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Little support for reducing utility transfers

Thursday, May 26, 2016 by Jo Clifton

At the end of Wednesday’s City Council budget work session about transfers from Austin Energy and Austin Water to the city’s General Fund, Chief Financial Officer Elaine Hart asked Council members to weigh in on whether they support continuing the transfers as they are or if they want to see a reduction. There seemed to be little enthusiasm for the latter.

Utility transfers currently provide about 16 percent of revenue into the General Fund, down from 24 percent in 1997, Hart reported. Property taxes provide nearly 42 percent of the Fiscal Year 2015-16 General Fund budget, and sales taxes make up more than 23 percent.

In 2012, Council changed its policy with regard to the Austin Energy transfer, mandating that the transfer would be a minimum of $105 million. That new policy also eliminated the power supply revenue from the portion of utility revenues that would be considered for calculating the transfer, Hart explained.

Council Member Ellen Troxclair sponsored a resolution earlier this year that directed staff to present information on reducing Austin Energy’s General Fund transfer by 1 percent each year.

If there is no change in the policy, the transfer for FY 2016-17 is expected to be $108 million from Austin Energy and $42.7 million from Austin Water. If the Council directed staff to reduce the transfer by 1 percent from AE for the coming year, it would cost the General Fund an estimated $9 million, Hart said. By reducing the rate by 1 percent per year, she explained, the transfer into the General Fund would be reduced by $49 million in 2021 — from $117 million, which would be the transfer amount based on the total predicted revenue in 2021 if the policy remains the same, to $68 million, which would be the transfer amount if the transfer were reduced by 1 percent per year.

Hart explained that the city has limited ability to add revenue sources to replace any funds if utility transfers are reduced or eliminated. The forecast FY 2016-17 tax rate is slightly under the rollback rate, Hart said. The rollback rate is the rate at which citizens could petition for an election to lower the tax rate.

After listening to Hart’s presentation on Wednesday, Troxclair seemed to decide to advocate for a more modest reduction of about 1 percent total over the course of five years, which Hart said would give the city more time to plan. However, it was not clear whether any other Council members have any interest in such a reduction.

Hart also presented the question of whether Council would continue to support using transfers from Austin Energy, Austin Water and Austin Resource Recovery to partially fund the Economic Development Department.

Mayor Steve Adler was absent because he was speaking to two separate groups in New York, according to his spokesman, Jason Stanford. Council Member Leslie Pool said Council Member Delia Garza was at home nursing a sore throat. She read a statement from Garza about Garza’s commitment to equity and affordability but did not address the question of utility transfers. Mayor Pro Tem Kathie Tovo ran the meeting, with some Council members leaving early or arriving late.

Tovo told her colleagues that they should read a 2010 report from Navigant Consulting and Fox, Smolen and Associates that described transfers from Austin Energy to the General Fund as appropriate and similar to what other Texas municipally owned utilities do.

Council Member Don Zimmerman said he would advocate for not only eliminating the transfer to the Economic Development Department, but eliminating the department altogether. Pool, on the other hand, expressed her support for the department and also mentioned that she supports expanding the city’s music office, which is part of the Economic Development Department, to assist musicians in continuing to work and live in Austin. Council Member Ora Houston said that she supports the Economic Development Department but wants to see more economic development efforts in East Austin as opposed to other parts of town, such as downtown.

City Manager Marc Ott told the Austin Monitor that transfers from the utilities to the city’s General Fund should continue. “It’s a sharing of the owners’ equity and occurs not only in the public sector but the private sector,” he said. “It is appropriate” to transfer those monies to the General Fund, Ott said. “So I was pleased to hear what I thought was support” from Council as well.

Ott said the cumulative effect of reducing the transfers by Troxclair’s original suggestion of 1 percent per year would be significant over time. “Financially speaking, it would be hard to manage that, to account for the reduction in the General Fund,” he said. He described reductions from both utilities as “pretty hard-hitting. I don’t want to specify what would happen, but certainly some significant reductions and/or cuts would be the outcome.”

The Monitor noted that Council members spent several hours on Wednesday discussing how they could address the city’s affordability problems. Eliminating any funds from the transfers would likely mean less funding for social services, not more, as Council has indicated it would like to see. Affordability and equity are big words, Ott remarked, adding that he did not think that Council had spent enough time on the issues for him to know what they mean collectively when they use those words.

Ott said the city of Austin cannot solve its problems all by itself. There are other entities that might help, he said, and the city should get together with them to solve problems.

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