That Figures

Or, How to Make $1.8 Billion Disappear

That Figures
By Doug Potter

Don't know if you'd call this an achievement, but ever since Kirk Watson descended among us, the annual city budgeting process -- once the high point on the Austin sociopolitical calendar -- has become kind of a snooze. At the absurdly long and raucous Aug. 3 City Council meeting, City Manager Jesus Garza presented his $1.8 billion 2000-01 spending plan as routine business, and was received in kind by the council. Such anti-theatrics are politically wise, since the years have shown that most Austinites care only about very small pieces of the enormous budget (say, Pioneer Farm, or city dental clinics, or, this year, Ramsey Pool and the proposed salamander love shack). But lurking in its six heavy volumes are tectonic forces that could spawn some nasty earthquakes.

Every year, Garza and the council, both armored with the perceived will of the people, butt heads in ritual combat over spending priorities. The city manager has his extensive benchmarking data and community surveys, while the council has the loudly expressed sentiment of those who actually vote. On most items, Garza carries the day, because that's what city managers do -- rare is the council member with the skills, stamina, or support to seriously question the basics of the budget. As noble as the council's many initiatives have been, they are nibbling around the margins.

In this budget, to meet the needs and wishes of both manager and council, the city aims to spend more than it earns across every one of the many funds that make up the budget. Austin is in good fiscal shape, so there's no need to stock up on canned goods yet. But major new expenses loom on the horizon, and the council is already plotting how to spend money a decade hence.

But such fiscal largesse is about the best we can do in a city whose leaders feel the Lord would strike them dead if they raised property taxes to logical levels. It's weird to talk about fiscal drought at a time when money is falling like rain upon Austin. But the proposed FY2001 budget, once again, fails to suggest that the city of Austin knows what to do with its bounty.


Where the Money Goes

Before we proceed, a little Budget 101: The city fiscal year begins in October, and the budget is approved in mid-September. Within that budget, the city's many departments are divided into three rough categories:

  • The General Fund -- mostly fed by your property and sales taxes and dividends from the city-owned utilities -- which pays for public safety, parks and libraries, and other core functions;

  • The enterprise funds, such as the utilities and the airport, which subsist solely on their own revenues; and

  • A miscellany of internal funds, which pay for everything from the city-owned cable Channel 6 to Kirk Watson's cell phone, and which are fed by transfers from the funds that actually make money.

    This month, the council will hear presentations and hold public hearings on various departments' budget requests (see "Hear, Hear!" p.30, for the complete schedule). Council members will also work with vigor behind the scenes to squeeze out enough money from the budget sponge for high-profile projects with voter appeal.

    For example, Mayor Pro Tem Jackie Goodman recently told the Chronicle of her desire for a "crack team of transportation planners" to help neighborhoods as they deal with growth along their corridors. That would, presumably, require a funding increase for the planning department, but in Garza's budget, Planning's spending actually goes down 10%, as key staff and contracts get transferred out to the new Redevelopment Services department.

    Likewise, after a year's worth of earnest discussion of social equity, you'd think the city's lead department on that front -- Health and Human Services -- would be seeing healthy spending increases. But in Garza's budget, HHS spending grows by only 2.8%, well below the budget-wide average, and the Primary Care Department, overseeing the city health clinics, will see its budget drop by more than 9%. (Considering that every department's budget includes across-the-board pay raises and incentives, a spending decrease is even more significant than it seems.)

    Meanwhile, Garza, with his benchmarks and his "community scorecard" surveys, has decided that public safety deserves larger-than-average increases. Not since Bruce Todd's first term nearly a decade ago have council members made a big jumping deal about increasing the budget of the Austin Police Dept. And crime rates in Austin -- never that high to begin with -- have, as elsewhere, dropped dramatically over the last decade.

    Yet because Garza (and presumably police chief Stan Knee) wants Austin to be not just crime-free, but crime-freer than other burgs in our great land, APD will see a spending increase of close to 10% -- which, since APD's budget is well over $100 million, equals the entire budget of the Development Review and Inspection Dept. Even though DRID is underfunded and understaffed and losing employees at an alarming clip, all of which is mucking up the Smart Growth machine, DRID will be raising fees -- indeed, charging for services that have never before cost citizens money -- to cover its bills.

    Garza's and the council's priorities are not quite so perpendicular in Neighborhood Housing and Community Development, which would see a whopping 38% spending increase. This is misleading, however, since the city only pays a fraction of NHCD's budget (most programs are supported by federal funds), and the increase only translates into a few hundred thousand dollars.

