Budget Official Confirms $26.9 Million Surplus – But Doesn’t Want Us To Call It A Surplus

By Bill Oakey – Updated June 13, 2015

Late Friday, we received word that Mr. Ed Van Eenoo, Austin’s Deputy Chief Financial Officer, wrote a response to the City Council regarding this blog’s reported “budget surplus.” He states that the $26.9 million cited in the City document referenced on the blog last Thursday is “not a surplus.” To be clear, he identified that same amount and described it as part of the Budget Stabilization Reserve Fund, but he stopped short of labeling it as a surplus. Excerpts from Mr. Van Eenoo’s email to the Council are attached to the end of this posting.

Do We Have a Surplus or Don’t We?

After the end of each fiscal year, any surplus funds from the annual operating budget will flow into the Budget Stabilization Reserve Fund. These surpluses come from increased revenues and / or lower expenditures than what were budgeted. Mr. Van Eenoo Identified $12.3 million in surplus funds from the FY 2014 budget that were transferred to that reserve fund this year. But that $12.3 million is only a small portion of the Budget Stabilization Reserve Fund. It has grown from $31.4 million in 2008 to $54 million in 2010 to an estimated $86.7 million for FY 2016. Since the source for those reserves is annual budget surpluses and interest, then the $26.9 million that has been deemed available to spend in the upcoming budget could be classified as surplus funds. Not all of it is a “new budget surplus,” but a look at the complete picture should settle the splitting of hairs. The important issue here is that funds transferred into the budget from a source other than new taxes creates an opportunity to lower the amount of new taxes needed.

What Are the City’s Financial Policies On Using Reserve Funds for Spending In the Budget?

In any given year, the City can spend up to 1/3 of the Budget Stabilization Reserve Fund. But, there is a caveat. Another policy requires that the City maintain a total balance in the 3 General Fund reserve accounts that equals 12% of the General Fund requirements in the upcoming budget. The limit of $26.9 million is derived from the second of those two policies.

What’s the Bottom Line for the New Council and the Taxpayers?

The City’s official record shows an estimated amount of $26.9 million in reserves that can be spent in the upcoming budget. The big challenge for City staff and the new City Council will be selecting the ideal set of one-time expenditures that can be funded from the reserves. If the City can identify critical one-time items that do not stretch overall spending too far beyond last year’s budget, then we could see tangible tax relief. It’s a matter of perspective. They can save money by picking items that were included in previous budget forecasts, but were not tied to assumptions of future surpluses. Or, they can regard the $26.9 million as an opportunity to create new “wish lists” and thus, higher spending. What needs to go onto everyone’s list is the word “affordability.” Helping the taxpayer’s is one of this year’s biggest “unmet needs.”

Last Year’s Proposed Staff Budget Included $29 Million From the Same Reserve Fund

Take a look at this Budget Office response to an information request from former City Council Member Mike Martinez:

2014‐2015 PROPOSED BUDGET RESPONSE TO REQUEST FOR INFORMATION

DEPARTMENT: Financial Services – Budget Office REQUEST NO.: 125
REQUESTED BY: Martinez
DATE REQUESTED: 9/2/14

DATE POSTED: 9/5/14

REQUEST: Please provide a breakdown of every expense in the proposed budget that is funded by the Budget Stabilization Reserve Fund, including a justification for each expense request.

RESPONSE:

Included in the Proposed Budget is a transfer from the Budget Stabilization Reserve Fund to the Critical One‐Time Fund of $29,029,312. The list of items proposed to be funded along with the justification for those expenditures is attached.

Here is the link to that document and the attached list of proposed expenditures.

Excerpts From Mr. Ed Van Eenoo’s Response to the City Council On Friday June 12, 2015

Regarding the $26.9 Million – “That figure, which was presented as part of our financial forecast, is our preliminary estimate of the allowable amount that the City’s Budget Stabilization Reserve will be able to be drawn down by in FY 2016 while remaining within Council’s adopted financial policies.” Then he goes on to say, “As you well know, reserves represent a one-time source of funding and as such their use is limited to non-recurring expenditures. Therefore, it would not be allowable under the City’s financial policies (nor advisable under any circumstance) to use those funds as a means of offsetting a recurring revenue reduction resulting from the implementation of a general homestead exemption.”

My Comment – I stand corrected on the last point. My suggestion in last Thursday’s blog posting that the surplus might be applied towards offsetting the homestead exemption is not valid. I have edited the posting and removed it. Perhaps a teacher should slap my hand with a ruler, because I have a copy of that financial policy in my affordability archives. But, we all make mistakes and hopefully, we learn from them. You can see the revised blog posting here.

