Shocking!

I have done a couple of posts about the setting of the “municipal tax factor”, and the annual request by City Councilors from around the Commonwealth to Mayors and Managers to lower tax bills by raiding free cash and reserves. As you know I have been against such actions, and have outlined my reasons in those prior postings.

I find it amusing (but maddening when I was a Mayor) to hear City Councilors express “shock” at tax classification time at the idea that the budget that they voted for would now have to be funded. Of course that “shock” is now reverberating throughout the Commonwealth, as Councilors urge the burning of reserves that have taken years to build. Such actions go against every model of responsible financial management, and have no support from any responsible financial folks familiar with municipal budgeting. They lead to “structural deficits” in the following year, since the level of spending remains the same or goes up, while revenue remains below expenses by the amount of the utilization of one time revenues. What that means is that the following year you need to raise that money, by taxation, or cut spending. The burning of reserves now takes its place as the local version of the budgeting fad known as “kicking the can down the road”. Don’t want to make tough decisions at budget time? Burn some reserves at tax time, and let us promise to get tough in the next budget cycle! (Which will not be here for another six months.) Then rinse, and repeat.

When a municipal budget is submitted it is shown to be in balance by law, with the Manager or Mayor submitting not only the expense side, but the revenue side as well. That revenue side contains a number for the “tax levy”, the amount to be raised by property taxes. For those municipal councilors expressing “shock, horror, despair and despondency” during tax setting time the question must be asked: Why didn’t you demand that the tax levy number be reduced at budget time? And then why did you not propose budget cuts equal to the levy reduction? The property tax burden goes down for every dollar that you reduce the tax levy. That is how you reduce the property tax burden, not by burning reserves. So for citizens wondering about local budgetary double talk you can start right there.

Another rather funny response from those looking to burn reserves at classification time comes when they are shown the process, and the math, in public settings or through the media. They invariably shake their heads and come up with one of the following:

1) “The Mayor or Manager should cut the budget, not me.”

2) “I understand that your math and facts are absolutely right, but lets do this so we look good.”

3) “Even if citizens are actually seeing a reduction in their tax bills, it is bad for us if they think bills are going up.” “Lets burn reserves to combat that perception problem.”

Hilarious stuff, as long as you are not the CEO. But it is truly dangerous stuff for creating a stable financial outlook for so many cities and towns that have been hit hard by the economic downturn, and who still have serious financial challenges ahead.

Councilors have the right, at budget time, to cut the budget submitted by the Mayor or Manager. The next time you are at a coffee shop and you hear a Councilor railing against the tax burden ask him how much he proposed cutting out of the municipal budget. When you hear crickets chirping you will know that the tax talk is more political double talk.

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