A bit of good news as we continue developing next year’s budget, we’ve now received our certified tax roll with better-than-projected growth from new construction. That, along with some other adjustments, modestly brings down the City Manager’s proposal from an 8% to a 7.1% property tax revenue increase. But it doesn’t alter his fundamental recommendation that we plan conservatively for the several years to follow, by building a healthy reserve now. The question remains, just how conservative about that do we want to be? That’s ultimately for the City Council to decide, and we’re looking at whether we can justify relaxing some of the assumptions in our forecast, to reduce the amount of reserve we think we’ll need and therefore lower the tax rate further.
Given all the variables that could impact our financial projections, we’ve traditionally approached very cautiously the assumptions on which we base our forecasts—a hope for the best, plan for the worst philosophy. For all the unknowns we try to anticipate, what we do know is that because we’re so property tax dependent, a more restrictive legislative revenue cap will constrain our ability to maintain in the coming years the level of services and amenities our residents expect, and for which they pay good money in choosing to live in Bellaire. That’s why our City Manager has proposed a budget that very openly attempts to get out ahead of those constraints by shoring up our reserves while we still can. It’s focused on the long term and is decidedly risk averse.
Also reflected conservatively in our fiscal forecast is how we manage expenses. We err on the side of assuming greater costs over time, even as we work to contain them. Because we’re in the business of providing services, our expenses are dominated by salaries and benefits (72%), of which more than half (59%) are for public safety alone. Our employees are constantly asked to do more with less, and without increasing our total headcount. Still, personnel costs are the primary driver of anticipated growth in forecast expenditures, led by rising health insurance rates.
As I’ve pointed out previously, the (comparatively) easy cuts have already been made, starting a few years ago, with reduced funding for vehicles and equipment and none for parks improvements or property tax-supported pavement management. The forecast assumes no new spending in those areas for the next several years. (Yes, we continue kicking the can in consideration of the tax rate.) It goes without saying that city services essential to public health and welfare, and to providing basic governmental functions and order—police and fire, infrastructure and facilities, code inspections and enforcement—are all off limits. Then there are the less essential, but still important services and amenities like right-of-way beautification and maintenance, swimming pools and the Rec Center, seniors programs, special events and the Library. These are all the things that make Bellaire special, threads integral to the fabric of our community and quality of life, things we understand cost money and are worth it.
With a proposed budget that’s consistent with our community’s priorities and service level expectations, we’ve turned our attention to the projected ending fund balance, which again is at the heart of the City Manager’s recommendation to begin with. We want to be conservative, but not so conservative that we end up generating a significantly greater reserve than we really need. By scaling back our risk aversion somewhat and revisiting the assumptions underlying our forecast, we can aim for an ending fund balance we think is more likely to match our actual results at year end.
There are at least a few different ways to get there. With our recent positive growth captured in the certified tax roll, and with the promise of continued progress in 2020, we could take a more optimistic view of revenues from new development and revise our projections upward. Likewise on the expense side, we could make some further revisions downward, and in doing so also establish new parameters for the development of future budgets. Or, we could just pick a number that’s less than the $1.2 million of additional reserves that would result from the City Manager’s recommendation; there is no objectively “right” number. Any or some combination of the above would amount to the same basic idea, taking a risk that our best-case scenario doesn’t pan out, with any shortfall ultimately coming out of the ending fund balance anyway.
So that’s where we currently are in the budget development process, following the initial presentation, a public hearing and three workshops including detailed discussion and answers to questions from Council and the public. The next step of the process will be the taking of a record vote on September 9 to propose a tax rate, which will then be the subject of two public hearings. It’s important to understand that because that record vote will be taken prior to budget adoption on September 16, the tax rate that is thereby proposed will not necessarily be the tax rate we end up with because we’ll still have the opportunity to lower it when we finalize and vote on the budget.
Given all the variables that could impact our financial projections, we’ve traditionally approached very cautiously the assumptions on which we base our forecasts—a hope for the best, plan for the worst philosophy. For all the unknowns we try to anticipate, what we do know is that because we’re so property tax dependent, a more restrictive legislative revenue cap will constrain our ability to maintain in the coming years the level of services and amenities our residents expect, and for which they pay good money in choosing to live in Bellaire. That’s why our City Manager has proposed a budget that very openly attempts to get out ahead of those constraints by shoring up our reserves while we still can. It’s focused on the long term and is decidedly risk averse.
Also reflected conservatively in our fiscal forecast is how we manage expenses. We err on the side of assuming greater costs over time, even as we work to contain them. Because we’re in the business of providing services, our expenses are dominated by salaries and benefits (72%), of which more than half (59%) are for public safety alone. Our employees are constantly asked to do more with less, and without increasing our total headcount. Still, personnel costs are the primary driver of anticipated growth in forecast expenditures, led by rising health insurance rates.
As I’ve pointed out previously, the (comparatively) easy cuts have already been made, starting a few years ago, with reduced funding for vehicles and equipment and none for parks improvements or property tax-supported pavement management. The forecast assumes no new spending in those areas for the next several years. (Yes, we continue kicking the can in consideration of the tax rate.) It goes without saying that city services essential to public health and welfare, and to providing basic governmental functions and order—police and fire, infrastructure and facilities, code inspections and enforcement—are all off limits. Then there are the less essential, but still important services and amenities like right-of-way beautification and maintenance, swimming pools and the Rec Center, seniors programs, special events and the Library. These are all the things that make Bellaire special, threads integral to the fabric of our community and quality of life, things we understand cost money and are worth it.
With a proposed budget that’s consistent with our community’s priorities and service level expectations, we’ve turned our attention to the projected ending fund balance, which again is at the heart of the City Manager’s recommendation to begin with. We want to be conservative, but not so conservative that we end up generating a significantly greater reserve than we really need. By scaling back our risk aversion somewhat and revisiting the assumptions underlying our forecast, we can aim for an ending fund balance we think is more likely to match our actual results at year end.
There are at least a few different ways to get there. With our recent positive growth captured in the certified tax roll, and with the promise of continued progress in 2020, we could take a more optimistic view of revenues from new development and revise our projections upward. Likewise on the expense side, we could make some further revisions downward, and in doing so also establish new parameters for the development of future budgets. Or, we could just pick a number that’s less than the $1.2 million of additional reserves that would result from the City Manager’s recommendation; there is no objectively “right” number. Any or some combination of the above would amount to the same basic idea, taking a risk that our best-case scenario doesn’t pan out, with any shortfall ultimately coming out of the ending fund balance anyway.
So that’s where we currently are in the budget development process, following the initial presentation, a public hearing and three workshops including detailed discussion and answers to questions from Council and the public. The next step of the process will be the taking of a record vote on September 9 to propose a tax rate, which will then be the subject of two public hearings. It’s important to understand that because that record vote will be taken prior to budget adoption on September 16, the tax rate that is thereby proposed will not necessarily be the tax rate we end up with because we’ll still have the opportunity to lower it when we finalize and vote on the budget.
