Sunday, April 19, 2009

The Budget & Taxes

City Council’s primary responsibility is to fund a level of services that provide residents with a good quality of life. But in pursuing the goal we cannot become a financial burden on those we serve. “The point to remember is that what the government gives it must first take away.” This year Council faces the prospect of increasing taxes just to maintain services. The question is how far will City Council go to maintain services? Like those we serve, the city must make some sacrifices during this economic downturn.

Fredericksburg’s 2010 budget brings spending back to 2006 levels—a reduction of 6.63% from the current budget. To cover this year’s $7.3 million deficit staff has proposed $4.85 million in budget cuts, the use of $1 million in fund balance, an increase in the real estate tax rate of 3 cents to generate $1.2 million, with the balance covered by an increase in the Consumer Utility tax and other fees/taxes.

To get to this point we have reduced operating expenses, maintained a hiring freeze with a number of positions remaining unfilled resulting in fewer people having to do more for less money as the proposed budget comes with across-the-board salary cuts. Benefit costs for employees are also going up resulting in a further erosion of salaries. We continue to defer maintenance and replacement of infrastructure, equipment and vehicles and city support for outside service agencies have been drastically reduced. Unlike city residents and businesses city government can cover shortfalls by raising revenue through increases in taxes and fees.

In the past Council has raised taxes/fees, with community support, to build schools, recreational facilities, public safety improvements at a time when we had large reserves, increasing property values, and increased revenue from the business community. The community was willing to give more because they saw the benefits of the investments and felt they could afford to do so.

Today, city reserves are down, property values have dropped dramatically and foreclosures are still on the rise. Unemployment is up and our retail base continues to shrink affecting both employment and revenue. Residents have seen their financial investments drop and most businesses are dealing with revenue losses. The community is now faced with layoffs, pay-cuts, devalued investments and an uncertainty as to what the future may bring. Now the question is whether residents and businesses can afford additional taxes?

Another factor that must be considered regarding the budget is the looming debt service for a new court facility. Court construction will have a significant impact on the city’s debt service and resident’s taxes. Projects like Wegmans, and the downtown hotel will hopefully help offset some of this cost but it would not be prudent to start counting on funds that we don’t have. At a minimum, other projects that have greater community support and deferred infrastructure, equipment and vehicle purchases will be affected. Under the current economic realities this project needs to be pushed back as far as possible.

After two years of reduced budgets there is not much more to cut unless we start into services and/or positions. While the current budget is balanced with a 3-cent real estate tax rate a majority on Council has asked for some flexibility and the tax rate has been advertised at 5-cents. Cuts in the budget in three areas have members of Council concerned: 1) Schools 2) Employee salaries 3) Outside Agencies.

Before we consider additional funding for the schools and Outside Agencies we need to address the cuts in salaries for city employees. While many are now facing financial hardships city employees have been facing salary stagnation and benefit reductions for the past three years culminating in salary cuts in the proposed budgets. While salaries and benefits have been reduced their responsibilities have increased.

To fund employee salaries I have proposed a ½ cent increase in the meals tax. This tax impacts disposable income and is paid by visitors as well as residents. In discussions with staff it was agreed that we should be very conservative on projecting the amount of revenue raised; but it should cover salaries. If additional funds are raised we are in a better position next year.

A ½-cent increase would put us 1-cent higher than the neighboring jurisdictions and that should not result in a significant drop in business beyond what is being caused by the current economic downturn. The alternative at this point is to raise the real estate tax, which would have a bigger affect on residents and business.

In regard to the schools I have proposed an increase in their budget of $300,000 coming from two designated reserve balances—schools and regional jail. This proposal will only cover the current year but it does take pressure off the tax rate for now. It also gives both the city and the schools time to begin discussions on funding for the following year.

At the conclusion of last year’s budget deliberations Council made a “loan” to Outside Agencies of $450,000. It was explained that this year the Outside Agency Budget would be reduced by $450,000 and additional cuts would have to be made if the economy continued to decline. It was recommended that they begin looking for other sources of funding. The decline has continued and more cuts have been made with many agencies being zeroed out.

There is no question that some of these agencies provide a service not provided by the city and will have potentially greater financial impacts if they are cut too severely. Our Social Service Director has been tasked with submitting recommendations on funding such services and I will seriously consider these recommendations. Thus far we have identified $67,000 of savings in the budget that can be used for this purpose. I also believe that some funding within the Outside Agency budget can be reallocated to help fund the agencies identified by Social Services.

These proposals address the budget concerns expressed on the Council and can be achieved without any further increases in the real estate tax rate.

There is no question even with the increased taxes proposed the budget core services are being strained. However, I do not believe that under the current financial climate, and the uncertainties we still face, we can justify further increases in the tax rate. Residents and businesses are cutting back to make ends meet—not spending, investing or expanding. To raise taxes further will mean more of a hardship on our residents and businesses resulting in even less spending, investment and expansion that translates to less revenue in the future.

We are already facing the cost of a new court facility in the next few years and the need to equalize the personal property tax rate. We need to give city residents and businesses a break and not add to their financial burdens during the current financial downturn.

Your thoughts on the budget and the funding proposals as outlined?


Larry G said...

First - a compliment - a redundant one but one deserved and that is your willingness as a public official to dialog in public on issues that are important to those that elected you.

I wish and hope that my elected officials in Spotsylvania will, some day, take your lead and also do - what I consider - the duty of engaging in open dialog with those that elect them.

