A Tax Decrease in 2008 Is Possible! Here's How:

At the August 14th City Council meeting, City Manager Rich Rising said a 0% tax increase “is doable.” That was in response to Augustine’s request for a stable tax rate (see the council meeting minutes). Earlier in the meeting, Rising had indicated there’d be a $215,000 savings in health insurance spending as a consequence of the restructuring of plans and premiums at Blue Cross/Blue Shield. (That will make 2008 the first year we’ve avoided double digit increases to premiums.) This brief exchange highlights the two principal considerations in any budget. What we take in, What we spend.

Before we get back to property taxes, let’s take a look at all of the new revenue the City will receive in 2008. Sales tax revenue is projected to dramatically increase. We’ll likely see an additional $200,000 in 2008. That’s on top of last year’s increase, so we’ll be taking in $360,000 more than in sales tax revenue in 2008 than we did in 2006. The hotel occupancy tax takes effect in 2008 as well. That is supposed to haul in another $160,000 in new revenue. Governor Spitzer has been very responsive to the economic woes of Upstate cities and has aggressively increased municipal aid. Geneva will likely receive $125,000 in additional state aid to cities. Do the math-- that’s already $385,000 in new revenue for 2008, compared to 2007.

Now let’s examine expenses. According to Rising, two areas of the budget will see a substantial increase: salaries and equipment. Last year, he recommended (and Council approved) a complete reassessment of the city’s equipment purchases. The city hired a consultant to analyze our current fleet of vehicles and to draft a purchasing schedule that meets our needs and spends money wisely. We’ll set aside $200,000 for new vehicles in 2008. Salary increases average 2.5%, adding about $250,000 to the budget. Overall, expenses should be up $450,000 in 2008.

Do some more math: $450,000 (new expenses) - $385,000 (new revenue) = $65,000 (budget shortfall). Normally, that means the tax levy would have to increase $65,000 over 2007. But there’s more. We have requested some additional expenditures in the 2008 budget: Filling of vacancies in the police department and adding another full time youth officer will likely increase the police department budget $65,000. Support for Neighborhood Watch groups and Little League will likely total $10,000. That’s another $75,000 in additional expenses for 2008.

It seems reasonable to assume the amount would be covered with a property tax increase, so that the total tax levy (total dollars taken in by the City from taxes) would have to increase by $140,000 ($65,000 + $75,000) from 2007 to 2008. That represents a 2.5% increase in the levy, similar to the current rate of inflation.

Now it’s time to talk about the tax rate. Council voted to earmark the new revenue from the hotel occupancy tax for the City’s ‘tax stabilization fund.’ That means that the $160,000 to be collected in 2008 won’t be used to offset increased expenses. So we have to subtract that from what we called ‘new revenues’ above. The amount to be raised from property taxes in 2008 would then be $140,000 + $160,000, or a total of $300,000.

But does that mean the rate has to increase to raise the total tax levy to cover the total additional $300,000 in spending (for equipment, salaries, additional police, and community services)?

No way! And here's why:

The formula for the tax rate is simple:

Tax levy (amount to be raised) / Tax base (taxable property values) = Tax rate

In 2007, the levy was just under $6 million, the tax base was about $324 million, so the tax rate was $18.26/$1000 of assessed value:
$6,000,000 (levy) / $324,000,000 (property values) = $18.26/$1,000 (tax rate)

We’ve already posted on the fact that, as a result of a 7.5% increase in assessed values of property, the tax levy would be increasing by 7.5%. That is the equivalent of a 7.5% tax rate increase already in the bank. So, if the 2008 levy is $6.2 million, and the tax base increases 7.5% to $345 million, the tax rate would be about $18.00/$1000 of assessed value.

Get this! The tax rate could decrease. That’s right. City services could increase, new employees could be hired, and the tax rate could still decrease. We knew it was possible. The key is new revenue. Now that we have it, it’s time to truly give the taxpayers a break. Let’s give them a decrease!