The City’s Deputy CFO responds to my suggestions for improving budget presentations.
This response was a result of my earlier correspondence with the Deputy CFO on budget presentations. You can read my letter to him here. I’ve made several comments inline – you’ll find them between square brackets with red text.
[Start of response]
Dear Mr. Altamirano,
Thank you so much for your kind words about the work being done by the City of Austin Budget Office. We continually strive to provide the city council and the community with the highest quality budget analysis in the most timely and transparent manner possible. It is nice to have our work recognized!
You can find the information for many of your suggestions in Volume I of the Proposed Budget. For example, the change in property value by property type is listed on page 24. [Unfortunately, these charts are not broken out into deciles, so the budget reader can’t tell where in the distribution significant changes in value occurred. Here’s an example of what I was referring to based on Dylan Tynan’s calculations:
This charting approach by several levels of valuation above and below the median helps illuminate the distributive consequences of policy-making. The request for a breakdown by deciles was the key part of my request and wasn’t acknowledged.] These figures are only projections as certification of the tax roll did not happen this year until well after the Proposed Budget was published. As busy as we were during budget adoption we have not yet taken the time to update the numbers. Nonetheless, I think you will find the projections prove up your hypothesis as to how median tax bills for single family homeowners could be declining while spending is going up. You will also find more details about historical changes in valuation, tax bills, and tax collections in this section.
In regards to sales tax impacts for a “typical” resident, it is something we have discussed internally at length for years. Unfortunately, the data does not exist to track calculate this in an objective and defensible manner. [Luckily, the Institute on Taxation and Economic Policy already provides an estimate. Here’s a chart from their Texas-specific report:
Using their calculations as a starting point, a reasonable estimate would be possible.] We have good data on sales tax collections by type of business (e.g. car dealers, retailers, restaurants) but no data on who pays those taxes (e.g. residents, businesses, tourists). Likewise, we have good data on median household income but no data on the portion of income expended on taxable sales nor the portion of those taxable sales expended by residents of Austin within the city limits.
While I agree with you assessment about the regressive nature of the sales tax, I think it is equally important to consider that sales taxes represent the primary mechanism by which cities are able to collect tax revenues from non-residents that make use of city services.[This observation assumes a preference about what policymakers would select if presented with data, which ironically, this response proceeds to determine is too difficult or not worthwhile enough to calculate and include in key presentations to Council.]
Next, let me address your suggestion of looking at scenarios beyond the median home value, for example, the upper and lower quintiles of property values. While this is fairly straightforward for property tax analysis, I don’t feel it adds much to the conversation. The calculation is a linear function so a home with twice the value as the median will pay twice the tax bill and a home with one-half the value as the median will pay one-half the tax bill. [The point of my request is that policymakers, media reporters, and activists do not know the actual value and tax payments of the top fifth and bottom fifth valued homes and multi-family properties – not that the arithmetic is hard. For example, by obscuring the actual wealth at these different levels, there’s a lack of awareness of how significant tax breaks like the percentage-based homestead exemption is for wealthy homes relative to homes below the median. See the chart at the top. As your reply highlights, there’s a mistaken assumption that the bottom fifth and the top fifth receive equal cumulative benefits because it fits into a preconceived “linear” distribution assumption. Said assumption is wrong, but requires the budget office’s data (and credibility) to be corrected.]
The complexities come in when trying to expand the analysis to all of the rates included in the slide you attached. While we know that the median Austin Water customer uses 5,700 gallons of water per month, I don’t know how, if at all, that varies by home value. The same holds true for Austin Energy, Austin Resource Recovery, the Clean Community Fee, the Drainage Utility Fee, and the Transportation Utility Fee. [Which is why they would be labeled “scenarios” with assumptions clarified. The “typical” Austin resident is also a set of assumptions; it seems we should take some risks to make sure a majority of Austinites, including the most economically marginal groups, are clearly visible to policymakers. Focusing only on easy-to-collect-and-interpret data privileges a non-representative class of homeowners significantly above the median valuation for whom the sales tax and utility consumption are not a meaningful share of income.]
Calculating impacts on renters from property tax and utility rate increases presents even more challenges. For example, some complexes include utilities in rental rates, others do not. Determining the extent to which landlords are able to pass through increases in utility costs and tax bills to renters in a competitive rental market is, to say the least, complicated. The result would be highly sensitive to the underlying economic assumptions that were made including how elastic the demand for Austin rental housing is (keep in mind renters can and do move to surrounding areas if rental rates become non-competitive). This type of econometric modeling is beyond our area of expertise. [Actually, your office created a straightforward model like this to illustrate the potential pass-through of the property tax shift to multi-family onto rents. Again, this is a question of will and interest, not of the viability of creating a reasonable model.]
Lastly, I want to end on a positive note by saying that we currently do a considerable amount of work in regards to tracking income based affordability benchmarks. You can see the results of this effort in our annual budget document (see Volume I, page 26 of the FY 2015-16 Proposed Budget), our annual financial forecast report and presentation, and the work we do annually with the other local taxing jurisdictions in reporting to the Joint Subcommittee, which is comprised of elected representatives from the City of Austin, Travis County, and the Austin Independent School District. [My request was that you feature these data points in your main presentations to Council that are released to the media, using shares of income and provide year-over-year change. These items exist, but they are not included in the presentations to Council that the media consumes – which was the focus of my request.]
Again, thank you so much for your kind words and insights. Your suggestions are well taken and I am happy to report that many are already happening. For those that are not happening it is largely due to a lack of data. Budget staff remain committed to making our budget documentation as thorough, timely, approachable, and transparent as possible.
Thank you and best regards,
Ed Van Eenoo
City of Austin
Deputy Chief Financial Officer
[End of response]