Tovo finds an apparently painless $2 million cut

After its second day of budget deliberations and numerous additions for quality-of-life programs, City Council still needed to find or trim an additional $1.2 million to $1.3 million in order to balance the budget for Fiscal Year 2015-16. A city spokesman said late Wednesday that staff would not be sure of the exact number until this morning.

Much of the day was spent going through a long list of proposed additions to the General Fund, but Mayor Pro Tem Kathie Tovo did find an easy place to cut $2 million – the ending balance for the Economic Incentives Reserve Fund. That fund is used to pay any incentives promised to companies for job creation in Austin under Chapter 380 agreements.

“It appears to me that we are holding onto that money so we can meet our obligations through 2027. And I would suggest that we spend down that balance,” Tovo said, noting that the city’s obligation for those contracts would be $529,410 in FY 2018-19 and so on, with a $250,000 obligation in 2027.

Payments totaling more than $13,854,000 will be paid to Samsung, the Domain, and HID Global in FY 2016-17, but Tovo pointed out that the reserve fund would still have more than $4.7 million after paying expenses for all job creation agreements in the upcoming budget year.

Tovo said she was not aware of any other programs in which the city put away money for the next 12 years.

Sylnovia Holt-Rabb, financial manager and assistant director of the Economic Development Department, told Council that it would be financially feasible to reduce the reserve by $2 million. “But if new projects come forth,” she said, “we do ask that those projects be fully funded.”

Mayor Steve Adler asked for further explanation, and Holt-Rabb said if new projects came forward, the department would ask Council to provide funding for what would otherwise be an unfunded liability. So, if there were a project requiring $500,000 over 10 years, the department would ask Council to find $50,000 a year for each of those years, but not $500,000 at the beginning.

Adler asked Deputy Chief Financial Officer Ed Van Eenoo if he was comfortable with the reduced level of reserves. Van Eenoo said he was. He pointed out that the reduction was related to only one type of economic-incentive agreement, one specifically related to job creation.

Later Van Eenoo said the $2 million coming out of the reserve fund is “just a one-time deal. I don’t believe it should be categorized as an ongoing item.” That same money will not be there next year, he said.

Council Member Ann Kitchen objected to characterizing the $2 million as one-time funds, because that would mean that they can be used only for a certain category of items. Council Member Greg Casar had an innovative idea, suggesting that perhaps the city could use the funds $500,000 at a time over four years.

Adler said he liked that and might want to call it a “mostly one-time fund.”

Holt-Rabb explained to the Austin Monitor that there are two types of programs. One is with large companies, such as Samsung, and is based on improvements to property and increased property taxes. The other type is for smaller companies that are renting, such as Facebook and Hangar, which the city pays per job created.

This program gets its funding from the General Fund, Austin Energy and Austin Water. “So that is the smaller program that had the excess,” she said. But $2 million was all the Economic Development Department was ready to give up.

So, when Council Member Leslie Pool tried to amend Tovo’s motion to reduce the reserve by $2.5 million, Holt-Rabb merely said that “it would be OK” to reduce it by $2 million.

Council took that hint, so only Pool and Kitchen voted for the amendment. However, it is not clear whether they might want to revisit that pot of money by the end of the day today.

Photo by Images Money made available through a Creative Commons 2.0 license.