Travis County Commssioners Court
May 27, 2003
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Item 35
Number 35 is to receive and discuss the first revenue estimate for the fy '04 budget process.
>> find us money, susan, please. [ laughter ]
>> let me give a brief intro and explain the details. First, of course, this is the first one. It's the general fund. It is very early. It is what we see at this point in time. Just as an overview for primarily people who are watching on television, county government depends primarily on property taxes, close to 80% of the funding that we receive comes grekt directly from the property tax. We do not get sales taxes and other kind of taxes that other governments get. So the property tax is very near and deer to our hearts. And having said that, Travis County gives the largest exemption of any government in the area on that property tax in terms of homestead exemptions and senior citizens. And that's kind of the environment in which we worked. The tax rate under Texas law is very complicated. And every time I hear people talk about rates going up and downtown, it kind of makes me crazy. Because the Texas law really has defined the current rate as the effective tax rate. And the effective tax rate under Texas law applies to the rate in the aggregate. And within that everyone's taxes are different in their properties. We've got commercial properties, which are different and residential. And so you can have up or down ward movement in individual properties as well as classifications of properties. And the rate may be different the effective tax rate works inverse relationip to the value of the taxes in the aggregate. In other words, when property values are going up, the effective tax rate goes down. And the reverse is also true. So rate in and of itself is not really the gauge of whether taxes go up or not according to Texas law. What is the gauge is effective tax rate. And the way it is calculated, there are two parts of the tax rate. One is debt service. And that rate is set to pay the legal debt obligations that the county has, which comes from voter initiatives by the electorate in Travis County as well as certificates of obligation. But that is legally entered into debt that we need to pay and that's set out by the bond agreements that we have made when we borrowed the money. That's one part and we pay that in a fund called debt service. The other part is the maintenance and operation. And the maintenance and operation rate, the effective rate this year is .3905. And what that effective rate is is you take all of the properties that were in existence, like last year in fq '03, and you determine what rate you have to lay on those properties in the aggregate to get the same amount of money that you did the previous year. And that is the effective tax rate. The money you get more than effective tax rate are from new properties only. So really the effective tax rate is the basis of comparison. There is no way to -- because what it does is it takes the dollars that you take out of the community and it makes that the same. There is no way that I know of -- there probably is, but it's probably reduced by 80% -- that you could say no one in Travis County will pay any more dollars than they did last year. That is not possible under the effective tax rate. Or you probably would have to take taxes down to the lowest base to get there. So the effective tax rate, if you adopt an effective tax rate, that basically is a no increase tax rate. That's what you are looking at. The laws that require a roll back or allow rollback, all bounce off the effective tax rate, not the literal tax rate that was charged the previous year. So in other words, if taxes go up eight percent over the effective tax rate, in other words, the definition being the current taxes rather than actually the rate, which is the effective tax rate, then there is a chance to have a roll back. So everything bounces off febt active tax rates. I think it's important for people to know that because when you talk about rates, rates move compared to property values. And they don't all move the same. If every single property in Travis County increased or decreased by the same percentage then everyone would pay exactly the same amount they did the previous year, no one increase their budget at the effective rate. But that cannot happen because effective taxes are at the aggregate. Homes and businesses are appraised individually. So the first revenue estimate that lane is going to present for 2004 is at the effective tax rate and that is what we were directed to do from the planning and budget office. And we would call that the baseline tax rate. As the auditor, I would say if you pass an effective tax rate in essence consistent with Texas law, that basically is a level tax rate rkts given the intricacies of collecting property taxes. And the other intra casey in the tax rates is that under Texas law people's appraisals could not go up for tax reasons more than 10 percent a year. And many properties went up so much that people still were not paying the full property capped out. And so even if you could pull everything back to the lowest common did he non-nater, some people would pay more taxes because they hadn't capped out. It's really a very complicated process. There's going to be a lot of politicizing. And I guess I just need to say I think the fairest look at this is the effective tax rate. And so the revenue estimate that blaine is going to put forward right now is at the effective tax rate, which is what you were asking to do by the planning and budget office. Go ahead, blaine. I'm sure i'll have something to add.
