Boom and Gloom

Austin's Budget Struggles to Keep Up

City finance director Betty Dunkerley is taxed by this year's budget process.

photograph by John Anderson

Last year, when we wrote about the city budget, we said something about "a government headed for a cathartic transformation, if not a train wreck." This year? Same song, second verse, joined in this time by both city staff and city council. City Manager Jesus Garza, on page two of the six-volume, $1.4 billion 1997-98 proposal, declaims that "The way we finance basic government services will require fundamental changes in the future." The word "crisis," especially when attached to "General Fund," floats on the Municipal Building breeze. As Councilmember Beverly Griffith puts it, "We're going to have to figure out how to increase our revenues. We can't do it all with cuts." So, in keeping with Austin tradition, 19 out of 20 people who care about the budget are stressed over one cut -- the Austin Music Network -- making up 0.0001% of the total expenditure. (Luckily, the new budget makes no mention of Pioneer Farm.) Meanwhile, the biggest boom in Austin history slips away while the city struggles to maintain a level of service that falls short of current needs, let alone future needs. Everyone seems to know this now, but no one has quite figured out what to do about it.

The new budget whispers some answers. The property tax rate will go up two cents, the transportation fee on your utility bill will jump by a third, and the second round of Garza's reinventing-government initiative -- the "Affordability Strategy" -- promises modest but important changes for parks and libraries. But these are baby steps, considering that last year Garza was projecting that in just four years, the General Fund would run $26 million in the red annually, even without any decline in property values, even with no spending increases outside the sacrosanct confines of "public safety." (All adjusted for inflation, of course; a 3% annual increase in the tax roll, the projection for the near term, generates no real dollars.) That would be 200 times the cost of the Austin Music Network, or equal to the combined costs of both the library and EMS, and it's now up to staff to sell the council, and the council in turn to sell us, on a way to keep this from happening.

The Big Picture

Garza, along with city finance director Betty Dunkerley, may have earned their keep simply by keeping the General Fund from cratering this year. Even though -- between increased tax collections (both property, due to increased valuation, and sales) and the hike in the property tax rate -- the General Fund will take in $14 million over last year, and spend only $8 million more, it still finishes the year in the red. (A mere $172,000 might not seem like a lot, but it would cover more than half of the amount needed to keep the Music Network running.)

Last year, to avoid a tax hike, the city devoured nearly $6 million of the General Fund's reserve to pay for current expenditures. (Actually, last year did see a minuscule tax hike, all of which was applied to debt service.) By dipping into savings, the city brought the General Fund reserve down very, very close to the minimum set forth in the city's financial policies -- too close, likely, to contemplate paying for the Music Network, or any of a dozen other unpopular cuts, with reserve funds.

The total budget, including departments that aren't supported by the General Fund, also appears to live well beyond its means, but those big deficits have mostly just taken up new residence. Instead of having the enterprise funds maintain enormous cash reserves, their surpluses have now migrated off budget and are now holding down the cost of their debt. (Last year, the big transfers to the General Fund were from the Electric and Drainage Utilities; this year, it's Water and Wastewater, and the Hospital Fund.)

Likewise, the city is banking a little more of the projected property tax increase for debt service -- while total collections split nearly 2-to-1 between General Fund and debt, the revenue from the two-cent hike would be split down the middle. This means that the city can increase its infrastructure investments now, with its annual bond sale, and defer fewer items to the Mother of All City Bond Packages, which will likely hit your ballot by decade's end, and which city staff have been pumping for since 1991.

The Cost of Growth

That year, 1991, is a good benchmark for three reasons: It was, in terms of the total property tax roll, the bottom of the bust; it was the first year the city budget topped $1 billion; and it was the debut year for the transportation fee, which took ongoing street maintenance out of the General Fund. Since then, the city has grown mightily, but the budget has not kept pace. It's fashionable, and quite accurate, to decry the cost of growth, but the city has also failed to make the most of its boom.

