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2015 budget rollout shows Austin economy poised for more growth

Friday, April 25, 2014 by Elizabeth Pagano

Like a pep rally before the big game, the Austin City Council’s FY2015 Budget Report started with a glowing report from Texas Perspective’s Jon Hockenyos that has become the norm in recent years, and built to a crescendo of cheers all-around.


“I can’t find any reason not to say that Austin is the strongest regional economy in the country,” said Hockenyos.


In fact, Hockenyos explained, analysis of social media discussion about Austin’s economy showed “there’s one word – growth, growth, growth, growth, growth.”


“The person who did this for me… said she’s never seen such a topic that has such a monotone,” said Hockenyos. “That’s just a window into what the community is talking about.”


Hockenyos projects Austin will create 29,000 jobs this year, and 30,100 in 2015, and sales tax growth of about 6 percent for 2014 and 2015. He noted that Austin is still pretty affordable, though affordability is going in the wrong direction.


“The aggregate figures mask something that is going on,” said Hockenyos. “The gap between the haves and the have-nots is widening. It’s widening everywhere in the country. It’s certainly widening here. You can see that if you break some of the income figures down.”


Hockenyos didn’t see a sudden turn in Austin’s overall fortune, but said that that the income gap was continuing to widen, between those struggling inside the city, those thriving in the city, and an emerging class of suburban poor.


The forecast showed what is evident from the streets – Austin continues to experience a development boom, with a large number of hotels being constructed. Austin has also seen a larger share of multifamily projects than single-family construction for the past two years. That’s a trend that Hockenyos sees continuing, though he expects overall development is likely to moderate in the future.


“I think Austin has been the flavor du jour for investment for the last 24 months. At some point it, inevitably, won’t be any more,” said Hockenyos.


Hockenyos and Council Member Bill Spelman also took time to establish that there was no reasonable way to slow the city’s growth, only ways to find ways that growth can be a positive for the city.


It was in this context that Council members moved on to a presentation of next year’s proposed budget.As reported earlier Thursday, the city is proposing a reduction in taxes. However, the reduction isn’t likely to be reflected in the budgets of most Austinites.


Though the city’s plan proposes a 0.7 cent reduction in the property tax rate, increases in home values and increased utility rates will increase what the average Austin taxpayer pays to the city next year.


This didn’t escape the notice of Mayor Lee Leffingwell, who released a statement following the Thursday morning Council budget session.


“The city is looking at more than 1.7 billion dollars in increased property values. I am happy the City Manager proposed a lower tax rate, but because of increased property values, this equates to a small but significant tax increase, or about $28 more for the average homeowner per year,” wrote Leffingwell. “I look forward to seeing if we can do even better than that.”


In addition to that increase, Austin taxpayers will also face bigger bills from the city’s utilities. The average monthly increase for Austin Water Utility customers is projected to be $4.84 each month. Additionally, Austin Energy customers are facing a monthly increase of about $1.69 on average. Austin Resource Recovery fees will go up $2.25 per month.


The water utility continues to see decreased revenue and, assuming continued drought restrictions, cost increases are likely to continue.


Spelman noted that, for the first time in recent memory, the percentage of income that the city will take in taxes is going down, and thanked the budget office for that shift. But he also pointed out that fewer than 83 percent of the proposed bill increased came from higher utility rates.


”I think we’re probably going to be spending most of our time over the next few months talking about those enterprise funds – what’s going on with them, why do the rates have to increase as much as they do, and so on,” said Spelman.


“I think we’ll be talking about the water utility a lot,” said Mayor Pro Tem Sheryl Cole.


Austin Energy is also likely to come under the microscope. After a lengthy rate case last year, Austin Energy saw a $66 million net balance this past year. Council Member Mike Martinez questioned these figures, and how they jived with the rate-case claim that the utility couldn’t afford more money for the Customer Assistance Program.


Chief Financial Officer Elaine Hart explained that AE’s profitable year was largely the result of debt restructuring, which happened subsequent to the change in rates. She said that $40 million of that figure came after the debt was restructured, after City Council determined the rate changes.


Council members kept their questions brief. Leffingwell promised that he would have questions about utility transfers that “don’t have anything to do with the Austin Energy utility and don’t have any potential for return on investment for the utility.”


“I know that there are perhaps more items on the Austin Water Utility budget that don’t have a direct relationship to the delivery of their services and don’t, at least to me, have a visible tie,” said Leffingwell.


Leffingwell went on to say that he didn’t know what all of those items were, but was interested in knowing what staff might find. As examples, he cited the Wildlands Division, water quality land debt service, the Sustainability Fund, and about $4 million dollars a year that is going to Green Choice as items that didn’t offer an immediate connection to AWU.

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