Decision to hike pay to $22/hour will cause future budget deficits

The upcoming wage increases for city staff will cause budget deficits in coming years and force leaders to identify new revenue sources, according to analysis by the Human Resources Department.

A memo released last week presents a number of scenarios prompted by City Council’s recent direction to increase the minimum wage for all workers to $22/hour — or as close to that number as possible given the funds available. The June resolution provided a number of parameters for addressing the pay gap experienced by some 5,000 city staffers who currently earn less than $22/hour, with the minimum wage stuck at $15 since 2018.

The memo presents two options for increasing staff pay: reaching $22/hour in the 2027 fiscal year via $1/hour yearly increases after an initial across-the board bump to $18/hour, or increasing to $27/hour over the next five years.

The first option would have an initial new cost of almost $6 million, with cumulative costs of $19.2 million by 2027. The second option would start with a $9.5 million new cost bump, with those annual costs growing to $21.3 million in the fifth year, and at a total additional cost of $51.4 million.

Without the pay raises, the city already expects to see a budget deficit of $8.9 million in the 2026-27 budget. The five-year climb to $22/hour would result in a $10.5 million deficit in the 2025-26 budget, with an additional $28.1 million shortfall the following year.

Increasing pay to $27/hour over five years would create the first deficit of $5.9 million in the 2024-25 budget, with the figure growing to $26.5 million and $60.3 million in subsequent years.

The memo notes that those projections do not include other possible cost increases for service expansions or other Council priorities, noting that the state-imposed limits on annual tax increases will require more revenue or changes in spending.

It reads, in part:

Closing the General Fund deficit and securing funding for initiatives such as an expanded Living Wage will require the identification of new revenue sources, voter approval of higher property taxes, stronger-than-anticipated growth in sales taxes, or other general revenue sources, or the re-prioritization of existing resources. The above projections are for the General Fund only. Increases in the Living Wage would likewise impact enterprise department budgets, and rate increases could be required to cover the higher staffing costs.

The gap in pay for city staffers is a growing problem that’s making it harder to retain current employees and fill open positions as the local job market becomes increasingly competitive and the cost of living has increased in recent years.

Data from the city provided at the end of April showed there were nearly 2,500 open positions, with chronic understaffing leading to programs in departments such as Economic Development to be delayed or outsourced. In April, the vacancies included 78 at Austin Resource Recovery, 266 at Austin Energy, 96 in Public Works, 237 at Aviation, 133 at Parks and Recreation, 357 in the Police Department, 198 at Emergency Medical Services, and 126 firefighters.

The proposed 2023 budget includes the increase to the minimum wage of $18/hour, with each additional $1/hour increase adding between $6 million and $18.7 million in costs to the General Fund because of the number of employees included in each new increase.

The memo also notes that staff tried to use conservative forecasts in their analysis, but there were a number of hard-to-determine variables such as the number and type of temporary employees working for the city, changes in the rate of departure for current employees, and what other across-the-board increases may be instituted annually.

Photo made available through a Creative Commons license.

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