The process of establishing annual budgets is complex enough that, when one is done, local-level government staffers catch their breath for about two minutes, then commence work on the next year’s budget.
That might be a bit of an exaggeration, but not by much.
According to state law, towns must have their annual budgets writ in stone before Christmas every year.
“Budgets for municipal governments need to be adopted before certifying the property tax mill-levy rate, which is due by December 15,” said Christy Hamrick, Basalt’s finance director.
That’s pretty straightforward and a hard target municipalities can aim for throughout the year. But this year, things are not so straightforward in Basalt.
As a result of the town’s ongoing issue with Colorado’s Taxpayer Bill of Rights, or TABOR, Basalt essentially must build a contingency into its 2020 budget process. That contingency amounts to $700,000 and could affect everything from sidewalk repair to the funding of nonprofits.
At issue — as pretty much everyone who has been paying attention this year knows — is that for a decade, Basalt has been overcharging its property owners in violation of TABOR. The town raised its property tax rates at least 10 times without going to a vote of its citizenry, which is a violation of TABOR.
The town came clean last winter and, after digesting the results of a community survey, opted to refund the over-collected property tax revenue. Since TABOR has a built-in, four-year statute of limitations, the end result is that Basalt owes its property owners a total of about $2 million.
Refund checks, according to Town Manager Ryan Mahoney, will be mailed out starting in the next few weeks.
The town will essentially be going into debt to cover those checks.
“The funding will come from the proceeds of the certificates of participation and will be included in the general fund,” Mahoney said in July. “The annual payment will be approximately $250,000 per year for 10 years.”
That means, when all is said and done, the whole deal will cost Basalt about $2.5 million.
That, however, is not the end of the story.
In 1994 — two years after TABOR was enacted — Basalt voters approved a mill-levy rate of 6.151. Almost immediately, given the increase of real estate values in town, that rate was lowered, finally bottoming out at 2.56 mills in 2010. As real estate values struggled to recover from the Great Recession, Basalt was forced to gradually raise the rate to meet its basic operating costs. For the 2019 budget, the rate reached 5.957, according to Mahoney.
Under the terms of TABOR, absent a vote, the property tax rate should never have gone over 2.56 mills, where, by legal default, it will stand forever unless Basalt’s citizenry approves an increase.
In November, Basalt voters will be asked to officially raise the rate to what it is this year — 5.957 mills. That vote will take place a scant five weeks before, by state law, the town’s budget must be set.
Given that there is always a lot of wrangling during the last weeks of the budget-setting process — with town council members jockeying for their pet projects and members of nonprofit entities coming before the council with hats in hand — that does not leave the town a lot of time to react if the voters say “no” to raising the rate.
Mahoney admits that the thought of defeat is playing a role in this year’s budget process.
“We have been working on [the budget] for some time, but at the staff level mostly,” he said. “Right now we are budgeting as if the mill levy passes. We need to get the base budget built first and then we will propose specific cuts that can be made in case the mill levy does not pass.
“Once we finish the first budget, we will have to look at the secondary budget scenario,” he continued.
If the property tax increase is defeated, Mahoney said there would be ramifications.
“We would need to cut about $700,000 from our general operating expenses,” he said. “This includes cutbacks on maintenance items for streets, facilities, parks, etc. We would delay fleet replacement and maintenance. It would likely mean deep cuts to social capital, such as day care, energy efficiency, nonprofit grants, events, etc. We may look at not filling vacant staff positions.
“Basically, everything goes on the table, and we will have to strip a significant amount from our budget,” Mahoney continued. “The drop in level of service may be immediately noticeable in some areas, but more subtle in others.”
Those cuts would amount to almost 10 percent of the 2019 operating budget.
“Our revenue in our general operating — unrestricted — budget is about $7 million in 2019,” Mahoney said. “We have a balanced budget, so all of the revenue is used to provide services to the community. We are still working on revenue for 2020, but it will not be too different than 2019.”
In 2019, property tax revenue amounted to 14 percent of Basalt’s general operating revenue.
“The largest share comes from sales tax,” Mahoney said. “Sales tax revenue was predicted to come in around $4.5 million this year. It’s about 65 percent of our unrestricted general fund revenue.”
According to Mahoney, property tax revenue was budgeted at $965,000 for 2019.
“These numbers are for the unrestricted revenue, which are primarily used for operating or ongoing expense,” he said.
The Basalt Town Council approved wording for the ballot question at its Aug. 27 meeting.