Monday, October 27, 2008

The Perfect Storm: Why Our Budget Is So Tough

As we approach our 2009 budget deliberations, I thought I'd take a moment to explain why our County's budget situation is so challenging.

Unfortunately, it's pretty simple--and the graph above sums it up well.

Several primary revenue streams to our general fund are down--some in dramatic fashion--from last year.

1. Sales tax, our largest source of income, is down 1.5%. While that looks relatively small on the graph, that is our largest source of funds (about $65M), so any decline represents a significant amount of dollars (especially when it usually grows). Importantly, we don't collect sales tax on gas or food, so to the extent the cost of those items has been way up most of this year, overall spending on those items that we do tax will go down as squeezed families spend less on those items.

2. Interest income we count on has fallen by millions because of the decline in interest rates.

3. Most dramatically (percentage-wise), the dramatic decline in the housing market, property sales and property development have combined to take a huge chunk out of all revenues that rely on those industries--including the real estate transfer tax, associated fees, and building permits.

Together, these hits to our revenue total about $10M.

And they help explain why the key elements of the current economy--a housing slump that depresses property sales and prices, recent food and gas price increases that reduce spending on other items, a growing consumer spending slump, and the Fed's effort to battle all this with low interest rates--have combined to form a "perfect storm" for our basic revenues and budget.

Heading into 2009, while we have to budget assuming the worst (ie. that this continues), we'll also prioritize those measures that will help turn this economy (and our revenue picture) around.

4 comments:

Anonymous said...

lot's of stuff at jfs are concerning - and alot seems missing.

Anne said...

We moved back here from Virginia where there was a tax on food. I'm really glad this is not the case here, it's amoral as far as I'm concerned.

We also had a car tax in VA until then-Gov. Gilmore repealed it. It sounded like a good idea (indeed, it was the sound byte that won him the election) but in practice it was a disaster for municipalities.

Anonymous said...

did not mention the renting of jail space in Butler County?

David Pepper said...

You're right.

Both the Butler County commitment made in 2006 (costing $10M), as well as the coroners lawsuits from 2001-2007 (costing even more), are playing a major impact as well. Both served to dramatically dwindle our "reserves" from where they were about 5 years ago, taking them to a precariously low level.

So there is no wiggle room now that the economy is suffering. As I've said elsewhere, some bad decisions made by the prior Commission majority and the prior coroner drained the rainy day fund of tens of millions. And now it's raining.

We have to not just balance our budget, but over time replenish the reserve fund.

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