>> blaine keith from the auditor's office. As susan said, this is just a one-page estimate just for the general fund. I always look at preliminary and greg recaps the letters on it. We tried to be very conservative on this one. We would rather build revenue than take it away from you later on. So this is really just serving to give you a very broad picture of the resources we think you will have in the general fund for the upcoming budget process. As done in the past, it two portions. For the current year we make a shot at calculating an ending balance, and then for next year we estimate the revenue. From a current year -- the numbers change every year, but the pattern is pretty similar. At the end of April we always have a really good, fund balance because we've gotten in most of our property tax. And therefore we don't -- the additional revenues really aren't that much relatively. Expenditures obviously don't work that way. They go relatively level sort of compared to our overall revenues. So we always had a lot more expenditures in the last five months a year than we have revenues. We started the month of may with 139.6 million in the fund balance. We're forecasting new revenue this year of a little over 266 million. That is just a little under the current budget. We're trying to be conservative here. We might get up to the budget by the time the year is over. I would be surprised at that. I think we will be very closed. I think we'll be a little bit under. But I would say I would be surprised. I wouldn't be stunned if we actually got up there. Since we already collected about 248.4 million for seven months, we're looking at about 17.6 million for the rest of the year. Pbo always assists us on fund balance because they do the forecasted expenditures. So they are looking for an additional 123.4 million in expenditures. That leads us this year -- at this point our estimate of an ending balance is $33.8 million. That's about 4.6 million more than the unallocated reserve you would see if you looked at the recap of the budget. The budget that you approved in September. So we expect about 33.8 million to carry overfrom this year to next year. Right now we're looking at about $275,125,000 in new resources, and obviously most of that is property tax. And let me say a couple of things about the tax. As susan already said, we're using the effective tax rate for this. We knew a couple of things when we were estimating this revenue. First of all, we have an account that we use to allow for refund. We've been using four-tenths of one percent for the last couple of years. Looking at history and changes in procedure, the appraisal district we felt we need to increase it to five-tenths of one percent. And the other thing is we felt considering the way the economy is going, what's been happening to our tax base that it wouldn't be prudent financially to use the 99% collection rate. We use 98.5%. We have kind of an unfortunate situation for budgeting. We're given a nn in -- number in July to use on which to base the budget, and it doesn't change. Five months later the appraisal district find out that the assessed valuation is really a lot lower or a lot higher, we can't change the budget. The only way we can really be -- to give you a good number for taxes is to try to assume that collection rate at the beginning. And so we talked about it, we decided to go with 98.5 percent, which we thought was much closer to reality for next year. It doesn't make a ton of difference. It's about a difference of 1.2 million, but we think it will give you a better figure. Our goal is to give you a number in total that we can reach. We just felt the taxes at 99 were just a little too high, and we felt comfortable with it. This estimate calls for a little over $231 million in current property taxes. We've put all the other revenues in our -- in a very cleaverly titled category called other revenues. We haven't gotten far enough to make much differentiation at this point. What we do is we take what we're forecasting for this year, not what we've budgeted, but forecasted for all those other revenues. And then we use that number and amend it. Unfortunately, amendments invariably mean reductions in total. Because there are a lot of things we don't know yet. We don't know if there will be transfers. And that's usually a big thing. We have about $1.3 million in the budget currently for transfers. There's none assumed for here because we don't know that. Those tend to come along later in the process. And we take out any, you know, one-time revenues. We've had a property sale this year that we're forecasting obviously, but we're not going to put it in for next year. And right now, for example, we're not assuming a tobacco settlement until we get more information on that. And so this other revenue number invairbly is lower than what we're forecasting this year. And normally it comes up. We're just being very conservative at this point. We can't really put our finger on something with any confidence with what we have here. That gives you a total revenue number for next year for just a shade under 309 million. That's about 3.6 million more than the current budget. When I say the current budget, what it is is everything out of April. If you go to recap your budget from last year and try to compare this number and that, we're looking at the current budget. Like I say, about 3.6 million more. And we realize it's conservative, but we think it gives you at least a feel for what kind of resources you will have no next year, given the assumptions you've made. We've always said the numbers are easy, it's the assumptions that are hard. Twhoos we're looking at for right now. And if you have any questions, we'd be glad to take them on.
