The City’s 2008-2009 budget process was in the local news again this week. Here are links to two stories about the September 18 City Council meeting that discuss the latest budget discussion on the Council: Eden Prairie News and/or Eden Prairie Sun Current.
Essentially, the Council has asked for a new budget option to consider. They have been considering two options. Version 1.0 with a property tax impact of +5.37% and Version 2.0 with a property tax impact of +2.08%. The Council’s action this week formally directed me to prepare them an additional budget version, which we’ll call Version 3.0, that increases 2008 spending by $1,00,000 over 2007 levels. I haven’t seen the exact property tax impact yet, but it’s likely to be about +1.00%. I’m also going to prepare an additional budget option for the Council to consider. This one will be the zero option. We’ll call it Version 0.0. It will reflect the changes in our budget necessary if the Council does not approve any increase in spending for 2008. The property tax impact of Version 0.0 is -2.57%.
It’s difficult to talk about the budget in hypothetical terms in an open governmental environment. With 100% transparency comes 100% knowledge of who said what to whom about the budget, and that can create a charged environment over time – especially when the discussion is centering on employee and service reductions. The budget is a very personal issue for City employees. They have mortgages, kids in colleges and bills to pay. Like anyone else, they want to know if their jobs are secure or if their salaries will increase in the upcoming year, or not.
Because a city government is a service business, most of our costs are personnel costs. Of course, most of our assets are too. It is very difficult to make meaningful structural change in the City’s budget without affecting the people that work here. Sure, you can decrease the rate of growth of taxes by spending down the City’s capital funds on operations. That’s a short run strategy that produces two very negative consequences in the future. First, you burn through your capital reserves, which most people won’t notice in the short run. But the reserves will eventually run out and the City will be forced to either impose new taxes for new capital resources or to stop investing in the capital infrastructure of the City. I hope we all learned a valuable lesson this past August about what happens when a government stops or defers making new investments in its capital infrastructure. The results of that decision can be more than just annoying. They can be tragic.
The other consequence is that someday the gap between annual operational revenues and annual operational expenses will need to be filled. Ideally, a government’s annual operating expenses should be covered by its annual operating revenues. When annual operating expenses exceed annual operating revenues an annual operating deficit is created. Covering that deficit with other revenues pays the bills in the short run, but it doesn’t address the structural problem in the budget. This is more than just accounting lingo. If this sort of situation is allowed to go on year after year, the operating deficit grows year after year and the gap grows. There would be a day of reckoning for this budget situation someday. And when that day of reckoning comes, it will be very messy and very painful for all concerned because services would be significantly cut and taxes would be significantly raised – not a good combination.
These are the kinds of situations and difficult questions the City Council is wrestling with right now. They want to make sure that our local City tax rates are reasonable, but to do that they must take a hard look at City services, which means taking a hard look at how many employees we have and how much they get paid. The Council is getting a lot of feedback right now. They’re also getting a lot information right now too. City staff will help them reach a wise decision, I hope. We’re working on that right now too.
