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We’ve entered a recession, and don't know yet how bad it will be. To get some perspective, I talk today with Bob Leland, an expert on municipal finance with the Management Partners consulting firm who began his career in the 1970s. He compares the current downturn to the Great Recession 12 years ago, lists some possible responses, and estimates the size of the revenue loss facing Davis – “it’ll probably be about a 6 to 8 percent loss for the year that will be ending June 30,” with the financial damage concentrated in the last few months.
Read that carefully—the plunge since March has been steep enough to take the results for the entire fiscal year down by 6 percent or more.
Bob, who lives in Davis, advised the city a few years ago on the course of its finances. He helped create a long-range budget model for the city, and says Davis was doing a good job leading up to the pandemic. We also look ahead to the November 2020 ballot measure that would undo parts of Proposition 13, the 1978 voter initiative that curtailed property taxes in California. As a staff consultant to the state Assembly Revenue and Taxation Committee, he worked on the team that helped to implement it.
Comments
Good interview with a guy who definitely understands city finance--local as well as around the state. The City has anticipated a recession in its longer term future--but this is coming on fast, and it is likely to be much worse than what we might have been expected.
Thanks for doing this.
Bill, your interview with Bob Leland was excellent. A lot of really informative material packed into a short period. The "cash is king" discussion at the 10:00 minute mark warrants further discussion. But even more important was the Long Range Forecast discussion at the 17:30 minute mark. That delved into the beginnings of an incredibly important topic. In the spirit of Paul Harvey, I believe there is a very illuminating and meaningful "rest of the story" that is both worth exploring, and in the best interests of the community to be illuminating.
The rest of the story also puts Bob’s comment to you that “prior to the pandemic Davis was doing a good job” into perspective. Bob does a very good job of describing how … and even a bit of the “why” … Davis put together its forecast model. Former Mayor Robb Davis says implementing that Forecast was possibly the most important accomplishment of his 4 years in office.
At the 2019 State of the City presentation (I attended the March 13th one hosted by the Chamber at El Macero Country Club), I was impressed with how forthright Brett Lee and Mike Webb were about the fiscal challenges the City faced at that time.
They were openly candid about the $8 million Budget Shortfall, and then went on to say that with Cannabis revenue and additional Hotels Tax revenue, etc. they expected that Budget Shortfall to be “cut in half” to $4 million per year at the same time in 2020.
Unfortunately, that prediction proved to be extremely optimistic, because when Finance Director Nitish Sharma presented the Budget to Council three months later, the annual Budget Shortfall hadn’t dropped from $8 million to $4 million, but rather had risen from $8 million to $10 million. Over the 20-year Forecast that was a rise from $160 million to $201 million.
Then, another six months later, on January 13, 2020, Bob Leland gave a presentation to the Finance and Budget Commission in which he reported that the 20-year Budget Shortfall had risen from $201 million to $258 million. So, in 10 months instead of reducing the Budget Shortfall from $160 million to $80 million, as the Mayor and City Managert had predicted, the Shortfall had increased from $160 million to $258 million.
To make matters worse, at the Davis Progressive Business Exchange meeting in February 2020, after seeing those numbers, one of the attendees asked, “What about the State money from SB-1?” I had no choice but to tell him that the SB-1 money ($1.2 million per year I believe) is included in Bob's model, and if that State money (and the additional cannabis and hotel revenue) hadn’t been in there the $258 million would be even higher by between $20 million and $40 million.
And now you know -- the rest of the story.
If you want to talk more about it, I'll be glad to do so.
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