>> i've got just one short one, and it's more the education of everybody that's out there related to the tax rate. If I'm reading it correctly in terms of on the chart, it says that the portion of the effective tax rate is basically about 39 cents, is that correct? , which means that there's another piece of the tax rate, which is interest and (indiscernible), which is the debt that this county and any other county incurs. I know i've heard a lot of discussion about why is our rate what it is? And somehow not analyzing what is the component of our rate. And I think what that says is if I'm reading it correctly, it's about 10 cents being used for interest and sinking. And if I look at what's going on in some of our other large urban county counterparts, harris county, tarrant county, dallas county and bexar county. I'll go with those four. A good chunk of what is part of our ins is for our road and for our park bonds. If I added it up correctly, between '97, 2000 and 2001, it's more than a quarter of a billion dollars that this community said, please invest in these roads and parks. And I think the Commissioners court was very up front about it, saying that you know you will have to pay for that in your rate. Having had discussions with our counterparts in those other cities, there are no large, regional toll projects occurring at the county property tax level in harris county. They've got a toll authority. Nor in dallas county, nor tear rant county because they have the ntta, the north Texas toll authority. And bexar county, talking to our counterparts down there, they are begging for their county to get into some large regional projects. But I think that is one thing that has not been talked about, and that is what has this community affirmatively chosen to do and what piece of our rate reflects this community saying invest in these dollars. And then susan will of course tell everyone related to what Travis County chooses in a very prudent way to have a very aggressive debt pay justify schedule. We are allowed to have 30 and 40 year bonds related to some of the things that we do, but we choose to have 20-year debt. I don't think we have anything over 20-year debt and we have a bond repayment schedule that basically front loads our debt so that after seven or eight years, half of the debt is retired. And that's a good thing because it means we're paying less interest. So I guess -- I'm just hoping for some general education out there that when people say okay, why is your rate what it is, why is it 46 cents? The answer is knock out the debt service and see where we are and see where we compare and then ask some questions about whether in those other large urban counties that have rates that are substantially lower than ours, are they making the same kinds of investments on the debt side, which is also blended into the rate. So this is nothing more than to be what's going to be beyond what our rate is, what it is. But I can tell you dallas, tarrant and bexar and harris reflect their investment in regional and local road infrastructure in their toll authorities or no authority in the case of bexar county. And we show ours within our county tax rate because that's where we've got to reflect it because that's where the spend urz are.
>> a significant increase last year along those same lines was sh 130. And I think the increase in debt service, christian, was at 10 million, am I right? About 10 million dlampltz so you can see what as blaine says that you will have roughly 3.5-million-dollar in mno to spend the last year in the general fund. We now have increased the debt service on top of that through the voter approval and those fund by $10 million, so that does give you a comparison about what an extraordinary hit that was on this government and the tax rate. One reason people do forget is because you've got the election, then you issue bonds, but you don't have the debt service until the next year. And by that time people do forget that that was out there and they have to pay for it. But that was a good thing from the traffic viewpoint, but in terms of the economy hitting the tax rate in the county, kind of an unfortunate thing with the economy being where it is. But I think critical numbers to look at when I looked at it is that the fy '03 budget predicted and ending fund balance of about 29 million. We think we're going to come in at 33.
>> which is good.
>> yeah. But we always come in higher. The beginning fund balance this year, we started out with 36. We think in '04 we're going to start out with about 33. So it's less than this year, and I guess those are the salient features of this -- at this point. And as blaine said, you know, we are fairly conservative at this point. The other thing, of course, is if you've been reading the wall street journal, they're thinking the economy is entering into a situation of deflation. The road and bridge fund is dependent very heavily on motor vehicle taxes. We've not seen a precipitous drop here. This estimate doesn't handle that. But should that happen, that also makes a dichs because those -- difference because these have pretty well -- those fees have pretty well carried that road and bridge fund. And if they do not, that could be an issue, but we're not seeing that.
>> we budgeted less this year.
>> yeah. We took that into account.
