WARNING: This post is not for those weak of heart or those that can take bad news only in tiny doses. However, those that prefer to base their decisions on facts may feel a bit nauseated but they'll make it through.
 
A week ago the Council met for an all-day retreat to hear and discuss the financial future of the city. As I have said, it was not a pretty picture but, if you read this blog, most of it won't come as a surprise. The question becomes, "How we will manage under the existing economic conditions to better position ourselves for the future?"
 
Much of the retreat was an assessment, a look at the past, where we are today, and then extending the lines to see where we are headed. In earlier posts I have described how we are among the cities with high taxes (Fig. 1), that we are are carrying more debt (Fig. 2) than most other area cities, and that we have one of the lowest tax base-per-capita ratios (Fig. 3) of any area city. Like many suburbs across the country, especially first-ring suburbs, our existing residential tax base is declining, which is about 60% of our total tax base. We don't easily see the decline in the existing base because we usually have new construction that offsets it. Not this year. The decline was very visible because values were dropping with the recession plus the affect of foreclosures—and we had a significant drop in new construction.
 
Looking at the revenue that supports our General Fund, about 70% is from property tax (29%), sales tax (19%), or transfers from GP&L (21%) (Fig. 4). The city needs to average about 3.5% revenue growth per year to cover inflation, basic salary increases, health insurance costs, etc. That means just keeping even. We've been able to meet that rate, on average, for the last decade, but too many times a single, one-time event "saved" us, such as the opening Firewheel Town Center, approving local beer and wine sales, or the appraisal district raising commercial valuations. From 2004-2008, we saw growth in our property tax revenues because the existing tax base grew 41% (mostly in the commercial and industrial sectors and from recent new construction). Increased taxes added 21% (2005-06) and new construction added 37% (Fig. 5).
 

Since 2008, property values and and retail sales have been dropping in sync with the recession and there is no indication we've necessarily hit bottom.
 
We need to grow our revenue. The most effective ways are higher property values, greater retail sales, and higher power sales. A growing population would contribute more revenue. Looking again at the rest of the Metroplex as a guide, the news is bad. Our population growth (by percent) was behind all the comparison cities (Fig. 6). Our property tax base growth was also behind those cities (Fig. 7).
 

Looking further out, for the next ten or fifteen years, important considerations become more obvious. When we emerge from this recession, we will be very near build-out. Whether from an extended recession or reaching build-out, new construction—that has added critically to our tax base each year, countering any decline—will drop dramatically (Fig. 8).
 
The planning staff looked at the remaining open areas of the city. Under our current land use regulations, the maximum expected value over the next 30 years is $2.5 billion and less than 17,000 new residents. If we change our regulations, we can increase the property values and attract more shoppers, power customers, and investors: $4.3 billion and over 37,000 additional residents. Those needed changes would be similar to those I've suggested in posts many times.
 
Too many times in our history we have made catastrophic decisions on growth, usually against it. We have to accept that as a city we have to grow. We are already the tenth largest in the state. As a city matures, larger and taller buildings are built. Densities increase. It's the natural maturation of a city. Yet we, like so many other suburbs, have use-based rules in place to prevent natural, diverse growth.
 
Don't take my word, listen to the professionals: our budget and planning staffs have reached the conclusion that city expenses (salaries, retirement contributions, health insurance, inflation, etc.) will continue to rise about 3.5% per year. Best case scenario is that our revenues will rise 2.9% per year (Fig. 9). I hope you noticed that is a constant shortfall (Fig. 10). We have a couple choices: raise taxes every year going forward or adopt new development and marketing philosophies. I don't think many people will pick more taxes so it's time to change how we do business.
 
We can be more aggressive with our open lands but we can also better address the declining areas, the "grayfields." Several catalyst areas of the city are the subject of economic studies (Fig. 11). We can promote our city better and compete with other cities harder.
 
This generation can make the same mistakes of rejecting a new mall that eventually went to Mesquite, we can refuse additional exits like was done along I-635 in the 60's, we can ravage each new idea even though we have none of our own, and we can stick our heads in the sand. If we do, it will cost us: $1.5 million in additional taxes each year.
 

And that's the calm before the storm. The ride is going to get worse. The sooner we change course, the sooner the waves smooth.