The Council's Fiscal Recklessness
In light of the Council’s pending decision to resolve its wholly created budget woes by using contingency funds, I wanted to point out how truly reckless this is from a financial perspective.
Before proceeding, let’s remind ourselves how often we hear members of the current Council proclaiming how fiscally responsible and disciplined they are in affairs of money. I think the public record is pretty clear on that self-aggrandizement.
So how does a supposedly fiscally prudent, business-minded and taxpayer-protecting Council now find itself dipping into contingency funds to cover budget shortfalls? Is this not the very same Council which on a weekly basis decries the desperate straits of the city’s financials and the city’s impending bankruptcy? Do they not constantly tell us that we really have no money on which to expense a single item?
Given that demagoguing, how then do they find themselves drawing money from the very thing that they claim has no money , namely the contingency fund?
If you look at the chart, you see that the Council’s recent budget , achieved by ignoring the reality of actual budgets as evidenced by the shortfall in the fire department, returns a pittance of a tax return to the typical city homeowner. A typical single family would see a $3.46 tax savings while a two family homeowner would see $2.41 tax savings. The key point here is not the level of tax cut but the politics of a tax cut. Even if taxes went down two cents, politically, you are cutting taxes. And you are a hero.
While that’s great politically, fiscally it is reckless and imprudent if — like the current Council claims– you truly believe the city has no fund balance or contingency on which to draw. In other words, you cannot have it both ways: you decry the lack of cash and fund balance while at the same time adopting a budget which increases the likelihood that you will have to dip into the contingency budget. By the Council’s own reasoning, this is reckless and dangerous. And it is wholly of their own creation.
If you look at the chart again, I calculated what tax rates should be if you want to not risk dipping into the contingency by adding $100K of expenses for things like the fire department overtime which by any measure cannot be reduced but was reduced by the Council to hit their tax cut target. The problem as you can see with this is that taxes would need to rise. In short, you must raise taxes to protect the city from dipping into its contingency fund. Or more pointedly, you must raise taxes to hedge against the risk that you claim is so imminent to the fiscal health of the city.
But as that fiscal reality runs counter to political dreams, you see that the Council’s actions are not driven by the financial calculus but the political calculus. So either the fiscal risk is not really as bad as the Council would have you believe or they simply ignored it for the political benefit. Either way, it’s recklessness.
So that is why the Council is demonstrably reckless in its financial thinking — it’s politics first, finances last. The financials here tell the story.