Budget Games

As the economy improves and revenues rise, City Council looks toward next year's financial planning

Budget Games

"We don't play games with the budget."

City Manager Marc Ott interjected that declaration to the City Council last Tuesday, during a discussion of the Austin Police Department's sudden need for additional forensic analysts. Council members had been pressing APD Chief Art Acevedo fairly hard on his request for a midyear budget adjustment to allow the hiring of three more chemists; the request had developed its own public politics a few days before, when local criminal judges and both the district and county attorney had officially requested the hirings to address a growing case backlog. Members wanted to know why this matter hadn't been brought to their attention during the regular 2012-2013 budget cycle (i.e., last summer) and also why Acevedo couldn't find money in his existing budget to cover the new hires.

In the end, APD got its money ($180,000 for 2013, with more to come), but not before the chief apologized to Council that the request should have come earlier, while blaming an "inadequate assessment" by APD's lab staff of the real forensic needs. "The short answer to that," he said, "is that we weren't apprised of the need ... during the regular budget process." Sometimes staff members may underestimate the actual need, Acevedo said, "because they fear if they ask [for too much] they're not going to get it." That prompted the response from Ott, who wanted it made plain that all department managers are on notice that their budget estimates need to be as accurate as possible, and that they should neither overstate nor understate the need. "I expect department managers, based on sound business principles, to ask for the resources that they need," Ott continued. "We make our decisions based on the information we have at the time ... while recognizing that budgeting takes place in a dynamic environment."

It was a passing moment in a long day of decisions – unusual in that they came in a work session also posted for midyear budget adjustments – but it represented in a nutshell the kind of financial and political juggling act that takes place at budget time, on and off the dais. In a perfect City Hall world, budget documents should always reflect the facts on the ground; city managers need to rely on those documents for the budget planners, for public input, and of course for Council; and Council needs to rely on all of this flood of information to set policy and make annual decisions about spending, tax rates, and the like.

"It's always a balancing act," Mayor Pro Tem Sheryl Cole said later, discussing the Tuesday decisions. The good news was that the FY2013 spending had been tight enough thus far, and sales tax revenues sufficiently robust, that staff had found a "surplus" of $14.3 million, most of it to be targeted for affordable housing projects. (An earlier Council resolution, in the wake of the voters' November rejection of general obligation bonds for affordable housing, had directed Ott to find other monies to fund ongoing housing projects.)

Cole (and others) had hoped that some money would also be set aside for potential "property tax relief" or other contingencies; in the end, after Council worked through a list of other needs, only a relative pittance of $500,000 was earmarked for those purposes. Only Mayor Lee Leffingwell voted against the final allocations, in what he later described as "a protest vote." "I don't object to any of these projects," said the mayor, "and in fact, I support most of them. I just believe we need to be more careful of spending money as we enter the new budget season, because we don't want to raise the tax rate, if we can help it, and we can't know now all the other things we might need to spend some of this money on."

Going in the Hole

Although budget planning goes on year-round, and departments are currently compiling their annual needs lists, the 2013-2014 public budget process doesn't formally kick off until April 18, when Chief Budget Officer Ed Van Eenoo and staff will deliver to Council the five-year budget projection. Last week's work session provided a miniature version of Council's decision process; they needed to allocate an effective windfall, and since November's narrowly defeated affordable housing bond, they had been looking for ways to find bridge funding for projects already in the pipeline. About a million in other allocations – for cemetery maintenance, and implementation of new civil service obligations and the transition to the new 10-1 Council to come in 2014 – had been effectively mandated by the November votes and passed with little discussion.

That left about $2.9 million for a dozen smaller decisions, beginning with the APD forensic staff, and then additional staff ($188,000) for Planning and Development Review, for similar reasons – a burdensome backlog in ongoing permit reviews and inspections. Most of the funding available was for one-time expenditures only, but staff hiring tends to carry over into ongoing expenses, and much of the discussion on the dais concerned whether a particular decision might burden next year's budget before anyone really knows the relevant numbers. That certainly applied to the added police and planning staffing (about $575,000 annualized); beyond that, the budget folks estimated the ongoing costs for all the items at $3.2 million – pending, of course, Council confirmation during FY2014 budget preparations. (See "Budget Adjustment Breakdown," below.)