The first red flag is that total property tax collections haven't kept pace with the actual growth in total property value (the tax roll). Part of this is due to state law, which favors sprawl at the expense of infill and redevelopment. The state-imposed limits on annual tax increases are keyed to the "effective rate" that, if assessed, would leave the average tax bill unchanged. If the city adds new property to the tax roll, through subdivision and/or annexation -- as it did with vigor during Boom #1 in the 1980s -- the effective rate stays the same. If it redevelops and increases the value of existing property -- as it has, comparatively, in this boom -- the effective rate has to drop.

In the latter case, to set a tax rate high enough to meet your real needs, you need a public hearing (which we'll have this year) or, if the hike is steep enough, you run the risk of a voter-mandated rollback. On top of that, throughout the decade the various city councils -- regardless of their members' political stripes -- have been notably averse to tax hikes, even to the effective rate. This is clearly a reflection of the perceived popular will, and is no different this year. "I want to get under two cents and am trying really hard to do so," says Griffith. "I hope that total tax increase won't be necessary."

At the same time, General Fund spending hasn't kept pace with property and sales tax collections, even though (up until now) we've held on to new tax revenue that might otherwise have gone to debt service. While tax collections have gone up, other General Fund revenues -- notably the Electric Utility transfer -- are now going down; it was when the transfer reduction kicked in that we needed to gut the General Fund reserves. When you combine Austin's population growth since 1990 with the rate of inflation, a 30% uptick in General Fund spending is marginal at best; only public safety has seen much real live new money coming its way. Again, this is no different this year; one of Griffith's strategies for truncating the tax hike is "looking carefully at the line items whose increases are inconsistent with the rate of inflation, which would make them inconsistent with the rest of the General Fund."

Winners and Losers

Once again, public safety is the big winner in the new budget, with $9 million in new funding -- eating up the entire increase in property tax collection and then some, and well over Griffith's threshhold. Almost all of this money is going for M-COTS -- More Cops on the Street, more than 100 of them, though some of those are being paid with federal grant funds. Whether this money is well spent on law enforcement is, of course, one of the great debates of our time, and especially of our city.

But it is worth noting that, even though APD seems perennially to be undergoing an audit, it hasn't had to meet the challenge, imposed by the Affordability Strategy on infrastructure (last year) and parks and libraries (this year), to pay for enhanced services out of current revenues. (This may change now that Ronney Reynolds and Eric Mitchell -- who seemed compelled to increase public safety spending whenever the chance arose -- are gone from our public life.) "The [last] police audit recommended many steps through which the department could be more financially efficient," says Councilmember Daryl Slusher. "(But) implementing those changes will be much more difficult than simply calling for more officers."

Slusher further notes that the Electric Utility -- whose management, like APD's, thought it had already been cut to the bone -- has been able to cut its expenses substantially. Some of the decrease, though, comes from a transfer to the new Conservation Performance Contracting Fund, the brainchild of planning director Roger Duncan, which will convert the existing energy-conservation programs into a full-service and (hopefully) profitable consulting business. The EUD is also taking the most significant staff cuts of any city department.

Back in the General Fund, parks and libraries are the winners of the Do More With Less sweepstakes. Their million-dollar combined increase -- which Garza says is coming directly out of the tax hike -- is going for deferred facilities maintenance (PARD) and for new technology (Austin Public). For the library, this is offset by closing the Riverside Drive branch, as mandated by the Affordability Strategy review, but that cut didn't materialize until three days before the budget was presented to council and may yet be reversed.

But both PARD and Austin Public have more new programs on their plate than new money in their pockets -- regular playscape maintenance, three replacement (i.e., bigger) branch libraries in North Central, East, and Southeast Austin, new "Roving Leaders" to serve at-risk youth as part of the Social Fabric Initiative, and more. All of these are being paid for with current funds, through cuts and efficiencies elsewhere in their budgets.

