How to get to a 2.5% Budget

[Marc Duchen]

Colleagues,

I and the D10 office have produced a list of budget prioritizations (cuts) that can help craft a 2.5% budget. A 2.5% budget represents about $7.3 million in total prioritizations, where the general fund budget would be reduced from $1,538,864,988 to $1,531,463,867. This would save the average taxpayer a little less than $50 a year going forward.


Why put together a 2.5% budget?
I try and remind myself that we have an incredibly powerful tool at our disposal to make our budget and the city whole: our taxing authority. Most people and organizations don’t have this ability.

A family reeling from a surprise medical bill can’t tax their way out.

A business struggling with a bad economy can’t solve their problems by taxing their way out.

But the City of Austin can tax the community to pay for new services, address rising costs, and keep personnel pay competitive.
As I’ve previously said, we have two Austins: one that can easily pay more, for them it’s a rounding error, and one that cannot. The latter may face harder choices: choosing between rent, food, daycare, after school programs, medications or healthcare – or pay for the hundreds of dollars of additional taxes and fees the City will be asking for. And that’s not including the County, Central Health, and other taxing authorities. And also not including paying more at the pump, for food, insurance, and other essentials.

In order to balance out this power imbalance, and recognize that we aren’t any more “special” than the people we serve, my philosophy has been to make sure we’ve done everything possible we can at the city to cut something before we have to ask for more money – or at least before we ask for any new dollars after considering inflation. And I’m encouraged that we’ve passed an efficiency audit and are being more disciplined about technology consolidations and consultant contracts and social services. But these processes need time to yield results and savings. We don’t have that luxury in this budget.

For now, that means increasingly difficult decisions about what, if anything, the Council trims from the budget to give taxpayers some relief.
We also need to be mindful that we need the public to stand with us on future spending decisions, including future tax rate elections and bonds. The city will, inevitably, be back to ask for more money, whether routine or emergency spending, and we’ll want the public to tolerate that new spending. That relationship is complicated when we can’t show our work: that the new spending is essential, and that we’ve taken all possible steps to limit costs or spend responsibility, that our spending is creating public value they can see or appreciate. Instead, voters will reject spending they consider unnecessary or even “a bridge too far” – which they did in a spectacular fashion last fall. I worry the only lesson we’ve learned since then is “don’t place tax rate elections during lower turnout elections” rather than “let’s be a little more disciplined in how we spend.”

In sum, this effort attempts to a) show our work, that we’ve done everything possible to make reductions before raising taxes, b) demonstrate some degree of newfound discipline and c) recognize we need to play by the same rules as the people we govern.


Why specifically a 2.5% budget?
We chose a 2.5% target because for the last couple of years, “core inflation” has hovered around 2.5%. Core inflation being the generally accepted measure of inflation, the Consumer Price Index, less energy and food costs. The city’s general fund departments don’t trade much in energy and food, so core inflation seems like a better way to measure inflationary pressure than the CPI. There are other inflationary pressures impacting things like construction and specialized equipment, but that’s mostly paid for with capital programs and enterprise funds. This exercise focuses almost exclusively on the general fund and general fund departments.

A 2.5% budget recognizes that things are getting more expensive, but also recognizes we have a systemic budget deficit and, where possible, we ought to avoid spending more than we take in at this moment – the same conditions every resident has to deal with.


The Manager’s 3.5% Budget
I appreciate our professional staff and the process they undertook to craft the draft 3.5% budget. They visited with departments, got recommendations for enhancements and prioritizations, and made many significant changes that departments and personnel need. That includes both adding enhancements and making cuts. The primary difference between the work my office did and the work they did was that we scrutinized one level of cuts deeper than they did. That’s it. Many of the changes we identified were already identified by staff, but not implemented in the draft budget. In some cases, we took these eliminations or reductions and just made a gentler or less severe reduction.

I also want to be clear that at some point the reductions and changes get more difficult and painful, and that I recognize that means impacting some departments or projects or plans. Some reductions are palatable with impacts I believe the staff and residents can tolerate - at least for a year. Some, we’ll get feedback over the course of the year about whether residents can live with, for instance, closing a facility a little earlier on certain days, and we can take that feedback into the next budget cycle to make further changes.

But some are more consequential and I want to acknowledge that their impacts will be felt. If we didn’t have a $26 million dollar shortfall then there would be no need for this exercise. But this is the second year in a row the city has found itself with a significant budget deficit and we’re pinning our hopes that future deficits can be avoided by our technology consolidation, the efficiency audit recommendations, and other strategies we’ve implemented – that may or may not pan out as we hope.

A 3.5% (max state cap) budget does make things easier for staff, and future councils. It means more revenue for more enhancements, and it makes future budgets easier because it virtually guarantees more revenue in future years. There’s a fear that the State will intervene in the next legislative session and limit our ability to even tax at 3.5% - so we should “take the money while we can”. The counterpoint here is that perhaps they wouldn’t be so eager to micromanage our taxing authority limits if we didn’t always go to the cap, which we have for the prior four years, and before the cap was implemented our average budget increase from 2008 to 2022 (excluding an outlier in 2021) was about 6.7%.

But we’re here to ultimately report to the residents of Austin. That’s what our org chart says, at least. And it’s unclear to me that a 3.5% budget universally serves their interests, especially after voting to proceed with a nearly $300M bond yesterday.


The Budget Guiding Principles
We thought about the best way to evaluate prospective cuts and enhancements. Which cuts were the “low hanging fruit” with minimal impacts? What enhancements could pay for themselves quickly? Here was how we made selections:
1. Avoid cutting priorities already established by the Council
2. Where possible, avoid cutting existing personnel, excepting vacant positions
3. Have an explanation ready for the cuts/additions
4. Consider future economics
5. Shared sacrifice: spread cuts evenly across departments
6. Focus on the General Fund
7. Bear in mind: the City can’t be all things to all people in a time where we have ongoing systemic budget deficits and we have (again) postponed a series cuts to next year
8. With cuts to hours/services, one of two things will happen: either these changes will be accepted, or there will be feedback and restorations in the future

Here is a link to the list of dozens of reductions and one enhancement that could reduce spending by $7.3M and make up a 2.5% budget: https://drive.google.com/file/d/1f6QPx4 ... sp=sharing

We also have background on each of these items we can discuss in greater detail. In some instances we found local substitutes that deliver similar services. In others we made more modest reductions than staff volunteered to “pilot” or evaluate a change. Others had reductions to services with low utilization. We also ran a version that doesn’t touch any FTE’s and the COLA and still found more than $7.3M in savings.

I’m confident, with input and additional ideas, that some version of this proposal can get us to a budget below 3.5%, and that at a bare minimum I expect us to entertain some of these reductions to fund higher council priorities.

-Marc