We met on Monday, Sept 21 for the budget meeting. We managed to get through the whole thing in 2 hours. Here are the brief highlights, which I think give you an idea how the board is collectively thinking about it.
My General Thoughts #
When we’re done and have a final budget, I’ll write more about my thoughts, but for now I’ll offer this:
- We had a good year, with new construction numbers exceeding our expectation.
- Almost all of that construction happened outside TIDs, which broadens the tax base that contributes to the General Fund.
- A broadened tax base plus a flat levy puts downward pressure on individual village tax bills.
- Previous reports of our impending fiscal demise were overstated. We’re not without problems, challenges, and risks, but we’re not Thelma and Louise out for an afternoon drive.
- By the way, you want government budgets to feel constrained every year. Imagine if we were swimming in money.
After the budget overview by the staff, the board asked the staff to make two substantive changes.
Spending Increase vs Tax Revenue Increase #
The village gets revenue from several sources:
- Property taxes
- State shared revenue and aids
- Fees
- Fines
Property tax increases are limited to this pesky calculation that I’ve written about often:
\begin{equation} allowable\ increase = \frac{value\ of\ new\ construction}{total\ village\ valuation} \nonumber \end{equation}
State money is an educated guess when the budget is first crafted and then the bean counters in Madison randomly generate numbers and reveal them to us by early October.
Fees and fines are an educated guess based on historical data.
Page 17 of the proposed budget shows the synopsis of what’s proposed:
- General fund expenses rise $541K
- Debt service payments are down $280K
- Village will lower its cash funding of capital project funding by $285K
- We still have to pay $1M per year to cover TID 4 debt (argh)
The numbers inside the numbers there are in 1 and 3. The $541K is more than the increase in revenue, so to make the math work, the proposed budget decreases cash funding of capital projects. What is just implied there is that we’ll borrow more to cover the $285K. That gets the projects done, but it shows up in subsequent years as higher debt service payments.
The board requested the following change:
Lower general fund expenses by $285K, restore that $285K to the capital projects fund, and keep the mill rate from dropping lower than the current forecast of $5.03.
Why, besides that spending less money is a good idea?
- Because spending increase shouldn’t outpace revenue increase. Ideally it should be lower, unless the year is super lean. More new spending than new revenue is a trend that is not sustainable.
- Because taking on more debt is an easy button and causes upward pressure on your tax bills.
And why the $5.03 thing?
Because the state created the dumbest program ever: ERIP. Expenditure Restraint something-or-other. If we restrain our spending so much the mill rate falls below $5.00 our ERIP funding will fall to $0. This year it will be $100K, so cutting more means cutting an additional $100K.
Next year we will absolutely lose this funding and there’s nothing we can do about it. Any modest increase in assessed value of property next year and we’re done. I can explain this in detail, but I promised to be brief, so just trust me. We will plan for losing the remaining dollars going into next year’s budget. This year, we will provide taxpayer benefit via reduction in new debt, a benefit which shows up in future years.
Write your state legislators and ask them why a village with expenditure restraint, as evidenced by its declining mill rate and flat levy, is being punished for having that restraint. Let me know what they say. I’m convinced the legislation has a simple typo: “greater than $5.00” instead of “less than $5.00.”
Debt Level #
Our debt service, principal plus interest, this year is $3M. The total tax levy is $20M, to give perspective on the percentage of your taxes that just pay debt. We are well within the state’s statutory limit for debt, which is some percentage of total valuation. But that’s not a line that you want to get close to. Less debt = more flexibility. More debt = less flexibility. It’s no different than your personal finances.
The board requested the following change:
Don’t borrow more new money than the amount of principal you are paying down with the debt service payment.
Over the last 10 years, the village’s debt burden has been growing. Some of that has been perfectly reasonable, eg the new public safety building. Some of it (editorial comment) has been an easy button. This year we’re starting with holding debt level flat. Then we’ll start bringing it down. Between now and next budget, we’ll spend some time articulating a target.
BTW, if debt service payments drop, that also creates downward pressure on your village tax bill.
Those two directives seem perfectly reasonable to me. I hope they do to you too.