Monday, August 26, 2013

Tax Expenditures in Richardson

Tax expenditures: spending by another name.
A tax expenditure program is government spending through the tax code. Tax expenditures alter the horizontal and vertical equity of the basic tax system by allowing exemptions, deductions, or credits to select groups or specific activities. For example, two people who earn exactly the same income can have different effective tax rates if one of the tax payers qualifies for certain tax expenditure programs by owning a home, having children, and receiving employer health care and pension insurance.
Source: Wikipedia.
It's understandable why Congress has grown so attached to tax expenditures. It's a way to spend without blame. In fact, Congress is more likely to take credit for reducing taxes.

That's Washington. How about Richardson?

Dunno. The City of Richardson just held a public hearing on the proposed 2013-2014 budget, including a 32 page presentation that never mentions tax expenditures. Yet we know they exist. Here, for example, is a recent article from The Dallas Morning News that provides details about just one:
The Richardson Alamo Drafthouse has signed a 15-year lease to occupy 30,000 square feet on the site of a former Pep Boys. The new theater, with seven screens and 825 seats, was built from the ground up, Bill C. said.

To help out, the city approved a sales-tax rebate for Alamo that is good for up to $100,000 per year for 10 years, and an annual $300,000 grant for five years for property owner Hartman Richardson Heights.

"The city incentives came to the landlord, lowering the overall project cost and thus gave me lower rent," said Bill C. "This gives me less overhead and thus our break-even is a much lower revenue number than the average revenue numbers our Austin-based stores do each year."

The city backed the deal, anticipating the theater would become a regional retail draw, a catalyst for redevelopment, and offer "quality nighttime entertainment, and strong branding to attract the city' younger demographic."
Now, I admit that I don't pay close enough attention to the weekly council meetings to claim to know for sure everything that's discussed. And I don't pore over the hundreds of pages in the budget documents closely enough to claim to be an expert about what's in them and what isn't. If someone can tell me where that $100,000/year "sales-tax rebate" shows up in the budget, I'd appreciate it. Same for that $300,000/year "grant."

To this untrained eye, it looks like Richardson's council is busy doling out tax expenditures (that is, spending by another name) without ever showing enough transparency about it to discuss it in public. I don't see any way for the public to know just how much all these deals add up to. Does anyone on the council even know?

At least at the federal level, someone tries to keep track of all this spending:
The Congressional Joint Committee on Taxation (hereafter JCT) annually estimates tax expenditures in terms of revenues lost to the U.S. Treasury for each special tax provision included in the U.S. tax code. In 2009, the JCT listed over 180 tax expenditure programs that cost the U.S. government over $1 trillion in revenues.
Source: Wikipedia.
$1 trillion. That's a lot by any measure. Is there an equivalent of the JCT at the local level? Does someone, anyone, at city hall know what the total tax expenditures are for city government? If not, does that bother anyone?


Sassy Texan said...

Welcome to my world, Mr Steger! Many issues have been bothering me for a long, long time.

The specific guidelines for the budget process that appear to be overlooked. Like this, Section 11.02 of the charter:

The city manager's budget message shall include:

(a) An outline of the proposed financial policies for the next fiscal year with explanations of any changes from previous years in expenditures and any major changes of policy and a complete statement regarding the financial condition of the city;
(b) An estimate of all revenue from taxes and other sources, including the present tax structure rates and property evaluations for the ensuing year;
(c) A carefully itemized list of proposed expenditures by fund, service type, and object of expenditure for the budget year, as compared to actual expenditures of the last ended fiscal year, and an estimate of final expenditures for the current fiscal year;
(d) A description of all outstanding bond indebtedness, showing amount, date of issue, rate of interest and maturity date, as well as any other indebtedness referred to in Article 19 which the city has incurred and which has not been paid;
(e) A statement proposing any capital expenditures deemed necessary for undertaking during the next budget year and recommended provision for financing; and
(f) A projection of revenues and expenditures together with a list of capital projects which should be considered within the five (5) next succeeding years.

Local government code has other requirements that are mandatory.

Right off the bat, (a) tells you that if there are expenditures not disclosed in the prior year budget, now is the time. How is that done? Let's refer to the charter again.

Section 11.09. Amending the budget.

In case of grave public necessity, emergency expenditures to meet unusual and unforeseen conditions, which could not, by reasonable diligent thought and attention, have been included in the original budget, may from time to time be authorized by the council as amendments to the original budget. Any amendment providing for additional expenditure shall also provide for reductions in other expenditures or supplemental revenues to fund such amendments, or an amount from unreserved fund balance as a supplement. These amendments shall be by ordinance, and shall become an attachment to the original budget.


Sassy Texan said...

The key words there are ATTACHMENT TO THE ORIGINAL BUDGET. If you were to take a stroll to the City Secretary's office on any given day, of any given year, there are never any attachments to the budget. So just how are those additional expenditures adjusted?

Second item to (a) is the last directive. A COMPLETE STATEMENT TO THE FINANCIAL CONDITION OF THE CITY.

When items you are referring to are omitted, it would appear a complete statement is questionable. One could make the assumption this refers to the CAFR, but its presentation is not until February.

But in answer to your query, page 39 of TIF 1 shows a special projects payout of $229k, and I have requested information on this. I also think the increase in professional fees is in need of scrutiny. But you are right, there is not expenditure for the grants specifically. Nor do you see any of the obligations of the TIF that have been pre-paid and/or liability accruals of the current grants. You might think that bump in the ending fund balance should designate some interest payments and the grant payouts promised.

It is a good idea to be mindful of those fund balances that do not have set days of reserve.

One other note is the 11-12 actuals (page 89) shows a $427k disbursement for Professional Fees, yet the CAFR shows a correction. The budgeted amount was not spent, but in actuality a payment was made for interest on the Brick Row Grant. It would be reasonable to think this is one item that should be attached to the budget as an amendment.

Another major point to consider, (f) never happens each year. That is stunning to me because the state does a 5 year future pace and even the federal government does as this is a carry over from statute.

Yes, there are many key issues to think about. One big one is the huge jump in budgets from the 2010 $175m to today's $208m. If you look at the shifts in unallocated reserves, there is more going on that reported.

Cheri Duncan-Hubert

Sassy Texan said...

BTW, when you are ready to look at Water Fund's need for an 11.9% when millions are swept out for bloated expenditures, post something on it!

Cheri Duncan-Hubert

glbeach said...

I'm unclear exactly how a rebate equates to an expenditure. I mean, the vendor collects the sales tax in question and reports the sales tax. So are they then actually submitting the sales tax and receiving a check back from the city? Or is this more a situation of funds not collected, ergo not disbursed?

Secondly, since in one response it indicates a need to attache 'explanations of any changes . . . and any major changes of policy' - is this a change of policy? Or is this an ongoing policy with 1 new vendor included, in which case it might not - in the eyes of the city since $100,000 is not very large in the overall budget - reach the level of significance to warrant inclusion.

Not an 'expert' opinion - just an opinion.