St. Paul’s city budget — and the taxes and other revenues necessary to pay for it — have been in the news a lot lately. A combination of cuts in Local Government Aid, inflationary pressure and other factors have caused a $17 million structural budget deficit. The budget — and the public discussion that goes into setting it — is more than just a series of competing sound bites. It’s a months-long process in which the community reaffirms (and sometimes readjusts) its priorities and willingness to support them. Facts are the foundation of a good budget process; here are some things that you may not know.
1. St. Paul spends less per resident than many other cities.
We are the state capital and a central city with all of the extra demands for service that come along with those, but our overall spending is not high, compared with many other cities around the state. The only real “apples to apples” comparison of spending among Minnesota cities comes from the state auditor. In 2005 (the most recent year reported), St. Paul’s total spending per capita ranked 42nd out of 218 larger cities— despite having the fifth-highest police and ambulance spending and the third-highest fire department spending, and supporting extensive city-operated park and library systems.
2. Inflation is by far the single-biggest reason for spending growth from one year to the next.
The budget has to grow each year even if we provide exactly the same level of service to the public — because most of the things we provide simply cost more. The total energy bill for the city (including electricity for the streetlight system at more than $1 million a year) increased 30 percent between 2003 and 2006. Even though we contract for bulk purchases to get the best price possible, gasoline is up a dollar a gallon since 2003 —and we buy more than 670,000 gallons a year. And simply paying city employees a cost-of-living wage increase adds up to a lot of new dollars each year. In the 2008 budget, a projected 2.5 percent cost-of-living increase in the police and fire departments alone adds more than $3 million to wage costs next year.
3. Most spending growth has been — and will be — in public safety.
Two-thirds of the city’s general fund budget is spent in the police and fire departments, and 80 percent of that budget is attributable to personnel costs (wages, payroll taxes, and employee benefits). Since 2004, budgeted spending for police, fire, and criminal prosecution has grown at more than 5 percent annually. All other spending grew less than 1 percent per year. In the proposed 2008 budget, combined police and fire spending will increase $8.4 million. Aside from inflation, the major reason why the budget will go up next year is to add 13 additional police officers and replace patrol cars, some of which are 6 years old.
4. The tax levy is the total amount of tax we budget to collect in a year — and there’s no automatic inflation built into it.
The property tax levy is set each year as a part of the overall city budget and is the only part of the property tax over which the city has any direct control. It is simply the total amount of property taxes required to help pay for the city budget in the next year. Ramsey County then uses that figure — along with the total property taxes to be “levied” by the county, the St. Paul Public Schools, other entities like the Met Council and local watershed districts, and even the state itself — to come up with a total property tax rate for homeowners and businesses in the city. A growing tax base because of rising property values or new construction in the city (and there’s been a lot of both) does nothing to change total property tax collections — it only pushes down the tax rate. Tax base growth can be captured to help the budget only if the city increases its tax levy.
5. The city’s total tax collections have increased only slightly since 1994, and both our tax rate and tax ranking among metro cities have continued to drop.
Between 1994 and 2005, the city of St. Paul actually had a decline in its total levy (i.e., the total amount of property taxes collected to help pay for the city budget actually was lower in 2005 than it was in 1994). In the past two years, total city tax collections have increased, but today they are only 7.5 percent higher than they were back in 1994 in “nominal” (ignoring inflation) dollars. Even with levy increases in 2006 and 2007 and an increase proposed for 2008, St. Paul’s city tax rate has continued to decline because of strong tax base growth. In the most recent Citizens’ League ranking, St. Paul city taxes ranked 73rd among metro area cities.
6. The total city property tax collections for a year don’t even pay for the police department.
This year’s total budget for the St. Paul Police Department is about $81 million. The total property tax levy for city operations this year is $70 million. Even if we spent every nickel of property taxes on police, it would only be enough to operate the department through mid-October. Everything else we do — the fire department, the parks, the libraries, inspections, code enforcement — would have to rely on fees and other charges and whatever financial assistance we get from the state and federal governments.
7. The city’s property tax levy is only a minor part of property taxes paid in St. Paul.
Less than 1 in 4 dollars paid by St. Paul property tax payers goes to the city budget. The total combined amount of property taxes levied by the city, county and school district on properties located in St. Paul during 2007 is about $282 million. The city’s share is $77 million. If the city increases its tax collections by $5 million in 2008, this will represent less than a 2 percent increase in the total amount of taxes collected in St. Paul next year. A $10 million increase would be less than 4 percent. For comparison, the total increase in local taxes levied on St. Paul taxpayers was $30.5 million in 2007 (the city got $5.9 million) and $24.2 million in 2006 (the city received $1.9 million).
8. Our financial management gets good grades.
Outside reviewers tell us we’re managing carefully and well. In recent years, we’ve maintained our AAA credit rating and received a “strong” financial management rating from Standard and Poors — putting us among the top 15 percent of cities nationally. Closer to home, we are reviewed each year by the state auditor, and for the past 30 years they’ve reported an “unqualified” opinion on our financial statements — the affirmation of accuracy.
9. All money isn’t really the same.
The simplest way to balance a budget in any single year is just to find enough money somewhere, somehow to pay the bills for that year. The problem comes when the money used to pay ongoing expenses — like salaries and utility bills — comes from a one-time source like a reserve fund or postponing a major purchase. It will work for one year, or maybe two, but then the money runs out and the expense is still there.
The city did a lot of that over the past few years — first to keep the tax levy from growing at all, and then to cope with state cuts. So the “structural” gap in the budget continued to mount. Mayor Chris Coleman’s 2007 budget helped us take a big step toward restoring a “structural” balance to the budget — where inflows are equal to outflows each year. It cut the use of one-time budget fixes in half, moving us toward a goal of balanced revenue and spending growth by 2010. Until we get there, permanent revenues will have to grow faster, and spending will have to grow slower. This means tougher budget choices in the short run but is the only way to get us out of annual budget crises in the long run.
10. The property tax levy is our only major source of reliable revenue — unless the state steps back up to the plate.
The vast majority (63 percent this year) of our general fund revenue comes from a combination of state Local Government Aid (LGA) and property taxes. Before 2003, LGA was dependable and grew with inflation, helping keep the city’s tax levy low. Since 2003, LGA has been cut by 25 percent, costing us $108 million through the 2008 budget year.
Over the long run, the reliable revenue to fund the city’s budget has to come from either the local property tax levy being increased by the city, or by LGA being restored as a dependable and growing revenue source by the state. (Or, if the revenue isn’t there, then spending has to be cut — but recall points 3 and 6 above.)
Mayor Coleman’s 2008 budget plan lays out the alternatives plainly: If the state helps by passing LGA at least at the level envisioned by last spring’s vetoed tax bill, then property taxes will grow more slowly and more services can be maintained and improved here next year. If the state doesn’t help, then property taxes will be higher and spending (and services) will be diminished.
The arithmetic of the budget isn’t any more complicated than that.
Matt Smith is St. Paul’s finance director.