Aggravated Deficits

This November’s police staffing measure will cost more than official estimates.

City of Austin General Fund FY 21-22 expenditures by function

The City’s Chief Financial Officer (CFO) released a series of much-cited cost scenarios for Save Austin Now’s police staffing ballot measure. However, a critical look at the core assumptions behind those scenarios reveals that the likely costs for Proposition A could significantly exceed the CFO’s “High” estimate. To understand why this would lead to drastic cuts and/or tax increase referendums, we first have to revisit why the City is expecting a deficit-riddled near-term fiscal future.

Deficit Default

In 2019 the Texas Legislature passed a 3.5% property tax revenue cap on existing property; this revenue cap took effect for the City of Austin in its 2020-2021 fiscal year. Here’s what City Manager Spencer Cronk warned about the revenue cap’s impact moving forward:

In the absence of voter approval to exceed the cap, simply covering the annual increase in our base costs alone – things like wages, rent, and insurance premiums – will require a fundamental change in the way we do business. In short, without securing additional revenue and/or dramatically reducing costs, we project an ongoing budget imbalance that will grow year after year.

According to the City’s five-year budget forecast included in this year’s budget, we’ll start next year’s budget with a deficit that will widen to $15.6 million by fiscal year 2025-2026.

The CFO’s Scenarios

City of Austin CFO Ed Van Eenoo provided City Council with two Proposition A cost “scenarios”.

The “Low” scenario (which assumes 1% wage growth and 1% Austin population growth) has a 5-year cumulative cost of $271.5 million for an average annual cost of $54.3 million. The “High” scenario has a 5-year cumulative cost of $598.8 million with an average annual cost of $119.8 million. In addition to a requirement that 2 sworn officers be employed “at all times” per 1,000 residents, Proposition A also has a requirement that sufficient sworn personnel be employed “at all times” to meet a 35% “community engagement” requirement. This second requirement is the reason staffing levels will exceed the 2 sworn per 1,000 residents requirement.

As explained above, the General Fund revenue for next fiscal year is expected to be approximately $1,194 million. The budget will be at the start of a deficit spiral. Growing that deficit by $54-$120 million dollars would lead to a mix of drastic changes: layoffs, deferred maintenance, service reductions, and tax rate elections.

However, several of the assumptions made by the City CFO could easily turn out to have been, in effect, too optimistic. In the sections below we examine these assumptions and explain why the cost estimate of Proposition A should be expected to have a much higher range than the CFO’s two scenarios.

Assumption: Vacancy Rate

The City CFO assumes a 6.3% vacancy rate for both “Low” and “High” scenarios. This rate assumption is the average of the last 3 years. 

As of late September of 2021, Austin Police Association President Ken Casaday reports that 1,590 of the 1,809 funded APD sworn positions are filled. That represents a 12% vacancy rate. Casaday estimates roughly 1,480 filled positions by the end of the 2021 calendar year, which would represent an 18% vacancy rate. 

The CFO estimates that between 316 to 680 positions would need to be added in the first year of Proposition A implementation.  This is on top of the existing vacancies. Per the CFO’s own assumptions and the APA President’s estimates, it is quite likely that immediately following the passage of Proposition A the City would need to hire 1,009 positions, which will represent a vacancy rate of 41%.

The CFO’s scenarios assume that the initial year of implementation will return vacancy rates almost immediately to their historical average. This assumption is unlikely to come to fruition. The unprecedented size of the pool of sworn positions to be filled in the first year, as well as impact on cadet and external hire quality (and thus, retention) make the 6.3% vacancy rate an optimistic assumption.

The vacancy rate determines the size of the overall positions that must be budgeted. The higher the vacancy rate, the larger the force to ensure the 35% community engagement requirement is met after separations/resignations. For example, in his memo, the CFO states: “2.35 officers per 1,000 population employed under the assumed vacancy rate of 6.3% necessitates budgeting for 2.5 officers per 1,000 Population.”

But what if the vacancy rate remains elevated as a result of both the extraordinary size of the force expansion and an associated reduction in recruit/external hire quality? If the vacancy rate hovered at 10% instead of the assumed 6.3%, then the required ratio would increase to 2.6 officers per 1,000. This would, for example, bump the total new budgeted positions added over 5 years from 885 to 920 in the “High” scenario.

By assuming a relatively small vacancy rate and assuming immediate flash-hiring of the new required positions, the CFO did not have to model the impact of the Proposition A transition on overtime requirements. The word “overtime” does not appear in his memo. But as discussed above, realistically, the initial years of transition may require substantial overtime to provide the required community engagement time if all of the new positions can’t be filled. To reiterate, the ordinance forcefully requires that the 35% community engagement requirement must be met “at all times.”

Further, by optimistically assuming an immediate return to historical vacancy rates, the CFO does not have to model the salary increases necessary to attract such a huge, high quality sworn pool at such an accelerated pace. 

Assumption: Wage Growth

The City CFO assumes 1% annual wage growth for the “Low” scenario and 2% annual wage growth for the “High” scenario.

As explained in the above section on vacancy rates, in the immediate aftermath of Proposition A’s passage, the City could face a need to immediately hire between 645 and 1,009 positions to fill existing vacancies and new mandates. As stressed by the City CFO, Proposition A requires that these positions be filled “at all times”.