Regarding the $12.3 Million – “The actual year-end surplus for FY 2014 was $12.3 million, roughly in line with prior-year surpluses. These funds flow into the Budget Stabilization Reserve for appropriation by Council in the subsequent fiscal year pursuant to the City’s aforementioned financial policies.”

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12 thoughts on “Budget Official Confirms $26.9 Million Surplus – But Doesn’t Want Us To Call It A Surplus

  1. Gonzalo Camacho

    Who would be qualified to review the City’s budget and determine if the funding is or it is not a surplus? A budget is a budget and all entries should be accounted for. If the funds are not under the entry of “surplus” then what is it?

    Reply
  2. Ray Collins

    By happenstance, the Mayor addressed your issue in passing at CM Kitchen’s town hall this morning. You will need to get more details from someone else, but your proposed 88/12 split from yesterday’s post is evidently not the dollar amount available to the council to spend for a one-time expense.

    Reply
  3. crhudspeth

    This looks like a lot of work you have done on behalf of the citizens of Austin. Can’t say I fully understand quite yet, but I’ll keep after it. Thanks for all you’re doing for the rest of us. Clare Hudspeth

    Reply
  4. Gonzalo Camacho

    Thank you Mr. Oakey for the update and attention. I have not reviewed the City’s overall budget and don’t really understand that is a “Budget Stabilization Reserve Fund” but I do wonder what in the world it is this budget stabilization concept. Maybe there is a reserve fund that needs stabilization.

    A reserve fund I would think it is a fund that is used to back up unexpected expenditures like natural disasters or unexpected funding gaps. The list of funded items in the FY15 Budget Stabilization Reserve Fund (in my opinion) should not be funded using a reserved fund.

    First how in the world a budget surplus becomes a reserve? I would think there is a legal process or city regulations that determines what to do with budget surpluses. Maybe if a surplus goes back to the general revenue fund it could be used for items listed in the pdf. However, why are “reserve funds” to be used for capital expenditures? Some items that come to my attention:
    APD 30 new vehicles, $1.375 million. Isn’t this a capital expenditure?
    APD 40 reserve fleet vehicles $1.891 million. Isn’t this a capital expenditure?
    ATD and Citywide Google fiber combined $700 thousand. Why are reserved funds being used for funding private enterprises? Quote: “The General Fund does receive franchise fees for these services’…”
    Citywide replace 246 vehicles $17.904 million. Isn’t this a capital expenditure?
    ….
    Library Southeast Austin Community Library Foundation Reparis $430 thousand. This is operation and maintenance.

    Sorry but in my infinite ignorance I would think somebody needs to be fired for using “reserved” funds for activities that should be either included in the annual budget or included in operations and maintenance. If the city incorporates a fleet of 316 vehicles in 2016 those vehicles are either replacing old ones or are new to the fleet. They will need annual operation and maintenance costs and replacement once their life cycle comes to an end. Appears to be a capital expenditure and not and expenditure to be done using reserve funds.

    Regards.

    Reply
  5. Ben

    In the Austin Chronicle this week Marc Ott compares spending any money from the surplus slush fund as akin to an individual spending money from their savings on a recurring expense, and it goes unchallenged in the article. The problem with that analogy, of course, is that a person works for their money, a city collects it in taxes. Therefore the very idea of accumulating surplus taxes year after year and never refunding or applying them is absolutely up for debate, a robust debate I think. Alex Jones used to claim that cities have massive stock holdings that turn profits hidden away in unreadable reports as well. Not sure if that’s really true but it’s worth looking into.
    The bottom line on austin is that just because the real estate values are skyrocketing doesn’t mean that city services should suddenly be costing any more to provide. Something doesn’t add up

    Reply
    1. Bill Oakey Post author

      You raise some good points. Keep in mind that funds transferred from the budget reserve account can only be spent for one-time, rather than recurring expenses. All cities must keep a certain balance in their reserves to satisfy bond rating requirements. What’s really scary about Austin spending is that it is growing much faster than the population. The pace of that spending and the high taxation is unsustainable. It has to be looked at in the context of the other local government budgets, and the staggerung future costs of all of the ambitious plans that each taxing entity hopes that we can afford to pay. The reality is that we simply cannot.

      Reply
  6. gonzalo camacho


    Bottom line is who works for a living and pays taxes. If government employees think they have it great lets wait until they retired and there is no money to pay their retirement benefits.
    The working class are the ones who pay the taxes and interests. Don’t people get it?

    Reply

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