Travis County Commissioners Court
February 7, 2006
Item 10
Number 10-a, receive briefing and take appropriate action on the following budget items: a is the fy '07 budget parameters, including projected revenue and expense issues and assumptions. And 10-b, fy '07 budget guidelines.
>> we're about eight months from a point in time when you will be adopting a budget. At this point in time we're at 20,000 feet in the air and generally saying it looks like we're going about in that direction and we'll land somewhere over there. But it still quite early. What we wanted to do was to provide you an assessment of the -- what we call budget parameters in essence, information we're getting about property values and effective tax rate calculations and some ranges of expected expense and income challenges and then use that as context for what we're asking you today to do, which is to approve budget guidelines, which in essence provide the general conceptual and practical framework for county officials, offices, departments to submit their budget in may. And then the general approach that you intend to take in reviewing those various requests. So with your permission, I’d like to at least review the basic structure of the budget parameters. And I can go into as much detail as you wish. There are basically three large trends that we're seeing. One is property values. Art corey from the central appraisal district is projecting a little over 13% increase in property values. Much of that is on the commercial shot side. That is the reverse of what has happened in the past when residential out stripped commercial. This upcoming year it looks very clear that our commercial will be out stripping the increase in residential. The only question will be by how much. He is seeing total new value, that's new construction on the ground, toss higher than it was in '06 at about $2.4 billion. As you know, for the purpose of budget building, it is new construction that provides new dollars, existing value on the ground, simply requires you to atax the tax rate in -- adjust the tax rate in relationship to the percentage increase. So we will see according to mr. Corey a 20% increase in commercial values and a six percent increase in residential values. That's what they know today. He will certify in mid July, but at least that provides us with a context for planning. And I also will provide you increased flexibility in the upcoming year to provide relief to homestead owners, which is not something you've had in the past, given the rules that we follow and the effective tax rate. So that's one basic trend. The second is linked to property values and that's the effective tax rate calculations. The information from the appraisal district is fed into a set of calculations that the tax assessor-collector makes, and we see that the effective tax rate is 46 cents and the effective mno plus debt is 4606. Our current tax rate is 4903. That is -- we believe at this point that we should be able to relatively straightforwardly balance a budget at or near the effective rate given the various assumptions we have now. We don't know what we can do it at, but we believe that we can do it near. And this is one of the features of being at 20,000 feet as we still have some expense challenges out there.
>> near is either way?
>> near is either way, of course. Near is near. And you can be to the right or the left of near or at.
>> I’m not sure everybody understands that when they hear that. But near means that you could be under.
>> it's close. You can have your right eye or your left eye and still be near your nose.
>> (indiscernible).
>> it's hard to misunderstand that. [ laughter ]
>> so for the purposes of this analysis, we assumed an effective maintenance and operation plus debt rate of 4606. Our current rate is 4993. If we are able to balance the budget at that rate, the average homeowner will see a decrease, a lowering, a dropping from 813 average to $735 average tax bill.
>> would that be $28?
>> that would be 28-dollar decrease reduction lowering. So that's the second major trend at or near the effective tax rate. Then what we did was say what are we seeing in the upcoming year in terms of major expense items. There are certain things that are locked in, commitments that you have made that we know about. We're going to have a new court. For example, you've made certain commitments through your actions you wish to ensure that benefits remain reasonably intact, etcetera, etcetera. What we did was go through an analysis and tried to use a range of minimum to maximum what we believe at this time reasonable expenses might show given that heavy new. And as you might expect, at the lower end of our expense assumptions, we actually end up with a balance, 3.6-million-dollar balance, which could either be utilized for further reductions in tax impact or to be able to fund other necessary programs. At the high expense range we have about a 3.6-million-dollar shortfall. If all of those high expenses actually came to fruition, what would that mean? And that would require about a .09 of a penny above the effective mno or just over two percent above that effective rate. And in that judgment two percent is near. So in any event, that's kind of the third basic conclusion one can reach from the data. At this point I’ll be glad to either walk through the various detailed assumptions or allow you to do that on your own. There's about two or three dozen assumptions that are listed in your two-page legal size document entitled budget parameters, and I am happy to go through it or allow you to read it on your own. Or you may want to cherry pick because you've read it and have some specific questions.
