City Hall Gets Better at the Basic Business of Budgeting

Early indicators are good, but difficult fiscal conversations linger

In the 10 days or so since City Manager Spencer Cronk presented his proposed budget for fiscal year 2020, reaction on the street – as heard from the windows at City Hall – has been calm. Even though budgets are inherently boring, this is a town that knows how to manufacture political drama in seconds, so neither the City Council nor the manager's budget team are taking this lassitude for granted. "It's still early," notes Mayor Steve Adler. "We were able to put money in the budget for things people have asked for, but I expect to hear from some other people."

The all-in pocketbook impact of the new budget's spending for the "typical" Austin resident homeowner is just shy of $100 a year, including both taxes and fees, or about a 2.5% increase from the current fiscal year. One of the more predictably robust voices come budget time, the Greater Austin Crime Commission – which, despite its governmental-sounding name, is a citizen advocacy group that allies with law enforcement – has already weighed in with its approval for the new budget's inclusion of 30 new police officers, one of the "things" Adler is referring to. But there are also significant, if modest, enhancements elsewhere on the political ledger: new victim services counselors, more funding for DNA evidence processing (including rape kits), more staff in the Office of Police Oversight, and new funding for equity mini-grants.

For the FY 2020 budget, City Hall continues its reframing of Austin's operations along the six "strategic directions" around which Cronk has also organized his executive team. The graphic above shows the top three departments, in terms of dollars spent, within each category; some (like Austin Energy, by far the largest, or Parks and Recreation) show up in multiple categories with different programs. For those who still think of the budget in terms of sources and uses of funds, that info's here too; below is the good old pie chart showing the latest divvying of the General Fund (where your taxes go) between the departments that consume it. As usual, the public safety departments make up the biggest chunk of GF spending, but the amount is not growing as fast as it used to. Keep in mind that some departments – most notably Neighborhood Housing and Community Development – have minimal GF budgets but enormous additional sources of funding like federal grants and bond proceeds.

Those are recurring costs, but the marquee items on the spending side of the FY 2020 budget are mostly one-time booster shots to elevate the city's energy around its priority issue of the moment – housing and homelessness. As we reported last week, these include big cash transfusions into the city's Housing Trust Fund, pre-funding five years of the Pay for Success initiative to address the crisis through civic entrepreneurship, and money drops to get both the Salvation Army's Rathgeber Center family shelter and the planned South Austin Housing Center up and running. "It really is a historic level of funding," says city Deputy Chief Financial Officer Ed Van Eenoo, the man at the helm of city budgeting; next year's spending on homelessness will be triple what the first 10-1 Council laid out in 2015.

That money bomb largely comes from cash generated by the decision to build a budget on the maximum property tax rate allowable – one that generates 8% more revenue for the city than it received last year. Next year, that 8% becomes the much-deplored 3.5% "revenue cap" imposed by the Legislature this year, for no real reason other than to keep suburban homeowners from bolting quite as quickly from the GOP as they would otherwise.

City Hall has “already begun laying the groundwork for difficult conversations”

That means structural deficits in the future for Austin, whose embedded "cost drivers" – wages and benefits, new facilities approved by voters, agreed-upon police and fire staffing – are growing at a rate of more like 4% a year. Going to the max rate this year instead of the lower rate (about a penny less) that would balance the FY 2020 plan on its own reduces that structural shortfall by a few million dollars and allows the FY 2021 budget to also balance.

The projected future gaps – $7.8 million in FY 2022, growing to $27.1 million in FY 2024 – are relatively small amounts of money for the $4.2 billion business that is the City of Austin. But each dollar raised or saved to fill that gap will come out of somebody's pocket, so there will be yelping over the next year or so as the city closes the gap. As Cronk says in his budget transmittal letter to Council, City Hall has "already begun laying the groundwork for difficult conversations in future years aimed at flattening the organization's cost curve as well as identifying potential new revenue streams. City leadership and staff are committed to the success of these conversations."

Dropping a Money Bomb

So why not make those conversations $15.3 million easier by putting the revenue captured by a maximum tax rate in the bank, to be applied to future deficits? "We're not proposing putting money in savings this year, but it was heavily discussed," Van Eenoo told reporters last week. Those discussions began during last year's budget cycle, when Council contemplated but decided against going to the 8% "rollback rate." Looking ahead, banking the money "just kicks the can even further," said Van Eenoo. "We still have the work to do to figure out how to rebalance our budget over time."

Much of the baked-in growth of city spending has to do with what he describes as "inflationary pressure on wages"; civilian staffers will receive a 2.5% cost of living increase, with police, fire, and EMS receiving the smaller raises dictated by their current union contracts. Health care costs for employees and retirees have been (surprisingly) declining over the past three years, but nobody expects that to last. On the flip side, while a 3.5% cap on property tax revenue growth is already below what the city needs to stay balanced at current spending trajectories, the growth in the other sources of General Fund revenue – sales tax, fines and fees, and the dividend transfers from Austin Energy and Austin Water – is expected to be even more pokey, at around 3%.

