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Controller's
TV show
Money Matters:
2 and 8 a.m.
2 and 8 p.m.
Mondays,
Municipal Channel |
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City controller prefers budget cuts
to tapping reserves for $14.3 million
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Fitch's recent downgrading of the city's bond rating should serve as a warning not to raid the seemingly ample reserves to cover the $14.3 million budget gap, City Controller Annise Parker said Monday.
Fitch lowered the city's bond rating to AA-, the same rating Standard & Poor's and Moody's had already given the city.
"I expect the administration to present a plan to bridge the gap," the controller told council last week before Fitch's announcement Friday. "Even though we can dip into reserves, it doesn't mean I think it's good policy. We should be building up reserves."
The latest monthly operating report (MFOR), which reflects activity for January, projects a $2.9 million smaller budget shortfall than predicted last month. City ordinance allows dipping into the fund balance when it contains more than 5% of annual expenses minus debt service. That would mean $23.6 million of the $88 million fund balance could be used for budget relief.
Although the controller reminded a council committee she's legally bound to certify the funds are available for any purpose, she cautioned that city reserves, like personal savings accounts, should be used only for unforeseen expenses.
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"We should be building up reserves."
- City Controller Annise Parker
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Later this week, council will consider the annual Appropriations Ordinance, in which the controller certifies that funds will be available to meet budgeted expenses through the end of the fiscal year. Based on current projections, Parker said she will certify total general fund revenues of $1.441 billion.
That number could change if the Finance and Administration Department finalizes the amount of property taxes that must be transferred to the city's 20 TIRZs. F&A also may substantiate the transfer of $1.5 million in fees related to non-consent tows.
"Since I am not willing to certify an Appropriations Ordinance that exceeds my office’s projections, the administration will need to find a way to bridge the gap," Parker said.
As noted last month, the Governmental Finance Officer’s Association recommends 5%-15% of unreserved fund balance and one to two month's operating expenses. While the city meets the lower end of both tests, the mid-point on each test would require an additional unreserved fund.
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Administration figures differ by about 1%
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Less than 1% of the total $2.5 billion budget separates the city controllers' and the administration's budget shortfall projections, Finance and Administration Director Judy Gray-Johnson told a City Council committee. 
Traditionally, the F&A director (right) delivers her monthly report after the city controller.
"Truth will tell," Johnson said. "I hope we're both in the right range."
"I believe this is the best relationship a controller and an F&A director have had in the seven years I've been in city government," City Controller Annise Parker commented.
She noted that her office is in contact with the F&A director weekly, often daily. "We're trying to work as closely as we can so our numbers will be accurate. We have legitimate differences of opinion about some revenue items, but the cooperation is there."
Johnson said she's waiting for better property tax totals and the final March calculation of TIRZ revenues. She predicts that city departmental spending will be $1.3 million over budget but that the city will save in other areas, such as $2.3 million in the new HMO Blue employee health insurance contract and $500,000 in claims and judgments.
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Budget forecasting not an exact science
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If the administration and the City Controller's Office are getting along so well, why can't they agree on budget numbers?
Unfortunately, budget forecasting bears some resemblance to stock market and weather forecasting.
Deputy City Controller Susan Bandy tried to simplify the complicated world of budget forecasting recently for the City Council's Finance & Administration Committee.
"Keep in mind," she cautioned, "A line item in the MFOR (such as Other Charges for Services) can have over 30 revenue sources."
FY 2005 General Fund
Comparative Revenue Projections
as of 1/31/05 - Sample Line Items
(amounts in thousands) |
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Controller |
F & A |
Property
taxes |
669,265 |
672,000
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Sales taxes |
370,100 |
373,000 |
Charges for
services |
37,100 |
38,879 |
Municipal
Court fines |
45,589 |
46,101 |
| TOTAL |
1,441,262 |
1,452,263 |
Property tax – This includes five significant estimates:
• Certified taxable value,
• Current tax collection rate,
• Delinquent tax collection rate,
• Refunds/rebates and
• Transfers to TIRZs.
Bandy said the Controller’s Office uses HCAD-certified values at this point in the year to estimate year-end taxable value. This includes looking at the past two years to see where HCAD was at this point relative to values and where they ended up.
For average collection rates (both current and delinquent) as well as refunds/rebates, the Controller's Office uses the past two year's average.
Sales tax – The Controller's Office's current estimate is based on the amount collected year to date plus an estimate for new Limited Purpose Annexations ( LPAs), such as MUDs (Municipal Utility Districts) plus an amount based on an analysis of each remaining month’s potential growth. This potential growth is based on last year’s growth as well as local economic expectations.
The primary difference between F&A and the controller’s projections for sales tax involves February and March payments the city will receive in April and May. Last year, February and March were up by 24.32% and 17.2% respectively. While some of this was probably due to the Super Bowl, Bandy said most appears to be due to the state's sales tax amnesty program for businesses.
"We believe growth this year will actually be negative in February and flat in March," Bandy told committee members.
With the exception of line items like property taxes, sales taxes, franchise fees and interest, the Controller’s Office calculates a projection for each revenue source three different ways.
Year over year - Examining revenue received this time last year vs. what the city has received so far this year and projecting the year's total.
Annualize - Take revenues year to date, divide it by the number of months that have passed, and multiply that number by 12.
Year to date plus remaining months at budget. This is similar, but results can be quite different. Divide the administration's budget for that revenue item by 12, multiply it out for the remaining months, then add year to date collections.
The Controller's Office then uses the results of whichever method, or combination of methods, works best for that line item. For instance, most "Fine" categories should come in relatively smoothly throughout the year; therefore, an annualized number may be appropriate. Some permit categories, however, may receive most revenue at a certain time of the year; hence, year over year works best.
In other charges for services, the Controller’s Office currently projects $20 million for ambulance collection vs. the $22 million administration figure.
"We do not believe the year to date average monthly collections support the higher number," Bandy said.
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Money Matters joins Citizens Fire Academy
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"People trapped!"
Nothing gets a firefighter jumping on a truck faster than these two words. Adrenalin pumping 90 mph, they scamper up a 100-foot ladder in heavy gear or rush into a burning house to save a child.
For 12 evenings, 20 civilians step into the world of firefighters for a closeup look at what makes firefighters risk their lives.
Citizens Fire Academy classes, which are taught by experienced firefighters, may include firefighter spouses, parents or anyone interested in the program.
Photo by Ken Paradowski The Money Matters show joined a recent class as members climbed the ladder, tried to control a heavy hose, watched a fire captain scan with a thermal imager and talked with firefighters about their unusual profession.
Money Matters, hosted by City Controller Annise Parker, can be seen at 2 a.m., 8 a.m., 2 p.m. and 8 p.m. Mondays on the Municipal Channel (Warner Cable 16, Kingwood 14, TCI 16, Phonoscope 2 and TvMax 20.)
For information about enrolling in the Citizens Fire Academy, visit www.houstontx.gov/fire/cfa/cfa.html or call 713-495-7906.
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