>> I’m a cherry picker.
>> yes, we've seen.
>> on mr. Corey's letter, which is usually the letter that we take to see the new york bond rating firms about what does the new year look ahead, what caught my interest was on what he was anticipating to happen on commercial values, to go up about 20%. And it says commercial values will increase significantly. To me that's also code for are we going to see a lot more potential litigation and challenges that could require some adjustments, true-ups, putting more aside for those disputed tax bills because we've had some before and we have had to make large ea justments after the fact because the businesses don't just go, well, that's quite lovely, thank you very much. They generally try and get them lowered and/or go to court.
>> two things, to answer your question. The numbers that you see in art corey's January 3rd letter are what he predicts that he will actually certify in July of '06. He takes into account a prediction of either increased or decreased litigation based on the environment and the circumstances that he's facing. He is anticipating a reaction from the commercial sector to these increases; however, he also has said that the data is extraordinarily clear that the sales data out there on the commercial sector is not just one or two little items, it's many, many items that are of comparable size on the commercial sector, and that the sales are there. And that the sales are so extraordinarily clear that he has no choice. And naturally when something is very clear, litigation is less fuzzy than when the environment is fuzzy, and reasonable people can land on multiple conclusions. So I don't have access to that data because those are what the appraisal district do, but I do believe that he was relatively straightforward in expressing what his staff has said about sales, and he shared some sales data, which were -- and some comparisons of what properties are being listed. And we're talking about multi-million-dollar, large commercial properties where the sales are very clear. A lot of that is downtown.
>> christian, if you're reading -- if you're just reading business, it is without question, with the equity dollars being brought in from the east coast and the west coast and coming in and just -- people are just talking about, my gosh, people are paying these prices for these projects, and I’ve asked, my god, how can you get any roi at all, given the fact that -- because so many of these projects are moving people from one building to another building, which means that you've got to give somebody some great rates. And I don't know how the rates, you know, can prop up the sum of the out landish appreciated values, but the truth of the matter is you're right, exactly like art is saying, it's pretty defensible if you start trying to take me on about why I’m appraising your property at this because I don't have a couple of comps, I’ve got pages of comps.
>> plus, we are -- and this is both in the residential side and in the commercial side. If you look at the Texas market, Austin is expensive, but we are not in a Texas market, we are in a national market. And east coast and west coast money looks at Austin and says, oh, my gosh, what a phenomenal opportunity. And it's happening on the residential side and it's happening on the commercial side. When you see properties being sold at a thousand dollars a square foot, you go oh, my, with what properties are being sold for in Austin.
>> and if you are a company who is moving their corporate headquarters from, oh, say, california and the average homestead out in california isn't $213,000 for a home, all of a sudden you have folks that can buy some phenomenal properties here, and that too has a way of ooching up what's happened with the average homestead. There are a lot of expensive homes out there that are out in the county, and that also kicks it all up for all of us that have properties that are not in that category.
>> so I hope I answered your question, Commissioner, but still on the table would be whether you would like me to walk through or whether you would still like to cherry pick.
>> the only thing I kind of wanted to make sure that we have to say is that we also have the opportunity to address that big liability that we're looking at with the gasbe 45. So we also have opportunity.
>> yes. And if you notice the lower third of the first page of that budget parameter sheet you'll see gasbe 45, which is a new requirement that will hit us for sure in '08, but that prudent planning would call for you to address your flexibility in '07 to deal with future retiree health care. It is a major obligation, a major liability. There's a set of rules that are out there that are going to require all governmental entities to incur expenditures, not just book something on a balance sheet, but incur -- prepare for future expenditures and future liability, and that's going to be a very difficult problem to address, and it will be forthcoming this year and it will hit for sure in '08 and beyond. And it will require modifications, I am sure, on both the revenue and the expense side in order to do what's right and what is necessary.