    Most of that increase will be funded by the utilities, which are mostly keeping pace with the 8 to 10% spending increases Garza has allowed to proceed in the past. But even those spending hikes don't match that of the Support Services Fund, whose outlays would increase more than 12%. The SSF, which is fed by transfers from other funds, is the city's main overhead fund -- it pays both the council's and the manager's salaries, although its new spending is mostly elsewhere in the city's back office.


    Up, Up, and Away

    In a time of plenty, it shouldn't matter where the money gets spent as long as it's there, and this is surely a time of plenty. But you wouldn't know that from the proposed budget, in which department after department spends more than it takes in and covers the shortfall by dipping into its cash on hand.

    Of the 61 funds that contain the city's money, the one that concerns citizens most is the General Fund, which is where your taxes go. Garza's budget would leave the General Fund with an end-of-year balance of exactly zero, as the city proposes every year. "To do otherwise, to carry more money in your reserves or your General Fund, means you're levying taxes beyond a level that you need to," says city finance director John Stephens. "We set our reserves where we think it's fiscally prudent to do so, and appropriate the ending balance."

    In truth, the GF would be $2.7 million poorer, but the city's new financial policies allow the city's Emergency Reserve Fund to be capped at $15 million, which frees up the remainder for the General Fund. (Likewise, Austin Energy would end FY2001 $36 million in the hole but for a transfer in from the Utility Debt Management Fund, which typically receives transfers from AE.) All told, if you exclude debt service funds, the city is laying out about $49 million more than it expects to earn in revenue.

    Of course, not every department is doing this, and the city expects to end the current fiscal year with more than $300 million in cash on hand. So an immediate crisis this is not. Plus, more than a few city funds ended up with more revenue this year than the current budget envisioned, so some of that $49 million is actually windfall profit. (But in several cases within Garza's budget, departments lay out all that windfall and then some.)

    A few years back, there was common talk of "a crisis in the General Fund," and the proposed budget suggests the city ain't got that one licked. It's easier to think dire thoughts when you consider two very sizable financial hits the General Fund will have to take next year, in FY2002, without any cash cushion.

    One is the upcoming "meet and confer" bargaining process (the closest thing Texas government has to a collective-bargaining contract) with its police force, which could plausibly cost the city an extra $10 million annually. (The fire department's meet-and-confer is costing more than $5 million, and Austin has fewer firefighters than police officers and pays them less.)

    The other brick heading the General Fund's way is coming from the old airport. When Bergstrom became a done deal, the city finessed an agreement with the Federal Aviation Administration to take Mueller off the books of our Aviation Department. (Normally, revenues from the disposition of decommissioned airports have to be applied to the debt incurred by the airports that replace them.) This allows Aviation, which makes a healthy profit, to pay for post-closure expenses at Mueller until May 2001, and not a moment longer.

    The proposed budget duly transfers more than $5 million from the Airport Capital Fund to the Mueller Disposition Fund, but that fund is already $6 million in the hole. Since Mueller's closure, the annual Bergstrom dividend has paid for one-time-only expenses like demolishing the runways, but a lot of that money also goes to ongoing care of the 711-acre site. If, as expected, the city's ambitious RMMA Redevelopment Plan hits the ground running this calendar year, Mueller's financial needs will go up, up, and away, and that money will be coming out of the General Fund unless Garza has a fit of fiscal inspiration.


    Funny Money

    Garza had such a fit this year, with two new showpiece funds in his budget -- the Economic Development Fund and the Sustainability Fund. Both names are euphemistic. The $4.2 million Economic Development Fund will pay for the new Redevelopment Services office, which is taking hold of the Mueller project, the downtown initiatives, and suchlike Smart Growth objets d'art. The ED Fund will also shell out $700,000 for outside legal counsel. The city has bona fide economic development programs, but this fund is not paying for them.

    Even so, the ED Fund's purpose is lucid compared to the Sustainability Fund, a $17.9 million budget bucket that leaks in all directions. Considering that Garza posits that "almost everything we do in our community impacts our sustainability," which needs are special enough to be met by the Sustainability Fund?

    As it happens, the S-Fund will pay for hallmark programs of last year's Social Equity Initiative -- another $1 million for the Housing Trust Fund, $1.5 million for the Child Care Initiative, and $2 million for workforce development efforts. The latter two programs are run out of Health and Human Services, whose paltry 2.8% spending increase includes money from the S-Fund.

    But the biggest S-Fund line item is a $13 million transfer to the Public Works capital budget, to help pay, Garza hopes, for road expansions on South First and on Giles Road, which the city manager identifies as "important environmental projects." (It's worth noting that Garza has only set aside $250,000 for projects spawned by neighborhood planning, to which he and the council both claim to attach great importance.)

    But the real news here is where the money for Garza's new funds will come from. In the case of the ED Fund, the money will come straight from Austin Energy. Garza tried something similar last year, asking AE to waive the city's streetlight bill (likewise about $4 million) to free up funds for both his and the council's pet projects.

