Beside the Point

We're in the Money ... Not!

"Does anybody think we're not in a recession?" economist Jon Hockenyos asked the City Council last week at its first work session concerning the upcoming 2008 budget. And as one might deduce from the rhetorical query, the implication wasn't exactly good news. With regard to the mortgage meltdown and tightening credit markets, seemingly unresponsive to interest cut after cut, Hockenyos – delivering a national and local economic outlook – said credit is the economy's fuel, "and right now, the tank is pretty dry."

Yeah, yeah, we know – gas prices are a pain, too.

That national slowdown has had limited but noticeable impact here, where he predicted some Downtown condo or hotel projects wouldn't get built. While the population, jobs, and tourism keep increasing, all housing development indicators are down, except that little thing called – ahem – price.

Lucky us.

Tougher news, if at all possible, came during the city's economic outlook and financial forecast. Projections of local sales-tax revenues – which amount to 28% of the city's general fund – were overshot dramatically; instead of the estimated 7.5% growth, the numbers had come in at 4.7% and now, following a month of negative revenues, stand at an increase of 3.8% for the year. In order to get a sense of the city's total potential revenues for the new budget year, budget officer Greg Canally prepared three projections (with each property-tax rate including an extra penny to pay for the 2006 bonds):

Scenario 1, with the "effective" property tax (lower than last year's rate, but bringing in the same amount of revenue, due to rising property values) and 3% sales-tax growth;

Scenario 2, "nominal" property tax (the current rate, 40.34 cents) and 3.5% sales tax growth; and

Scenario 3, the "rollback" property tax (the nominal rate, plus an 8% increase in the operations and maintenance portion of the tax rate – 27.30 cents of the total 40.34 cent rate; the rest covers debt obligations) and an optimistic 4% sales-tax projection (see graph).

But even under this last, most bullish projection, revenues – $620.7 million – are surpassed by the city's expenditures – $641.3 million – leaving a $20.6 million deficit. Not exactly chump change.

While this was only a preliminary meeting, a few themes emerged. With the United Way restructuring its mission, leaving local social service agencies in need of funding, Mike Martinez called for "more transparency" and a more rigorous set of benchmarks for agencies to meet. "I get the sense we've created a sense of entitlement," Martinez said, at least hinting diminishing expectations.

Additionally, with a relatively low property-tax rate (compared to other Texas cities), Austin has developed an unusual dependence on sales tax – an imbalance council wishes to correct. "We have too low a [property] tax rate to support a city this size," said council's revered budget oracle and Mayor Pro Tem Betty Dunkerley, who is retiring before the 2008 budget's adoption. To her, Austin's "abnormally low" tax rate – bound by state law capping any increase at the rollback rate – puts the city in a "very scary situation."

So much for shopping ourselves outta this one.

After the budget session and last Thurs­day's regular meeting, council's off this week, but fallout continues from last week's vote against providing bicycle and pedestrian connectivity between Hyde Park and a new development off 51st, counter to Planning Com­mission recommendations. It's continuing to work the local blogosphere into a tizzy – albeit a seemingly well-deserved one, for once.

Comment to BTP at

Sales Tax GrowthProperty Tax RateTotal Revenue (in millions)Total Expenditures (in millions)Deficit (in millions)
Scenario 1:3.0%39.82¢ ("effective")$604.5641.3(36.8)
Scenario 2:3.5%41.34¢ ("nominal")$618.0641.3(23.3)
Scenario 3:4.0%41.39¢ ("rollback")$620.7641.3(20.6)

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City Council, city budget, Greg Canally, Mike Martinez, Betty Dunkerley, Planning Commission, Hyde Park

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