That clearly makes FY 2020 a bad time to kick off a bunch of recurring spending on new hires and programs, hence the decision to go with one-time investments. Given the urgency and visibility of Austin's homelessness crisis, which has dominated the City Hall conversation for months, the destination for that one-time money was fairly clear. The city's housing and human services departments, which between them (along with public safety) encompass most of Austin's homelessness services, chose this menu of investments to lay the groundwork for future ones that could be ongoing, but potentially backed by other people's money – such as future private fundraising by the Salvation Army, or the proposed Tourism Public Improvement District hotel surcharge. "We aren't going to be able to address all these problems on city revenue alone with a 3.5% revenue cap," says Van Eenoo. "So we need churches and businesses and others to come in." For several years, as the city has marshaled its resources and allies to change the game plan on homelessness, those third parties have been signaling their desire to come in, and efforts like Pay for Success – in which the city will reimburse providers for their work only if and when desired outcomes are achieved in the response to homelessness – open the door to that involvement.

There are other interesting and creative ways that Cronk, Van Eenoo and his team, and the city's department leaders have addressed the major priorities of Council and the community. The Austin Public Library will have two new social worker positions to help patrons for whom the library is a safe alternative to the street. More money for support services is going to local school districts for new pre-K enrollees in the wake of the Legislature fully funding all-day pre-K in its school finance package. More money is also going to immigrant legal aid and to culturally competent mental health services for the growing Asian-Pacific Islander community. The budget is sprinkled with such things, none representing a herculean effort, but all nice to see in a town that is like what Austin thinks it is.

A number of these ideas and proposals have floated up into the budget from the community via ongoing conversations with Council and especially through the work of the city's boards and commissions – among those, says Van Eenoo, the engagement of the nine "equity-focused" panels (the African American, Asian American, Hispanic/Latino, and LGBTQ quality of life commissions, as well as the commissions on Women, Human Rights, Immigrant Affairs, Seniors, and the Mayor's Committee for People with Disabilities). "We've gotten a lot more sophisticated about including that input," he says, though cautioning, "It is a budget, so by definition, it can't do everything for everybody."

Much Better at Being Focused

"Doing everything for everybody" has long and often been the unstated and counterproductive goal of Austin's political culture, which is great at developing high-quality plans for action to make everything Austinites care about better – we've seen such city efforts on mobility, climate, gentrification, water resources, parks programming, and more hit the Council dais just within the past year. Going from plan to performance, which to be fair involves awkwardness for any organization, has been a notable briar patch for the city for years and years, one that becomes extra scratchy with every annual budget, the organization's most focused short-term to-do list.

City Manager Spencer Cronk (Photo by David Brendan Hall)

This was painfully the case when Adler and the 10-1 Council took office in 2015, when he and city staff (then under the aegis of soon-to-depart City Manager Marc Ott) tried to embrace City Hall's new day of populist responsiveness with a wide-open "concept menu" approach to budgeting that led to long, drawn-out, and enervating on-the-

dais sausage-making that most everyone is happy to have left behind. "We were finding that it just didn't work," Van Eenoo says. Instead, Ott's successors Elaine Hart (Van Eenoo's boss, then serving as interim manager, who is retiring later this year) and Cronk did something that was often not done, despite its simplicity, in prior cycles with more territorial city management: asking Council and community what they wanted to see in the budget, early enough to make a difference in its development. "Spencer and Ed are doing a much better job talking to Council members about their priorities before going into the process," says Adler.

But even starting early and being direct is of little use if Council and community don't know how to answer the questions they're being asked about a $4.2 billion enterprise, much of which is complicated by necessity of law and best practice. Cronk's major project since taking over – the launch of the Strategic Direction 2023 five-year plan, which seeks to implement the many worthy objectives of the Imagine Austin Comprehensive Plan (adopted in 2012) and its issue-specific offspring – has, in both staff's and Council's accounts, given much-needed clarity to those conversations. "It's allowing us to be more focused," says Adler. "In the first couple of years, the requests were just all over the chart, and last year and this [year] we're looking at what really are priorities, not a concept menu with 800 things on it. That's a huge development; it's a long way from my first budget."

SD23, as it's called in the budget and around City Hall, reframes the city's unique mix of operations (not all cities own and manage their own electric and water utilities, trash collection, convention center, and airport as well as the typical General Fund services) into five big-picture categories, shown in the graphic here – safety, mobility, economic opportunity and affordability, health and environment, culture, and lifelong learning – as well as the admin-and-infrastructure "Government That Works for All" bucket that touches every department and includes City Hall itself. In doing so, it aimed to address "a shared sense that the City is not dealing with significant issues that will determine its future" and create "a clear decision-making framework for the future of Austin," as stated in the SD23 preamble and also in the FY 2020 budget document. This division of labor is also how Cronk has organized his leadership team, and while SD23 looks and sounds like a lot of organizations' strategic plans (vision! mission! values!), for wonks and City Hall translators (like your local Chronicle), it's refreshing to not have to start telling the city's story with, "Well, there's the General Fund and then there are enterprise funds, and they have different sources and uses, and no you can't just pay for street cleaning with airport concession revenue, and ... are you still awake?"

