Fort Wayne’s Looming Budget Crisis
Posted by Jeff Pruitt - 7/2/09 @ 6:01 pm - Filed Under Featured, Local Politics
I suppose it’s never too early to talk about city budget issues but I think 2010 and 2011 will be much worse than anyone has predicted. As of last year the projected budget shortfall for 2010 was over $9 million and the city council rightfully made a down payment on that by cutting $2.5 million from this year’s budget.
With the economic recession in full force I would expect state revenues (income tax, sales tax, etc) to be down from the original estimates. This will certainly put pressure on the 2010 budget but the real crisis appears to be the 2011 budget.
Currently ~$100 million of the city budget is collected via property taxes. While we might not be affected as other communities we are certainly not immune to falling real estate values. The reason this will be felt more in the 2011 budget is because the trending analysis done by the county assessor uses data from the prior 2 years to adjust the current assessed value. Falling values in 2008 and 2009 will show up in 2010 assessments which are payable in 2011. Now one might think that even if property values fall, the rates will just go up and thus the city will still be collecting the same amount of money.
Well that might have been true a couple years ago but HEA 1001 now limits a homeowner’s property tax bill to no more than 1% of assessed value. So as home prices fall the number of people hitting the 1% cap will increase, and this will result in less revenue for ALL local government (not just city government).
At this point I cannot predict what the shortfall will be because we don’t have the necessary data on decreasing home prices, income and sales tax. However, last year the city controller was predicting a $7 million shortfall for the 2010 budget and that was before the economy fell off a cliff. I don’t think it is out of the realm of possibility that the updated budget shortfalls could be double the original estimates. That would have the city staring down the barrel of at least $7 million for next year and perhaps $16 million for 2011.
The administration and the city council will have serious work to do over the next two years on the budget and the sooner they get started the better. I’m sure the Hooverites in the administration will, once again, push to double the income tax but that should be a non-starter in this economy. I think we need to identify what essential services we want from local government and everything else needs to be cut to the bone…
Comments
16 Responses to “Fort Wayne’s Looming Budget Crisis”
Leave a Reply
For some reason our leaders tend to bury their heads in the sand rather than deal with problems. This is true on the local, state, and national levels.
You are 100% correct; Fort Wayne is going to have a large budget crisis in each of the next two years.
That is one of the reasons why I am so disappointed that the City is considering spending over 14 million dollars to purchase and rennovate a new building. We just do not have the money to undertake a project of that scope at this time.
Mike
Jeff -
You’ve described well how the timing and mechanics of the revised assessed values, rates, and caps work along with the cash flow impacts to city government and other taxing entities. Thank you.
And I agree that we need to identify essential services to be provided. Essential. Period.
Dawn
The trick, of course, is to define “essential services”.
What I am consider important, may not be important to someones else. It will all depend on whose ox is getting gored!
I agree Kevin, but the mayor did spend a significant amount of time in community meetings last year discussing this very topic with a variety of citizens.
I think most people would agree that public safety is a top priority but the size of cuts we might be facing could cause cuts there as well. Everyone is going to have to prioritize…
The problem with both city and county budgets is that there are many independent taxing authorities that are included. For example, schools set their budget and in the past divided by the assessed value would determine the school tax rate. With the new statute limiting property taxes to 1%, what affect do independent taxing authorities have such as library and schools? Do they get all the money they need or is there negotiation between taxing authorities? What is the hierarchy of the process? Are the individual tax rates kept at the same ratio in relation to each other as in the past?
The biggest problem I see with government is that they do not cut benefits, salaries or work days to correspond with the economy that employs those who pay the bills.
First I would require schools start after Labor Day. This would reduce air conditioning costs. Second I would eliminate many of these half day and late starting days for schools. There are too many three and four day weekends in the school year which extends the year into the summer months.
Change the law requiring new text books every five years to ten. Math for grades 1-12 has not changed since I was in school. These text books can be used a lot longer than just five years.
Instead of building one large high school which requires more bus miles to transport students, build smaller high schools, thereby eliminating the duplication of traveling the same route. This will save on maintenance as well as energy.
Police from what I have seen are very hard on cars. When I am at a stop light and one is next to me, each one when the light turns red accelerates far faster than needed and ends up breaking. This wastes gas, wears out breaks and pollutes the air. It is also sets a poor example.
Eliminate daylight savings time. I do not know about anybody else, but my electric usage increased by 5%. After looking at our usage I can see a 5% increase that corresponds to the months we change time over previous years. It is a good possibility this carries over to the government sector as well.
The city and Allen County have bailed out GM once again with tax abatements. Since GM has been here, have they ever paid their fair share to the community? Keep in mind when they opened they transferred workers from Michigan here instead of hiring local workers. I hear they hire people, but simply hiring people does not require everyone else to pay more so that they can have abatements. Maybe abatements should be paid for by those who directly benefit from them (workers who actually work there). Then again if they were to accept lower wages and benefits, then they would not need abatements. In simple terms a good business model is necessary for a good economy. Poor business models hurt the economy. So again why are we giving abatements to bad companies?
