Dallas’ revenue comes from four main sources: the sales tax, which accounts for about 20 percent; Dallas Water Utilities, which contributes about 30 percent; fees, miscellaneous taxes, and fines, which make up about 20 percent; and the property tax, which accounts for the final 30 percent.
What’s interesting is that the first two revenue sources are collected regularly (the money from the semi-autonomous water department is more or less a wash, and doesn’t really apply to this discussion). The city gets a check every month from the state for its share of the sales tax and also receives regular payments in fees, franchise taxes and fines.
What it doesn’t get regularly is the property tax, which pretty much dries up at the end of February. How this affects the budget and spending and why it matters, after the jump:
I have always wondered, whenever there is a budget crisis, why the city staff seems to notice it in February. One reason, apparently, is because that’s one of the two months that the city gets almost all of its property tax revenue. Property taxes are due Jan. 31, and this year 92 percent of the people in the county paid by the end of February. Which means that for the final seven months of the fiscal year, the city gets very little property tax revenue. So, if the budget isn’t done right, as it wasn’t this year, that’s going to raise cash flow havoc with spending.
A few technical bits first (and a huge thanks to Shirley Jackson, the chief deputy in the tax assessor-collector’s office, for explaining this to me and supplying various facts and figures). When you pay your property taxes, they go to the Dallas County tax assessor-collector, which forwards each taxing jurisdiction (the city, the county, your school district, Parkland, and the rest) its share of your payment. In fact, the tax-assessor collector forwards the money daily, so that each entity gets the money almost immediately.
What this means is that the city gets some of its property tax money in the first three months of the fiscal year; the bulk of it in January and February; and most of the rest (this year, eight percent of the total) in May and June, before state law allows the county to turn delinquent accounts over to a bill collector. So, by the end of February, the city has pretty much all the property tax money it’s going to get. And if the rest of the revenue sources aren’t bringing in as much cash as forecast, there is no more property tax money to make up the difference.
The city is like a business with three clients. Two of them pay regularly, but the third pays once a year. That means the business has to take that big payment and squirrel it away, spending it carefully. Because, if the other two clients don’t buy as much from the business, it needs to use that big payment to pay the bills that aren’t being covered by the first two clients.
What happened this year — and what presumably happens every year when there is a budget crisis — is that the other two sources of revenue were so much lower than projected by the end of February (the sales tax had significantly missed the forecast in four of the first five months of the fiscal year) that the city knew it was in trouble. By the end of that month, I’m guessing that the city manager and her staff knew the amount of money they had to work with wasn’t going to be nearly enough.
This raises three questions:
• Is there a better way of collecting property tax revenue? Probably not, unless we want to stagger the due date, which would be a bureaucratic nightmare.
• Is there a better way to do the city budget? There has to be. When the city does its budget in the summer, it has a pretty good idea of how much property tax it’s going to get. It has much less of an idea about how much it will collect from the other two sources. It would seem obvious — and sensible — to be more conservative with the projections for the sales tax and fees and fines, especially given the economic uncertainty at budget time last year. Which wasn’t done.
• Is there a better way to manage the budget when a crisis is looming? I hope so. My sense this year is that, even as bad as the numbers were in February, few people downtown wanted to believe them. We can argue why that is, though I’d bet big money that it had a lot do with keeping a lid on bad news until after the convention center hotel referendum in May. So we have had hints and forebodings since February, and panic this month. Would the situation have been better if the city manager had announced in February that a crisis was imminent, and had announced wage and hiring freezes? Couldn’t have been any worse than this.
The other intriguing part about all of this? How many people on the council know this is how the city gets its property tax revenue? I hope I’m wrong when I say, "Not many."