The West Hartford Budget

Each spring the Town goes through the exercise of budgeting for the coming fiscal year, which begins on July 1st. Here’s the super summarized version of how it works. The Town Manager proposes a budget, there are public comment sessions, and finally the Town Council makes changes before adopting a final version. The mill rate is set, and from there the tax bills are generated. It is the property owners, ultimately, that fund the Town’s operations.

Farmington on Memorial Day

Setting Priorities

The Town’s budget is based on goals and priorities. The Introduction to the Town Manager’s proposed budget summarizes the mission in the form of “Organizational Values” and “Public Policies for the Future.” Here are quick summaries of the six Public Policies that serve as guiding goals. Keep in mind that these brief sentences are distilled from short paragraphs in the actual document.
1. Be among the safest towns in the region.
2. Be a leader in education.
3. Maintain the best physical appearance in the area.
4. Provide the best customer service.
5. Incorporate market forces and entrepreneurialism.
6. Include all residents when setting policy.

These goals help Town leaders allocate resources between competing priorities. It’s easy to get distracted by the headlines, or lost in the details of budget spreadsheets, but the numbers are supposed to support big picture goals. In the Town of West Hartford, these are the current goals.

Digging into the Numbers

With the discussion framed, let’s get into the numbers, starting with the headlines that you may have seen in previous coverage of the budget. The Town Council voted to adopt a budget on Thursday, April 24th. The budget is 3.7% higher than the current year budget, which translates into about $8.9 million in additional spending. General Fund spending will be $250.8 million, and the mill rate will be raised by 2.9% to 37.37.

None of the goals listed above are money makers. Instead, the objective of municipal government is to coordinate critical services for the community and distribute the costs. The first four can be loosely tied to specific Town departments. Safety is provided by police/fire; education is the domain of the schools; a pleasant appearance is designed by planning & zoning and maintained by public works; customer service is part of all the departments and is ultimately everyone’s responsibility. The essence of the fifth goal is that the Town will manage its activities responsibly, meaning they will try to use their resources efficiently.

There are many different ways to look at the budget. The headline numbers discussed above, which are cited in most articles, reflect spending from the General Fund. They incorporate most of the Town’s expenses, but not everything. Let’s stick with those numbers for now, and look back historically at how they have changed over time. The chart below shows General Fund expenses from the fiscal year ending in 2010 to the recently adopted budget for the year that will end in 2015.

West Hartford Budget History

The education portion of the West Hartford budget makes up about 58% of General Fund spending, which is by far the largest category. Other services provided by the town represent a little over 36% of spending. Police, Public Works and Fire tend to be the top three expenses in the Town category, with about a dozen more line items making up the balance. Debt service rounds out the General Fund at approximately 5% of Town spending.

Expenses have been rising since 2010. The budget has grown by about 18% in that time. Education expense increases have matched those of the overall budget. Town expenses have grown a little more quickly, about 24%, while debt costs have actually decreased.

The other side of the budget equation is revenue. Specifics for the budget adopted for 2015 are not yet available, but the distribution of revenue will likely be very similar to the current budget year. For 2014 over 85% of the Town’s income was from the property tax. Another 9% came from a different level of government (state or federal aid), and the final 5% was from all other sources.

Community Involvement

Municipal government exists to serve the community, and the Town’s 6th goal speaks directly to including residents in the conversation about how the Town is run.

There was very little interest in this year’s budget process. Kyle was one of eight individuals who attended the April 8th public comment session. Media reports about the April 10th session made it sound like attendance was comparable. Transcripts of the session (on the Town’s website, as are video recordings) show that four of the residents who spoke at the April 8th session also spoke on April 10th.

Whether one supports the budget or not, it’s important to understand how the process works and to check in on the trends every now and then. Based on this budget cycle, all is well in West Hartford.

Budget Trends in the City of Hartford

Hartford is in the middle of a budget debate in which City leaders work to close a meaningful gap between revenue and expenses. There are many moving parts to the discussion, and difficult decisions will be made. There is also one real estate related consideration that we want to highlight.

Last June the state legislature passed a law that defines how the City of Hartford’s split property tax system will work for the coming five years. A new provision was added that ties the residential assessment ratio directly to the changes in the inflation-adjusted tax levy. (Here is more information for those interested in background on the property taxes in Hartford)

Stone Field, HartfordMy understanding is that the provision is trying to say that if City spending outpaces inflation, then more of the tax burden will shift to the residential taxpayers. Nobody knows how this provision will play out since it is brand new. We do know that it will not be triggered for the coming tax year – grand list 2011, which runs from July 2012 through June 2013.

With the City facing a $56m budget gap, it seems unlikely that it will be triggered next year either. The budget being put together right now will need to be less than last year’s budget in order to balance. Inflation is almost certainly going to be positive, so City spending will not outpace inflation. However, it is much less clear what will happen for the year after that.

