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?