Declining development revenues hitting city budget hard

The current state of the City of Austin‘s budget is not nearly as bad as it is projected to be next year, according to the city’s budget office. In fact, the most recent budget forecast for FY2010 indicates a $2.1 million surplus in the General Fund.

 

During a presentation to the city’s Audit and Finance Committee on Tuesday, Budget Officer Ed Van Eenoo said city departments have been able to create $7.6 million in savings, more than making up for a projected $5.5 million shortfall in revenue.

 

“Right now, this fiscal year, things are looking good,” he said. “Despite some lower than expected revenues we have sufficient savings to more than offset those.”

 

Next year, however, is another story. In a presentation to City Council last month, Van Eenoo said the city could face a FY2011 budget shortfall of more than $11 million as a result of stagnating revenue coupled with a planned 2.5 percent raise for rank-and-file city employees and the rising cost of medical insurance.

 

Steadily declining development revenue, which is down 34 percent from last year according to the budget office, is hitting city coffers hard. From a peak in 2007, revenue from development has declined every quarter. The city adjusted its 2010 budget to accommodate the trend, “but not enough; we’re even coming in below where we had adjusted,” Van Eenoo reported Tuesday.

 

The number of residential units being permitted, which has been about 650 per quarter for the last two quarters, is the lowest the city has seen in 16 years. During the peak period, in 2007, that figure was about 2,000 per quarter.

 

Tuesday’s meeting also included second-quarter budget reports from Austin Energy and the Austin Water Utility, both of which are predicting revenue shortfalls for FY2010.

 

Austin Energy is anticipating a $53.7 million revenue deficit but plans to mitigate that by cutting expenses by $45 million, leaving the utility with a projected FY2010 budget deficit of $8.7 million. The estimate is based on normal weather patterns taken from a 10-year average. In case of an unusually hot summer, which would mean increased energy use, AE might reduce or eliminate that deficit.

 

The situation is similar for the Austin Water Utility. Heavy rains in April and May have resulted in a projected budget shortfall of $43 million for the year, which the utility plans to make up for by reducing its contribution to the capital improvement fund. That, combined with other cost containment measures, should put AWU within its budget, according to city officials.