>> this is one of just in terms of how to educate folks. I really would like to get us away from the phrase "jail overcrowding". Too many people think it's just a matter of oh, we don't have enough space and that's the money you're putting aside to send people out of county. We've had to do that a little bit, but it is really about jail overwhelming. It's really jail population issues because it isn't about overcrowding, it is about that is a current population, and they cost more money because as we got in the work session about a week ago, it has to do with our population growth and the severity of crimes of that's why folks are in there, but it is not about space, it is about population.
>> so noted.
>> thank you.
>> any other issues, questions? Let us read this on our own would be my recommendation. Thank you. You have enough information for us to mull over.
>> then that leads to us the guidelines.
>> yes, sir.
>> you may remember last year these guidelines were discussed at some considerable length in no small part out of a desire on the part of the court to identify three priority program areas where you wished to invite proposals to deal with certain problems that have an impact on the county's budget to a rather great degree. And those were reducing adult jail and juvenile detention populations with special attention to inmates with mental illness, substance sexual abuse and workforce -- substance abuse and workforce development, adult training and new jobs. We did that for the first time last year, and this -- these guidelines from our perspective seem to work pretty well, so if it ain't broke, don't fix it. We said let's look at them afresh with the benefit of a year's worth of experience, and see what should be changed, if anything. And we came up with three basic suggestions to change these, and then a lot of updates. The first was to take out some of the more restrictive language on your direction to the planning and budget office about coming at or near the effective tax rate in the preliminary budget. That change in legislative style format is on page 3 under item d, and in essence says you have a goal that the preliminary budget be at or near the effective tax rate. And then there's some other language in there that is clarifying a little restrictive, and we thought under today's environment that that was not necessary to tie the hands of those that will be producing the preliminary budget. And obviously once the preliminary budget is produced, it's then yours and then you do with it in accordance with your wisdom. The next item deals with new f.t.e. And you may remember that for a number of years your instructions to the planning and budget office was basically don't suggest new f.t.e. In the preliminary budget. And last year at the end of the budget process, some of us looked at each other and said, do you know what? We shouldn't have really had that kind of restriction because it required a budget hearing, it required a lot of debate, it required a very obvious conclusion on the part of the Commissioners court to add an f.t.e. For an extraordinary and compelling reason, and both leroy and I looked at each other and said we shouldn't have done that, we should have had it in the preliminary budget. But if you can't have f.t.e., then you don't, and you make folks go through these activities over a three or four month period of time, and it just -- it was obvious on its surface that an extraordinary or a a compelling need was there and any reasonable person put in the preliminary budget if you could afford it. So what you are suggesting is you allow that to occur and the specific language on f.t.e. Say in essence say certainly within the priority areas, if new f.t.e. Meet the criteria for those priority areas, you may recommend them, along with other f.t.e. When they're either covered by new revenue, when they're internally funded, when they're part of a statutory mandate. And then we said the language or part of a compelling or extraordinary need. So that's the second basic change that we're proposing to make. And the third is in the area of technology requests. We have not had specific technology requests over the last decade. And as technology has become more and more dominant in their lives and more and more complicated, and especially in a decentralized organization such as we enjoy, I thought we have had some experiences where technology requests have been wonderous and caused productivity gains and we have had experiences where technology requests have been vexing and difficult and expensive and awkward, over multiple years. And so we thought, well, if you replay the clock, gosh, if we would only have known today what we were facing on this particular technology request, maybe we would have done something different. And if that's the case, then what would you have done differently? You might have had more explicit planning up front, require people to really look and see whether or not what the f.t.e. Impact would be, more f.t.e., fewer f.t.e., both depending upon the year, what the impact on maintenance would be, etcetera, whether business protocols would have to be turned upside down and put back together again or whether the existing protocols could remain the same. Whether it's one office or 12 offices, all of which are run and managed by independent elected officials, all of whom have different opinions and perspectives on how the world should be configured. So all of these led us to suggest a set of criteria, which we then sat down with the chief technology officer, the county auditor, and hammered out some language, which we offered to you. This language has their concurrence. And it basically says, if you've got a technology request which is to continue to do what you're currently doing,, then that kind of request would be in the preliminary budget if it is to maintain your existing system requirements or your existing technological infrastructure or technology requests that are outside of the control of the organization, hardware, software, that's no longer available or being maintained. Contractually obligated upgrades, changes in the law or changes in accounting standards or some other external requirement. Then there's new technology. Doing better work, using technology as the spear to do that. And in those cases we're outlining a set of outcomes that such requests could meet, and then asking that an assessment be made. And the assessment need not be a bureaucratic impediment that requires four inches of analysis and flow charts that only seven people understand. It really can be something that in essence forces you to say what really will this technology do. Should you be doing pilots, testing it more? Or is it fairly straightforward and the benefit is so clear in relationship to the cost and the amount of effort taken to install it.
