2008 Budget---a look in the crystal ball----

(I recently wrote Eric Jepperson, Evansville Finance Dir. and asked about the 2008 budget. I also asked Jennifer Petruzello for some thoughts. Usually at the end of preparing a budget such as 2007, the last thing one wants to do is look further into the future. I have reprinted my letter to Eric and his responses. I have summarized Jennifer's comments.}

-----Original Message-----
From: Richard Woulfe [mailto:fre2observe@yahoo.com]
Sent: Friday, November 24, 2006 10:37 AM
To: Eric jepperson
Subject: 2008 Budget Property tax Levy Limit Estimate


Eric----

As I understand it, for the 2008 Budget---------- the City tax levy would be held to a Property Tax Levy Limit by the State of Wisconin and this limit would be equal to the ratio of the increase of equalized value from January 1, 2006 to January 1, 2007, from new construction diviided by the total equalized value as of January 1, 2006.[Eric Jepperson] Yes, and if there is no, or little new construction, the Levy Limit by the State of Wisconsin is a 2% increase from the prior year. There can also be an adjustment to the Levy Limit for additional debt service for debt authorized after July 1, 2005.

Assuming that as of NOW, no further new construction was put on the books during December 2006, what would the Property Tax Levy Limit be for the next budget year? [Eric Jepperson] I will contact our city assessor to see if we can get any early numbers on the 2006 new construction. We have not received any dollar figures yet. As we mentioned at Common Council, new construction for 2006 is down about 60% from last year based on building permits pulled.

Also----in the memo of Jennifer Petruzello it indicated that the expenses relevant under the revenue capped by the levy limit are general operations, EMS, Library, Cemetary, Debt Service and Capital Projects. [Eric Jepperson] Yes, the tax levy goes to fund those general government operations. Enterprise funds such as Sewer, and Water & Light do not receive any tax levy dollars. They are funded by user fees.

It was asked earlier on this blog-----what the 2008 budget pro forma would look like , and I am trying to estimate the total top line revenue applicable to the tax limit---and then look at which of the FTE increases are under it---I assume all are---the Park, Police, Public Works, Legal, Planning----all these increasd expenses are expenses under the general opeations title are they not? [Eric Jepperson] Yes, the FTE increases are all under the City general operations. The maximum a 2008 pro forma revenue budget for a tax levy will be is the greater of the net new construction or the 2% increase. Jennifer warned during the Common Council meeting that it would be a lot tighter budget next year. I am trying to see how close it will be from what we know now. Any help you can give in this matter would be appeciated.[Eric Jepperson] Yes it will probably will be a tougher budget year for 2008 based on the lower new construction, but the 2% state imposed levy limit will expire soon, but common opinion assumes that the State will vote to continue it.

Richard, I will ask our City Clerk and City Assessor for any dollar amounts that they might have on the new construction and get back to you.

Thanks,

Richard Woulfe
The Evansville Observer

In her comments, Jennifer explained that the building permits does not tell the whole story, since a permit can be used over a two year period, and it takes an inspection by the city assessor to determine value at the start of the new year. Also, the building permit only lists anticipated costs, and not value, or market value.

Jennifer also indicated that if the increase in new construction was for hypothetical just half of what last year was, this would require some shifting of funding to pay for the increases in FTE that were approved by the Council recently. Hence, her general caution at the final budget meeting: Her exact words were:

"As an example, if the allowable levy increase were reduced by 1/2 to 3.056%, the maximum levy increase would be $59,092. (This is only an example not a prediction) The increase in PT Parks employment, the Customer Service Clerk and the increases in planning and attorney expense were fully incorporated into the base in 2007. But the Public Works Laborer and change in Police Dept. staffing would have a secondary increase in 2008. The Council could choose to shift the portion of the levy that is currently allocated to any of the other funds towards the general fund. I imagine, the most likely shift would be from the Capital fund to the general. I have encouraged the Council to consider the longer term impact on the tax levy limits and tax rate as they prepare for their next borrowing cycle.

As construction occurs in the newly created TIF districts, their value will be included in the net new construction numbers, which is used to determine the levy limit. Because this construction is not likely to occur by January 1st"

Again, looking to 2008 is looking at the crystal ball and speculation is a large part of this since some of the numbers are not known. Thanks to Eric and Jennifer for responding to my inquiry.