That accounting apparatus is still there for when it's needed, but Cronk and Van Eenoo know that presentation matters, and this year's budget tries to keep the reader engaged in the ongoing saga of Austin, Now a Big City. Nor does it flinch bureaucratically away from stuff Austin doesn't like to talk about. One of the key performance indicators (KPIs) for the Safety outcome, and by extension APD, is racial disparity in traffic stops, outlined in a chart for everyone to see. This year's budget includes for the first time KPIs for mobility, as dictated by the Austin Strategic Mobility Plan's goal of moving one-third of commuters who now drive alone onto public transit, bikes, etc. by 2039. And it sets the stage for its marquee investments to address the homelessness crisis by telling the truth: "The most jarring dichotomy of contemporary life in Austin might be experienced on a walk through our downtown, where one is likely to be struck not only with awe at the seemingly countless new buildings and infrastructure improvements under construction, but also with compassion for the increasingly visible population of persons experiencing homelessness."

The "Costs That Go With That"

This kind of real-world honesty is going to be essential as Austin goes through the inherently politically divisive process of right-sizing spending to revenue in the future, whether through cost cutting or tax and fee increases. That journey will necessitate the city's having a backbone and standing up to the efforts by GOP chum-churners – from Gov. Greg Abbott on down – to paint Austin as a dystopian and reckless embarrassment to the state of Texas. "With the lowest tax rate and the highest median family income, Austin ranks very competitively with its peers in Texas when it comes to the value received for a resident's tax dollar," Cronk writes smartly in his transmittal letter, "even before factoring in the quality of the City of Austin's services, which consistently rank above national norms."

Mayor Steve Adler (Photo by John Anderson)
Adler says the community “wants to drive equity and opportunity, and there are costs that go with that.”

That being said, there is a concerted effort to find efficiencies that will make the upcoming squeeze a little less tight, engaging front-line workers and citizen/customers as well as city executives in the ongoing endeavor to make City Hall as "innovative" and "creative" as everyone expects it to be in a town like Austin. This year's budget already contains a special section of these bright ideas, like moving the whole city workforce to digital time­sheets or using Down­town Austin Community Court clients to tend a "program garden" that delivers produce and eggs to help feed the Downtown hungry. More ambitious efforts include a major investment in "best in class" GPS systems and software for the city's vehicle fleet to allow it to manage fuel use, decide when to replace gas cars with electric ones, and get more proactive on maintenance.

The city's new Office of Performance Management, which is still staffing up, will be in full gear to shepherd this work through the next budget cycle and beyond, says Van Eenoo. "It will be more of what we're already doing," he says, "but we anticipate them working with departments to bend the cost curve with lower-cost technology options or more efficient procedures, instead of just adding more staff." Cronk's team is also launching targeted vertical efficiency reviews – first for fire and EMS – to find more places to streamline, an already-planned but now-timely response to the bad-faith call for an outsider-driven fishing expedition in the failed Proposition K from 2018.

Even with the foreshadowing of "difficult conversations" to balance future budgets, there's at least a sense that Austin, after years of trying to avoid angry fights with Daddy Texas, is willing to keep on its present overall course in future cycles, and to go ahead and raise taxes – and go before the voters – to do it. The actual mechanics of holding a tax ratification election are a bit vague for the city, though both Austin ISD and Central Health have held TREs in recent years. Van Eenoo says it'll basically be like a bond election, which the city has pulled off successfully to the tune of nearly $2 billion since the 10-1 Council took over. It's hard enough now to communicate budget and tax realities to Austinites even without the pressure of an election campaign that gives gadflies free rein to throw brickbats at the city just because it feels good. Adler notes that "people get confused when we say we're going to 8%, when that's really just an arbitrary number" that isn't reflected by anything residents do with their checkbooks. "The real measure, that needs to be the constant from year to year, is what is the impact on a typical resident and ratepayer" – not just the tax bill, but utility and fee increases as well, which in this budget are being held at zero (water and transportation fee hikes are already planned for the next two years). This year's 2.5% increase in that metric certainly feels like something Austinites can manage.

Nevertheless, "we also have to take a look at whether we're going to have to go to the voters," says the mayor, "because we have an economy that's doing really well but have a community that wants to drive equity and opportunity, and there are costs that go with that. Since the Lege has set the cap below inherent cost drivers, we're going to have to figure something out."

Different Colors of Money

Expenditures by fund category – citywide operating budget in thousands

As you know because you read the Chronicle, the city General Fund – where your taxes go – makes up less than one-quarter of the full city budget. While the outcome-based framing of the FY 2020 budget – in line with the city's Strategic Direction 2023 plan – wipes away many of the distinctions between the different colors of city money, it's still useful to see how the funding breakdown works. This budget shows the significant though not exorbitant growth in outlays not just from the General Fund but also special funds (reflecting, among other things, the one-time boost to the Housing Trust Fund) and debt retirement, with the big-ticket city enterprises seeing a lower growth trend and the internal service funds declining due to lower-than-expected health care costs.

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