In the 2019-2020 city budget, Auburn is able still to provide essential public safety services, meet contract obligations tied to these services and provide ongoing and expanded human-homeless services.
But according to Financial Director Shelley Coleman, the revenue side and increasing demands on the expenditure side are causing the general fund a revenue shortfall in the operating budget.
Expenditures, Coleman noted, continue to increase, primarily for public safety, human services and services related to homelessness, and annual increases are expected to exceed 5 percent.
While the city took several unusual steps to balance the 2019-2020 general fund operating budget, Coleman said it can’t repeat those steps for future budgets. And absent raising revenue or cutting programs, within five years, the city will go into the red.
On Jan. 28, Coleman discussed with the City Council potential increases in existing and/or new revenues to meet the needs, and whether such increases would require a vote or could be enacted solely by council authority.
“What are we going to do about it? … There’s only two ways to go about it: either raise revenue or cut expenses, or some combination thereof,” said Council member John Holman.
“We are about 30,000 people more in our city with about the same number of employees we had before the recession, so we’re pretty lean there,” Mayor Nancy Backus told the council. “So. when you talk about cutting programs, you are talking people. And if you are talking about increasing revenues, you are talking about impact on the residences and the business owners of this community.”
Among the factors affecting revenue are the state’s ending of mitigation funding for the streamlined Sales Tax (SST), the sunset of the sales tax annexation credit. The annual impact on the general fund for these two revenue streams alone is $4 million, Coleman said. Another factor is union contracts.
Among the possible revenue options that can be exercised by a council vote or a vote of the people, or both, are a levy lid lift and a possible business-and-occupation tax.
Among current revenues with increased capacity that do not require a vote of the people to raise taxes on are the internal water utility tax, the sewer utility tax, the stormwater utility tax and the garbage utility tax, all of which the city owns, Coleman said, and none of them have a statutory cap on what the city can levy. Today, it’s 7 percent on those four city-owned utilities, with 1 percent going to the arterial street preservation fund, and 6 percent earmarked for the general fund.
One large revenue impact is the property tax cap. This revenue, which represents 30 percent of the total general-fund-operating revenue and the annual growth, or levy, is limited to a 1 percent increase each year, or $220,000 for 2020.
To increase the revenues that the city now has in place, such as the electric tax, would require a 50 percent plus 1 public vote. A 1 percent lift of the property tax levy lid would generate $220,000, Coleman said, an increase in the electric tax would generate about $3.6 million for the general fund.
The city can levy .1 percent on sales tax for public safety with a 50 percent plus one public vote.
The council could enact on its own a business-and-occupation tax, which would be worth $5 million a year for the city, Coleman said.
Council member Largo Wales questioned the imposition of a B&O tax when the city has for years touted the fact that it doesn’t impose one.
To balance the 2019-20 budget, Coleman said, the city kept in the general fund $3.5 million worth of sales tax dollars it normally uses for the local street program, which is funded with real estate excise tax dollars. The city also had to put $3.5 million into contra expenditure accounts, which it used to balance the budget.
The city has scheduled a $4 million transfer of reserve funds from the cumulative reserve fund into the general fund to balance the budget in 2020.
That transfer, Coleman said, brings revenue up to $75.3 million. If the city were to remove that $4 million, she said, revenue in 2020 would be less than what it was in 2019.
“We’ve taken into account in this that there will be unused budget at the end of the year, and maybe some revenues that come in over what we have anticipated, and we’ve incorporated that into this analysis. But even with that, we come up to about $30.6 million negative at the end of the 2024 forecast,” Coleman said.
Noting the gravity of the situation, Holman rejected any suggestion the issue be moved to a behind-closed-doors ad-hoc committee.
“This is a discussion that needs to be as public as possible … best we keep this awkward but here in front of a camera and an audience,” Holman said.