Council braces for another tight budget cycle amid threats from Legislature
Thursday, April 5, 2018 by Jack Craver
City Council will have to raise property taxes by 5 percent in the Fiscal Year 2018-19 budget just to continue funding existing programs, according to a financial forecast prepared by the city budget office.
In a presentation to Council members on Wednesday, Deputy Chief Financial Officer Ed Van Eenoo projected that Council will have a $750,000 surplus when it begins crafting the budget later this summer. However, that money won’t go very far due to a number of cost drivers, including health insurance.
The surplus comes despite the fact that the city is receiving slightly less revenue from sales taxes, franchise fees and traffic fines than city staff budgeted for.
More than anything, the surplus is thanks to Council’s failure to approve a contract with the Austin Police Association. That, combined with a recently approved contract with Austin-Travis County Emergency Medical Services workers that included only modest pay increases, has left Council with $4.4 million more than staff had projected, explained Van Eenoo.
Even the labor savings, however, are hardly guaranteed, since Council has signaled that it wants to eventually approve a new contract with the police union that will, in all likelihood, include some level of pay increase for police officers.
The savings are “really a guess at this point because we’re still negotiating with our largest bargaining unit,” said Van Eenoo.
The city is also projecting that property values will continue to increase: by 10 percent in 2019, 8 percent in 2020 and an average of 6 percent per year from 2021 to 2023. It projects that there will be $3 billion of new construction next year and an average of $2.4 billion per year from 2020 to 2023.
Looming over the projections was the prospect of state leaders finally making good on their vow to further restrict the ability of cities to raise property taxes. Currently, municipalities are restricted to increasing revenue by only 8 percent per year without voter approval.
Last year, legislators were unable to agree on a bill to reduce the rollback rate, but as Van Eenoo pointed out, both chambers of the Legislature approved some level of reduction: one to 6 percent and the other to 4 percent.
Gov. Greg Abbott recently upped the ante, saying that he wants to reduce the rollback rate all the way down to 2.5 percent.
“I think there’s a strong possibility that we’ll see a revenue cap that will be substantially lower,” said Van Eenoo.
If the Legislature imposes a revenue cap change, it will likely go into effect in 2020, said Van Eenoo, although he said there is a possibility it could be implemented sooner, forcing Council to operate under stricter limits for the Fiscal Year 2019-20 budget.
If new revenue limits go into effect in 2020, it might behoove Council to raise taxes all the way up to the rollback rate in the next two years and put as much money as possible into reserves, said Van Eenoo. It could then dip into the reserves to maintain funding for existing programs in 2021 and 2022, he said. If the rollback rate is cut to 4 percent, however, the city would face a shortfall of $6 million by 2023, forcing Council to either make cuts or get voter approval for a higher tax rate.
If Council only raises taxes to the extent necessary to fund current programs over the next two years, the impact of the rollback rate reduction would be even more dramatic: The city would be facing a $42 million shortfall by 2023.
“I’m not trying to be dire,” said Van Eenoo, “but a 4 percent cap would be a new reality.”
City Manager Spencer Cronk is scheduled to present a proposed budget to Council on Aug. 1. Council will deliberate and make changes to the budget over the following six weeks and is scheduled to approve its final budget by Sept. 13.
Photo by Cafe Credit made available through a Creative Commons license.
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