City Council Gets Some Breathing Room on the Budget

City of Austin employees took center stage July 15 at the Montopolis Recreation and Community Center in Southeast Austin as their CEO, City Manager Spencer Cronk, presented his proposed fiscal year 2023 budget, a $5 billion spending plan for the 12 months beginning Oct. 1 that's buoyed by Austin's booming economy and avoids both layoffs and tax increases.

That happy medium looked like it'd be impossible to achieve a year ago, when Cronk's budget drop was accompanied by dire warnings of a surge of red ink about to flood City Hall. Here's why: State law has long limited how much revenue cities and counties can raise through property taxes without voter approval. That "revenue cap" used to be fairly generous – 8% more than the prior year from properties on that prior year's tax roll, with no limits on tax receipts from new construction or annexation. That money, along with sales taxes, various fees, and transfers from Austin Energy and Austin Water (the city's "dividend" as owner of the utilities), goes into the General Fund, which pays for public safety, public health, and social and community services – all the departments that we don't want or expect to pay for themselves. In the fiscal 2023 budget, the GF budget makes up $1.3 billion of the $5 billion all-funds total.

In 2019, the Texas Legislature, which always, always, makes time for new ways to cut politically active suburban homeowners' tax bills, lowered that revenue cap to 3.5%, which was lawmakers' best guess of the statewide rate of inflation. Austin, you may have noticed, costs more than other places in Texas, and the gap is growing even as Texas as a whole becomes more expensive. So here in America's boomingest boomtown, a 3.5% cap has been seen as tantamount to a state-mandated budget cut every year, only avoidable by going to the voters every November to ask permission to bust the cap.

In fiscal years 2020 and 2021, Texas faced the twin statewide disasters of COVID-19 and Winter Storm Uri, so the 3.5% cap was put on hold as long as disaster declarations were in effect. Last year at this time, when Cronk dropped the fiscal 2022 budget, the City Hall financial team's five-year forecast (required by law) anticipated a $5.5 million General Fund shortfall in fiscal 2023, growing to $15.6 million in fiscal 2026. Those may seem like drops in the billion-dollar GF bucket, but the budget has to balance, even with increases to "base cost drivers" like health insurance or mandated safety training or fuel for the cop cars. "Regardless of whether Council may ultimately ask voters to approve exceeding that cap," Cronk said in his speech last year, "and regardless of what voters may ultimately say, it is clear that, as an organization, we must continue [to] streamline our programs and services and reduce our costs." He continued that through innovation, determination, and creativity, this would be possible, but "we do not know yet exactly what our future revenue picture will look like. … For now, [we] simply acknowledge that there are difficult choices ahead, and agree that the hand that we have been dealt will require us all to work together."

It sure would have sucked had that prediction come true! But what a difference a fast recovery makes. Instead of announcing layoffs and/or a tax rate election, Cronk beamed as he described Austin's years of careful fiscal management, ample cash reserves to safeguard its creditworthiness and bond rating, and the process improvements that bore fruit from his call for change the year before. These good-government moves, which Austin taxpayers have come to expect even as they complain that City Hall is a mess and a joke, helped reduce friction as Austin bounced back like Flubber from the plague and ice with what Cronk called "spectacular economic growth." How spectacular? Final tax rolls are still being certified, but the budget estimates the total assessed value of Austin property has grown in a single year by more than $40 billion. For context, 10 years ago in fiscal 2013, the entire tax roll was valued at $83.3 billion; it's now $222.5 billion.

Property taxes at least grow every year, however meagerly under the dead hand of the state's tax crusaders. Sales tax falls and rises dramatically throughout economic cycles, and right now it's rising in unprecedented fashion. This year's (fiscal 2022) sales tax collections are 16% higher than in fiscal 2021, and are estimated to go up another 5.6% in fiscal 2023, to a projected $347 million, enough to pay for Fire and EMS combined – for now, as their unions and the Austin Police Association are all in contract negotiations right now and this budget has placeholders for their salary packages.

For the rest of the city's workforce, the good times allowed City Hall to instead add more than 350 new positions and invest more than $60 million in employee raises and bonuses, without using federal relief and stimulus funds to plug holes, and to lower the average homeowner's tax bill by about $100. "Are we lucky in some ways? Yeah, we are," Cronk told the crowd of city employees (mostly) in Montopolis. "But we can be both lucky and good."

The five-year forecast now shows the city running in the black for at least the next four years – about the best news Cronk's been able to share about city finances since he arrived in Austin in 2017. But that doesn't mean everyone is happy! While the fiscal 2023 proposal does some good and avoids much that is bad, it also doesn't go as far as many advocates (and perhaps some of their Council allies) have wished during the run-up to the budget drop. These include the public safety boosters at the Greater Austin Crime Commission, who before Cronk had even left Montopolis issued a statement saying the budget "does nothing to solve Austin's public safety staffing crisis," as it neither adds new sworn positions nor expands training to fill more than 500 vacant police, fire, and EMS slots. This is a bit disingenuous, as the unions may be bargaining for gains on these fronts right now, and as Austin voters last November handily rejected an APA-backed plan to guarantee perpetual high levels of police staffing.

