Friday, June 11, 2010

Ringing in the New Fiscal Year...

*Be sure to Check out our new explanation section of fiscal years and Proposition 2 1/2 limits!  Look left!

For all the humdrum about government spending, taxes, and fiscal discipline, budget hearings, planning, and execution is a fairly dull subject.  Save for conservative oft-overlooked one-column above-the-fold stories in more staid papers like the New York Times and Boston Globe and sensationalistic MSNBC deficit flashing deficit clocks and tidings of fiscal doom headlining less impressive papers, little attention is given to the crucial process.  Even in the midst of unsustainable national debt and recently added taxes in Massachusetts, the conversation is spoken about in broad terms.  In Springfield, however, this annual conversation may glean slightly more attention because FY11 budget is unlike the past five.

Last summer, the Springfield Finance Control Board packed up and left the city.  The financial reins were returned to the Mayor and the City Council.  Although, the budget had been compiled and approved in large part by the mayor and city council for the previous two fiscal years, the FCB still had final say and implemented various changes as it saw fit.  This year FY11 is all local control.  However, even that might not turn head were it not for another parallel development.  The City Council has nine members who were not there before, eight of which are ward councilors.

The Mayor's budget, as originally proposed contained no layoffs, included police and fire academies, and kept the budget under a 1% increases year over year.  It took into account an anticipated 4% cut in municipal aid from Beacon Hill for both schools and unrestricted aid (the schools budget is primarily funded from the city and takes up more than half the municipal budget, but its revenue is primarily from state sources and expenditures decided by the school committee).  However, the budget takes several liberties.  As in the case of FY10, the proposed budget borrows heavily from reserves, but more controversially, makes another property tax rate increase almost certain.

At the end of every year, the issue of the tax rate for Springfield comes front and center, as it does for all Massachusetts communities (especially those with separate residential/commercial rates).  However, the debate is somewhat semantic.  In order for January tax bills to be submitted on time, rates must be approved some weeks before the end of the year (to enable the state to certify them).  However, the question before the Springfield City Council and its 350 Bay State counterparts is not really how much the rate or rates will be and therefore how much property tax is will glean during the following calendar year (tax rates follow the calendar, not the fiscal year).  Rather, the issue is what do the rates need to be in order to raise the revenue necessary to support the budget approved the previous June that began July 1st.

The mayor's budget assumes that the city will raise the full amount of property taxes it can under law (with some fudging to account for each year's inevitable number of delinquents).  However, if property values fall, remain the same, or fail to rise very much, an increase in the tax rates will be necessary to fully fund the budget.  The budget passed in FY10 did just that.  By December of last year, the mayor's budget called for a certain amount to be appropriated to fund it through the end of FY10.  Blessed by both the City Council nominally and the FCB officially, the City Council had little choice, but to pass rates that raised the city's already highest in the state property tax rates.  Last ditch efforts were made to avert this resulted in only minimizing, though not preventing an increase in the commercial rate.  This December will likely entail a repeat of this possibly forcing the city to approve a rate of a penny less than $40 per thousand dollar valuation for commercial property and nearly $20 per thousand for residential property.

In a letter sent to Mayor Domenic Sarno and released to local media, City Councilors from Ward 2, Michael Fenton, and Ward 7, Timothy Allen, expressed in no uncertain terms, their strong desire to cut the city budget in a preemptive effort to keep property taxes in check and in fact reducing them.  Their letter calls for no more than a $9.5 million reduction (a number used by the mayor, but they believed $4 million would be sufficient) to ensure that property tax relief be given to the city's taxpayers.

Their call, however, is not simply a political stunt.  They call attention to the practice of consistently using money from the city's savings and surplus from FY10  and the fiscally imprudent nature of using one-time revenue (as savings are) to balance a budget.  Offering cuts now, while primarily directed at lowering the rate, is a step in the right fiscal direction toward correcting structural deficits within the city's budget.  Leaner budgeting now can make for consistently leaner budgeting in the future.

Moreover, there is something of a concern that the city is raking in surpluses even after cuts in state aid.  While avoiding the demagoguery of some partisans, governments should neither run deficits nor surpluses.  Unexpected surpluses are okay, but should economic conditions continue as they are or even falter the city could still somehow earn a surplus next fiscal year under the mayor's budget.  If cuts are made now taxpayers will be dealt some much needed relief and should extra money still become available, some of the cuts may be restored later next year in a supplemental appropriation.

Councilors Fenton and Allen's letter essentially accused the mayor of failing to deal in good faith on the issue of slimming the budget.  The mayor's response did not contain any actual cuts, but rather doomsday scenarios if the Council exercised its prerogative to make cuts to the mayor's budget.  In fact, Sarno did not respond until a mere 24 hours before when the council was set to vote on the budget, leaving Fenton and Allen, who have been leading the charge for a leaner budget, in the lurch to analyze and devise cuts themselves without any help from the city's budget office.

Indeed, this evening, the City Council acted on the mayor's budget.  Councilors Fenton and Allen attempted to find the $4 million necessary to ensure that the property tax rates were cut come December.  However, their efforts were largely unsuccessful.  Because the Council can only make budgets cuts department by department, line by line, some efforts such as those to reduce gasoline accounts overall only passed in for a few departments.

Sarno staunchly defended his budget insisting, perhaps somewhat inaccurately, that if the $4 million sought was actually cut, layoffs would be certain.  However, Sarno's comments here are somewhat misleading.  Although some layoffs might occur, councilors seeking cuts could easily avoid any department budget line item that includes personnel.  For example, any given cut to the DPW does not make certain that a trash collector or the like will get the axe, unless it is for personnel specifically.

