Austin Chief Financial Officer Ed Van Eenoo gave City Council both good and bad news at Tuesday’s briefing on the city’s financial forecast.
Van Eenoo said General Fund revenues, especially sales tax proceeds and interest earnings, have put the city in a position where staff can recommend increasing the city’s reserve fund to 60 days, in accordance with industry standards. He said it is important for the city to keep reserve funds in case of emergencies – such as the Covid-19 pandemic.
Because Austin had strong financial policies, the city was able to fund its own response to the pandemic, while other cities had to wait for federal funds. Then, when the federal money came in, Austin was able to pay itself back, Van Eenoo said. But rising costs will create challenges long term, he said.
Van Eenoo said federal stimulus spending and recent growth in sales tax collections have masked the challenges the city would otherwise be facing in light of the state law limiting the city to a 3.5 percent property tax revenue cap without voter approval.
He said he expects the city will end Fiscal Year 2023 with $1.31 billion in total revenue, which is $32.7 million above the budgeted level. The reasons for this include $13.5 million above the expected sales tax revenue and $2.2 million in additional mixed beverage tax revenue. In addition, the city made $13.9 million in unanticipated interest earnings because of the increase in interest rates.
However, expenditures will continue to climb, while interest rates may not. The city has projected a number of cost drivers for FY 2023-24. Those include $47 million in wage increases for both civilians and sworn public safety employees and a projected increase in city pension contributions. Police vehicles and wireless equipment will cost the city another $10 million, and the opening of the Goodnight Ranch station in 2024 with 16 firefighters and 12 EMS positions is expected to cost more than $3 million, Van Eenoo said.
Interim City Manager Jesús Garza also told Council that he anticipates a 3 percent raise for city employees. In addition, the city is anticipating a 10 percent increase in its portion of city employees’ insurance. Garza noted that the forecast staff was delivering on Tuesday did not include funding for any new initiatives. If Council wishes to add to the base budget, it is clear they will have to make a good argument and perhaps find savings to balance extra spending.
Jon Hockenyos, a local economist who has provided the city with financial advice over the years, offered a gloomy outlook for the nation’s economy over the short term but said Austin will fare better than most cities.
He told Council, “We have had a period in the United States of extraordinary stimulus. We’ve had all the faucets wide open … adding $7 trillion in stimulus to a $21 trillion economy. That did a lot of interesting things at the local level here in Austin, not the least of which was after we all got sick of our porches being jammed with Amazon packages, we found other ways to spend money. And the sales tax boomed as a result. We had an exceptionally rapid run for quite a period of time but it’s coming to an end.”
Hockenyos predicted that the Federal Reserve will raise interest rates once again next week, which he said is not a good idea. “They’ve clearly taken the punch bowl away from the party. So, nationally, it’s almost a certainty that we’re going to have a recession. Austin never is as negatively impacted by national trends as the rest of the country is for a variety of reasons.”
“We are seeing some negative things around what I call our ‘soft technology’ group – Meta, Indeed and Alphabet (Google) – because they’re fundamentally driven by advertising and advertising is drying up.”
However, he said, “Tesla committed to create 5,000 jobs and invest $2 billion in the summer of 2020. As of their most recent report to Travis County they’ve invested $5.8 billion and created 12,227 jobs. … We’ve seen what’s happening at Samsung. We are becoming a manufacturing center. … Take it all together and we’re going to be in a little bit better shape than the rest of the country.”
Hockenyos concluded by urging Council to pay attention to the continued challenges in maintaining the labor force and also the banking crisis – which could lead to greater difficulties in financing projects. “What that means is we have a lot of stuff under construction right now.”
Those are going to be finished, he said, but other projects in the pipeline could simply go away.
Photo made available through a Creative Commons license.
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