Suppose City leaders aggressively cut the budget for the coming year, which allows tax revenue to also be meaningfully cut. If these cuts are not sustainable, and the City needs to increase revenue next year through higher taxes, then it’s possible that the new provision in the property tax legislation would be triggered, shifting tax burden to residential property owners.

Although we have been following the budget discussion through the media, and attended one of the Council Committee of the Whole budget workshops, we do not have much visibility into expenses in future years. We know that pension contributions are increasing to make up for the meaningful losses that the pension fund experienced during the downturn in the financial markets from 2007 – 2009. Perhaps there are other expected expenses on the horizon that City leaders can plan for.

The most recent Courant article about the budget talks notes that City Council is reluctant to increase the mill rate to offset the decrease in property values identified in revaluation 2011. Presumably, part of their reluctance is to protect homeowners in addition to the perception issues specifically mentioned.

We encourage leaders to keep homeowners in mind as they work through the City’s financial issues. Certainly a smaller budget, and lower accompanying taxes, is a worthy goal that many homeowners would appreciate. However, it may turn out to be more advantageous to gradually reduce the budget and tax levy over the course of multiple years than to make a single dramatic cut.

Dropping the property tax levy too much this year could set the stage for an accelerated shift of the tax burden to homeowners that could have strongly negative consequences in the long run. Especially since the shift would be on top of the scheduled 3.5% increase in residential taxes that is also built into the law.

So are we actually asking for more taxes? Yes and no.

Taxes would (ideally) be flat or down for most homeowners in dollar terms – how much they actually owe for the year beginning in July 2012 – so no, we’re not asking for more taxes. But the mill rate would increase, and we would be taxed at a higher percentage of our property’s value, which means there would be a perception of a tax increase and the accompanying gnashing of teeth.

Hartford’s property tax system is very complicated, with aggressive negotiation between the business community and the residents setting the rules. For the coming five years the rules of the game suggest that a gradual decrease in the City budget is most beneficial for residents. The 3.5% more that residential property owners will pay each year is enough. We don’t need to be piling more tax burden on homeowners due to improperly managed budget gyrations.

Perhaps the City should take a page from big business’s playbook and smooth revenues over the coming years. It would be a win-win since the tax burden would decrease for commercial property owners without shifting the burden to homeowners too quickly.

West Hartford Taxes

It’s budget season in Greater Hartford, which is always a contentious time for property owners since it is often the first sign of rising taxes. West Hartford has a double dose of uncertainty as the Town works to figure out both the size of the budget and the implementation of the recently completed revaluation.

West Hartford Town Hall

I attended the first of two public budget hearings on Tuesday afternoon in the Town’s Legislative Chambers. Since it seemed like the Town Council was looking for input on the budget side of things, I decided not to share thoughts on the revaluation side of the equation.

Nearly all of the Town Council members were able to attend the 2:00pm session in person, which was quite impressive. The Town also put together a four page summary of the proposed budget that includes prose descriptions in addition to the financials. There is a lot of information available on the Town’s Proposed Budget web page, though I don’t see that specific summary document.

The hearing had an audience of about 20, and the only item on the agenda was listening to public comment. Seven of the attendees took a turn at the podium to share their views on a range of budget-related issues. Of the speakers, I would characterize five as expressing various levels of opposition, one as neutral with concerns, and one as supportive with concerns.

The level of Town employee benefits was cited as a specific concern by nearly all the speakers, even the one supporting the proposed budget. Most presented the issue as a long-term challenge that threatens the Town over the coming decades. Top Gun fan George Kennedy, President of the West Hartford Taxpayers Association put it this way, “The Town is writing checks that our bodies can’t cash.” One person cited specific benefits that they felt were out of line with the “real world” of the private sector. And another person worried about a future financial situation in which it wouldn’t be possible to raise taxes enough to fund Town operations, the school system and the retirement benefits liability – that West Hartford would eventually face bankruptcy like other towns and cities around the country.

The second theme of the public remarks was that the distribution of the tax burden and the assessment process were not working properly. One speaker, a local real estate agent, noted that the town has square footage wrong on many properties and too few people challenge their assessments. Another argued that the Town Assessor had kept the Market Value of that homeowners’ property unfairly high while other nearby homeowners saw more meaningful reductions in their Market Values since 2006. Another speaker criticized the decision to implement the new values all at once since his taxes are projected to increase by 24%. Finally, the assertion was made that the citizenry supporting the budget don’t pay the majority of the taxes (Note that this statement was not supported, and I would love to see the data that does back it up).

It was interesting that of the seven speakers at the public hearing, four of the homeowners are projected to have higher taxes while the other three are projected to have a lower tax bill. The lone individual speaking in favor of the proposed budget did so despite facing a 16% tax increase.