    This time around, Garza says the ED Fund will "allow Austin Energy to increase the density in growth of our existing infrastructure and shorten the time it takes to bring new customers on line." He offers no analysis to show how this would be done and why it's worth $4 million to AE. But this is his rationale for moving General Fund expenses into a new fund and asking AE to cover the bill, even though the utility already pitches more than $60 million into the General Fund, and even though Austin Energy is pulling money from under the mattress to pay its own bills. Go figure.

    Meanwhile, Garza is reversing the trick with the Sustainability Fund -- taking $14.7 million out of the General Fund to pay for projects (particularly his blessed new roads) that would normally get their money elsewhere. Yet the point of passing $1 billion in bonds in 1998 was to keep such projects from biting into the city's operating budget, which is exactly what Garza is proposing. The S-Fund will also claim 1% of the revenues of the Water and Wastewater, Solid Waste Services, Drainage, and Transportation Funds.

    That's not all that much money -- $3.1 million total -- but except for Water and Wastewater, none of these utilities can, truth be told, afford it. Solid Waste, Drainage, and Transportation are all dipping into their reserves to cover their FY2001 spending. And remember, the Drainage and Transportation Funds are supported by "user fees" tacked onto your utility bill. Those fees will be going up in Garza's budget, Transportation by 6%, Drainage by 10%.


    Where Will It All End?

    If this fiscal policy is what Garza considers "sustainable," one wonders what the city manager would consider profligate. We may find out soon enough, as the council takes its swing at the spending plan. While it's still early in the process, council members have yet to make a stand for fiscal restraint -- they are, indeed, right now busily arguing over how to spend bond money after they are gone.

    The current game of chicken, between Watson and his roads and Beverly Griffith and her parks, presumes that we can afford to approve, issue, and pay off new bonds, on top of the $1.66 billion in tax-supported debt the city currently has outstanding, as soon as 2002. This would be a neat trick, considering that the General Obligation Debt Service Fund, from which these bonds are paid, is slated in FY2001 to spend $12 million more than it receives in property tax collections. It makes one wonder how long either Garza or the council can pretend we don't need to raise property taxes.

    See, since the passage of the 1998 bonds, Garza has been bringing in his budgets at a property tax rate of one cent over the effective rate -- which for FY2001 would be 45.6 cents per $100 of property valuation -- with that extra cent paying off the Watson council's bond bonanza. (The "effective rate" is the rate that would leave the tax bill of the "average home" unchanged from year to year, regardless of fluctuating property appraisals.) Because of the white heat of our economy, the effective rate is nearly five cents lower than the current year's rate of 50.34 cents per $100. That rate is, in turn, far below what other Texas cities charge their men and women of property -- 58 cents in San Antonio, 67 cents in Houston and Dallas, 89 cents in Fort Worth.

    Garza and his people are all too aware of this last fact, but the city manager, despite his tin political ear, has a well-honed survival instinct, and he knows that proposing a realistic tax rate will win him no friends. But this year's budget shows that our taxes are too low, period, especially if Watson and Griffith want to sell -- what is it this week, $300 million? -- of new bonds. Right now, more than a third of your property tax bill goes to pay off city debt.

    The "effective rate" of 45.6 cents is one of a series of threshold rates specified by the state Property Tax Code. (see "More Taxes, Please," p.28). After the 46.86 cent "hearing rate" -- which has no meaning for home-rule cities like Austin -- the next step is the "rollback rate," also called the "Peveto rate" after the former state rep who authored the tax code, which for FY2001 would be 48.05 cents. If the city exceeds that rate, then the citizens can pick up their staves and pitchforks, sign and submit petitions, and force an election on the tax rate. However, since such a petition requires signatures from 10% of registered voters -- in Austin, more than 35,000 people, which is more than voted in the last council election -- it's not an easy task. And even if such an effort succeeds, it only rolls taxes back to the Peveto rate.

    So there is really small political cost to raising taxes right now to the 48.05-cent rollback rate, which is still lower than this year's rate, and which would bring an additional $6.4 million into the General Fund. The council could probably even decide to stick with this year's 50.34-cent rate; it might provoke a rollback election, but if Watson can sell billions of dollars in debt, he could probably sell a quasi-tax-hike, and the General Fund would be $16 million richer.

    Which is the larger issue here: Despite the Watson council's reputation, it really takes no "visionary leadership" to spend other people's money. Until Kirk Watson can screw up the courage to convince Austinites that now, with money flowing through town like water, is the time to build up reserves and make new investments by setting a realistic tax rate, his political chops will remain essentially untested. And the city will continue to be unprepared for a real rainy day. end story

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