 2025-2027 digs the city ever deeper into an embarrassing financial morass. 

Having 10.3% and 10.2% reserves for the city’s General Fund for the next two budget years — as the new city budget plan proposes — might suffice in better times. Property and sales taxes are historically stable revenue sources for Davis and other California cities that can enable them to survive troubled times. But a 10% reserve is inadequate for the next two fiscal years given the treacherous economic circumstances the city is in. And coming are the all but certain massive state and federal funding cuts for local government programs. 

In earlier budget discussions, City Council’s direction to staff was to get the city’s General Fund reserve back to 15% over the next 2-3 years.  That plan is now dead. No specific proposal to get there is being offered — just a vague statement that new revenues or budget reductions will have to be found somewhere. This dire circumstance should trigger immediate action to put the General Fund reserve back on track to 15% in 2-3 years. 

Don’t count on that happening, though. Even as these budgetary dangers loom, another item on the Council’s consent agenda for Tuesday would make things worse: the ratification of a very rich and unwise employee contract with the Davis City Employees Association (DCEA). One that will probably set the stage for another wave of contracts for other city employee groups.

The ill-timed proposal before Council would award DCEA with cost-of-living adjustments (COLAs) that, starting in 2026, would provide its members with a minimum 2% pay raise. It would start even if growth in the cost of living in that particular year were flat, and even if city revenues were declining in a recession. The proposed DCEA contract additionally provides all DCEA members $1000 and 5.5% pay raises in July 2025.  This would be regardless of whether those compensation increases are actually needed to keep the city competitive in hiring for particular job categories.

Some similar provisions are included in another proposed action by Council on Tuesday night. These arrangements would award extra one-time cash, as well as initial pay increases ranging up to 8%, and future COLAs for high-ranking city executives who are not represented by labor groups.  These packages build on, and compound, the fiscal damage caused by a Council decision last year to agree to deals with city labor groups. Those packages pay many city staff members the average of other local agencies, instead of the prior practice of generally paying about 5% below other local agencies.  These exorbitant deals will trigger big future increases in retirement benefits and will cost city taxpayers millions of dollars. 

This continuation of excessive spending on city labor contracts by the Council comes as the new budget plan gives up on efforts to catch up on huge past financial commitments to pay for health benefits for retired city staff.  Apparently, this huge unfunded liability will continue to be ignored. 

What Council should be doing under the current dire fiscal circumstances is to put the DCEA and the deal for city executive brass on ice. Hold off on making deals with any other of its labor groups, and negotiate a pay freeze on all staff positions for a year. While it must bargain in good faith, state law does not require elected officials to approve pay increases the taxpayers clearly cannot afford and that put the city in financial peril. 

While the city is going overboard in its deals with city labor groups, this new city budget proposal once again underfunds the priority of many Davis citizens — fixing roads and bike paths. The budget proposal allocates $8.5 million per year for the next two years, when $14 million per year is needed, with no commitment that funding levels will ever increase in the future.  This is in direct contradiction to what the City Council recently requested, which was to front load more funding for roads and bike paths from Measure Q funds.  The City Council made clear backloading funds 5 years down the road was unacceptable.

This failure to invest in the upkeep of basic city infrastructure would cause pavement conditions to seriously deteriorate. Over time it would add tens of millions of dollars to the already massive city backlog for such projects. That’s because it costs exponentially more to rebuild broken city roads than to maintain them properly. 

This aspect of the new budget proposal is thus a fiscal time bomb. It also breaks the promises made to voters who approved Measure Q last November. Repeated assurances were made in the ballot language that the roads and bike paths would finally be fixed. If this bait and switch holds, we cannot imagine how any future tax measure in Davis would ever have a prayer of passage. 

The forthcoming Council discussions on the budget could easily bury the city even deeper in red ink. The budget report is strangely silent on the fate of proposals being pushed by Mayor Vaitla. He is asking for a new down payment assistance program for homebuyers, and for an expensive and duplicative community navigation program for the homeless. Will these and other new spending proposals the city cannot afford be added out of the blue at the last minute?  Don’t bet against it. 

Missing from the budget package released Friday is information on how city finances will fare in the long run due to the unwise spending decisions that have been made. 

The city staff report on the budget says that such a long term forecast will be provided soon. However, in the past, the Council promised the forecast would be used as a tool to make major budgetary decisions. Its absence from the city staff report this Tuesday suggests the forecast will instead be used after-the-fact, to document the impact of the bad decisions it will have already made.

Elaine Roberts Musser is an attorney who has served on county and city commissions as well as various task forces.  She was given the award of Davis Citizen of the Year in 2014.

Dan Carson is a former Davis City Council member and city commissioner with a 45-year career in journalism and state and local government service.