Tag Archives: austin budget surplus

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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City Projects Huge $26.9 Million Budget Surplus!

By Bill Oakey – June 11, 2015

Please Note: Since June 11 when this entry was posted, a great deal of additional research has brought new information to my attention. The $26.9 million addressed here comes from the City’s Budget Stabilization Reserve Fund. That fund holds all of the unspent budget surpluses from previous years. Therefore, not all of the $26.9 million represents a “new” surplus. But all of it does come from surplus funds that have accumulated in the reserve account, along with some interest that the fund has generated. Please see the more recent related blog entry here. Below you will see the original version of this posting.

This announcement may be the first-ever local news story to break first on AustinAffordability.com. I included a teaser in yesterday’s posting, but now I have the actual documentationThe City of Austin Financial Services Dept. is projecting a budget surplus for this year of $26.9 million!

The document linked about requires a brief bit of explanation. There are two ways that the City can calculate what we call a “budget surplus.” The most prudent approach is to multiply the General Fund requirements of $903,560,106 by 12%. That comes out to $108,427,213. The top three Wall Street rating agencies prefer that cities keep that 12% amount in their reserves. The total of Austin’s three reserve funds equals $135,352,153. Therefore, if you leave that 12% requirement in the reserves, the leftover surplus is $26,924,940.

There is a City Financial Services policy that allows up to 1/3 of the single Budget Stabilization Reserve Fund to be drawn down and appropriated. That amount in this case would be $28,891,885. But since that figures exceeds the surplus left after the 12% rule mentioned above is applied, it is best for us to assume that this year’s official City Budget surplus will be $26.9 million.

So, What Will Happen to This Huge Budget Windfall?

For each of the past two fiscal years, the City has announced budget surpluses of around $14 million. As this blog has pointed out, there is no set policy on whether or how to spend these surpluses. The previous City Council spent the entire surplus for FY 2014 in a few minutes with very little discussion and no public process. Last year, there was an organized effort by citizens, including this blogger to urge the Council not to spend the surplus. They complied with our request, and the money was kept in the reserves. However, appeals to the Council to use the surplus to hold down taxes or to offset a projected water rate increase failed. The surplus was allowed to become part of the spending pot for this year’s budget. The existing Financial Services “General Fund Financial Policy” and the City Council’s latest Budget Amendment Ordinance do not include taxpayer relief as an option for addressing surpluses. One of my reform proposals calls for much stronger taxpayer provisions, and public disclosure of periodic statements of budgeted vs. actual revenues and expenditures.

Now we find ourselves at the beginning of the new 2015 Summer Budget Marathon. Grab onto the rails and prepare yourself for a wild and bumpy ride! We still have time to try to influence the fate of the $26.9 million surplus. It cannot be used for recurring expenses that would depend on equal surpluses in future years. But there are plenty of one-time expenses that are fair game. Using the surplus for those would set up a tax-saving opportunity. However, there’s a catch. Those expenses would have to be ones that were planned in the budget before the full $26.9 million surplus was put into play. If the City created a wish list of new items to spend it on, then a tax cut would flutter away like a butterfly released from a jar. Our new City Council seems more inclined toward affordability than the last one, so let’s keep our fingers crossed.

What Can You Do to Prepare for the Ultimate Outcome?

You can write to the City Council using this single-click link to reach all 11 of them. In the meantime, I have three recommendations for cautionary tales that you might enjoy watching on YouTube or Netflix. Pretend that you as a taxpayer are among the main characters in each of these stories. All three of them start out on a very promising note.

1. Twilight Zone Episode: “The Man In the Bottle”

2. Twilight Zone Episode: “The Rip Van Winkle Caper”

3. Movie: “The Treasure of the Sierra Madre” (Don’t read any spoilers)!

butterfly

What Happened To Austin’s Budget Surplus – And Why Is Nobody Talking About It?

By Bill Oakey – August 1, 2014

Back in March, readers of this blog launched a successful email campaign to stop the City Council from spending a $14.2 million budget surplus.  But since then we have heard nothing from City Hall about what has been done with that money.  This week the City Council began discussing the budget in earnest during a two-day work session.  But there are several critical questions that have not been brought to light:

How Much Has the Budget Surplus Grown Since February?

It was at a March City Council work session that they made the decision not to spend the $14.2 million surplus.  So, if that money went into a reserve account, how much is it worth today?  We were told that the announced February surplus came from a combination of increased sales tax revenues, vacant staff positions, increased permit fees, and other revenue increases from an improving local economy.  Now we deserve to know how much the surplus has grown since February?

I have repeatedly recommended that the City Council ask for detailed quarterly reports on the budget versus actual spending numbers.  These reports should be presented to the City Council’s Audit and Finance Committee.  This simple, common sense reform should have been in place already.  And we should not have to wait for the new City Council to enact full transparency for our taxpayer dollars.  Especially when two long term incumbents are asking voters to elect one of them as our next mayor!

How Much Money Is Left Over From All Those Vacant Staff Positions?

As of last December 31st, the City Manager reported that 9.7% of the City’s workforce existed only on paper as unfilled vacancies.  Every month that has gone by since then with unfilled vacancies presents the potential for increases to the budget surplus.  When I researched this issue back in May, I learned something quite disturbing from Council Members Mike Martinez and Bill Spelman.  They both informed me that the vacant positions are fully funded in the budget, and that the affected City departments can transfer the money and spend it on other items!  We are talking about millions of dollars of taxpayer money that is repeatedly and consistently allowed to slip down into a black hole.

Despite my meetings with both Mr. Martinez and Mr. Spelman, no action has been taken to improve the accountability or the transparency of these surplus budget funds.  Even at a time when affordability has risen to the top among the issues in the current City Council campaign.

