My thanks to the many residents who have taken time to offer comments on City revenues and spending as we begin the public phase of the Fiscal Year 2021 budget process. I thought it would be helpful to give a brief overview of the process we’ll be following, and some of my initial thoughts about the budget. However, I haven’t yet had the chance to look through the proposed budget in any detail, and the situation is especially fluid, given the ongoing uncertainties connected to the Coronavirus pandemic. So, I’ll be providing more details about my thinking on these issues in the coming days and weeks.
Tonight City Manager Suzanne Ludlow will be formally presenting her proposed budget. The City Council will be actively reviewing and discussing the budget over the next six weeks or so, with May 20 as the target date for completing our budget action. While the Fiscal Year doesn’t begin until July 1, it’s important for us to finish this budget work by the middle of May in order to ensure that the property tax rate we adopt can be incorporated into the County’s system.
Starting tonight -- when residents will be able to submit questions to the City Manager following her presentation -- there will be a number of opportunities for members of the community to express their views on the budget, property tax, and related matters. This includes public hearings on the budget on April 15 and on the tax rate on April 29. You can see the proposed budget and the schedule here, along with details on how to submit written questions tonight here: https://takomaparkmd.gov/meeting_agendas/city-managers-budget-presentation-monday-april-6-2020/
Of course we’ll all have to be flexible as this process unfolds, because -- as a result of the pandemic -- the City Council will continue to meet virtually for the foreseeable future (undoubtedly at least through the mid-May completion of the budget). But I feel confident that as we keep refining our use of virtual meeting technology we’ll be able to ensure a appropriate level of resident input. I’ll certainly make myself available by phone, email and in other ways for Ward One constituents who have questions or who wish to offer their views.
It goes without saying that the pandemic will not only have a significant effect on how we communicate over the next six weeks, but also on the budget itself. Clearly, we’re not in a business-as-usual situation. Given the challenges presented by the virus, I think it’s vital to continue providing key services to individuals in the City, but at the same time I don’t think this is a year to take on major new initiatives that aren’t already underway. For projects and efforts that have started, we’ll want to consider whether at a minimum they should be slowed down or delayed. And we’ll also have to consider to what extent there will be gaps in the recently adopted Federal, State and County Covid -19 assistance programs that we’ll have to fill at our local level.
We’ve already begun doing that with the emergency assistance program for individuals and the mini-grant program that’s been started up for local businesses that are facing economic trouble due to the virus, though the funds are limited at the present time. We also have other monies previously set aside that could be tapped, including for example the housing reserve fund. I anticipate we’ll be discussing how that fund could be used to help our community respond to the pandemic. This could be of particular value in the form of assistance to renters, since it appears at least in the short term that a combination of national mortgage forbearance initiatives and -- in Maryland anyway -- restrictions on foreclosure will be of some help to homeowners in financial distress. But it wouldn’t surprise me if we needed to devote more funding to residents, especially lower income residents, who are facing serious financial challenges because of the virus.
We don’t know at this point what impact Covid-19 will have on the City’s overall financial condition. Some of the analyses I’ve been reading suggest that municipalities which will feel the fastest negative impact are those relying heavily on sales taxes and/or hotel and amusement taxes (neither of which are the case for Takoma Park). Also communities that depend heavily on one or a few major industries may also see rapid reductions in revenue (again that’s not true for us).
Those like Takoma Park with revenue based more on property taxes or income taxes may be more likely to see delayed or spread-out impacts. Local property taxes are the most important source of revenue for the City, and we also receive a share of the income tax raised in this area, plus direct funds from the County and other levels of government that are at least partially tied to income taxes. Following the financial crisis of 2008 - 2009, Takoma Park’s municipal finances felt the worst impacts three to four years after the acute phase of the crisis. We’re also currently in the first year of the new three-year property assessments, and we don’t know how the pandemic will affect the real estate market or what kind of changes we’ll see for the next round of assessments. Those impacts may be stretched out over several years.
