Saturday, May 18, 2019

Surprising 10-Year Highland City Budget Review

Dollar SignsSince the city is asking for a revenue increase to fund a significant jump in public safety spending I thought it would be good to share a historical overview of the city’s general fund revenue and expenses. When I included population growth and factored in inflation I was surprised at what I found.

Here is a chart that shows inflation adjusted revenue and expense changes in the general fund along with population growth from 2009 to 2018. Over those 10 years while population grew 31.2% our general fund revenue grew 3.3% and our expenses declined by 1.6%. How is that possible? Good question.

One of the few taxes or fees that has any tie to inflation is the sales tax (23% of our revenue). The rest (77%) are fixed (not subject to inflation). This one of the reasons why revenue growth does not match population growth when you factor in inflation. The pie chart below shows the split between sales tax, property tax, and other revenue sources.

“Other” revenues,  include (roughly in order of amount): franchise taxes, garbage fees, B&C road funds (state provided road funds), building permits, phone tax … . Did you know that in the case of property tax the city gets a fixed amount each year? Property tax rates go up when property values go down and go down when property values go up. Our property tax revenue can increase but only if there is growth (e.g. new homes and businesses) or or if the City asks for a property rate increase which we have not done since 2007. Once the city is built out property tax revenues will remain flat (unless an increase is requested) and we’ll lose most of our building permit revenue.

The chart below shows how the revenue source percentage has fluctuated over the last 10 years.

As you can see during this time period property tax and sales tax percentages flipped. In a down economy these would likely flip again.

This table summarizes some of the 10-year budget data.

One question I had after looking at the data was why  is there a gap between revenue and expense and where did that money go? In reviewing this with staff the answer was it went into reserves or was money that was budgeted but not spend and carried into the next year. We often have road project that we budget for in one fiscal year and then they slide into the next. We also have set aside money for buildings that get pushed into future years, the park maintenance building is an example of this.

What can we conclude from this data?

  • The city has been very frugal over the last 10 years.
  • Growth hasn’t put a lot of money in the city coffers so we can’t expect new growth will solve the public safety issue.
  • Finding “extra” money to pay for a public safety increase in a general fund budget that has decreased slightly over a 10-year period while the city has growth 31% is likely to be very difficult.
  • On the good news side. Sales tax revenue over the last 10 years is keeping pace with inflation and population. Note, from 2014 to 2018 sales tax revenue adjusted for inflation exceeded population growth by 33%.

Please attend one or both of the public safety funding open houses we are holding in the near future at city hall (7 pm on Wed May 22nd and Thurs May 30th) to learn why public safety is asking for a significant increase. Questions and comments are welcome at the open house. Also feel free to contact city council members or myself on the budget or public safety increase.

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