July 18, 2019

Budgeting for FY 2020, and Beyond

The development of city budgets is most obviously about funding—one fiscal year at a time—the level of services our residents expect.  As taxpayers we know these things cost money, and the budget is a reflection of what we want and what we’re willing to pay for.  But it’s also at least as much about planning for the future, even beyond the next fiscal year, to ensure our continued financial stability and protect our AAA bond rating.  The City Manager’s proposed budget for fiscal year 2020 is no exception.

The need to replenish our declining ending fund balances hasn’t gone away.  In fact, our current budget, adopted last year, represented somewhat of a setback in that regard, as we held property tax revenues steady in light of Hurricane Harvey and also deferred the water and sewer rate increases that were otherwise scheduled to phase in.  That was the right thing to do a year ago, but can’t be sustained indefinitely.  The proposed budget is thus built around our five-year fiscal forecast, which includes alternative growth scenarios to highlight the extent of the problem.

Whichever way you slice it, under either scenario or somewhere in between, we’re projected to soon fall behind.  The only difference is how quickly.  Conscious of the desire to maintain service levels consistent with our stated priorities, and against the restrictive backdrop so soberingly illustrated by the fiscal forecast, the City Manager’s recommendation is forward looking and emphasizes the need to shore up our reserves so that we can continue meeting service expectations in the coming years.  The impact on the average homeowner (with homestead exemption but without senior/disabled exemption) would be about $145.

Council’s questions and discussion on the initial presentation of the proposed budget certainly suggest a receptiveness to deeper cost-cutting, but with the express understanding that to do so would necessarily entail service reductions.  Simply put, to avoid a significant tax increase to cover upcoming budgets (and make up last year’s lost ground), as a community we’d need to reprioritize what we want and what we’re willing to pay for.  Especially because, as a City of Homes, we’re so heavily dependent on property taxes as our primary source of revenue.  The rising costs of existing services means higher taxes or reduced services.

The (comparatively) easy cuts have already been made.  Eliminated from the proposed budget, for now the third year in a row, is any cash contribution to our pavement management program.  Vehicles and equipment, the other non-recurring expense category on which we’ve cut back in recent budgets, is again funded adequately but not more.  Previously planned parks improvements are further deferred.

Proposed new additions to the budget are not many in number, but do include some big-ticket items, among them an anticipated 15% health insurance rate increase ($200,846), a market-driven 1.5% cost of living adjustment ($174,377), the resident-petitioned off-cycle sidewalks charter election in May ($80,500), and funding for demolition of the few remaining homes left unremediated since Harvey ($32,000, which the City will ultimately be able to recoup by liens on those properties).  Note that the 1.5% cost of living adjustment is still below the index, and, unlike in past years, there is no annual employee step increase in the proposed budget.  Nor is there an increase in staffing levels, as the City Manager and his team continue to restructure and reorganize so as to get the most out of existing resources.  The City Manager also recommends we start building a reserve this year for future automation upgrades, primarily in the Police Department.  These and other proposed enhancements and additions to the base will undoubtedly be among the first places Council will look in carefully scrutinizing the budget.  As always, we welcome your input as to which operational services you would like to see reduced or eliminated.

Flood mitigation will remain our top priority in FY 2020 and it will be a busy year for such projects, but they don’t really impact the budget because they’re already funded with unused sidewalk money and cost savings from earlier phases of the current bond program.  The proposed budget does conservatively assume a bond issuance toward the end of the fiscal year, to fund the next round of local street and drainage improvements, or even cost participation in all-important regional projects should there be an opportunity.  A lot could still change between now and then, however, such as with potential flood mitigation grants.  (Update:  we have now been awarded our 2015 CDBG-DR allocation of $252,034, while our 2017 allocation of $4,095,702 is still pending).  Either way, the proposed budget would appropriate leftover funds from both the current and preceding bond programs to get a head start on designing street and drainage projects for the next one, so that they’ll be shovel ready when authorized.

Presentation of the proposed budget is just the start of the process, and we’re a long way from final adoption in September.  I strongly encourage you to review the document, especially the transmittal memo and extensive narrative that explains, transparently and in context, the difficult choices we’re faced with.  Then, let us know what you think.  Balancing service levels and cost—what we want and what we’re willing to pay for—is for all of us to decide as a community, and the City Council needs your input.  Our public hearing on the proposed budget is set for August 12, and will be followed by a budget workshop that same night, and another on August 19.