Tuesday, August 11, 2020

Richardson's Budget - Black or Red?

It's August and that means it's time for Richardson budget roulette. Will the proposed city budget be balanced? You'd think that would be a simple question. Isn't the city required by law to have a balanced budget? Well, yes, but it all depends on the meaning of "balanced".

When I looked at this question three years ago, I concluded that the city's 2017-2018 budget was indeed balanced and didn't require use of that sneaky asterisk ("plus reserved fund balance and other financing sources"). After watching this over a number of years, I found that the amount the budget is in the red or black each year is always small. Whether it happens in any given year seems to be a matter of chance.

Let's look at the 2020-2021 proposed budget.

Proposed Budget FY 2020-21
Beginning Fund Balances$91,214,264
Operating Revenues$286,708,105
Operating Expenditures$287,369,626
Ending Fund Balances$90,552,743

The ending fund balance is less than the beginning balance. That means the budget is not balanced. We are drawing down the fund balances to pay for the deficit. Given the two disaster declarations the city has had this past year (tornado and pandemic), it should not be surprising that the city budget would be stretched thin.

Sales tax revenues are down and are likely to remain down for the foreseeable future. Likewise hotel taxes. Property taxes are more stable, but are more likely to drop in the coming year than rise. Housing prices are under pressure. Family budgets are, too, making it an open question whether 2020 property taxes will all be paid in full. The pressure on the budget is not going to be a one year thing.

People commonly call on government to cut spending in recessions. How often have you heard, "I have to tighten my belt. Government should, too." Well, Richardson is doing that, if only by such a small fraction, 0.6%, that it's almost a rounding error. And it's not like cutting more would be a good idea, anyway. Government budgets are not like family budgets. Families have to pay back debt, eventually anyway. Governments don't. Ever. All they have to ensure is that their debt levels grow more slowly than their tax base. Well run governments do that all the time. Also importantly, families don't have payrolls. Governments do. When a government "tightens its belt" it means laying off police officers, fire fighters, road repair crews, trash collectors, etc. If all cities are doing that, that doesn't help us recover from a recession. It just makes the recession deeper. The city sustaining base services not only keeps our city livable, it keeps the economy going, helping us recover from our stressed financial situation. As the city says, "we are a flywheel and stimulus for the recovery."

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