It is also apparent that the overall level of the budget is more of a concern than the tax allocation system. We reviewed the Town Assessor’s 2011 Market Values for each of the seven homeowners and did not see any obvious errors. There are questionable 2011 Market Values out there, but that’s what the assessment appeals process is for, and the values for these homeowners seemed reasonable.

Taking this a step further, the proposed budget calls for taxes of just over 2.5% of Market Value. A home worth $300,000 should pay property taxes of:

($300,000 market value) x (70% assessment ratio) x (35.92 mill rate) = $7,543.20

which is basically $2,500 per $100,000 of property value.

 

Those who would like to share their views on the proposed budget will have an opportunity in a couple weeks. There will be a second Public Hearing on Monday, April 9th, 2012 at 6:00pm in Room 314 of Town Hall. Please see the Town’s Proposed Budget web page for more information and the tax calculator.

 

Related Posts:
West Hartford: Proposed Town Budget
West Hartford Revaluation 2011 – Mill Rate Estimate
West Hartford Revaluation 2011 – Informal Hearings
West Hartford Revaluation
West Hartford Revaluation, Part II
Property Taxes and Revaluations

Budgeting for a Kitchen Remodel

This spring we’re embarking on a “fun” project, a kitchen remodel. As I mentioned last month, this is something we’ve been wanting to do for several years. Since it’s been on our radar, we’ve been saving up.

As with anything, there are varying cost levels when remodeling a kitchen. You can have a budget of $5,000, $50,000, $150,000 or anywhere in between. Several sources cited that kitchen remodels shouldn’t be more than 15% of the total value of your home. We’re going slightly above that, at an estimated 18% of our house value. According to these folks, we’re doing a mid-range budget, major kitchen remodel. Essentially, a gut and redo.

When we were budgeting we found it helpful to think about all of the areas where you can spend money when you’re remodeling a kitchen. Here are the buckets we came up with…


Kitchen Remodel Buckets

Depending on how many of these categories you’ll be changing, your budget will be affected. Also realize that in the Cabinets, Countertops…bucket that there can be huge variations in the quality of materials and therefore cost, so much of your budget will be driven by those items.

After looking at our breakdown by category, about 78% of our budget money is going into the Cabinets, Countertops…bucket. The rest is for the other items, which we unfortunately need to do primarily because of poor layout of the existing kitchen.

We’ve spent a lot of time over the last few months doing research on the major expenses. For us, the cabinets and appliances are driving the budget. We were pleasantly surprised to find a carpenter that will build high quality, custom cabinets for us at a very fair price. Additionally, we’ve never really purchased appliances before so there was a learning curve given the range of products available and our specific needs. Plenty of time was spent talking to folks about what appliances they have and what they like and don’t like about them, reading online message boards, and visiting area stores.

The main lesson I’ve learned so far is the importance of research and considering different options based on your needs. Most likely, there are going to be some tradeoffs involved in order to stay within budget. For example, we really wanted a built-in eating area, but when the carpenter priced out building it for us we decided we’d just purchase a table and chairs for the space. The extra expense was driving us way over budget. We also decided that a matching family of appliances wasn’t that important to us. They’ll all be the same color, but they won’t be the same brand.

Next up, coming up with the right design and layout.

Property Taxes – Troubling Economics

revenue & EXPENSESProperty taxes are a sensitive subject in Greater Hartford. Just about every year there is a budget referendum in at least one local town as angry residents fight yet another property tax increase. The debate in some towns is more heated than in others (but we won’t mention any names).

You may be happy to know that rising property taxes are a hot topic in other cities and states as well. An editorial in this weekend’s Wall Street Journal highlights a number of areas that are experiencing increasing taxes at the same time as they see falling home prices. In Arizona, where there is a state property tax, property values have fallen 17% on average in the past year. But taxes are on the rise. Ouch!

Unfortunately the root cause of property tax tension throughout the US is likely to get worse. The economics of running a town are deteriorating. Let’s consider the revenue and expenses separately.

Nearly all of town revenue comes from property taxes. Although real estate has historically been an appreciating asset, that is perhaps not the case today. Let’s assume that property values have stagnated. Therefore town revenue has also stagnated.

Expenses, on the other hand, are rising even more quickly than their historical rates. Education (much of a town’s budget) is rising at 2.5x general inflation, healthcare (another significant piece) is rising at 2.0x general inflation. We all know about energy prices, which impact many of the services the town provides (police, fire, trash pickup, snow plowing, heating city buildings, …).

Revenue is stagnant while expenses are accelerating. We all better sharpen our pitchforks and ready our torches because in the current global economic environment, this dynamic looks like it will only get worse.  Other than protest, is there anything we could or should do?  Or should we just ride it out?  This is shaping up to be a big problem throughout the country.