Council members, staff brace for economic downturn

Council Member Brewster McCracken predicted Monday that city management would enact a hiring freeze in order to deal with a downturn in the city’s sales tax collections.

 

The State of Texas told Austin last week that revenues are down for the month of February—one-half of one percent—according to Leslie Browder, the city’s chief financial officer. According to a memo from Browder, sales tax revenue is up 3.8 percent for the fiscal year, which began in October. However, the city wrote its budget based on projections of about 7.5 percent annual sales tax growth. “If we end the year with annual growth that approximates our collections so far, this would mean a shortfall in sales tax revenue of about $5.8 million,” she wrote.

 

McCracken told In Fact Daily, “The first thing you do in a downturn is you do a hiring freeze—or some sort of limitation on things that are otherwise discretionary expenditures. But a hiring freeze is what we did back in 2001 and 2002. My guess, if you’re seeing negative sales tax growth–which we are seeing–is a hiring freeze.” McCracken pointed out that the city had underestimated the amount of sales tax increase for the last couple of years–which just shows the difficulty of predicting what will happen with sales taxes.

 

Council Member Sheryl Cole agreed. “We don’t have a crystal ball. When we made these projections we were basing it on the information we had to date,” However now it appears that information has some flaws, she said. ” We see that sales tax revenues are down throughout the state. The economy is struggling and so we have to anticipate that will affect us and so as we see sales tax revenues decline we need to make adjustments to our budget.”

 

Mayor Pro Tem Betty Dunkerley, who was once the city’s Budget Officer, said, “At the beginning of this fiscal year we all expected to see some leveling off or dropping of our sales tax and our city staff monitors this revenue very closely because it’s so volatile. They’re doing the right thing–they’ve put us all on notice and the city manager has asked the assistant city managers to monitor all new hires and all discretionary expenditures. And that’s really what we need to do this point.”

 

City Manager Marc Ott has sent a memo to all city employees asking them to put forward innovative ideas for saving money in their departments. “I have already asked General Fund and support services fund departments, including fire and police, to look carefully at their budgets and identify savings that will help us to stay within budget given the slower growth that we’re seeing in our revenue,” he said. “Although there is not a freeze on hiring, I anticipate that filling vacant positions will slow given that personnel costs represent about 80 percent of the General Fund. Directors will also be evaluating other savings options within their budgets and will make recommendations to me to balance the needs of the departments with their overall financial strategy.”

 

The City Council will hold its first work session next Wednesday. That will be the first time all seven have met since the new sales tax figures came out.

 

City Budget Officer Greg Canally said, “We have started the annual budget process. In a couple of weeks we’ll be talking to the City Council about the financial outlook for the city. Certainly where we end up at sales tax revenue this year will impact out years . . . So we’re certainly tracking that and will be looking closely at that over the next couple of months as we begin to put together the budget for next year.”