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Tacoma: City Council questions discrepancies in revenue forecasts for budget

Post by Lewis Kamb / The News Tribune on Nov. 9, 2010 at 4:39 pm with No Comments »
November 9, 2010 4:39 pm

Blame it on La Nina – or perhaps just radically divergent budget philosophies.

Whichever the case, the Tacoma City Council is now questioning a $6.6 million discrepancy of projected utilities tax revenues built into City Manager Eric Anderson’s proposed city budget for the coming two years.

Anderson

And, judging by reaction from at least one council member Tuesday, the disputed figure in Anderson’s spending plan should be changed before the council ultimately approves the 2011-12 general fund budget by year’s end.

“I think we have to go back to the drawing board on our revenue assumptions,” Councilman Jake Fey said. “… The proposed budget from the city manager needs to be reduced by $6.6 million.”

If that happens, Anderson likely will need to find trims equaling that amount elsewhere.

“If the council wants me to reduce it, I’ll do what they want me to do,” Anderson said. “I just don’t know how yet.”

The discrepancy at issue comes in projections for so-called “gross earnings taxes” – a business tax levied on total revenues garnered from the city’s power, water, rail and Click! utilities. When putting together their respective budgets for the coming two years, the city’s general government and Tacoma Public Utilities budget officials separately estimated similar tax revenues from all of the utilities – except power.

TPU budget forecasters told the council Tuesday they used “well accepted power system modeling techniques” to estimate the gross revenue tax payments for that utility.

The projections calculated what they called the “most probable assumptions” when factoring in a host of variables that could impact power revenues – including customer demand, weather and volatile natural gas market prices. They also included Tacoma Power’s conservative “adverse streamflow” assumptions based on an analysis of 81 years of past water data.

The bottom line: For the next two years, TPU projects gross earnings revenues for power at $43.8 million.

But, calling those projections “overly conservative,” Anderson’s budget staff did its own calculations and came up with a $50.4 million forecast.

The city’s “projection assumes higher (electricity) usage, snowpack and gas prices from expected colder and wetter weather resulting from the forecast La Nina season,” a city memo to the council explained. “…As a result, the TPU forecast is significantly lower than the City’s forecast.”

During a budget workshop with the council Tuesday, TPU officials told council members they also factored La Nina statistical data into their projections. But, they said, the city was overly aggressive with its assumptions for the weather pattern, which in the past has brought both wetter and dryer winters than normal.

“There’s not enough data in the historical record to calculate any meaningful effect,” Tacoma Power manager Chris Robinson said. “We don’t believe it’s prudent to predict any additional impact on wholesale power revenues due to these conditions.”

According to TPU, similar assumptions by the city have contributed about $1 million in shortfalls to the 2007-2008 budget and about $10.8 million to the current budget. That’s roughly one-quarter of the more than $40 million in cuts so far made to the $441 million general fund budget initially approved for this cycle.

TPU also appears to have a better track record than the city for predicting overall gross earnings tax revenues. For the 2009-10 budget, TPU adopted a $60.6 million projection, while the city approved a $72.6 million estimate. Actual revenues, through September, have been just $53.4 million (The actual collections forced the city to make a drastic adjustment mid-term, lowering its initial estimate to $57.6 million).

For the 2007-08 budget, TPU projected $60.5 million and the city projected $63.8 million, while actual revenues came in at $62.6 million.

The discrepancy in projections is just one in a host of issues the council is now examining through a series of workshops on Anderson’s proposed $401 million budget for 2011-12. When the council completes the workshop process, it likely will provide Anderson with a list of proposed changes, he said.

Anderson downplayed the discrepancy in budget projections Tuesday as a simple difference in philosophy.

“Everybody makes their own forecasts,” he said. “And you’ve got to remember, a forecast is just that. These (projections) are constantly adjusted throughout the budget.”

Asked if the prospect of being directed to reduce his projection and finding alternative cuts is a concern, he responded: “Sure it is, but I’ll find them if they want me to.”

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