Many of the groups who worked to defeat that woebegone grift are part of a coalition of nearly 60 nonprofits and advocates that gathered at City Hall Plaza July 14 to roll out a $74.4 million proposal to invest in restorative social services for those most in need in our community – rental assistance, resilience hubs, victim services, harm reduction, violence prevention, animal welfare in poor neighborhoods, and more. These asks come late in the game, ostensibly after the ink on the budget is nearly dry – a game previous city managers learned to play precisely to thwart advocates from swaying Council into making policy choices that City Hall execs didn't like. But Cronk and his team appear to have been listening to the word on the street as they assembled their spending plan; although it probably doesn't go far enough to please the advocates, it gives them and their Council allies something to work with.

This includes the "$22 in '22" campaign, endorsed by Council a few weeks back, to raise the city's minimum "living wage," which Cronk said could be accomplished over time – the fiscal 2023 plan raises it to $18. It also gives all civilian employees (that is, not sworn public safety) a 4% wage increase, which isn't a lot but is larger than the city has managed to provide in nearly two decades. And it adds a bonus of up to $1,500 for every city employee (including sworn public safety personnel) with more than one year of service, to promote workforce retention as well as give people a little something extra. "The simple truth … is that we do not currently have the staff we need to deliver the services we must," Cronk told the crowd. "The core feature of our fiscal 2023 budget proposal is a renewed emphasis … to recruit and retain the people we need to do the job that our community expects of us."

Because of the rapid uptick in housing prices, a budget built on a 3.5% increase in total property tax revenue translates into a 9-cent decrease in the tax rate, rather neatly offsetting the 8-cent increase voters approved in 2020 to fund Project Connect. However, an increase in utility bills – most notably Austin Energy's proposed hike in its base rate and a 15% increase in the transportation user fee that pays for street maintenance – will cost the "'typical' residential ratepayer" about $10 per month more to the city even with the lower tax rate. (The "typical" Austinite used to model budget impacts continues to be a homeowner, in a city where more than 50% of residents are renters.) Cronk told the Chronicle after his presentation in Montopolis that the AE rates and transportation fees would need to have been increased regardless of the tax rate; again, it's just becoming more expensive to do business in Austin, for city-owned utilities as much as anyone else.

Quick Budget Breakdown

We'll have a detailed look in next week's issue at proposed fiscal 2023 spending and its potential impact on city performance measures and the community's goals. Here's a quick summary, for reference, of selected city departments people care about.

General Fund

$1.26 billion in spending funded from property and sales taxes, fees, and utility transfers ("dividends"). Here's what it pays for:

$444.0 million Police
$229.1 million Fire
$113.5 million Parks
$111.8 million EMS
$66.3 million Public Health
$64.9 million Library
$51.0 million Social Service Contracts
$37.3 million Municipal Court
$18.9 million Housing and Planning
$17.6 million Animal Services
$13.1 million Forensics (moved from APD in 2021)
$97.4 million Internal charges and transfers

Enterprise Funds

$3.24 billion in spending that's funded by rates/fees/charges to customers or from special revenue sources such as hotel occupancy taxes. These include:

$1.59 billion Austin Energy
$683.8 million Austin Water
$284.5 million Aviation
$161.8 million Convention Center
$145.9 million Public Works
$121.2 million Resource Recovery
$112.3 million Watershed Protection
$106.4 million Transportation
$79.4 million Economic Development
$76.7 million Development Services

Internal Services

$793.9 million in transfers from other departments to pay for things like:

$7.9 million Mayor and Council
$7.1 million Communications and Public Information
$6.2 million City Clerk
$4.6 million City Auditor
$136.5 million Communications and Technology (the IT department)
$73.5 million Fleet Services
$33.4 million Management Services (a catch-all for a dozen offices – Equity, Sustainability, etc.)
$25.7 million Building Services

Adopting the Budget

• Community budget input sessions will be held July 27 and August 2 at City Hall (Council chambers). You can sign up to speak just as you would for a Council meeting at austintexas.gov/department/public-participation-council-meetings.

• District town halls have, as of press time, been scheduled (some in person, some virtual) for Districts 1, 2, 3, 6, 7, and 10. Visit www.speakupaustin.org/2022-2023-budget-engagement for details (which may change) and online registration links.

• City Council will hold budget work sessions on August 9 and 11. It is currently scheduled to adopt the budget on August 17.

• You can also submit any questions to City Hall at [email protected].