Sunday, August 16, 2009

Truth In Budgeting

Mayor Greg Ballard's administration appears very proud of the 2010 budget it has presented to the City-County Council. Ballard touts a "balanced budget" at a time when "money is tight for everyone." Well, almost everyone. Despite the administration's efforts to make you believe they faced an incredible task in closing a $40 million shortfall allegedly caused by the new property tax cap law, the actual numbers behind the budget tell a much different story.

To be sure, government is taking more of your tax dollars. In 2007, the last year of the Peterson administration, the City-County budget included $564 million in tax collections. The 2010 budget projects tax collections of $680 million, up 20% over Peterson's last year in office. Total tax revenues in the new budget are up 6%, and it relies on $11 million more in property taxes than last year. The last year Bart Peterson was in office, the City received only $33 million in federal funding. The 2010 budget anticipates $124 million in federal funding, a 275% increase, or a difference of $91 million. Combined federal and state support is up to $277 million, about a quarter of the entire budget. And let's not forget the $30 million a year savings the City of Indianapolis realized after the state picked up more than $400 million in public safety pension liabilities and $99 million in child welfare services erased from the City-County budget after the state also took over funding of those services.

The Ballard administration has produced a balanced budget, if you want to call it that, thanks to: its decision to make Bart Peterson's 65% increase in the income tax permanent; the legislature's decision to assume the City's huge pension liability and its child welfare expenses; and an unprecedented surge in federal support dollars. Candidate Ballard opposed Peterson's income tax increase, as did most Republican members of the City-County Council. Candidate Ballard said Peterson's last budget contained a lot of fluff; however, he has used the extra revenues added during the Peterson tax and spend years to maintain a higher plateau of spending that shows no signs of abating. The so-called $16 million surplus the administration says it will put in a rainy day fund comes from the extra income tax revenues from the Peterson tax increase.

Peterson's much ballyhooed income tax increase promised to provide a permanent fix to our unfunded pension liability problem for our public safety retirees. It promised to freeze property taxes, and it promised to put 100 more police officers on the street. To the extent the property tax cap law has diminished revenues, the Ballard administration has relied on the additional income tax revenues to offset those lost revenues, although it isn't clear to me there has been any real loss of property tax revenues. As I indicated, property tax collections are expected to be up $11 million in 2010. Does Ballard suggest they would have gone up $50 million if he didn't have those additional income tax revenues? Those promised 100 police officers never materialized. Instead, the administration chose to put more money in civilian employees to assist police. The 2010 budget adds 50 new police officers; however, federal funds are being tapped to support those new positions.

Spending on public safety is way up as Ballard promised to do during the campaign, but that is largely because of the costly 9% pay raise over the past two years afforded under the police contract at a time when most people are seeing their wages frozen or reduced, if they're lucky enough to have a job. The merger of Perry Township Fire Department will not produce any savings; it, along with pay raises for union employees, will cost us an additional $12 million. The Perry Township firefighters are getting a big fat pay raise as they become Indianapolis firefighters, though, because we pay our firefighters much more than Perry Township did. There is also a $2 million a year savings in the budget achieved through the elimination of township assessors. A glaring example of what is not a priority in this budget is our City's parks. Their budget falls $5 million from $32 million to $27 million at the same time the Ballard administration raised taxes to support the sports palaces. There is $1 million in unnecessary funding for the arts and another $4 million in campaign pay off dollars to a few minority churches and nonprofits for "crime prevention grants."

More than $800 million in spending is not even included in the City-County budget. That includes: nearly $100 million for the Capital Improvement Board; $40 million for the library district; $290 million for the Health & Hospital Corporation; $54 million for IndyGo; and $224 million for the airport authority. The library, HHC and IndyGo will collect more than a hundred million in property taxes between them. Ballard and the Republican council supported another $21 million a year tax, spend and borrow plan to fuel higher levels of spending for the CIB. The library board is doing nothing to abate its property tax burden. And the HHC is setting out to borrow $750 million to finance construction of a new hospital. While it claims it can be built without increasing property taxes, it is dependent on hundreds of millions in federal health care dollars that could well be diminished or redirected under the Obama administration's health care plan pending before Congress.

Incidentally, that more than $800 million in off-budget taxing and spending doesn't include the City's water company, which is saddled with more than $800 million in debt, forcing double-digit water rate increases to pay for that white elephant. There are also double-digit increases in sewer rates to pay for the long-neglected combined sewer overflow problem. Those are tax increases if you're the one paying for those services. And the City is looking at raising parking rates downtown as well to help raise more money.

One thing that is all but certain is that the federal government cannot maintain the level of support the City is counting on for its 2010 budget. What happens when $50-$75 million in federal dollars disappears from the budget? Where will the money come from to pay for those additional police officers? More importantly, what if the administration's rosy forecast for tax collections misses the mark? Or what if the City is unable to flat-line health insurance costs in 2010 as the budget suggests? Due to rising unemployment and a growing number of home foreclosures, it is quite likely that property tax collections and income tax collections will be down significantly over the next year. That means the City will be forced to borrow money using tax anticipation warrants, and the City's downgraded bonds means the cost of that borrowing will cost millions more.

While this 2010 budget appears balanced on paper, the real test is going to come in 2011 when the City could well face a repeat of what happened in 2007. The CIB fix, by its own supporters admission, is at best a 2-year fix. The City has no idea how it's going to repay more than $27 million in borrowed funds from the State or handle the existing $3.5 million deficit even with the added taxes and borrowing. A slow economy and loss of federal funds could put the City in dire fiscal straits by 2011, an election year. The Republican mayor and City-County Council may be facing the possibility of choosing between a general tax increase and massive budget cuts to keep the City afloat. If it's lucky, it may be able to use smoke and mirrors to delay that outcome until 2012. You can rest assured though that there will be a day of reckoning.


Wilson46201 said...

The 2012 Budget will be presented in late summer 2011 - just in time for it to be THE topic of the 2011 contentious Indianapolis municipal elections.

Assuming the anticipated budgetary trainwreck doesn't happen next year in 2010, the Budgetpalooza in 2011 will be a doozy!

Hang on folks, it's going to be a real bumpy ride...

Paul K. Ogden said...

Let's not forget the unfunded insurnace liability problem that will hit in 2011.

Excellent analysis of the budget problem. I never get too excited when I hear about a municipal budget being balanced. They have to be balanced. The question is always how much they cook the numbers to reach the balance.