Austin’s budget forecasters are declaring a long-term fiscal outlook that is partly sunny, with a good chance of labor friction.
Austin’s economy might be among the nation’s strongest, but as contract negotiations between city management and public-safety unions enter a key stage, the city’s budget office is drawing a bright red line — either hold employee pay raises to a minimum or start scaling back city services.
A 5-year budget outlook delivered Thursday predicts the city will not be able to afford the typical 2 to 3 percent raises even if the City Council raises property taxes each year as high as state law allows without a special election.
The pronouncement irked the public-safety unions, as well as the union representing rank-and-file civilian employees, which, though it lacks collective bargaining power, still carries political clout.
“I find it laughable that in the flush years they would give us the old line about how they’re broke,” said Bob Nicks, head of the firefighters’ union.
The budget forecast paints a five-year picture similar to the one for this upcoming budget year: if the council approves the maximum tax increase — roughly 8 percent — the city would net $30.3 million more in property taxes. But giving 3 percent raises to all 12,000 municipal employees while preserving existing services would require $42.7 million, according to the budget office.
In the trough of the recession, the 2009-10 fiscal year, no city employee got a pay raise. But since then, public-safety employees have received 3 percent annual pay raises. Civilians got, on average, a 2.5 percent increase in the 2010-11 fiscal year, a 2 percent increase the year after, and a 3 percent increase this year.
To accomplish that, and deal with other rising costs the city faces, the council has approved property-tax increases at or near the maximum allowed, Chief Financial Officer Elaine Hart told the council during a Thursday budget forecast. The exception was 2010-11, Hart said when the city adopted a rate well under maximum. The years of rate increases were compounded by rising property values.
With all the good economic news in Austin — “The regional economy is probably the strongest of any in the country,” economist John Hockenyos said Thursday — council members displayed varying degrees of surprise at staff’s assessment that 3 percent raises are seemingly untenable.
“I think the assumption is clear: we shouldn’t be negotiating at 3 percent. To me, that is eye opening,” said Council Member Mike Martinez, a former head of the firefighters’ union.
Council Member Bill Spelman said the city should try to break the habit of assuming 3 percent increases are the proper place to start wage negotiations. He said the city should use other measures, such as the increase in taxpayers’ per capita income, which, based on Hockenyos’ presentation, Spelman put at about 1.5 percent for the last four years.
“Even given our relatively exalted status, economically speaking, we haven’t come anywhere near an increase of 3 percent per capita income,” Spelman said. “It would be inequitable for our taxpayers and simply not something we can bear.”
Part of the disconnect between the promising economic forecast and the more sober budget forecast is due to rising costs the city says it can do only so much to tame. They include employee health care, pensions, the added cost of running new facilities — like the Asian American Resource Center and Gus Garcia Community Garden — and keeping a ratio of two police officers per 1,000 residents while maintaining a 24-hour police presence on some of the city’s hike-and-bike trail.
Another part of the disconnect is how much the city should count on sales tax revenue to cover ongoing expenses.
The budget office forecast assumes that sales taxes collections will rise three percent a year, a conservative estimate that yields $5.1 million over last year. Sales-tax collections are actually up 10.7 percent this year over this point in the last fiscal year. If that trend holds, Austin would collect nearly $19 million more than last year.
But because sales taxes can fluctuate wildly, the budget office recommends spending higher-than-expected sales tax revenues on one-time purchases or adding them to the city’s reserves, an approach endorsed by the bond-ratings agencies that determine how cheaply the city can borrow money.
The city is perhaps too conservative in its assessments and, with this spring’s union negotiations likely to determine years of pay raises, such caution could unnecessarily limit employee pay, said Greg Powell, the business manager of the American Federation of State, County and Municipal Employees Local 1624 union.
“It’s always much better to find yourself with million of dollars of extra revenue than to come up short, and we understand that,” said Powell, whose union represents civilian employees. “But I’m saying to council members, whatever you come to with the public-safety unions, you should be ready to extend to other city employees, who also do important work.”
Marty Toohey has written about local government since 2005, and has reported on Austin City Hall since 2009. He has taken in-depth looks at how Austin Energy revenue supports the city budget, the rise in government pension and health care costs and the combined burden of various local tax entities on area property owners.