>> [one moment, please, for change in captioners]
>> ...that does drive a lot of work that you all start to do. I mean, I wasn't making light of it, knowing that most of the time when I hear near I generally always know that we are probably going to spend a little bit more or that has been the case thatú middle near I generally always know that we are probably going to spend a little bit more or that has been the case that I -- that I have witnessed. Not to say we don't have plenty of things we can spend good money on for good reasons. Is that the legislature is going to go going into special session, they are going to be dealing with the issue of school finance, but the issue of school finance is completely revolving around the taxation system. We are all but guaranteed that revenue caps and appraisal caps may likely be a part of those discussions. For me, there's no way I can land on anything unless I know whether we will have some mandated handcuffs put on us related to revenue and appraisal caps that for our own flexibility and -- and kind of bank on some things for the future. Simply if they decide to put some caps on us, we are going to have to seriously talk about what we need to do to make sure that we can do our jobs. So I can't land on anything until I know what the "lege" is going to do.
>> that's all the more reason why you need to go into it thinking that you need to be the near under. I agree, I think both of those things Commissioner are going to be on the table over there, you know, within the -- within the next, you know, 30 days. So -- so I just trying to really work hard, letting you all know where do you think this court is? Because a lot of times when you see 13.2 billion more dollars and you -- and you can -- you -- all of a sudden you start going wow there are a couple of things that -- that, you know, that -- that I mean an appraisal that is. You know, more dough, especially if we want to go over anywhere -- I think we have got we have sent something to p.b.o. You know what we don't mind going over that thing. A lot of times I think that drives how our -- you all go out to departments say you all are kind of going in the wrong direction. I know people get tired of saying hey we want more with less. It is -- it is the -- after all the thing that everybody pretty much deserves or say they want whenever all of us run for office. You know, when you talk about the feds or whether you are talking about our budget. So I -- but I agree. I think that we -- that we do need to -- to be ever vigilant with -- with being able to anticipate ordeal with whatever comes our way from the legislature, because I do think that we are going to get caught in that sometime. That's a good point. I agree with that.
>> well, it's just the opposite in terms of where I think that we might need to go in that is indeed the case. That is if we think that we can pretty much handle everything on our plate at or near the effective tax rate this year, that's well and good. If we get revenue caps, it means that we have to start anticipating things for four and five years from now, when just the opposite is true when being at or near the effective tax rate isn't even going to come close. We may have to start some new reserves. The gasb 45 reserve, the jail population reserve. The e.m.s. New vehicle reserve. A lot of things that are multiple year kinds of things to start pulling together the money now so when that comes in the future, we have got it and we can start pulling down, it's already embedded within our budget. If we are going to be adding new criminal district courts, if we are going to be adding another county court at law, those are a million bucks a pop. They are hard to fit in with everything else, so we may need to start talking about some reserves. And to plan for the future. If indeed we start getting revenue caps. So flexibility.
>> I suggest we have this back on next week.
>> okay.
>> thank you.
>> thank you.
>> good work.
The Closed Caption log for this Commissioners Court agenda item is provided by Travis County Internet Services. Since this file is derived from the Closed Captions created during live cablecasts, there are occasional spelling and grammatical errors. This Closed Caption log is not an official record the Commissioners Court Meeting and cannot be relied on for official purposes. For official records please contact the County Clerk at (512) 854-4722.
Last Modified:
Wednesday, February 8, 2006 10:44 AM