Budget 2011 - First look

October first started the 2010-11 fiscal year, and the 2010 budget. Unfortunately there was in increase in the tax rate from .57698 to .59292 which was an increase to the effective rate. Property values declined overall in the city from $1,393,914,517 to $1,368,721,005, about 1.81%. There was also a decline in sales tax revenue at the same time, which is no surprise given how the economy was going.
With both property values down and sales tax down, as well as the various fees such as building permits down, even with a 3.8% real decrease in the budgeted expenditures, at the end of the budget process, there was still a deficit. In the end, the increase in the tax rate was proposed by staff to make up the difference.

To be sure, there were other proposals made, including repaying some of the money paid from the general fund to the water system, or using some of the unreserved fund balance. Ultimately, the council chose the tax increase. At the session when the budget was approved, I moved to eliminate the tax rate increase and replace it with the alternate funding sources. There was no support for that, and the rest of the council voted for the budget with the increased tax rate.

I felt then, and I feel now, that the decrease in appraised property value should have translated to decreased property taxes. In fact, people are pressing the state legislature on that very issue, since rates seem mostly to go up, when property values go up, and when they go down!

Fast forward to now - we have enjoyed 3 consecutive months of increasing sales tax revenues. The numbers are not miraculous, but they are improving. While the appraisal district predicted decreasing property values again for this budget cycle, we really don't know what is going to happen there. If there was another 1.8% decrease in property values, we would lose another (approximately) $146,000 in tax revenue. Add in the probability of an increase in city employee health insurance premiums and we could be facing a serious budget shortfall again. Even a 10% increase in sales tax would net only about $95,000 in revenues.

Budget planning for the 2011-12 fiscal year kicks off in February. Staff will present their current best estimate on revenues expected with the current tax rate and the apraisal district's guidance on property values, as well as predicted changes in sales tax and fees. At that point the council will have to provide early guidance to the staff on setting expenditure levels.

Next time I will discuss several budget scenarios (revenues up, revenues flat, revenues down) and discuss possible impacts and how I think we should assess city service levels.