The Tucson City Council last week sat through about three hours of financial reports from city staff, getting both good news and bad news.
The good news is that the city’s economy continues to recover and the city will take in about 4 percent more in sales tax this year than it did last year.
And that’s about it for the good news.
Now the bad news. The city is still broke and getting broker (to coin a word) despite the increase in sales tax revenue.
The city’s general fund – the pot of money used to pay for core city services, namely public safety and parks – remains structurally unbalanced. That’s accountant-speak for “spending more money than you’re taking in.”
The general fund has been piling up red ink ever since the recession-caused city budget crisis began in 2008 and the council, like the state Legislature, has made the books balance each year through a series of painful cuts (closing pools, staff layoffs and furloughs) and accountancy gimmicks.
Now some of those gimmick chickens are coming home to roost.
The city can’t defer or refinance much more debt without affecting its bond rating and it can’t draw down further reserve funds without likewise negatively affecting its bond rating (in fact, it needs to add more money to the rainy day fund to get it back to the percentage of the city budget bond raters want it to be). And a new federal law goes into effect this year requiring municipalities to start carrying their pension costs on their books, which also may affect the city’s bond rating.
The bond rating is important because the city’s debt is about $1.2 billion and it needs to borrow more (the recent $100 million road bond voters approved for five years, for example) and increases in interest rates can cost the city millions more per year (some interest rates on existing debt are locked in, but others are not). Some of that debt is repaid through fees and property taxes. If the interest rates go up, it means increases in water rates or property taxes to pay for them. So the city’s bond rating matters not just to the city budget writers, but to taxpayers as well.
The city’s pension fund is woefully underfunded and an anchor on the city’s growth, as is the city’s self-insurance fund, which is running about a $20 million deficit. Meanwhile, city employee costs continue to rise – health insurance premiums and the like – despite the reduction in overall city staff.
The council also learned last week that the estimated costs to operate the new streetcar have ballooned about four times what they expected, or $4 million a year. And to make matters worse, it looks like the University of Arizona won’t be kicking in much money to help underwrite the streetcar’s operation even though the UA is one of the streetcar’s main beneficiaries.
When faced with red ink, the solutions are obvious, either cut expenses or raise revenues, or do a bit of both. However, state law and the city charter limits how much more revenue it can raise. The best solution is to raise the city’s property tax, but state law restricts the amount it can raise the tax each year and caps its overall rate. And the charter requires voters to approve raising the sales tax, which they already refused to do in 2010.
There is still a little road left for the council to keep kicking painful budget cans down, so expect City Manager Richard Miranda’s budget proposal in a few weeks to be filled with more gimmicky can kicking.
Which means there shouldn’t be a drastic reduction in city services, layoffs or furloughs this year (especially not when it’s an election year for three council members).
But the can-kicking road is running out and there’s a gaping hole at the end that can only be filled with money – the economy isn’t growing fast enough to fill in the hole and the city can’t cut its way out of this financial mess without eviscerating public safety (cops and firefighters, who account for more than 60 percent of the general fund’s budget).
Falling in the hole – which means city insolvency – also is not an option.
You can blame this council, blame past councils, blame free-spending liberals, blame tax-hating conservatives, blame the public employee unions, blame the recession, blame greedy Wall Street bankers, blame the state, blame Bush, blame Obama, blame whomever you want, but one way or another, we’re all going to have to pay more for city government.
And soon.