08/26/08
Will the Council Pick Peter or Paul? -
Categories: Cities across the state and nation are experiencing a lean tax year and having to adjust. Hopefully, most will take the opportunity to look closely at their spending rather than take the easy route of just raising the tax rate. Raising taxes in a weak economy is a classic mistake, while lowering taxes can stimulate a weak economy.
Garland is looking at cutting expenses deeply and raising the tax rate 1.1¢. The cuts are to the Operations and Maintenance Budget (O&M), which has had the same tax rate for the past three years. The 1.1¢ bump would be to cover rising debt payments associated with the Capital Improvement Program (CIP). The rates are combined to calculate our ad valorem (property tax) rate.
Historically, most of Garland's tax base was residential although the overall percentage has been falling. This year, it has fallen below 60% of the total, primarily because the value of our residential base has remained flat or fallen, like this year, while our commercial and industrial portions have risen some. Cities got a big bonus last year when the appraisal district aggressively evaluated commercial properties, believing them to be greatly undervalued. There was some residual bump this year, too.
However, most of tax base is still on the residential side. This year the existing residential base fell $74 million. We have had decline in that sector for four years but new construction has helped offset the decline to keep the numbers static. While static sounds sort of okay, it's not keeping pace with inflation, so it still represents decline.
The burst of the real estate bubble, pierced strongly by the mortgage failures and the resulting foreclosures, drove a lot of property values down in 2007. That decline directly represents a tax revenue decline to the city. But what about next year?
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Next year will be worse. According to Standard & Poor's/Case-Shiller U.S. National Home Price Index, home prices fell in February to the lowest point since March, 2005. Those low sale numbers will depress the other properties in the vicinity. Residential evaluations for 2008, that will be used to fund the 2009 Budget, will be lower than this year.
The index was released Tuesday and showed that national home prices had dropped at the sharpest rate ever in the second quarter. The news was better for the Dallas area, with a rise starting in March.
As I said to the Council at our last work session, this year isn't hard. We know what we have and we know what we have to do. A lot of the cuts are regrettable but cutting is unavoidable. Next year is when it gets hard. Should this Council fail to make the responsible fiscal decisions this year, the pains required next year will be greater and compounded.
Some have asked the Council to raise their taxes to fund programs that they genuinely value. We just simply don't have enough rope left to keep raising the tax rate and fees. Our taxes are too high compared to most of our sister cities and our debt is much higher. Our utility fees are among the highest in the area, only electricity is a bargain. When the tax rate increases, it doesn't affect just the six or sixty saying higher taxes are okay, but 230,000 residents.
I read recently, "If you rob Peter to pay Paul, you can always count on the support of Paul." We know Paul's position; we have to consider the impact to 230,000 Peters, too.
| January 2007 |
122.62
|
July 2007 |
126.30
|
January 2008 |
118.55
|
| February 2007 |
122.71
|
August 2007 |
126.27
|
February 2008 |
117.73
|
| March 2007 |
123.10
|
September 2007 |
125.39
|
March 2008 |
119.01
|
| April 2007 |
124.68
|
October 2007 |
124.38
|
April 2008 |
120.36
|
| May 2007 |
125.48
|
November 2007 |
122.41
|
May 2008 |
121.58
|
| June 2007 |
126.48
|
December 2007 |
120.77
|
June 2008 |
122.38
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