Friday, November 2, 2018

The Christmas Tree Scenario

I have been writing a series of articles about the proposed charter revision for Groton, Connecticut. This article gives a good understanding to start from if you are not familiar with the issue.

One of the great promises of Groton's proposed Charter Revision is that of better control of the budget, but is that promise really true? I'd like to discuss what I call The Christmas Tree Scenario.

Let us imagine a town called Charter Town. Charter Town is a town of 40,000 people that operates under the Charter as proposed.

We have been assured that the public will have sufficient knowledge of the budget to make an informed decision, and we're accepting that assumption for this scenario. In fact, we're going to assume that the public is not only fully knowledgeable but that the people of Charter Town are magically able to understand the importance of every aspect of the budget and know the motivations of the Town Councilors.

The optimum budget for Charter Town this year is $100,000,000, and everyone would agree to that budget because everyone knows it's the right number.

But Councilor A would really like to see the town dock renovated, which will cost $110,000.

Councilor B is okay with that, as long as she can get a new sound system into the high school auditorium for $110,000.

Councilor C really wants to see another police officer hired, which will cost $110,000.

Etc. Etc. With all 9 Councilors each adding their own $110,000 addition.

We call this the Christmas Tree Scenario because in certain situations, everyone will want to hang their own ornament on the Christmas tree.

None of these little additions are inappropriate, and some would be nice to have, but they are also not necessary. They are what is often referred to at the Groton RTM as "nice to haves." But each little Nice to Have adds up. In this case, to a million dollars.

9 councilors, each adding their own small pet project add $1,000,000 to the budget, turning an optimum $100 million budget into a $101 million budget: a modest 1% increase.

The well informed and rational voters are faced with a choice. Should they approve this budget, recognizing that the small additional expenditures are actually nice to have and don't cost that much, or should they vote to fail the budget, incurring the additional expense and uncertainty of one or more potential revotes?

If Charter Town had a Representative Town Meeting reviewing the budget line by line, it could excise the unneeded line items and bring the budget down to the $100 million optimum budget, but having only a referendum, they can either say yes or no to the whole thing.

Knowing that $100 million is perfect and $101 million is only a tiny bit more, a rational electorate can be expected to approve such a budget.

Let us assume a 2% rate of inflation. In that case, next year's budget in Charter Town should be $102 million, but with last year's budget being $101 million, the budget with inflation is $103.02 million. More importantly, in the next cycle, everyone gets to hang an ornament on the budget tree again. We'll assume that they never add more than a million dollars of special projects.

So, what does that do after a decade?

Charter Town Budgets

By 2030, Charter Town's budget is $12,168,715.42 higher than it would have been with a line item budget process, or 10%. By 2065, it's 30% higher than it should have been. All because of a tiny increase of less than one percent of great projects that are simply a little more than is strictly necessary.

A complaint of Groton's RTM is that it only trims a percentage point or two off of the budget. If Charter Town had an RTM that trimmed 1% from their budget, their taxes would be 10% lower in ten years.

But the Voters Won't Do That
Perhaps you believe that the voters in Groton are more like the voters in another very similar town called Budget Town. They also have 40,000 residents and they also follow our proposed charter. The difference is that their voters are strict. They will have none of this one percent shenanigans. To the Town Council they say, "You trim the fat or we vote your budget down. We have the ultimate power here!"

After all, the voters hold the final authority through the budget referendum... or do they.

What happens if the voters fail the budget? In the new proposed charter...

9.12.6 Should either budget fail to be approved by a majority of those voting thereon, the Council shall, within seven days after a failed referendum, recommend a revised budget for each rejected budget, which may be less or greater than the failed budget, as the Council shall deem appropriate based on the results of the referendum.

I bolded a key word in that section. It says "may" not "shall." That means that they Council can return the same budget in the next referendum, as Stonington did recently when they put up a budget that was rejected and then put up the same budget which was accepted.

But what happens if the budget fails three times? Interim Budget and Fixing the Tax Rate In case a Budget is not approved by June 30, the budget submitted by the Town Council per Section 9.10.3 shall be utilized as an interim budget until a new Budget is approved by referendum. Within three (3) business days after an interim budget is approved goes in to effect, the Town Council will set a mill rate that shall be sufficient, with the income from other sources, to meet the estimated expenses of the Town for the next fiscal year. 

Back to our Budget Town scenario, the Town Council puts up a $101 million budget in May, and it fails. It puts up the same budget in June, and it fails. It then returns the budget to the voters a third time, and fails again.

It is now June 30th, the original budget which has failed in referendum three times now becomes the "interim budget," and the Town Council sets mill rates based on it. At this point, the Town Council can simply keep sending out the same budget every two weeks until either it becomes the next year or the voters give up an accept it.

The check on this is that the Town Council can be voted out in the next election... except that the terms are now four years, so if they do this early in their term, it is likely it will be long lost to memory when an election finally comes around.

Or the other way...
After the budget passes, the Town Council sets the mill rate. This means that, when the voters vote, they do not actually know what the budget will give them in terms of a tax rate. It also means that the Town Council could choose to add a small margin of safety into the mill rate to make sure it will cover all expected expenses. They could do something modest, say 1%. That's just prudent budgeting, right?

Oh, what's this?

9.15.2 The Council may make Emergency Appropriations not exceeding one-hundred thousand dollars ($100,000), by a vote of not less than seven (7) members of the Council, provided a public hearing, at which the public shall have an opportunity to be heard, shall be held prior to making such appropriations. The notice shall be made in accordance with Section 9.19. Such hearing and notice of hearing may be waived if the Council by an affirmative vote of not less than eight (8) of its members, shall decide that a delay in making the Emergency Appropriation would jeopardize the lives, health, or property of citizens.

Remember how Councilor A wanted to put money into the town dock? Well, now it's really falling apart. It could become dangerous before the next budget cycle. Better make an emergency appropriate. After all, we have a little more than expected in the general fund.

If the town dock repair is an emergency, that additional police officer that Councilor C wanted is definitely an emergency. The police force has been dangerously understaffed, and there is that unanticipated cash in the general fund.

As a side note, let's also hope there's never a real emergency that requires more than $100,000, because there's no provision for doing so.

Who's Empowered?
In summary, the Town Council, which now has 4 year terms, has the ability to force a budget around referendum objections, and gets to set the mill rate after the budget is passed.

This Charter Revision definitely empowers someone, but it's not the voters.

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