Strong economy means a bigger city budget

Finance Committee members began their second week of budget hearings for the City of Santa Fe on Tuesday, during which they will continue to dissect the 136-page document.

One of the major highlights: The city manager and mayor's recommended budget is almost $6 million larger than the previous fiscal year, a 6.2% increase. The total general fund budget, which covers day-to-day operations in the city, is approximately $102 million.

SFR asked city Finance Director Mary McCoy where the additional cash would come from.

"There's a mix of revenue increases, as is outlined in our revenue tables," McCoy says. "Part of that is gross receipts tax, part of that is property taxes, and it can be all other local revenue sources. Fees, fines."

Bottom line, the city isn't planning to hike any of its tax rates. Projections show, however, that folks are on track to spend more money at businesses and retail stores, and if you own a home, its increasing property value will result in a bigger chunk of change going into the City Different's coffers.

And there's another wrinkle: You will probably pay more for electricity, too. Franchise fees, which are charged for services provided within the city and typically passed on to customers by the Public Service Company of New Mexico (PNM), are slated to increase by 1%, bringing the fee up to 3%, in line with many cities in New Mexico but higher than Albuquerque.

Most of the new spending is primarily due to expanded health and dental benefits for employees, salary increases and capital projects over the next fiscal year.

City Manager Erik Litzenberg says that the hope is to finish up Finance Committee hearings this week and put the budget before the City Council on May 8. The deadline to submit a budget to the state Department of Finance and Administration is June 1.

The increase in projected revenue comes from strong economic growth both across the country and in Santa Fe itself. The period between the Great Recession in 2008 to today has been the longest recovery in history.

"This could change, but at the moment were still enjoying a pretty robust economy," Mayor Alan Webber tells SFR. "People are investing in commercial property, there are housing purchases that change who owns the property, which changes the assessed value. There's a lot of economic activity that's feeding revenue."

But all good things must come to an end. The question is when. It could pose a problem for Santa Fe if the economy were to crash right as city officials started to count on greater revenue to fund their activities.

The likelihood of that happening seems slim, as things are—for now—going smoothly. Views diverge on the matter, and everyone has an opinion. Some see doom on the horizon, other clear skies. One, Dean Baker at the Center For Economic Policy and Research, who correctly predicted what would happen in 2008, wrote in January that if there is a recession, it will be because the Federal Reserve raises interest rates too quickly. Since then, the Federal Reserve has signaled it will slow down its rate increases, so that possibility is probably off the table.

Still, history shows that eventually, growth periods will stop, which is why the city also needs to shore up its various reserve funds, bringing the budget in line with a municipal mandate that 10% of the total budget held in those reserves.

"Unfortunately in the past two years, the city has not met that 10% mandated reserve," McCoy says. "So this year were really focusing on increasing the reserves so we meet that, and so were fiscally responsible and prepared ahead of the next downturn so we have sufficient reserves."