The City Council has complete discretion what and how much to cut from the mayor's budget, but in the end less than half of a million was successfully cut, leaving Fenton to rise and announce his intent to vote against the budget as a whole.  However, the tension did not end there.  The City Clerk, Wayman Lee, implied that if the budget was voted down by the Council, the mayor's budget would become law anyway.  At this point Fenton and City Solicitor Ed Pikula got into a dispute as to the veracity of this claim.  When pressed for an answer, the city's chief lawyer demurred and failed to confirm or deny Lee's assessment.  Fenton called for outside counsel's opinion.

In the end, the City Council voted down the mayor's budget by a vote of 8-5.  Although Sarno tried to make the budget and issue of cuts versus a tax cut, for the moment, the tax cut issue won out.  Having laid out two budgets that relied on borrowing from reserves and hiking property taxes, one of which (FY10) ended up set to report a surplus in excess of reserves borrowed, the deficit hawks of the Council won the day, but not the war.  With confusion and conjecture as to what happens next, the council and the mayor will undoubtedly be seeking legal advice.  

A rough assessment of the legal mess foresees one likely possibility.  The mayor will need to submit a better budget.  However, should that happen, Sarno, acting in vengeance, may release a budget that gives the council the $4 million in cuts it wants and needs to secure a property tax decrease.  However, that budget will likely not be a careful excision and slimming Councilors Fenton and Allen wanted.  Rather it will look like the slash and burn budget Sarno originally accused, almost slanderously, the Council of creating by demanding cuts at all.  Should that happen, the Council could be in a bind because although it could make additional more craftily to this revised budget, it lacks the authority to restore Sarno's potentially more vengeful cuts.  In ABC40's story on the budget dispute from yesterday, its montage of police cars, parks, fire stations, etc seemed to convey a sense of what is at risk, if in a biased way (remember this aired prior to tonight's vote).  Their story implied that the council would cut these things, when in fact that was never the plan and did not technically happen (the budget was rejected in full).

Another possibility, if the state certifies the city without a mayoral budget (as it technically is), could give the council far greater control of the budget.  The Massachusetts General Laws say that should a Council-Mayor city not receive a budget from the mayor, the Council can, with some limitation, write the budget for the city itself.  However, for this outcome to occur, either a court or the relevant state regulator of municipalities (probably the Department of Revenue) would need to determine the city to be without a mayor budget at all.  Although it technically lacks one, the mayor did submit one.

The mayor's budget could be enacted, on a temporary basis, until the dispute is resolved, but it is doubtful that this can carry on beyond three months.  State law again allows for a month by month budget for up to three months.  Again these monthly budgets must be approved by the council, but there could be some wiggle room.  Without looking at actual court decisions on this subject, it is difficult to know what would happen if this reaches a judge.

In a worst case scenario, the city essentially shuts down.  Back before the FCB was set up, then-Mayor Charles Ryan passed monthly budgets before the state legislature established the Control Board.  Had the city passed more than three monthly budgets or an otherwise unbalanced year-long budget, it would be stripped of its ability to collect real estate taxes and possibly put local aid in jeopardy.

For the moment, Mayor Sarno has been dealt a humiliating defeat with the rejection of his budget.  However, Sarno should not be surprised that things are not as they once were.  His FY11 budget was not fully upfront about its cuts.  Some items that usually and annually appear in the budget were cut, only to be paid for early by the city's FY10 surpluses.  In other words, spending was not kept to under 1% as he claimed, it was just paid for before the fiscal year began.  Luckily for him, this did not happen in an election year and hopefully he will come at least half way to the demands of City Councilors demanding relief for taxpayers.

As for the Council itself, led by Fenton and Allen, the body exercised quite possibly the most independent and effective use of its powers in recent memory.  Although there is concern about the real impact of cuts to a budget already trimmed by state financial panic, control board, and the like, the strategy of planning on continued property tax increases only hurts the city in the long term.  Not only does it dissuade commercial investment, but it undermines the city's capacity to raise money in other ways.  Sooner or later, the city could hit the levy ceiling component of Proposition 2 1/2.  Under that provision of 2 1/2, a municipality can never levy, in overall property tax revenue, an amount in excess of 2.5 percent of the total value of all taxable property.  Should Springfield hit that ceiling, not only will it be unable to raise any more money than that ceiling, but it will almost assuredly have the highest property tax burden in the state based on rates.

Springfield will never correct it financial woes if it continues to treat its taxpayers like piggy banks.  Although it has been shortchanged by the state many times over and there are great needs for the city's residents, the city simply will never have the financial resources to buy all of its problems away.  In the 1980's following a federal loan guarantee and a state imposed control board, not unlike Springfield's, New York City saw drastic cuts across the board.  Pain was felt on every level, including on the lowliest of its residents.  However, as the city's recovered through the boom of the 80's it was stronger because of it.  During even the worst of fiscal crises of the past decade, the city was able to weather the financial storms consistently and with a modest amount of pain.

Springfield is hardly New York, but like the Big Apple, the job is not finished simply because it got aid from on high.  Indeed, because we lack the same resources as Gotham, more than just what our rescue entailed will need to be done to cement a brighter financial future, a more sound economy, and a better city overall.

*Fenton and Allen photos from their campaigns, Ryan & Sarno photos from Urban Compass, City Council stock photo from Masslive, New York City Hall from wikipedia.

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