William Larsen wrote: “The biggest problem I see with government is that they do not cut benefits, salaries or work days to correspond with the economy that employs those who pay the bills.”
William, I KNOW you are incorrect-
The County insurance program is getting worse every year- the current plan (my wife is a county employee) requires us to pay 100% for ALL prescriptions and doctor visits. Certainly not the plan we had just 2 years ago.
there is talk of having county employees take time off WITHOUT pay each pay period- mind you the ELECTED officials all got fat pay raises.
Finally- cutting salaries for people who are underpaid is not a solution. Study after study has shown that county employees are underpaid for the work they perform.
Bottom line- no matter where the cuts come from, there will be outrage. I suspect in the next 2 years a lot of folks will rethink the property tax cap- and start to realize that if you want police and fire protection, resurfaced streets and new sidewalks, a nice parks system, etc.- you are going to have to pay for it.
Kevin,
You are right about county employees getting screwed. They could potentially be furloughed or even laid off while the elected officials keep voting themselves pay raises. It’s really par for the course when it comes to county government - just one of many reasons I think it’s a joke.
This is an excellent point. I believe public referendums should be allowed for general tax increases beyond just capital projects - this would be no different than what the schools are allowed.
If citizens want to spend money on more police/fire/parks/etc then why should a bunch of part-time legislators in Indianapolis be able to keep them from doing so?
In general, I think major tax policy should always be decided by the citizenry. I think that is the most efficient and fair option available…
Government likes property taxes because they are “stable”, insulating their revenue stream from the variations in the economy. If the economy and/or your personal situation goes south, they have no qualms about taxing you out of your house and selling it to get their money.
Much of the electorate (those who don’t own property) have the perception that property taxes don’t affect their wallets. Without caps, or better still the elimination of property taxes, that makes raising property taxes the path of least resistance for local governments.
The people who will howl most about the reduction of government services are the ones who think someone else is paying the tab and the ones employed by the public sector. If voters who want more (or no reduction in) goverment services know that they themselves are going to pay the tab, the howling will subside. The property tax caps, which were supposed to made up for by the sales tax increase, should be left alone. Tax increases should be via income or sales taxes decided at the ballot box instead of by part time legislators as Jeff suggests.
Keven wrote “Finally- cutting salaries for people who are underpaid is not a solution. Study after study has shown that county employees are underpaid for the work they perform.”
I am not sure how well informed you are about private industry cuts. What I see are schools cutting people, not wages and benefits. I see schools maintaining contributions to employee 401B’s.
In the private sector, most companies have cut back on wages, OT, vacation, increased payment to health and dental, 4 day work weeks. This has reduced the average hours worked per week to 33 hour nationally as of last week and it is worse in our area.
Underpaid by who’s account, government or what the sector pays? Too many localities use the average wage of other areas that may or may not be equal in buying power, taxes, amenities or the difficulty of hiring qualified people. In my opinion a company needs to have about 5% leave each year just to keep new blood coming in with better ideas.
Paying county and city workers should be based on the economy that supports them. If it is true that they are underpaid, then I would expect to see 15 to 20% turnover. If you are seeing only a 5% turnover, you are paying about the right amount.
If the economy is doing bad as it is now, then the city and county need to cut expenses appropriately to keep within its revenues. This means either cutting people or sharing the burden by sharing the cuts such as increase in employee costs for benefits, reduce hours, reduced vacations, etc. These people are not going to leave a job in today’s economy if you cut their wages and benefits to adjust for todays economy.
Bingo, William. My former company force-ranked its salaried employees every year and every year the bottom 10% left to “explore other opportunities”. Anyone else was free to leave if they thought they could find something better and advised “not to let the door hit them in the ass on the way out”. I assume public employees have the same freedom of choice.
Everet, Do you happen to know what the turnover rate is at public schools, county and city departments? My guess is it is pretty low, which means we are paying too much.
The city and county government is trying to keep up the Jones’s.
William-
Sorry, I don’t, but you might be able to get them from Krista Stockman. I have heard that reirements are about half of what they were before the economy tanked, no doubt due to losses in 401k accounts.
And the word is the city will be passing out raises this year.Unbelievable.
[...] a previous post I discussed the city’s looming budget crisis and thought that people were going to be shocked when they saw the revenue forecasts start to come [...]
[...] deficit, with the 1.5% salary increase, will be upwards of $9 million for next year (at least). As I’ve said before due to declining property values and other revenue the deficit for 2011 could be even [...]
[...] the inevitability of falling property tax revenue. Home values are down 8% in Fort Wayne and as I pointed out previously this will show up in the budget two years from [...]