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Ott seeks belt-tightening measures amidst economic downturn

Friday, October 17, 2008 by Mark Richardson

With the major banks and brokerages failing and the stock market dropping value in epic proportions, a panel of economic advisers told the Austin City Council Thursday that while there may be some tough times ahead, Austin is well-positioned to deal with an economic downturn.


Council members asked City Manager Marc Ott to prepare a report on how Austin is situated with what some economists say could be an extended global recession.


“We just adopted a budget based on certain assumptions and revenue projections,” said Ott. “We are now going to revisit many of the assumptions we used to write that budget. We are most likely going to have some challenges with lower revenues, and we may have to streamline costs accordingly.”


The city’s bond consultant, Bill Newman with Public Financial Management, told Council Members that the city’s finances rest on three pillars: property tax revenues, sales tax revenues and enterprise fund revenues.


“We expect property tax revenues to stay on target at $209 million,” he said. “Sales tax revenues have been budgeted at $160.8 million, and enterprise funds such as Austin Energy, the water utility, airport and so on, look to be on track.”


Newman said where the city was most vulnerable was sales tax revenue. He said the city has projected a 3 percent growth over fiscal year 2008, but is already running at only 2 percent this year.


“We have a great deal of concern about weak retail sales in the coming year,” he said. “There is the potential for zero growth or even negative growth in the sales tax revenue.”


Based on that assessment, the City Manager said he has already ordered his staff to prepare a menu of reduced spending options in the event of a shortfall in sales tax funds. He said that could mean possible cuts in city services.


Newman also said that while the bond markets are currently in a state of flux, the city is in a very good position to wait out the market in terms of general obligation bond sales.


“We just  recently sold bonds for the 2006 Bond Election, and the next sale isn’t scheduled until August 2009,” he said. “That will, hopefully, allow the market to settle.”


He said the city is working with a financial advisor to implement short-term strategies to fund utility capital improvement programs on schedule in a way that minimizes interest costs.


Ott said the city’s department heads are currently looking at their budgets and will report back on ways to cut expenses.


The action I am talking about was launching the department heads and others to see how they might modify their business operations to accomplish reductions,” he told In Fact Daily. “I want to give them the latitude to make those decisions, rather than have the city manager, or the CFO telling them what to do. They know more about their operations than we do.”


Council Members were generally upbeat in their response to the report. Mayor Pro Tem Brewster McCracken asked – hypothetically – what would be the repercussions if the city did not pay its obligations. The question launched Ott into a discussion of just how damaging that would be to the city. Newman simply said “You should always pay your obligations.”


McCracken smiled at the consternation of Ott and his advisors at the suggestion. “I just wanted to make the point that there is a proposition coming up on the Nov. 4 ballot that could make us do just that,” he said, referring the Prop. 2.


Council Member Lee Leffingwell said he felt better after the briefing.


“I feel much more assured that the city is in a good position to deal with a bad economy,” he said. “I think we will be in good shape for the next year or so, and then we’ll see what happens after that.”

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