I'm obviously not a city resident but there is a theme in your philosophy similar to Hap Connors and Gary Skinner in Spotsylvania with regard to taxes and quality of life and levels of service.

You say.... "City Council’s primary responsibility is to fund a level of services that provide residents with a good quality of life." then you do follow it with a caveat "but"..... about "we cannot become a financial burden on those we serve."

Let me suggest that this is not only a fairly subjective view but it is arbitrary and without a proper context of establishing who "those we serve" are.....

As you are well aware of the issue with VRE.. there is an equity conundrum in an area where we have those who work locally for lower salaries and those who work "up-town" for higher salaries - and I would suggest that the term "financial burden" has very different meanings to the two groups.

I would suggest that perhaps a better starting sentence would be: "City Council’s [and Spotsylvania County] primary responsibility is to fund a level of services that provide A MAJORITY of residents with AN AFFORDABLE quality of life.

What this means in essence is that Government should provide a basic level of service that is affordable to locally-employed citizens ... so that they can literally afford to live and work in our area.

For those who work up-town and want "more" - we ought to be making it available - at a cost - for those that wish to pay more to get more.

I feel that in our zeal to provide a better "quality of life", we are, in fact, making it harder and harder for people to actually live and work locally and we are really catering to and incentivizing commuters - who not only require expensive services and infrastructure - as a direct consequence of their choice to commute but they want more expensive services for their "quality of life".

Don't get me wrong. I am in favor of people living and working where they want and what is best for them and their families .. and I am in favor of VRE, and any and all commuting options for folks but I do think that at some point - the folks that commute and want more and better services - need to consider what taxes are for and what fee for service is for.

Some of this goes back to the idea that Government is not supposed to provide tiered services.. only "one size fits all" services ... but in the context of "quality of life", it leaves us with ..inevitably "either/or" propositions that.. then put elected officials in the vice of trying to fund services without raising taxes "too much".

We need to recognize that "quality of life" does apply to all of us.. not just those who make a comfortable living IMHO.

MATT KELLY said...

Larry—Don’t take issue with the points made. The question I am trying to get an answer to is what services should be provided, if any, by government beyond public safety, public works, and education. I’ve tried to get a discussion going regarding this issue but I can’t get a response. Should it be government’s responsibility to provide for Outside Agencies for example? People seem willing to talk about waste or high taxes but shy away when you start a conversation on the level and type of services provided. For me the tax issue is secondary to the question –What level of service should local government provide? With the answer we can then discuss the cost for those services and how best to cover them.

Larry G said...

I would like to see a more objective process myself that provides more info and encourages more of a "put up or shut up" tilt to the public dialogs.

For instance, - how does Fredericksburg and Area compare on a local taxes per capita comparison?

I'm not advocating that we try to be like Fairfax nor like Franklin County but to provide a better context to the question of how much is "too much" and how much is "not enough".

I have no patience with the "we waste gobs of money" chattering class in general because typically their provided examples focus on things like free coffee or a parks and rec worker taking a break rather than ... substantive questions of how much money should local governments give to outside agencies.

Ya'll have a paid staff... I'm sure there are pro/con arguments as to what kind of work they should be doing in support of government but I would posit that providing some comparative info on what other governments provide to outside agencies would - at the least - provide a better context for the "not enough/too much" question.

I don't want to slather on too much here.. but the questions that you are asking... demonstrate to me.. leadership... and a certain amount of courage .... it's much easier to be aloof ... arrogant.. and cynical... and a certain amount of justification in being that way...

Don M said...


I agree with Larry's compliments of your approach and willingness to involve the residents in dialogue. This is venue is even more valuable to me while I am in Afghanistan supporting our fine men and women in uniform.

As a resident of Fredericksburg and a fiscal conservtive, I want to see the city provide only the core services (education, public safety, public works) out of the general budget.
Everything else is, IMHO, "optional" and should only be funded via public funds when the residents agree to and can afford it. Any taxes that are levied to provide for these "optional" services should be ended when the project that they were created to fund is completed.

On another note, please refrain for stating that a "savings" was found in the budget. It was either waste or someone was layed off/salary reduced. The residents need to know the reality of the situation rather than soften the blow.
If there was waste in the budget that was identified, then call it that and the residents can applaud the discovery and criticize the fact that waste existed at all. This will lead to a feeling of greater transparancy in the local government and all the benefits thereto.
If someone was layed off or salary was reduced then call that what it is. It will lead to a feeling of shared sacrafice during these difficult economic times.

Thank you for your fine service to our 'Burg.


MATT KELLY said...

Don M—This is the second year that the city budget has been reduced so waste is not much of an issue. Here are some of the areas of the budget that were reduced:

1. Unlike our neighbors we have not had to resort to layoffs because we have had a hiring freeze in place for over a year and we have eliminated positions by attrition. We are currently down 25 full-time positions. The city has an average workforce of 350.

2. The Council travel budget and benefits have been reduced. In regards to travel we can take that as a tax write-off and most Council members do not use the city insurance policy.

3. All travel and continuing education for all departments have been reduced.

4. Allowances for supplies have been reduced and normal replacement of equipment and vehicles has been put on hold.

I have tried to get a conversation going about what services should localities provide without much success. For me the issue is—What services do the residents of the City expect? What is the cost to provide those services? How do we obtain the revenue? The issue of whether our tax rate is lower than adjacent localities; or whether residents can afford higher taxes, is immaterial.

I’ve submitted an OpEd to the FLS on my views on the budget that is to appear next week.