The City staff are busy working on preparing their 2008 budget requests that are scheduled to go before Council in November. Calculating how much you need to run City services is one thing, but trying to make the numbers fit within the constraints of tight revenues is a whole different matter. The good news is that the City departments have actually been quite resourceful in the last 8 years, cutting and saving over $2 million to make ends meet. The bad news is that revenue sources continue to lag as both the economy (income taxes) and the housing market (property taxes) struggle to sustain levels from one year to the next, while health care, fuel, and personnel costs push their way higher and higher. This is a national challenge and here’s an interesting article from the NY Times that gives a good sense of the big picture cities all over are dealing with.
One thing to keep in mind for Kent, is that only about 10% of our revenues come from property tax, 90% come from income taxes. As you’ll see in the article, many other cities rely a lot more heavily on property tax than we do, so with the housing market in a bit of a tailspin, those cities are really hurting.
Kent’s housing market has been slow this year too, with construction permit fees down 13% for the first 7 months of 2007 compared to 2006. Depending on how much housing prices hold up in this declining market, this could be bad news for Kent schools that rely on property taxes — but with such a small share coming to the City, we’re always more concerned to see what income taxes are doing.
Income tax revenues seem to be holding steady. Last year we received $10,315,000 in income taxes so we used $10,400,000 for our 2007 budget target (essentially assuming no growth with a .1% increase). It appears that after 9 months we are on-pace to hit our target, which is good news. So far, total receipts are up 3.9% over last year at this time, with Kent State’s 6.2% increases making up the majority of those increases.
Housing Downturn Takes Toll on Cities’ Revenue
CHICAGO, Oct. 17 — Suddenly everyone wants more from Chicago’s taxpayers.
Mayor Richard M. Daley asked last week for a 15 percent jump in the property tax. Todd H. Stroger, the president of Cook County’s board, called on Wednesday for increases in sales, gasoline and parking taxes. And all that does not even begin to address ways of keeping the financially troubled bus and train systems running.
While Chicago’s case may be extreme, it is by no means unique. Across the country, local governments are feeling a financial strain driven largely by the nation’s real estate downturn. City finance officers predict slowing revenue even as they remain under pressure to keep spending, especially in areas like health care and pensions, according to an annual survey by the National League of Cities.
To handle budget deficits they now expect, many cities are increasing fees for services, and some are considering raising property taxes, said the report, to be released Thursday.
“We know what’s coming here,” said one author, Christopher W. Hoene, director of policy and research for the National League of Cities. “If the housing market continues to flatten out or even decline, we’re in for some tough times for cities.”
The signs are all around, in flattening property assessments (which mean flattening property tax revenue) as well as rising mortgage foreclosures, which also bode poorly for revenue collections.
In Milwaukee, where a new budget proposal would cut the number of firefighters on some ladder trucks, the value of residential property had been increasing an average of about 13 percent a year since 2001. But those increases slowed sharply during 2006, said Mark P. Nicolini, the city’s budget and management director.
In Palm Beach County, Fla., foreclosures rose to 4,830 in 2006 from 3,049 in 2005. And in just the first eight months of this year, the number hit 7,544, said Sharon R. Bock, the county’s comptroller and clerk. Vacant job positions in Ms. Bock’s office are going unfilled, and “it could get worse,” she said.
In Cleveland, revenue from building permits has fallen about $450,000 short of projections this year. Further, foreclosures have limited the city’s ability to borrow money, because municipalities borrow against the assessed value of their property base, said Sharon A. Dumas, the director of finance. Cleveland had hoped to borrow about $45 million this year for capital projects, Ms. Dumas said, but now the number will most likely be closer to $35 million.
For the moment, she said, the city is finding relief in an unlikely place: baseball. Taxes on tickets for the Cleveland Indians’ postseason games against New York and Boston could bring in more than $1 million.
In interviews, some city and county budget officials said the direct effects of the housing downturn could have a lag time of several years when it comes to local government revenue, whose level depends on property reassessments. Some pointed to factors particular to their cities — a loss of state aid, perhaps, or legislation limiting local property tax collections — as more dire.
“In some respects, this may be a correction,” Mr. Nicolini, of Milwaukee, said of the real estate decline. “If the job market stays relatively strong, it’s less of a concern. But if the trend were to continue, then it gets worrisome.”
Even in New York, where revenue has soared the last several years, officials have been predicting a slowdown and are preparing for belt-tightening. The anticipated falloff is due in large part to lower expected profits on Wall Street and a projected decline in real estate transactions, rich sources of tax revenue.
“The good times don’t go on forever,” Mayor Michael R. Bloomberg said Tuesday, “and while I don’t think we’re going to have a recession in this city, I think it’s probably true that we will have a slowdown in economic activity, a slowdown in tax revenues.”
The report from the National League of Cities was based on responses from finance officers in 359 cities, all with populations of 10,000 or more, from April to June. It found that 7 in 10 believed their cities were better able to meet fiscal needs during 2007 than in 2006, but that many were quite pessimistic about the years ahead. In the Midwest, the picture was already grim: almost half reported that their cities were less able to meet their financial needs this year than last.
Some local and state governments built up large surpluses in recent years, which, they hope, will cushion them now. Next month, the United States Conference of Mayors meets in Detroit to look at the real estate downturn and its effects on residents and municipal budgets.
In Chicago, meanwhile, Mayor Daley confirmed Wednesday that he was pondering yet another way to raise money: selling or leasing city parking meters to a private company. Questioned about the notion, Mr. Daley pointed to everything he must pay for.
“How are you going to do all this?” he said.