Growth slows, making city budget tighter

The days of Austin’s turbo-charged growth are over – at least for now. City Council got that message from the city’s economic adviser, Jon Hockenyos, as well as Deputy Chief Financial Officer Ed Van Eenoo, at Wednesday’s financial forecast and economic outlook work session.

Hockenyos told Council that the Austin area “remains among the regional economics stars in the United States,” but job growth is slowing overall. He said it should expect job growth to continue at around 3 percent, down from 4.3 percent in the first quarter of 2016. He said income is growing at about 6 percent per year for Austinites.

For Mayor Steve Adler the bottom line was clear. “It was what we were expecting because it was what was projected last year. The budget is going to be very tight. It’s going to be hard to fund all the things we want,” he said.

Asked about Council members who may want to add to the budget, Adler told the Austin Monitor, “It’s a question of setting priorities, so even within that budget described today we can always add things but then we have to take things out.”

He added, “To the degree that the Council members want to suggest to the manager they would like her to do that equation, it is important for them for them to be able to daylight” what they would like to eliminate.

Adler also said he thought it was unlikely that Council would be able to increase the general homestead exemption this year. That’s a favorite topic of Council Member Ellen Troxclair, who had a fairly lengthy argument with Adler comparing property taxes for the city and property taxes for Travis County.

On the other hand, Council Member Delia Garza told her colleagues Wednesday that she was totally opposed to raising the exemption. Garza said she would be absent on May 3, one of the days Council has set aside to talk about the budget, but she wanted to make sure that she was in attendance when the topic came up.

If it is going to change the general homestead exemption, Council needs to make that decision within a short time frame. Van Eenoo told Council that state law requires the city to make a decision before June 30. City financial staff would prefer the decision is made by June 1 to give budget writers more time to plan. However, if Council wishes to change the homestead exemption for seniors and disabled people, it can do that as part of the budget, he said.

Last year, Council increased the general homestead exemption from 6 percent to 8 percent over the objections of Garza and Council members Ora Houston, Pio Renteria, Greg Casar and Mayor Pro Tem Kathie Tovo.

Austin pays for its General Fund departments out of property taxes, sales taxes, utility transfers, development fees and other revenue. According to budget documents, public safety departments spend 67.6 percent of the General Fund. Community services, such as libraries, parks, Health and Human Services and neighborhood housing use about 22 percent of the budget, and other departments spend a little more than 3 percent.

And, Van Eenoo explained, 72 percent of General Fund expenditures are for personnel, with much smaller amounts accounting for contractual services and commodities.

As the sales tax declines, the percentage of General Fund revenue from property taxes naturally increases, Van Eenoo explained. For the current fiscal year, property taxes make up 43 percent of General Fund revenue.

Although sales tax revenues have generally grown over the past several years, they are volatile. Monthly sales tax growth averaged 5.5 percent between December 2015 and November 2016, according to Van Eenoo. However, the average growth has been just 3.9 percent as of December 2016.

Budget writers were expecting a sales tax growth rate of 5.4 percent, but the current projected growth is just 4.3 percent.

Council also has committed to keeping the transfers to the General Fund stable. Austin Energy transfers 12 percent of the three-year average of operating revenues to the General Fund, and Austin Water transfers 8.2 percent. For the current year, that means the General Fund receives about 15.5 percent of its funding from those utilities and that amount is expected to remain fairly stable over the next several years.

Van Eenoo explained that with sales taxes falling and “our typical year over year budget growth at 5 percent … the only way you’re going to keep the budget in balance is to have property taxes growing by more than 5 percent.”

Van Eenoo concluded, “We can keep the budget in balance. The budget the Council adopted for (Fiscal Year 2017), we can keep it in balance in FY18 if we go to the rollback rate” and 8 percent increase.

“But there’s really nothing left for new initiatives,” he said. “If they want to fund new initiatives, they either have to go past the rollback rate or they’re going to have to take something out of the existing budget.”

According to budget department figures, the projected Fiscal Year 2018 median non-senior homestead will generate about $5.20 per month more than the current rate. An average Austin Energy residential customer will pay about $.34 per month more on his or her bill, but water rates will not increase for the average customer. The city is proposing a $1.10 increase in fees for a residential customer with a 64-gallon cart and an additional $.70 per single-family home for the clean community fee. The total combined increase for the average homeowner is estimated to be $7.34.

Interim City Manager Elaine Hart told Council that she had mandated a 1 percent year end budget savings for all General Fund and support departments, excluding Austin Fire Department. The Austin Fire Department has not been able to stay within budget because of the many firefighters who have retired and the need to make sure that all firefighting units have four-person staffing. That means a considerable amount of overtime. Overtime is projected to cost an additional $3.5 million in Fiscal Year 2018, according to city budget documents. Four-person staffing and questions about the Emergency Medical Service are scheduled for discussion at next Wednesday’s policy work session.

Chief Rhoda Mae Kerr said the number of retirements has steadily trended upward because a large number of firefighters joined the force 20 to 25 years ago. In addition, there has been a decrease in the number of students in the department’s cadet classes, largely because the department has been under U.S. Justice Department review. “There was a freeze for a long time and now we are allocated only 200 slots,” from which to hire, she said.

So, the overtime problem is not going away soon. However, Kerr said, “We’ve graduated three classes already” and the fourth class is due to graduate in September, but those four classes only total about 104 people. That will not solve the overtime problem.

Dealing with the budget was a little easier last year.

Photo by Jo Clifton.

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