Budgeting Around Priorities: Can the City Budget Work for City Residents?

Earlier this year, City Manager Matt Horn asked Council to establish a set of priorities for the City that he could draw on when drafting his proposed budget for 2009. “Value for the Tax Dollar” was on the list. If that means no tax increases without a corresponding increase in City services, we’re counting on a “0%” increase in taxes for next year. Especially because Horn has brought straight talk and real numbers to the City’s financial planning process.

In 2006, New York decided that municipalities receiving state aid should be required to submit a multi-year financial plan and keep closer tabs on economic conditions. We thought (and still think) that this is a common sense approach to municipal finance that enhances accountability in government.

In watching our multi year planning for the City of Geneva unfold, we worry the City is headed for a serious financial crisis. The 7%, on average, increase in property values last year put off the inevitable reckoning because tax payers and the local paper focused on the slight increase in the tax rate, and not the size of the check they had to write.

That allowed Council and the City administration to believe its own PR that it was somehow holding the line on taxes. Most people’s tax bills went way up and city spending continued to grow at a faster rate than revenue did. Tax and spend? Why it was tax, spend, and borrow some more. Payment will be due.

The City’s plan (which you can read here) assumes more increases in property values. Geneva, as much the result of the City Council’s own actions as state tax law, almost 60% of its property off of the tax rolls. Some of that includes the government-mandated exemptions for schools, hospitals, colleges, and churches, but there are also big ticket properties that have been granted exemptions such as Guardian Industries, the Ramada, the Hampton Inn, and the Finger Lakes Development Corporation’s Lyceum Street project. You can read more about this topic here.

The growth in assessment is in the remaining parcels--the ones that pay the local, county, and school property taxes. Remember, the tax bill you receive is a function of two things: the tax rate and your property assessment (see our previous post that describes this relationship in more detail).

So, when the City Council is looking at revenue projections for the City, they should be interested in both factors. Property assessments are largely driven by the real estate market. To put it simply: a stronger market means that homes sell for higher prices which means that the relative value of a street increases and home values are likely to go up; if the market takes a tumble and people are selling their homes for less, then the equity of surrounding properties can also take a hit.

Of course, other factors go into home values, and we believe that the City Council is correct in adopting ‘neighborhood improvement’ as a strategic priority because not only do city residents deserve quality neighborhoods, they also deserve to have their home values protected from sharp declines that can negatively impact their overall financial condition.

We’ve said that a multiyear plan is a good idea. But it must be a data-driven analysis. In preparation for the 2009 budget (which will be presented for public comment on October 8th) the new City Manager discussed the city’s current economic conditions at a Council worksession in August. Unlike past years when the City Manager seemed to pull numbers and projects out of thin air and Council had to specifically request documentation to support those numbers and projects, this time the presentation didn’t result in additional requests for information. Was it because Council was asleep at the wheel? No, It was because the Manager actually presented all of the data in raw form and then showed how his calculations and assumptions were drawn from there. In other words, he gave a thorough, transparent, and complete assessment.

The city’s taxable assessment did not grow the 2% projected last budget cycle. It grew less than 1%, in fact, less than .5%. The city’s health insurance liability is growing at a rate of over 17%. Fuel costs increased over 90%, salaries are predicted to rise over 4%, and debt service for all of those projects continues its steady upward climb (with over $1.8 million city dollars going towards debt in 2009).

All of those numbers are best described as a “gap.” It’s a gap between what we expect to receive as revenue and what we expect to spend, if we continue doing business the way it has always been done. Usually the ‘gap’ is filled by increasing taxes. Last year, the City got the increased tax revenue through rising assessments, but this year that won’t be an option. Because your tax bill is calculated by multiplying your assessment by the tax rate, if assessments stay the same, that means the rate must go up, right? But Council’s lead off worksession on the budget identified ‘increasing value for the tax dollar’ as a priority. If services stay the same but the tax rate goes up, the value for the tax dollar is actually declining. The city manager’s budget proposal should provide some solutions to this dilemma, but it’s ultimately up to City Council to break with the old pattern because we know that business as usual hasn’t worked.