Council talks budget affordability and city services

There are some things that the proposed Fiscal Year 2015-16 city budget does and some things that it does not do.

Aside from raising the property tax rate, along with utility rates and fees for many homeowners, one of the major things the budget does is implement a 6 percent homestead exemption. One of the major things it does not do, according to city leaders, is cut city services to pay for that exemption.

Mayor Steve Adler, City Manager Marc Ott and Deputy Chief Financial Officer Ed Van Eenoo commented on the relationship between the homestead exemption, city services and the tax rate after City Council heard city management’s proposed $3.5 billion budget for the first time on Thursday.

“I feel real vindication … that we have now determined that it is true that we could add the homestead exemption, cut taxes substantially for the homeowners in this city and not cut any services,” Adler said.

The proposed budget increases the tax rate from 48.09 to 48.14 cents per hundred dollars of valuation, which increases the property tax bill for a median-valued homeowner by $3.32 per month. When factoring in other rate and fee changes, the total monthly cost for a “typical” median-valued homeowner and residential ratepayer would increase by $11.30 per month.

Staff estimates that the median-valued home is worth $232,272.

According to Van Eenoo, the exemption brings $7.3 million in relief to homeowners. “That lowered the projected increase in the tax bill by more than 50 percent,” he said. “We would have been looking at a tax bill increase of closer to $7 if not for that Council action.”

The exemption, however, also reduces city revenue by the same amount in comparison to a scenario with no exemption.

Van Eenoo acknowledged that city management did make some cuts when crafting the budget proposal this year, pulling from a list of $23.6 million in potential cost reductions and revenue enhancements that Ott sent to Council on May 12.

“We did find a few low-hanging items on there that I think totaled ($200,000) to $300,000 … that we did decide to cut, but nothing we think would impact services,” Van Eenoo said.

Adler backed up the assertion. “There was nothing that was cut in this budget because of the homestead exemption,” he said. “Even those things that were cut … are things that would have been cut, again, even if we had not done a homestead exemption, because they were smart cost-savings or efficiencies for the city to realize.”

Ott pointed out that the proposed rate is “slightly below the rollback calculation.”

The rollback rate is the highest that the city would be able to adopt without getting voter approval, according to state law. Van Eenoo said it is currently 48.26 cents.

As Mayor Pro Tem Kathie Tovo pointed out during the presentation, increasing the tax rate is not the only way to pay for the cost of the exemption.

“That was a proposal to raise the tax rate to accommodate that 6 percent homestead exemption, but it was a proposal,” Tovo said. “There were other ways to achieve that gap, through cuts in the city and various departmental expenditures.”

Council Member Ellen Troxclair raised concerns about the impact that the proposed cost increases would have on residents and called attention to the fact that the budget does not adhere to a voluntary affordability benchmark that Council asked staff to calculate in a January 2014 resolution.

According to Van Eenoo, that benchmark would limit growth in projected General Fund revenue to $44.5 million, as opposed to the $52.7 million increase in the proposed budget.

Troxclair told the Austin Monitor that the benchmark provides “an important tool for the city and Council to use in putting the budget together” and said she hopes that Council will be able to meet it before adopting the budget and tax rate.

“It basically ties any increases in the General Fund to increases in overall income in Austin, which I think is a really good measure to use when you’re looking at what percentage of people’s income is going toward taxes and how much more of that burden they can afford to bear,” Troxclair said.

The budget proposal also takes into account an existing $70,000 exemption for senior and disabled homeowners.

According to data that Chief Financial Officer Elaine Hart provided to the Monitor, that exemption would keep the property tax bill increase for eligible residents to $3.29 per month rather than the $3.32 increase that non-disabled and non-senior homeowners would see.

The budget also pays for a $740,000 increase in tenant-based rental assistance, 347 new staff positions – including $7 million for 85 new police officers – a 3 percent civilian staff wage increase, $629 million in new capital improvement appropriations and more.

The proposed tax rate is based on the non-certified tax roll and may change when the city receives the certified tax roll from the Travis Central Appraisal District in late August. The certification has been delayed as a result of the city’s challenge to TCAD’s commercial property appraisals.

Council will begin budget adoption on Sept. 8 and set the tax rate on Sept. 22. The new fiscal year begins Oct. 1.