Davis fiscal forecast shows mid‑term shortfalls; consultant outlines cuts, OPEB drawdown and debt as options

At a Fiscal Commission meeting, Bob Leland, a consultant with Baker Tilly, presented an updated 20‑year forecast of the city's general fund projecting a multi‑year shortfall in the late 2020s and a gradual recovery in the 2030s and 2040s driven largely by falling pension costs.

"The numbers never sleep," Leland told commissioners, describing recent audit and revenue updates that prompted the forecast revisions. He said Measure Q boosted near‑term revenues materially — "Measure q added $11,000,000 in revenue" — but that the tax increase would not entirely eliminate a mid‑term gap.

Leland outlined the forecast's revenue assumptions: property tax and sales tax together supply over two‑thirds of general‑fund revenue, and the city's sales‑tax per capita (about $128) lags peer cities (median roughly $231). He noted the city's voter‑approved local transaction and use taxes raise significant additional receipts but that student‑dominated population dynamics at UC Davis suppress per‑capita local spending.

On expenditures, Leland emphasized pension growth as a driver of past budget pressure. "Pension costs have grown 18‑fold," he said, describing current annual pension costs near $18 million and a forecasted decline to roughly $5 million annually by the early 2040s if current discount‑rate and reform assumptions hold. He flagged state legislation (AB 1383) as a risk that could raise local costs if enacted and adopted locally.

To bridge the forecasted mid‑term shortfall, Leland presented four principal options for the commission and council to consider: defer use of reserves and "watch and wait," implement targeted one‑time expenditure reductions, adopt smaller ongoing cuts (he gave an illustrative $2 million annual reduction), or draw from the city's OPEB trust (an example withdrawal of $9 million over three years would close most of the shortfall in his scenario). He said each approach carries trade‑offs and urged caution about depleting restricted funds without a long‑term plan.

Commissioners asked detailed questions about how inflation, MOUs and vacancy rates feed the forecast, how the model treats recessions (Leland said the forecast builds in a moderate recession roughly every seven years for stress testing), and how non‑general‑fund deficits might drain the general fund; staff and Leland confirmed the current forecast is focused on the general fund and noted staff is reviewing other funds that report several million dollars of deficits in audited statements.

Several commissioners pressed Leland on capital‑spending strategy and inter‑period equity, asking whether the city should convert recurring pay‑as‑you‑go capital contributions into debt service to accelerate repairs. Leland responded that converting an existing $3 million annual pay‑go amount into debt service could provide near‑term capital to address the backlog — but warned against selling bonds today that count on speculative future pension savings.

During public comment, a resident identified as Nguyen thanked the presenter and raised concerns about artificial intelligence, employment changes and health‑insurance premiums; those remarks were largely anecdotal and not tied to the forecast's technical assumptions.

The commission received the forecast, asked staff to refine presentation visuals and follow up on fund‑balance and non‑general‑fund deficit linkages, and noted additional materials (single audit, a utility capacity charge discussion) will be on the next meeting agenda in September.