Tax Increases and Public Comment
I would like to explain the rationale for sending my recent letter to Milan residents regarding the proposed increase in town taxes and expand on the information I provided.
First, it became apparent to me that the public was not going to be informed of this increase, and could not be expected to turn out to a public hearing on November 6 that has received so little publicity. For some reason, we have had no reporters at our meetings and budget workshops for some time. I felt I had an obligation, as a minority board member, to at least be sure the public was aware of what the Board majority was trying to quietly do in what Dick Barrett has described as a non-election year.
Second, I do not ascribe partisan motives to the Board majority. Each person on the Board is approaching this budget crisis with an eye to what is in the best interests of the town. But I also believe that there are significant differences of opinion about what to do in this very difficult year. Members of the Republican majority believe we must continue to maintain our infrastructure, and place a high priority on that in 2009. I agree that maintaining our infrastructure is a primary duty of the Board, but I also believe that the Board has a responsibility to protect our taxpayers in this very difficult and uncertain financial climate. We have made reductions in revenue projections, but we have not made the corresponding cuts in expenses. We have no idea the depth or severity of the recession we are in and what 2009 and 2010 may hold. My position on the Preliminary Budget has been that it is simply unacceptable.
Third, I think the public is owed an explanation of how the budget got to this point.
Expenses: In 2007 the Town Board proposed bonding for highway improvements to Odak Farm Road (which has been deferred to 2009). The new Board majority did not want to do this because they wanted to ”pay-as-you-go” on highway costs. Perhaps a bit of a tutorial is important here. There is highway maintenance, which is basically resurfacing and repairing existing roads, and highway improvements, which entails tearing up and reconstructing roads. In 2008, gasoline, diesel, and asphalt costs skyrocketed, which used up appropriations and permitted maintenance activity on only 1 mile of road, where we plan to do 7 miles per year. So this year the budget request from the highway department is to do more. Given normal times, the Board would like to find a way to support this needed work. The preliminary budget builds in the expense of 7 miles of maintenance and 1.5 miles of improvement. Those supporting the preliminary budget do so because they feel we must maintain our infrastructure, and should not go into debt. (On this last point they are not consistent in practice--see Bond Payments below.)
On the road improvement, there is the option, the same as was planned last year and not implemented, to bond for the cost. This would allow the work to be done in 2009, with bond payments beginning in 2010 and spread over 5 years. The total cost in interest to do so is projected to be an additional $10,000 spread over 5 years (and the loan is paid off with a depreciated dollar in the future). To me, this year, this is a no-brainer -- it eliminates $62,000 from 2009 taxes. But that’s not enough. I recommend that we again go slow on maintenance and do only 3 miles, instead of the now budgeted 7 miles, saving $74,000 in taxes in 2009. We would then provide the proper level of care for 4 ½ miles, including the road improvement for Odak Farm Road, instead of the 7 we need to average. We will catch a break in future years when revenues at some point recover, and we can afford to do more. Not desirable, but, in my view necessary this year, the most precarious since 1930.
The other expense item where we can save, and I believe the Board intends to do so, is to reduce the hours of our building inspector and planning office secretary. We simply don’t have the volume of building activity in this economic climate, yet we must maintain a responsive level of support for the citizens, a balancing act.
Revenues: The Town Board has projected that mortgage taxes will decline by about 12% in 2009. In 2008, we experienced a small shortfall in mortgage taxes against a much reduced revenue line from 2007. Sales taxes, while holding up in 2008 on the gas price increases, will lose that underpinning as gas prices come down, while consumer spending is expected to decline. The Board reduced its 2009 sales tax projections from $120,000 to $100,00, a 17% decrease. In 2008, we were fortunate to have a much higher than expected level of income from fines and forfeitures, realized through our Justice Court, which accounts for our surplus this year. The Town Board has booked substantially more in revenues from that source in 2009, which in part makes up for the other declines.
Also, a number of issues that relate to both this budget and future budgets should be discussed with citizens.
State funding: We continue to expect some level of the usual state support, but this grows increasingly uncertain by the day. In the highway funding, we receive support for highway improvements and it generally increases by some amount each year. In 2008, we received $90,000; in 2009, we have projected the same. The proposed road improvement for Odak Farm Road qualifies for this payment; while bonding the $61,000, the balance of the projected $151,000 cost, would be covered by the state payment. It is important to do work each year that qualifies for this assistance. Each year, we also receive some level of support from our state senator; we have submitted an application for funding in 2009, and are told we can expect it. We have booked expenses accordingly. However, the State legislature has been called back into session in mid-November to address the very significant state revenue shortfall and make cuts accordingly. The result of that on our anticipated state revenues is unknown.
Fines and forfeitures: Residing along the Taconic Parkway has its definite advantages. We have two excellent Justices who are respected by the State Police who patrol there. This is the single largest revenue item for the town, outside of taxes. We have regularly exceeded revenues in recent years and hope to do so again in 2009. However, should emergency conditions or cutbacks result in redeployment of state troopers, it is important that the Town Board and citizens realize that funding source can be at risk.
Bond payments: Bonding is a vehicle that can make a great deal of sense to better manage large expenses over time. A bond works much like a mortgage on a home, although total payments generally decline over time as principle is paid off on a bond, rather than the level payments on a home mortgage.
While the Town Board majority has resisted bonding the highway improvements noted above, they incurred excessive cost for the Town by bonding too much for the bridge work completed in 2008. Rather than get approval for a bond and then using a “bond anticipation note” to pay pills until the final cost was known, the Board went directly to the bond, collecting $700,000 in funds. The cost of construction was well over $100,000 less, meaning the Town will pay interest on the excess amount for 15 years. More critically for future town finances, the Town Board is using the leftover funds to make the payment of interest and principle on the bond this year. They anticipate doing this until the bond funds are exhausted, then leaving a number of years to pay the remaining interest and principle in the Town budget. When that first occurs, it will cause about a 3% increase in taxes. In 2009, the leftover money from the bridge bond will pay the $53,709 due, eliminating for now the tax impact of the bridge bond. But starting about 2011, those payments will come out of tax revenue. In the meantime, additional bond funds are to be raised for the reconstruction and repair of the Salisbury Road and Old Rock City Road bridges.
This practice of raising excessive bond funds and then using them to pay off debts for the first few years has been a tactic of the Republican-controlled Boards in Milan since the Town Hall bond was floated in 2002. It creates bombs in the budget for future administrations to deal with. The full cost of the Town Hall bond is not yet being felt by taxpayers because interest is being paid from the “Bond Interest Reserve Fund,” the money set aside from the excess proceeds of the Town Hall bond. Continuing principle and added interest payments lie ahead for that bond, as well. I do not argue with bonding for such capital purposes, but I do believe we should not bond for more than needed. The argument that we should not incur debt for highway improvements, which cost significantly less than the overruns on the capital bonds already committed, seems disingenuous to me.back to Milan Insider