Strategizing a City Budget

Finance staff delivers tentative 2019 forecast

Budget officer Ed Van Eenoo presented to Council three five-year scenarios for possible city revenue/expenses. Scenario C (dotted red line) shows revenues that meet projected expenses in the first two years at the property tax rollback rate (8% increases), then steadily diminish over the following three years. The orange line represents revenue at the effective rate – current property tax income plus new construction.
Budget officer Ed Van Eenoo presented to Council three five-year scenarios for possible city revenue/expenses. Scenario C (dotted red line) shows revenues that meet projected expenses in the first two years at the property tax "rollback" rate (8% increases), then steadily diminish over the following three years. The orange line represents revenue at the "effective" rate – current property tax income plus new construction.

Nearly 20 years ago, at the outset of the George W. Bush administration – you'll recall those halcyon days – the fledgling president remarked of the latest federal budget proposal: "It's clearly a budget. It's got a lot of numbers in it." Dubya's real point, of course, was disdain; just because the executive branch is charged with preparing an annual budget is no reason the president must show that work any respect.

A more benign version of that scenario played out last week before City Council, as Deputy Chief Financial Officer Ed Van Eenoo presented his FY 2019 city budget forecast, by definition an early draft of the coming year's revenue and expenses. As an exercise in five-year projections, it's always something of a crapshoot, but this year, because of both local and state uncertainties, it's more tentative than usual.

The big picture looks quite a bit like this time last year, when Van Eenoo noted city costs rising at about 5% annually, revenues (primarily property taxes, sales taxes, and development fees) at somewhat less than that. Last Wednesday he told Council, concerning the coming year, "The story is those revenues are growing less than four to five percent per year. If the budget is growing four to five percent per year, I need everything to grow – [but] the sales tax, utility fees, and everything else is growing less than four to five percent."

Accordingly, the FY 2017 big numbers were uneven:

FY 2017 (finalized)

• Sales tax growth: $750,000 below forecast (2.9% vs. 3.3%)

• Development fees: $2.9 million above forecast

• Expended General Fund budget: 98.9%

• Reserve transfer: $15.1 million ($6.1 million above forecast)

• Reserve level: 13.6% (policy is 12%)

– as discussed last week in a meeting at the Central Library. That categorization remains a work in progress; notably, GF mobility expenses do not reflect major bond spending that underwrites most capital road projects.
– as discussed last week in a meeting at the Central Library. That categorization remains a work in progress; notably, GF "mobility" expenses do not reflect major bond spending that underwrites most capital road projects.

FY 2018 (estimated)

• Increased revenues: 3%

• Labor cost saving: $4.4 million

• Increased cost drivers: $35 million

• Anticipated "surplus": $750,000

In non-bulleted prose, those highlights reflect a bit of savings carried over from FY 2017, an unexpected $4.4 million dip in labor costs – due in part to derailed public safety contract negotiations (therefore temporary) – and a conservative, quite narrow estimate of $750,000 left over for the year. Mean­while, annually expected "cost drivers" – employee raises, IT expenses, a new fire station, etc. – are estimated at $35 million.

As Van Eenoo always emphasizes, the spring forecast is not a budget – that only comes with what will be City Manager Spencer Cronk's formal presentation, currently scheduled for Aug. 1 – but it's the budget staff's early warning to Council of the major financial questions it will be facing over the next few months.

All in all, Van Eenoo's forecast featured a modest update of last year's numbers. And since the reflexive journalistic presumption (see last week's Statesman) is that a reader's only relevant budget question is, "What's it gonna cost me?" – the working estimate is: 2.2% above last year, or $87.96/year for a median-value home ($305,555).

Property tax hike: $5.43/month ($65.16/yr)

Other fee increases: $1.90/month ($22.80)

There are inevitable uncertainties in this scenario, most prominently the final outcome of the public safety labor negotiations, which presumably will cost more in the final contracts. In an election year, some council members will be sorely tempted to make their jobs harder by giving back token, regressive tax breaks by raising the homestead or senior/disabled exemptions.

Beyond those undefined costs is the very real threat of renewed 2019 legislative pressure to lower the current 8% cap on all local property tax raises. Having failed at 4% (House) and 6% (Senate) salvos last year, Gov. Greg Abbott is now promoting a draconian 2.5% cap – linked, he suggests, to real public school finance reform. Since the latter is an ever-receding horizon, Abbott's cap might not come to pass – but more likely, will be an opening bid in another push for a 4% cap.

Van Eenoo's projections did not include a 2.5% cap, but his graphs of the effects of a 4% cap are foreboding – a compounded inability to meet the city's basic expenses, meaning it would get worse in the out years – simultaneously creating a perverse incentive for Council to use the maximum 8% rate now as an inadequate cushion against future cuts. Van Eenoo summed up the overall effects: "The short answer is, we would have to fundamentally change our cost structure as a city, what we do, how we do it, what cost increases are. They will have to change – our current financial structure will not work under a four percent cap." Alas, those undeniable local realities aren't likely to matter under the Dome.

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KEYWORDS FOR THIS STORY

city budget, Ed Van Eenoo

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