Budget office forecasts small tax hike for coming year

It was three years ago that Budget Director Ed van Eenoo sat before City Council and broke the bad news that the city was looking at a $30 million deficit that only long-term, sustainable corrections could hope to address. Today, after instituting those corrections and weathering the worst recession the country has seen since the Great Depression, Austin budget writers are seeking a property tax increase of less than 4 percent to continue all services and employees.

Van Eenoo told the City Council this morning that a raising the property tax rate from 48.11 cents to 49.95 cents would yield enough revenues to fund the positions and service levels Council has already authorized and initiatives they’ve already approved, but no additional programs.

However, that still leaves some $24.8 million in unmet city department service demands, due mostly to cuts in federal funds.

According to van Eenoo, the budget is growing in nearly all areas, just not as fast as many thought it would, the result of an underestimation of the severity of the recent recession. “Recovery is definitely under way but it’s definitely slower than previous recoveries,” van Eenoo said. In particular, he continued, the city still has “revenue challenges.”

Still, a recovery is a recovery. The Budget Office is projecting 7.3 percent growth in sales tax revenue and 5 percent growth in property values, most of that coming from multi-family residential and commercial properties, and a property tax roll of $81.4 million. The boost in the property tax rate will mean that on a median-cost home in Austin costing $182,198, a taxpayer will be paying about $877 in city property taxes and $3944 in total taxes, which includes the county, hospital, the school district, and Austin Community College.

In addition, the office is projecting good job growth for the region and, as a result, an increase in sales tax revenue of between 4 to 5 percent.

All told, the forecast calls for General Fund revenues in FY13 totaling $738.5 million, equaling the year’s projected expenditures. In order to reach that number, and ensure a balanced budget, the 1.8-cent increase in property taxes is needed. Without that small bump, the city would be looking at a $15.1 million shortfall.

As for the $738.5 million in General Fund expenditures city revenue will be charged with keeping up with, $447.4 million of that, nearly two-thirds, will go to pay for public safety, including police, fire, and EMS. According to the city demographer, in order for the city to maintain its two-per-thousand police officer/citizen ratio, the Austin Police Department will have to hire 22 new officers in FY13.

Another $42.6 million will go to pay for public health services, and $97.4 million will go toward transfers and other expenditures.

The budget office is also projecting a 3 percent increase in employee wages across the board, including sworn fire, police, and EMS, and civilians, and a 7 percent increase in city health insurance costs.

Van Eenoo said one good sign for the city is the continued downward progression of the percentage of General Fund revenue coming from transfers from utilities like Austin Energy and the Austin Water Utility. That number is at 19 percent in the projected FY13 budget, down from 24 percent in 1996. This is a positive trend because ratings agencies look at a city’s reliance on such transfers as a source of revenue when considering its bond rating.

The budget forecast projects $105 million in transfers from Austin Energy coming into the General Fund and $34 million coming from Austin Water. That is no projected increase for the Austin Energy transfer.

The Budget Office’s projections are based on a new Council policy that would change the calculation of Austin Energy transfers. The utility previously transferred 9.1 percent of its gross revenue to the General Fund, including revenue from fuel, which is simply a pass-through. Fuel charges do not include a profit margin. Now, however, the plan is to increase the percentage transferred from 9.1 to 12 percent while leaving out the fuel costs.

Perhaps the only truly dark cloud in Austin’s budgetary sky is the anticipated cuts in federal grant funding for affordable housing programs, particularly in HUD grant funds. The city expects to lose close to $2 million in HOME program funds and is also expecting drastic cuts in federal funding for the Community Development Block Grant Program (CDBG).

As a result, funding for those programs has been placed into the category of “unmet needs” by the budget office. Those are needs Council, staff, city boards and commission, and stakeholders will have to address over the coming months. Other unmet needs requested by city departments include expiring grant positions in the Health and Human Services Department, 911 call takers, maintenance of parks and parks facilities, Animal Services and library staffing.

Those unmet needs total $24.8 million and 229 positions.