These restructurings go hand-in-hand with the early-summer shuffling of assistant city managers and their portfolios. The new lineup logically places all the departments responding to the major council initiatives -- like the Social Fabric or Sustainable Communities Initiatives -- under one organizational roof, thus potentially promising more efficiency and more savings. As regards the Social Fabric Initiative, says Griffith, "We'll be able to coordinate the work of departments that are most directly `fixing broken windows' and supporting the kids and the families and the neighborhoods in providing -- in terms of juvenile crime -- both tough enforcement and strong support. That's the good news."

Spotlight on the Streets

Kristi Grez researches job opportunities at Riverside Library's Job Information Center. The branch is currently targeted for closure as part of the budget cuts.

photograph by John Anderson

If you're looking for the bad news, just look down -- at the street. The 34% increase in the Transportation Fee -- increasing that fund's total to $15.5 million annually -- is just for ongoing maintenance of our fast-disintegrating road network. This still leaves untouched, presumably, our street maintenance backlog, estimated last year at $33 million, and the cost of repairing the streets that have already failed, now pegged by Public Works at $266.6 million.

If there is a single place where one can identify the cost of Austin's growth, this would be it. Back in 1991, when the Transportation Fee was approved (with much nose-holding) by the City Council on a 4-to-3 vote, its projected income of $6 million was expected to be enough for ongoing maintenance. But that line-item has grown 250%, which is a lot more than either the rate of inflation or the actual increase in lane miles. Since the backlog cost was estimated at $40 million back in 1991, there's been modest progress on that front, but meanwhile, the liability for repairing those failed streets has skyrocketed from the 1991 estimate of $50 million, so it's not clear just what we've bought with that 250% increase in spending.

Add to this the various other traffic-infrastructure needs for which council and community clamor -- better-synched signals, sidewalks and bike lanes, and traffic-calming devices like speed humps -- and the Capital City is in Trouble-with-a-Capital-T. (By the way, the cost-and-revenue figures in the chart came from Public Works after a request from Mayor Kirk Watson -- and after similar requests last year from Slusher and Griffith produced no response -- and are not included, let alone highlighted, in the budget.)

The last time Austin voters approved bonds for transportation infrastructure was in 1984, and we're still building streets from that package. Obvious sources of at least some additional funds are the county (though its own infrastructure needs are pretty steep) and Capital Metro, which is who former City Manager Camille Barnett wanted to pay for the street-maintenance backlog. But Cap Met already contributes, via the Build Greater Austin fund, to the available-funds totals shown on the chart, and the transit authority's latest turmoil probably delays any wholesale raiding of its coffers.

A Frustrating Process

As for the county, Garza notes in the budget that "one area in particular needs to be addressed: Tax equity for our citizens. Residents... also pay property taxes to Travis County, [and] that money is used to fund county services. Yet City of Austin residents do not benefit directly from these services." What Garza hints at in the budget is some sort of consolidation between the "more than 150 local governments, commissions, special districts, and other revenue-collecting, decision-making bodies in our urbanized area."

"Consolidation" was a common catch phrase of former Mayor Bruce Todd, who was of course a Travis County Commissioner before taking the city gavel, but later in his tenure Todd seemed much more interested in privatizing public services, and simply shifting their costs to the citizens in a different form, than in providing them more efficiently. For now, while everyone concedes that there is overlap, waste, and inequity in our multiple jurisdictions, their attentions are elsewhere. In what's become a familiar pattern, the staff wants to see tax increases and the council wants to see spending cuts, as well as capitalization on wild-card sources of revenue, whether it be the Aviation Fund (Slusher), or parking and traffic fines (Griffith), or bed-tax funds (Slusher's potential target for funding for the Music Network), or any of the remaining councilmembers' perceived secret stashes.

The likelihood is that we'll have to do all of these and more, and what remains frustrating about the budget process is that there's no designated venue for the brainstorming and strategizing that we need in order to produce the solution to our ongoing fiscal crunch. But then again, we may be expecting too much of either Garza and his staff or the council, since their job is to run the city today, not to decide how it should be run tomorrow. Maybe, someday, before the city's budget train jumps clear off the tracks, the citizens of Austin will take the initiative to fix those tracks -- or else it won't just be the Music Network that's playing the blues.

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