In the face of all these uncertainties, we have to proceed cautiously in making decisions on the budget and tax rate. I’d like to see if it’s possible to build more flexibility than usual into the budget to enable us to make mid-course adjustments during the upcoming fiscal year. It’s true we always have the ability to shift funds or move them to the following fiscal year. But this year it may make sense to put in place a more explicit structure for periodic review of where we stand on the budget over the course of the year, so we can respond in a more nimble way to ongoing developments.
For Fiscal Year 2021 the Council has been leaning toward agreeing on a property tax rate before finalizing all the details of the budget. Some on the Council have suggested a rate based on the Constant Yield rate (the rate that would bring in essentially the same amount of revenue as the previous year’s rate) and increasing that by a percentage based on the regional Economic Cost Index (an inflation factor tied to government salaries).
I agree with the idea of deciding on a tax rate prior to working out all the budget details, but I’m not sure about using Constant Yield + ECI. Based on preliminary calculations, that would lead to a modest increase over last year’s rate. My starting point would be trying to go no higher than last year’s rate. I’m pleased we cut the property tax rate in three of the four years I’ve been on the Council, and I didn’t support last year’s small increase. In any case, at the moment, I don’t feel like I have enough information to commit to a specific rate. Beyond the uncertain economic questions noted above, we need to know more about our reserve funds that may be available to help struggling residents and businesses. And we need to have a better idea of which capital projects it would make sense to delay or postpone. I look forward in particular to what the City Manager has to say on that latter point in in her presentation tonight.
Speaking of capital projects, I did want to say a few words about the Library renovation, since it’s a topic a number of residents have mentioned. While I’ve been a strong supporter of the project, I agree that we have to look very closely at it as we move forward. We’ll be considering another tranche of design funding for the project at our April 15 meeting. My current inclination is to vote in favor of that funding, as long as it ensures we have several design options so we can scale back the project if necessary and also make sure we stay within the budget and don’t go beyond the funds that have already been set aside for the renovation. Once that design work is complete, we’d know what construction options we would actually have. At that point we’d also perhaps have a clearer sense of where things are heading with the pandemic, and we’d be better able to make an informed decision on how to proceed with the Library.
I would stress that, given the specific categories of funding already set aside for the Library project, canceling or delaying it wouldn’t produce major changes to our annual budget. The bulk of the money was borrowed through a $7 million State bond. That money is already being used for the design work, and the City is legally obligated to continue paying it off. It’s conceivable the purpose of the bond could be stretched to cover other construction work at the Community Center, but the funds can’t be transferred to some other purpose. If we stopped paying off the bond -- which would mean defaulting -- we’d ruin our ability to borrow money in the future. We will have the ability to pay off a larger amount of the bond more quickly, which could reduce interest costs, but not for around five years.
The other funds already set aside are grant money obtained from the State (and again designated specifically for the Library) and monies we’ve received through our cable television contract (which can be used for certain aspects of the project’s construction, but otherwise can only be tapped for other cable TV purposes). So not spending the grant money or the cable TV money doesn’t produce any savings that would, say, translate into a lower property tax rate.
Just because these funds can’t be used for other purposes doesn’t mean we should definitely go forward with the current concept for the Library project or that it shouldn’t be scaled back. But I think we can best decide those things once the architect completes this phase of the design work. So, again, I’m leaning toward voting for the contract for the design work on April 15, after which we’d be able to make the crucial decisions on how to proceed with the project.
I apologize for this rather lengthy write-up at a stage in the process when I haven’t had the opportunity yet to drill down into the budget proposal document to in a detailed way. But, given the unique challenges we face this year, I thought it was important to give my overall perspective now. As always I welcome comments or questions. I’m also making plans for a virtual Ward One budget discussion. I’ll send around the details on that once they are firmed up, and I’ll be doing my best to keep residents informed as the budget process unfolds over the next six weeks.
Peter Kovar, Takoma Park City Council, Ward One (240-319-6281)