Commission Impossible

I have always liked math puzzles. Let me know if I'm on the right track here.

If the property tax piece of pie is 11% and it increases by 8.7%, then the whole pie increased by 1%.

If the sales tax piece of pie is 43% and it decreases 2.2%, then the whole pie decreased by 1%.

It's a wash. They seem to cancel each other out. Is this right?

Gregg,

Yes...but...

I only used those figure to show what level decrease in sales tax income would be required to offset the increase in property tax income. Every 4% change in property tax is equal to 1% change in sales tax income.

The Q208 sales tax drop was 5.8%. That's just for 1 quarter of the year. I think the previous two quarters were flat. The dollar loss would be around $44 million * 0.43 * 0.058 / 4 (number of quarters) = $203,000. If that calculation is correct then three quarter's loss of similar size would wipe out the $600,000 8.7% increase from property taxes.

Math disclaimer: I wouldn't rely entirely on the figures that I calculate. I think I use valid assumptions based in budget information from the city, and I'm sure they are within an order of magnitude of being correct. But the city figures are always based on more complex assumptions. For example, I calculated the net income from the 8.7% property tax bump to be ~$200,000 over what was estimated. The Finance Department said it was closer to $600,000. I think that was because I assumed they were expecting a 4.5% annual increase, and they were actually budgeting a 2.5% annual increase.

Here is the big question for readers...

If the city budget depends on increasing property tax income and increasing sales tax income to remain balanced, do you believe those two assumptions are likely to happen in the next couple of years?

Lon

"If the city budget depends on increasing property tax income and increasing sales tax income to remain balanced, do you believe those two assumptions are likely to happen in the next couple of years"

When the argument about development occurs it is based on assumptions that history supports but when talking about the fiscal budget, the argument has no problem discounting history.

If the population keeps moving here the way developers claim then won't both property tax and sales tax go up? So, we could sprawl our way out of the economic downturn?

TJ,

You could, to a degree, grow your way out of an economic downturn. As an example, it may be annexation that caused the 8.7% increase in property tax income. But of course some city councilors have admitted that annexation costs more than they expected because of city services.

Do you believe that we're growing our way out of economic problems?

Lon

"If the city budget depends on increasing property tax income and increasing sales tax income to remain balanced, do you believe those two assumptions are likely to happen in the next couple of years?"

Funny you should ask. When I received my property tax bill and saw the assessed value I began to wonder if it was still accurate ( I purchased in '03). If property values continue to decline over the next couple years, property owners may ask to have their tax bills adjusted.

I would probably wager whats left of my retirement accounts that sales tax revenue will continue to decline over the next couple years. The bars and restaurants still seem to be full, but people can't use their homes as ATM's anymore for the big-ticket items that really generate revenue.

Sorensen, Glazner, Valente, and Wahl for city council.

Lon,

TJ askes if we can "sprawl our way out of the economic downturn?" Your response begs the question, could we "infill" our way out of the downfall?

How insightful of you to connect these two previously unrelated discussions (growth and structural deficit) on your blog page. Kudos!

I am so glad the local no-growthers let you in those many years ago.

GL

Mark,

I actually don't think that connection is insightful. When I read TJ's comparison I almost responded that he was missing the point altogether.

The purpose of a General Plan is to anticipate needs and guide decision making. This is similar to a budget. But the GP will be ambiguous and easily modified. There really is no no-growth option on the table, except that high density infill requirements might increase private costs and prevent some growth from occurring. But even alternative C is described as placing 45,000 new people on Chico's streets, sewers, and neighborhoods.

From a business standpoint I would compare the General Plan to a business plan. I would compare the budget to a GAAP profit and loss statement. There is some connection with respect to the long term planning, but a P&L is not a theoretical document, it describes real spending. If the budget is off target it can result in firings, loss of service, higher crime, stalled projects, and as a worst case scenario bankruptcy.

More importantly, the budget discussion has never touched on financial needs associated with growth. The structural deficit only addresses paying for what we already have. The city has enacted departmental budget cuts, and a short term reduction in the rate of automatic raises employees have negotiated (BTW police and fire reductions are not contractual as far as I know).

But after the first couple of years the automatic 2-5% raises that have historically occurred will be back in place.

My personal opinion is that growth alternative C will stifle private investment in Chico, and that could impact tax income/jobs, but growth would still occur. The question of a balanced structural deficit is really separate from the question of growth.

The question of long term growth in city services does tie more closely to GP growth discussions. I don't think distance between population and emergency services drives personel costs. The police department budget isn't driven by transportation costs, it is driven by officers per 1000 people. High density infill will not cut the cost of police service which is 50% of our budget. In fact it could increase the need for police.

Lon

Sean,

I had no idea you held that level of animosity toward me.

Lon

Lon,

Growth and deficits have everything in common. Don't deny your brilliance!

You mentioned the study that found that growth does not pay for itself in terms of infrastructure or expansion of city services. Your graphs speak for themselves. I also remember reading that gas costs for Chico PD had jumped quite a lot. I thought I read it here. Regardless, an expanded service area will have expanded costs. After listening to you, it is clear to me that we need to be talking about a common solution for these two seemingly separate problems.

Thanks.

GL

Mark,

Far be it from me to disregard my own brilliance.

The unwieldy point I've been trying to get across is that the budget discussion has been broken into at least three components that I'm aware of.

Fixing the structural deficit is the only component that's received serious attention. This addresses paying for existing staff and services. Future staff growth to maintain service levels as population increases and what to do about the RDA which is broke are the other components.

So, the structural deficit does not address the cost of growth to the city. It is interesting that maintaining existing staff does require the assumption of growth in the city's tax base. I believe that assumption will be wrong in the next year or two. But if growth in the city's tax base is required to pay for existing employees, what pays for the employees necessary to serve the anticipated 45,000 people that will come to Chico in the next 22 years? That's the discussion that has not occurred.

And remember, there is no General Plan alternative that does not anticipate those people coming here.

There have been complaints that new development does not pay its own way. I don't believe development impact fees have been raised to offset any shortcoming expressed by some on the City Council. And as you and I both mentioned, annexation has turned out to be more costly than expected.

In order to have a real discussion about the cost of growth, we need to address the automatic growth seen in city paychecks, and the ~$3-4 million drained from the General Fund to pay back RDA debt.

You can't simply say that since we're spending too much we need to limit how much revenue we generate by stopping growth. And you certainly can't do that when future growth in the tax base is the mechanism used to address current spending.

Lon

Lon,

You are right. There are no simple answers. I just like the realism you interject into the debate. Many of those posting to this blog have mentioned the poll that asked Chico citizens what they wanted. You are asking what they can afford. I am not sure which alternative will cost more to govern (A, B, or C), but it is a good question to ask.

GL

Sorry Lon, but with the dearth of decent council candidates I am forced to write your name in.

Did you see the numbers coming out today for auto sales? Declines range from 25-45% among the major manufacturers nationwide. I would venture a guess that does not bode well for Chico's sales tax revenue.

Sean,

5 of the top 25 sales tax generators in Q208 were auto dealers. It was the third highest category of income for that quarter. Definitely not good news.

I'm afraid you've left me no choice but to write you in as a council candidate. If I have to suffer through receiving fewer votes than Ali Sarsour and Cynthia Van Auken then so should you.

Lon