Given the overall tightness of the labor market and exploding regional housing costs, it is not realistic to assume that wage growth that barely keeps up with national inflation will be sufficient to quickly fill new mandated positions. Ordinarily, this would lead to higher wages and benefits in order to attract quality cadets and new hires at an extraordinary pace.

However, policymakers may choose to accept a dramatic impact on cadet and external hire quality to fill the mandated positions. From a fiscal standpoint, however, the drop in hire-quality affects retention and would increase the expected vacancy rate.

Assumption: Handling Time

“Handling time” is the amount of time it takes the primary unit to respond to a call for service. It will be a critical component of any formula used to calculate “community engagement” time.

For example, the table below is part of the methodology used in 2016 by Matrix Consulting Group. The City tasked this consulting group with analyzing the availability of patrol “uncommitted” time. 

Handling time is a key driver of overall departmental workload. Simply put, the higher the handling time per call for service, the more officers needed to meet the 35% community engagement time requirement, all things being equal.

The City CFO did not include call-for-service handling time in his model. In effect, the City CFO assumes handling time is static in perpetuity.

Annual average handling time naturally varies. The budgetary dilemma is that when handling time goes down, funded position levels don’t automatically adjust. Quite the opposite. New anti-police-defunding state laws, along with local political reality, render enduring reductions in handling time essentially incapable of culminating with reductions in staffing. When handling times go down, the City will maintain a level of sworn staffing that exceeds Proposition A’s 35% community engagement requirement.

Over-hiring is permanent given these policy constraints. Ultimately, this means that the CFO’s memo should not have used Proposition A’s raw 35% community engagement target to calculate long-term staffing needs and should have instead included a higher target (e.g. 40%) that reflects the historical year-to-year fluctuation in handling times. This more realistic assumption would have increased the cost of both “Low” and “High” scenarios.

Assumption: Administrative Time

Proposition A’s ordinance language states:

(A) the employment of at least two sworn officers for every 1,000 residents, as determined by the city demographer based on the most recent data available from the United States Census Bureau, while maintaining not less than 35% community engagement time for all front-line officers whose time is measured on the basis across the entire police force;

Note the use of the term “community engagement”.

Here’s how the CFO interprets that term:

In the City of Austin, the phrase ‘community engagement time’ has traditionally been used interchangeably with the phrases ‘proactive time’ and ‘uncommitted time.’ For example, the Austin Police Department report titled Community Policing Advancement in Austin, published in 2018, uses all three terms interchangeably throughout the report. Furthermore, the report defined uncommitted time as on-duty time that is not spent responding to calls for service. This is the definition of community engagement time used in this analysis.

In the above text, the CFO makes his case for treating the term “community engagement” as identical to “uncommitted time”. This is both reasonable and without any established legal precedent.

The hidden risk with the CFO’s definition is that it leaves unclear where administrative time (e.g. filling out reports, handling forms, emails about community meetings) is accounted for. According to the same City consultants, administrative time takes up roughly 15% of a patrol officer’s total scheduled work hours – it has a material impact on the total required positions needed to meet the requirements of Proposition A.

By casting “community engagement” as equivalent to “uncommitted”, the City can argue that existing and new administrative tasks should count towards the 35% community engagement requirement. But will a judge agree with such an interpretation? Will a judge agree that typing reports and filling out forms about community activities are themselves acts of community engagement? And what methods and instruments will be used to calculate administrative time? 

The uncertainty introduced by the CFO’s interpretation of the term “community engagement” creates risk of increased costs to both the “Low” and “High” scenarios.

Assumption: Population Growth

The City CFO assumes 1% annual population growth for the “Low” scenario and 2% annual population growth for the “High” scenario.

As the Census confirmed this year, “the City of Austin’s population grew by 21 percent to 961,855 persons over the last decade.” That’s roughly a 1.9% annual growth rate. The CFO’s “High” scenario assumption is more realistic.

Proposition A does not sufficiently specify how annual population will be determined. The language indicates the City Demographer will determine the population “based” on the “most recent data available from the United States Census Bureau.” Council could issue guidance to the Demographer about how to conduct the estimate. Or the Demographer could opt to independently create their own estimate which incorporates – but is not the same as – Census data. It could easily become a highly contentious part of the budget process.

This poses a significant problem for the proposition’s implementation that will likely increase costs under both the “Low” and “High” scenario. Proposition A proponents will be able to shop between the estimate from the City Demographer and multiple Census products, using litigation if they are displeased with the determined population count. In addition, they may be able to introduce their own population estimate methodology in court or a judge may design one as a remedy.

And, similarly to handling time, what happens if the Demographer overshoots the population count, especially when combined with other factors? Yet again, this built in variation tilts the scale towards over-staffing above and beyond the CFO’s estimate. This is because over-hiring as a result of calculation errors is sticky and essentially permanent because of state anti-police-defunding policy.

Add It Up

Together, the financial model assumptions made in the CFO’s Proposition A cost scenarios likely underestimate the actual cost range for the ballot measure. Voters, civic organizations, and the media should discuss the CFO’s “High” scenario as a somewhat optimistic mid-range estimate instead of as the maximum cost that is a realistic possibility.

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