Cranes Equal Value

While it's still very early, things are looking up. The fact that Council had a little extra money to play with was one sign, but later Van Eenoo pointed to additional hopeful indicators. "We've had 16 consecutive months of sales tax growth," he said. "The downturn increasingly begins to be in our rearview mirror. One of the key metrics we track for sales tax revenues is our six-month rolling average; that's now a positive 11 percent. ... Where we stand now, we're projecting 1.5 percent growth, and from my perspective that's a very conservative number, and that's where we should be at this early stage in the budget planning process."

Sales tax, the most volatile income stream, generally represents about 20% of the city's general revenues, with another 20% from utility fund transfers. The big contributor is of course property taxes, about 40% of the total, and, since Travis County is still assessing those values, it's too early to estimate that income. But Van Eenoo likes the signs.

"If you drive down Lamar, South Con­gress, if you drive through Downtown," he noted, "there are a lot of [construction] cranes up right now, and cranes equal property value. We did not see those 2009 to 2011 ... so there is new value being added to the tax base." He said certain other cost drivers, notably health insurance, seem to be moderating. "We've had luck with health insurance costs, and the city has had good success with its wellness programs, its smoking cessation programs. That's led to modifying insurance costs; we had been seeing 10 or 11 percent increases, last year it was only about 3 percent. We've begun to see that level out, we've bent the curve, but we don't know if that's sustainable."

But there are also plenty of predictable (and less predictable) costs built into the economics of a growing city. Population growth inevitably means growth in public safety costs, which already consume nearly two-thirds of general fund expenditures. All three public safety unions are negotiating new contracts this year, and Van Eenoo as well as nearly every Council member mentioned those negotiations as needing consideration in next year's planning. Several cited potential city bond votes – e.g., affordable housing this year or next, urban rail in 2014 – as potential cost factors, along with bond proposals being publicly contemplated by other local jurisdictions: AISD, Austin Community Col­lege, and Travis County. Bond obligations don't affect the general funds budget directly – that's Operations and Maintenance, while bonds fall under debt service – but they do affect the property tax rate, and every Council member said they'd like to avoid a major rate increase this fall.

Finding a Balance

After Tuesday's session, some were less confident than others. Mayor Leffingwell was disappointed that relatively little money was set aside for property taxes or other potential needs. "As I said at the meeting, I'm somewhat trepidatious about the next budget cycle – some things going on that could cause some expenses that we haven't been used to in the past – and I wanted to save as much money as we possibly could, to try to address those deficiencies. If you've got an excess balance going in, it makes it a little bit easier." He particularly objected to adding new programs on the spot, without time for Council review, although he acknowledged that "pent-up demand" held over from several years of recession was driving some of the allocations.

Leffingwell pointed to the various potential bond votes with additional concern. "When you add all that up, it's a substantial ask and potential burden on the taxpayers." In that context, he said he plans to emphasize basic needs. "I think basic services, public safety, and our park system [have] been hurting for several years now. They're way underfunded for maintaining our parks – not for new acquisitions, but just maintaining. That's going to be a high priority for me, too. ... I still think the big unknown is what happens to Austin Energy [see "Wild Card: Austin Energy and the PUC"]. ... We need to get a better feel what next year's going to look like before we obligate ourselves to additional expense in next year's budget."

Cole said she had hoped to set aside more money for property tax relief, but a primary concern for her remains affordable housing. Earlier, Council directed staff to explore the possibility of a November bond vote, and Cole has been the most vocal member in urging that it happens this year. "Mid-year," she said, "it's very hard to know what's going to happen, and that was what was primarily giving me angst [at the work session]. But I'd like to see us have another election on affordable housing. We have to see, but I would hope that we would have to budget for that election this year." She added that "affordability" needs to be considered as an issue for everybody in the city – and that underlies her concern about rising property taxes.

