Proposed budget emphasizes city basics, long-term financial stability

Interim City Manager Jesús Garza and city financial staff on Wednesday presented their proposed $5.5 billion budget for 2023-24.

Austin taxpayers currently pay 46.27 cents per $100 taxable value. That rate will decline to 42.42 cents for next year, although increased property values will mean that the typical Austin homeowner will still see a 1.5 percent increase in their tax bill from the city, which is estimated to be close to $26 a year. Overall, the city expects to collect 3.2 percent more in property taxes next year than it currently does.

The average Austin Energy customer will also pay about $12 per year more. Austin Water customers using an average amount of water and wastewater can expect to pay about $32 a year more than they currently do. Residential customers of Austin Resource Recovery using a 64-gallon cart will pay an extra $20 a year. There will also be slight increases in the drainage utility fee and the Clean Community Fee. All told, taxpayers living in an average-priced single-family home can expect the cost of city taxes and services to increase by $96 per year.

As Mayor Kirk Watson noted in a recent email, “Winter Storm Mara was a clarifying event that revealed there was a need for some significant changes at City Hall. That weather disaster exposed some serious deficiencies in our readiness, so we’re investing heavily in hardening Austin Energy’s distribution system as well as studying the feasibility of burying overhead power lines.” He also noted that the upcoming budget would have funding for additional generators for city facilities, such as fire stations that lost power during the storm.

Garza also emphasized that he and other city officials expect to have “additional disruptions to our city government in terms of weather-related events. It’s important to get those reserves to the right level so we can respond.”

The budget proposal gives city civilian employees a 4 percent wage hike and raises the living wage to $20.80 per hour. In addition, the proposed budget includes $2.5 million for adjustments related to pay-scale compression. Those adjustments were the result of raising the city’s living wage from $15 to $20 per hour, which took effect in January.

Despite the salary increase, the city still has more vacancies than any employer would want. Chief Financial Officer Ed Van Eenoo told City Council the vacancy rate has fallen from 18 percent to about 14.4 percent. Garza noted in his remarks that he had asked department directors to eliminate any position that had been vacant for two years. As a result, more employees have been hired, and the city ended up eliminating 30 positions citywide, said Erik Nelson, division chief in the Financial Services Department. The city currently has about 16,000 employees and 2,261 vacancies throughout the city, including sworn and civilian employees.

Garza told Council he expects the city to pay a living wage of $22 per hour by 2025, noting that raising the salary gradually means the city will not have to worry about future wage compression.

Van Eenoo also stressed the need to increase the city’s reserve funding from the current 14 percent to 17 percent, an amount equal to funding the city for 60 days.

An increase in city reserve funding would show bond rating agencies that it is acting in a fiscally responsible way. Austin was AAA rated by the agencies for years, but two of the three, Fitch and Moody’s, have downgraded the city’s bonds.

Van Eenoo explained that the rating agencies saw two problems with Austin’s bonds – that the city had faced difficulty funding its pension obligations and that it must engage in binding arbitration with the Austin Firefighters Association. That means Council no longer has final say over how much firefighters are paid. Van Eenoo said increasing the city’s reserves would not bring back the AAA rating, but it could help.

Council members Alison Alter and Leslie Pool both spoke in support of the increased reserves. Alter is chair and Pool is vice chair of the Council Audit and Finance Committee. They asked City Auditor Corrie Stokes to provide the committee a special report on the city’s financial reserves, which was completed this month.

According to that report, city staff “look at the possible downturn in sales tax revenue as a reason to increase the reserves while the local economy is strong.” The report adds, “We reviewed the general fund reserve policies for four Texas peer cities and three cities outside of Texas. Three cities require the size of their general fund reserves to be at or above the best practice minimum.”

The Government Finance Officers Association recommends that cities maintain reserve levels of “at least two months of total general fund expenditures, which would be approximately 16.7 percent of the city’s general fund.”

“The cities we reviewed with reserve level goals near the recommended minimum may be motivated to save now to mitigate future risk or appeal to bond rating agencies among other factors. The cities we reviewed with reserve policies lower than 16.7% may have alternate sources of funding for emergency situations or wish to prioritize spending on resident services,” according to the report.

“Four out of seven peer cities we surveyed – Denver, Fort Worth, Dallas and Phoenix – have been increasing in reserve level minimums over the past five years. The reserve level minimums of the remaining peer cities – Houston, San Antonio, Seattle – have remained the same for the past five years. None of the peer cities we reviewed have moved to decrease their reserve level minimums over the past five years,” the report reads.

Auditors noted that Denver keeps 20 percent in reserve, Fort Worth keeps 16.7 percent in reserve and San Antonio maintains 15 percent. Dallas measures its reserves in days, with the current level at 65.95 days or about 18 percent.

Seattle, Houston and Phoenix fall far below this level, with their reserves ranging from 5 to 8 percent.

Auditors noted that officials in Denver and Fort Worth, which maintain high reserve levels, said those levels were viewed favorably by bond rating agencies.

Alter urged her colleagues to read the report, emphasizing the importance of the two-month reserve.

“It is really an accounting standard,” Alter said. “Several of our peer cities are at or exceeding that level. … The rating of the city is not something we take lightly. And … ours were downgraded later than other cities, but because of the arbitration issue, the pension issue and the 3.5 percent cap on increases in the tax rate, the things we can do – which is really about not spending money that we don’t have – is important to getting us back up to AAA.”

Pool urged her colleagues to look at the reserve fund as the city’s savings account. “I was really glad to see our status in that special audit,” she said. “It is a necessary reserve for us to have. And I don’t think two months of reserve is really that much. …Two months could be spent very quickly.”

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