NEW BUDGET PLAN IS AN IMPROVEMENT
At first glance, with details to come, the new budget-balancing plan that came out of Santa Fe City Hall this week appears to be an improvement over the previous “framework” that the City Council has been kicking around for several weeks.
The new plan doesn’t raid what might be called the corpus of the water division’s reserve funds to pay instead for general government operations, although it will slow the fund’s growth. There is no increase in overall tax rates. And here’s one way the new plan is definitely better — it’s more honest.
There was a major problem in the way city officials were portraying Santa Fe’s budget problem before. They said city government will have a $15 million budget deficit come the next fiscal year, in part because the city shouldn’t have been using money from the standalone, self-funding water division “enterprise fund” to pay for general government operations. Last year, the City Council took $3.8 million from water fund to bail out the general fund.
They then suggested they were weaning themselves from the water division’s burgeoning reserves. Instead of just taking or “borrowing” water money — the water reserves had grown to an irresistible $95 million because of recent rate increases — they would impose a “fee” of $4.7 million on the city-owned water division. The fee was supposedly justified because private utilities have to pay a franchise fee to use city rights of way for their telephone or power lines or natural gas pipes. The city would be taxing its own utility.
Last week, this newspaper sent city officials an inquiry that asked this question: If City Hall can simply tax the water company to pay for other stuff, why not just impose a $15 million annual tax? End of discussion, crisis over, no $15 million deficit, no fuss, no muss. Our argument was that you can’t have it both ways: Say you have a $15 million revenue shortage because you’re not supposed to use water money for general fund expenses, but then continue to use the water money by calling what you take a fee instead of admitting you’re simply taking it because you need it to balance the general fund.
And no one ever explained how precisely a $4.7 million “fee” was justified. Mayor Javier Gonzales said this week that $600,000 is closer to what the city charges phone companies or other private utilities for use of public rights of way. On top of continuing to dip into the water money, city elected officials were also talking about raising gross receipts taxes and property taxes.
The latest plan unveiled by the mayor on Wednesday also impacts the water division, but does it out in the open without the fee-versus-just-taking-what-youwant subterfuge.
A key to the plan is the new idea of refinancing the water division’s water debt to lower the annual debt service payments on bonds that have been issued for water improvements. The city could then stop collecting a one-quarter of 1 percent gross receipts tax that voters approved as designated specifically for water infrastructure and which has helped back the water bonds. The City Council would impose a new GRT of the same amount for the general fund, meaning the $7.9 million a year in GRT revenue that had been going to the water division would now go to general government.
There would be no tax increase — the new tax for the general fund would just replace the GRT that consumers had been paying into the water fund.
The general theory seems to be that, with a water rate structure that is generating plenty of revenue, in part by making water-guzzlers pay a premium, and with reduced debt service thanks to the planned refinancing, the water fund can get by without the GRT revenue and continue to generate sufficient money to maintain and improve the water system, and make sure it’s sustainable.
A couple of surveys have shown that Santa Fe has perhaps the higher water rates in the country, with the commendable offset that Santa Fe’s water usage has dropped to amounts well below the rest of the increasingly dry Western U.S.A. and unheard of in water-needy, lawn-loving California.
So if the water division doesn’t need the GRT revenue, City Hall’s new thinking goes, it instead can be used to balance the city budget.
The budget-balancing plan still calls also for trimming $4 million from city operations and raising $2.5 million from increasing various fees or doing a better job collecting them.
The mayor has also backed off his plan to rake $50 million from the water reserves for an endowment fund whose interest would be used for programs to fight child poverty and climate change, acknowledging that use of the water money for this endeavor was drawing fire.
As we said above, the new budget-balancing plan is at least honest about the shifting of tax funds. Santa Fe would be making a clear choice to reduce tax revenue for what appears to be a flush water fund, which should continue to grow, but at a slower rate, and then put more tax money into the troubled general fund. Taxpayers should continue to hold out for a serious look at trimming fat.
The main question at this point is whether, with the proposed GRT tax switch, the water division will still have the money it needs to keep Santa Fe’s taps flowing for decades to come and maintain the aging infrastructure in our ancient city. As the Journal’s T.S. Last reported recently, there is a looming issue of possibly very expensive repairs or changes needed at the Buckman facility that diverts city and county water from the Rio Grande.
Lower water rates should at least be considered for Santa Fe’s water-saving, first-tier water customers if the water reserve fund continues to balloon even without gross receipts taxes. But, in any case, the City Council needs to make sure the budget plan or rate changes don’t weaken the water system — the most essential operation in city government.