Chief Budget Officer Ed Van Eenoo
Chief Budget Officer Ed Van Eenoo (Photo by John Anderson)

Laura Morrison and Kathie Tovo each said that despite the voters' November rejection of the affordable housing bond, the effort remains a city policy going forward, and it's an investment in the city's future that delivers real economic returns. Mor­ri­son pointed to a recently released poll that showed broad public support for affordable housing, including 55% who said they would support another bond vote this year. She's not ready to endorse a date, but added that the city needs to employ all the means at its disposal. "When it comes to increasing entitlements on land use on pieces of land," she said, "if we were stronger about imposing the PUD [planned unit development] requirements and the CURE [zoning] requirements, and all of that, we could have more affordable housing on the ground. I think we need to demonstrate to the voters that we're willing to step up and be strong on those levels, too."

Tovo noted that some budget decisions last fall were made in the expectation that a housing bond would pass; to let that negative vote predetermine current city planning would effectively redouble the problem. "I absolutely will support having another affordable housing bond vote in the future," Tovo said. "I think we need to talk with the community about what timing makes sense. ... We need to be mindful of what the total impact [of other rising tax rates] might be."

Holding the Line

Unsurprisingly, no Council member declared in advance an eagerness to raise the property tax rate – but all could recite at length basic service needs that have gone begging during the national recession and note their sense that things are slowly getting better. The mayor, who reluctantly admitted feeling "a little lonely" in voting against Council's midyear adjustments, added, "I don't think there's any question that we're on the uptick [economically], but it's described still, at least nationally, as a slow recovery." Chris Riley said that with the persistent sound of good economic news locally, Austinites are right to expect an eventual return. "Austin residents have good reason," he said, "to expect that at some point, all that good news is going to translate into some good news concerning property taxes. We need to work hard to keep any property tax increase to a minimum. That has to be a major concern. At the same time, there are major needs out there."

Bill Spelman reiterated that bond votes on affordable housing and urban rail seem certain by next year at the latest, and that even with rising revenues, Council's budgeting decisions need to be made in the context of overall public burdens. "Just because we have the money doesn't mean we have to spend it; we don't have to go to the limit. ... Every additional dollar we spend has to be justified – that goes for public safety and everything else. We need to see that there's going to be a positive benefit for the public before we increase anybody's expenses. ... We've had to be real frugal in the money we've spent in the last few years, and I think that should continue."

If there was a theme running through the members' thoughts about early budget projections, it was to try to maintain (or return to) basic services while holding the line, if at all possible, on property taxes. Whether that's possible, while also addressing pent-up demand, is the multimillion dollar question. "We need to maintain existing services as much as possible," concluded Mike Mar­tinez. "But we've got significant cost drivers: All three public safety unions are in contract negotiations, we're transitioning to 10-1, we're adding to civil service. If we can do that [maintain services] within the existing tax rate, that is a great starting point. We may have to look for additional revenues just to cover cost drivers. After that, we need to look first at the things we cut when times were bad – things like library hours, parks, recreation centers."

In other words, city budgeting is a lot like tightrope walking – always a balancing act.

Budget Adjustment Breakdown

On Feb. 12, City Council allocated midyear budget adjustments to a baker's dozen of needs. After election-mandated allocations for cemetery maintenance, civil service changes, and the transition to a 10-1 election system, the top priority was affordable housing funding for projects already in process. Here's the full list, showing the allocations for FY2013; $497,000 was left unspent, and the continuing costs remain subject to FY2014 budget decisions:

Affordable housing $10,000,000

Wildfire fuel mitigation $1,081,103

Child Inc. (Head Start) summer school $557,280

Open three trails for 24-hour use $350,000 (pilot program, biking only)

Arc of the Capital Area (disability services) $250,000

Planning & Development Review staffing $188,290

APD Forensic Lab staffing $180,654

The Austin Playhouse $150,000

River City Youth $73,000

African-American Cultural Heritage District $50,000

Total $12,880,327

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