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First look: city needs 3-cent tax hike to fill budget gap for 2012

Wednesday, April 20, 2011 by Josh Rosenblatt

With the Budget Office projecting a $9.8 million shortfall, it looks like FY2012 is going to be another year of belt-tightening for Austin. At a presentation before Council this morning, CFO Leslie Browder, Budget Officer Ed Van Eenoo and economic consultant Jon Hockenyos laid out a picture of the city’s economic outlook and forecast for the General Fund that both shows signs of improvement and indicates tough times still ahead.

 

The projected shortfall—which considers only what it costs to fund the city at its current level—assumes a property tax increase of three cents. That would take the rate up to 48.76 cents per $100 valuation—the rollback tax rate.

 

City Manager Marc Ott emphasized that today’s presentation was “a starting point. And what you hear from us should not be interpreted as a recommendation.”

 

However, if the city maintained the effective tax rate—that is the amount needed to bring in exactly the same revenue from property taxes as it currently gets, the shortfall would increase by approximately $24 million, van Eenoo said. Neither scenario takes into account possible cuts in state funds.

 

The forecast includes a 26 percent projected increase in fuel costs.

 

To make up for next year’s projected shortfall, the city manager has directed all city departments to identify options for budget cuts. “We’ve asked departments to make 5 percent reductions to their non-emergency-response budgets,” van Eenoo said. That is bad news for those departments, which have made $15 million worth of requests through this year’s budget process to satisfy unmet needs.

 

Those reduction proposals are due at the end of this month, with the Budget Office hoping to publish them in early May. City Manager Marc Ott told In Fact Daily he is looking forward to “drilling down into the details” of departmental budgets.

 

On the bright side, sales tax revenue has increased in 14 out of the last 15 months, following 18 straight months of decline. Budget writers are projecting 3 percent annual sales tax growth for the next five years. At that rate the city will get back to its pre-recession sales tax revenue peak of $152 million by FY 2013.

 

With that increase in sales taxes and a projected 3.1 percent increase in the property tax rate, the city is looking at a projected annual increase in total revenue of 5.7 percent for the next five years. That the annual revenue increase over the previous five years, through FY2011, was 5.9 percent is proof that the Budget Department is being very conservative in its predictions, said Van Eenoo.

 

“I think it’s a good indicator that we are being responsible in our revenue projections that we’re projecting slower growth in our revenue over the next five years than we did in the previous five years, when those previous five years included one of the biggest economic downturns since 1930,” said Van Eenoo.

 

The Budget Office’s forecast assumes the funding of all positions currently authorized by Council for FY2011, plus 47 new police officers as a result of the City Council policy of two officers per 1,000 citizens, and of all current contracts with public safety employees. Van Eenoo pointed out that public safety currently accounts for 65.1 percent of the General Fund.

 

Next week, Van Eenoo and others plan to present the budgets of Austin Energy and the Austin Water Utility.

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