In previous postings to this blog, I have recommended that the City limit the funding of vacant staff positions to the 5% level that has been adopted by Portland, Oregon.  And I suggested that the City Council enact the Honolulu model for controlling funds for vacant staff positions.  In Honolulu, these funds are held in a provisional account in a central office.  They are restricted for use only to hire new employees, and the funds are distributed on an as-needed basis.  It is long past time that the taxpayers of Austin be given the same accountability standards that other prudent American cities enjoy.  And we should only elect City Council candidates who commit to adhering to these logical and reasonable standards.

To learn more, you can read one of my previous blog postings on this topic here.

Could Austin Be Headed For Another Budget Surplus?

By Bill Oakey – May 14, 2014

Just two months ago, Austin taxpayers narrowly escaped a stance by some City Council members to dip into a $14.2 million budget surplus.  Thanks in part to the efforts of readers of this blog, citizens spoke out and the money did not get spent.

Now it appears possible that we could see an additional budget surplus, just in time for the annual budget discussions that will commence early next month.  The new surplus could arise from stepped up efforts to reduce the high number of staff vacancies still remaining in the current fiscal year’s budget.

In my message to the City Council on Monday, I urged them to cut back and regulate the number of unfilled positions.  Since then, even more information has come into focus on that issue.  The City Manager and his top budget staff have been very inconsistent in their handling of vacancies, and in their response to Council Members’ attempts to cut taxes by reducing them.

Last Summer’s Battle of the Bulge In the Budget

A great boxing match took place late last summer, when Council Member Mike Martinez took center stage on the issue.  See the Austin Chronicle article, “City Budget: Open Season On Vacancies,” from last August 23rd.  Martinez stepped into the ring, gunning for victory in one of the final rounds in the annual face-off with the staff.   But it may not have been an even fight.  Martinez was outnumbered and out-maneuvered, or so it seemed.  One by one, budget staff came out swinging, and they parsed the 930 citywide vacancies into categories.  Blow after blow was struck at the heart of any attempt to reduce the cost of the unfilled jobs.

The math that was used in that hot summer standoff conflicts with a new spin on essentially the same set of numbers, just five months later.  The official line from last August was that the City’s overall average vacancy rate was 5% to 8%.  On January 10th of this year, the same City Manager (Marc Ott) cited a vacancy level of 900 positions and labeled that number “quite frankly, far too high.”  This time a new kind of math pegged the vacancy level at 9.7%.  (A relevant paragraph from the City Manager’s January memo will be attached to the end of this posting).

But here’s what’s interesting.  When you peel back the surface coating of the numbers and look a little deeper, suddenly you see a whole new picture.  Between October 1st when the new budget took effect and January 10th, the needle had barely moved on the total number of vacancies.  So, at that point, a little over 25% of the fiscal year had passed without any of those staff funds needing to be spent.   Even if all of the vacancies were filled by February 1st, only two-thirds of the fiscal year would be left by then.  So, what happens to the leftover budgeted funds?

A hint can be found in the January City Manager’s memo…

Long-term vacancies not approved to be filled will be eliminated or repurposed in the upcoming budget process to meet other priorities.”

We can only wonder how much money is actually left over and “repurposed” each year.  Other cities have established reasonable levels of staff vacancies.  Portland’s is about 5%, according to this article in the Portland Oregonian.

What Will It Take to Finally Fix the Problem?

What will it take for all of this money that is being juggled around to be accounted for in a more transparent manner?  The answer can be summed up in one simple statement:

The City Council must exercise its authority over the budgeting process, and not concede another inch on a prudent set of fiscal directives to the City Manager.

Here are a few friendly suggestions on how they might go about doing that:

1. Ask for a full accounting of all unspent funds from vacant positions from all City Departments.  Consider asking for regular updates on a quarterly basis.

2. Label those funds and post them to the City’s website on a chart that the citizens can see.

3. Include in the same chart a listing of surplus funds from the previous budget from increased sales taxes and user fees.

4. Establish a clear policy on how leftover funds from vacant positions can be allocated.  The Council may decide that some departments have backlogs and should receive additional funding.  Or that some funds should be transferred to one of the utilities to hold down a rate increase.  Or set aside to reduce taxes in the next budget.  But, however the process is set, it should be much less fuzzy and squiggly than the system we have today.

The bottom line now is that we should be in line for a budget surplus in excess of the $14.2 million that was announced in March.  Hopefully, we will be allowed to see exactly how much it is and where it ends up.

The City Manager’s January Budget Memo

Below is the key paragraph on staff vacancies from City Manager, Marc Ott’s January 10th memo to Department Directors.  The subject of the memo was “FY 2015 Budget Planning.”

“Another area that we must closely examine in the months ahead is how we manage and budget for our vacant positions. As of the end of December, there were more than 900 vacant non-uniformed positions across City departments. This represents a City-wide civilian vacancy rate of 9.7%, which, quite frankly, is far too high. Nearly 400 new positions were approved by Council back in September with the adoption of the fiscal year 2014 Budget. It is imperative that these new positions be filled as soon as qualified candidates can be identified so that we can fulfill the many new initiatives and service enhancements to which we have committed. With respect to longer term vacancies, effective immediately, all positions vacant more than 180 days will be frozen and will require both ACM and City Manager approval to fill. This review process will remain in place at least through the end of June, when it will be reevaluated. Long-term vacancies not approved to be filled will be eliminated or repurposed in the upcoming budget process to meet other priorities. Moreover, I have directed budget staff to reassess how we budget for vacancies with an eye towards better aligning budgeted vacancy savings with actual long-term trends.”