>> we took that into account. And we may exceed that, but we went with that number with a very detailed calculation. And we will be down some this year, but we allowed for that in the budget. And the first numbers we've seen for next year are down even more. We haven't analyzed them yet, but we don't see that fund jumping back up now.
>> it's a number issue out thrvment.
>> so that could be a problem. We'll deal with that in the next estimate. We've got the numbers we have analyzed.
>> could you all just very briefly comment on how much attention has been given to our counterparts over the state and school district and the city related to their budget challenges? And certainly we have challenges here as well. If you just follow the discussion on health insurance both in the internal and the rmap program. The state has a $9.9 billion deficit that they have had to close. The school district had a huge number. The city started at 78 and I think it's at 50 something now. Does Travis County have a deficit even with the challenges that we've got moving forward? Where are we starting at in terms of the beginning of the budget versus what our counterparts are?
>> I think a deficit is defined really by two areas. One is you predicted revenue to come in that did not. We're going to be, we think, in the general fund, very slightly short on taxes, by about 1.5% we think we'll be short in the general fund. The other area that hit you us that hit everyone else was the interest rates. Interest rates are so dramatically low. While we predicted a downturn, it was lower than we thought. Even within those parameters, we're not in a crisis situation, and part of the reason is that you all have really worked on preparing for this downturn. We have tried not to overstate revenue, and just crossed our fingers and hoped that it will come in. Y'all have been very fussy about putting aside reserves for areas that you felt were uncontrollable. The thing about cutting government is that there are many mandated services that we have, and so it doesn't matter what the economy does. Have you to take care of that. Indigent attorney fees are one of them, indigent health care are another. These are mandated by the state of Texas. There are many more. But you've got those expenditures out there. And whatever money you have, you have to use for that. You can't control some of those. The other issue uncontrolled spending. And I think you watch spending. I went to a meeting the other day and they said one of the reason many counties were in trouble is because they persistently allocated one-time revenues against ongoing expenditures. So when the expenditure -- the revenue did not come in again, tobacco tax is a good example, I mean, if you get a million dollars in the tobacco settlement and you hire a million dollars' worth of employees and the next year you don't get that million, you've got a-million-dollar problem out there. And many governments did that. And during a boom I think people hope that something goodwill come and fill if in, and a lot of times it does in a boom, but it didn't this last year. So we didn't do those kinds of things, y'all didn't do that. And I think that you showed restraint. The other real issue is are there sufficient budgetary controls that make sure that for those things that you can control they are controlled. And I think that this government has had a history of tight system controls in terms of spending. If you don't have the budget, you can't spend it. Now, have we had some violations of that? Yes, we have, but they've been very, very minor. During. One of the problems we had last year was overtime. It was it is a problem when you have programs that run 24 hours a day, seven days a week. It's not like other programs. And we have a number fz those here. But you put in a budget rule where in 15 days you have to cleanup any overtime that you have to incur that was not budged. That's working very well. Departments aren't terribly happy, but it's working very well. We don't expect to see a problem out there. We've also been building in computer controls, some of which will give people management information as to look at this, look at this, look at this. And the others are just plain controls, don't let them do something that they can't do. When you have 80% of a service budget is salaries, it's important to control those sal rise and make sure people don't hire exeez that they do not have the money to pay. I think the controls are getting significantly better. So I think revenues are pretty well coming in where we thought. I think that expenditures are pretty well coming in where we thought. We all thought there would be some hot spots here, and there are, but so far the county has had sufficient reserves to deal with that. I think the biggest shock to me that i've seen that I wouldn't have expected is the increase in the health care. We knew it would go up, but I didn't think it would go up that much. It's huge. It's a huge issue. Every other organization in the country has that.
>> we aren't the only ones taking a hit.
>> we're not. And we're trying to deal with that as well. So I will say that when you look at the private sector, many of those companies went out of business, those that didn't handle it well. Many governments that are in a lot worse shape than we are. So I would say for a lot of reasons we're in pretty good shape here. In the middle of a town economy. -- down economy.
>> thank you very much.
>> thanks. You do a great job.
Last Modified: Wednesday, May 27, 2003 7:52 PM