Scarsdale Budget Does Not Address 800 Pound Gorilla

The first tentative Village of Scarsdale Budget published after federal tax reform eliminated all but $10,000 of state and tax deductions has been published. Given that that the programs, services and payrolls my wife and I pay for every year are now 30%-40% more expensive than they were last year (because we can no longer deduct these payments from our income taxes) I was eager to learn about how Village government is responding to this huge de facto increase in our property tax rates. I’ll outline the Village response after some general observations I made while skimming the 186-page tome, and I encourage all taxpayers to download the tentative budget and give it a good read. Personally I paid scant attention to this in the past, but realize its 30%-40% more important to my family now.

The Board will respect Governor Cuomo’s cap this year. This is good news – our property taxes rates are up by 2.31%, roughly equal to the year-over-year inflation rate of 2.35%. Appendix A8 of the report reveals that tax rates have been increasing by roughly twice the rate of inflation over the past ten years, leading to an increase in tax rates in real inflation-adjusted terms of over 28%. The Board is increasing the base water rate for the first 37,400 gallons used in a given quarter to $3.20 for every 749 gallons consumed, and reducing the rate for usage above 37,400 gallons from 3.5x the base rate to 3.0x the base rate. No explanation is given, but I assume they realize this encourages excess water consumption relative to the previous pricing regime by benefitting residents with high water consumption relative to those who are more environmentally sensitive. User fees will cover only 65% of Recreation Department operational expenses, with the remainder apparently being funded with property tax receipts. It’s not wholly clear from my reading why these expenses are not funded entirely by users, now that there is no tax advantage to funding from tax receipts. Staff positions measured in terms of “full time equivalents” are unchanged and have not been reduced since at least 2006. It appears that tax-payers are on the hook for any construction cost overruns relative to plan in the library project, and I had thought that a private fund reserve had been established for this purpose. It is notable that taxpayer funding of the Teen Center has finally been ended – a move the School Board had made a couple of years ago after admitting that the cost of the program far exceeded any social benefit. Kudos to the Board and Village Manager for this move.

Overall, my read suggests to me that this year’s budget could almost have been cobbled together by applying a straight edge to the trend of previous years’ budgets. In searching the PDF using the “search” function, I found no reference at all to “tax reform”, “property tax deductibility” or the like. The 800-pound gorilla in the room, which is surely the most significant innovation to municipal finance in my lifetime, was either ignored or unnoticed. There seems to be an inability to respond to the new reality of budgeting in an era of significantly increased effective property tax rates.

I had hoped to see some thought applied to cutting departmental budgets – perhaps a challenge to each department head by cutting his her budget by 20%. Let them each find some efficiencies and then argue for restoration of a portion of that 20%, and allow taxpayers to have a read of each argument while the final budget is debated. Given much ink devoted to the role of union contracts, underfunded pension liabilities etc., I would have liked to see a discussion of potential cost-saving alternatives to the way the Village currently provides essential services. Perhaps the Board is exploring private alternatives to Village-run leaf collection and carting in general, and sharing resources with neighboring villages to realize economies of declining average costs in the provision of other municipal essential services?

It is good to finally see a budget that holds tax rates constant in inflation-adjusted terms. It's good to see that some cost-benefit analysis was applied and tax revenues are no longer funding the Teen Center. It is disappointing that the 800-pound gorilla of tax reform was somehow unnoticed by those who prepared the 2018-2019 Budget and no ideas were suggested for reducing municipal spending and restoring our effective tax rates toward pre-tax reform levels.

In any previous year, I would have applauded the effort reflected in these 186 pages, however municipal finance has changed and this budget hasn’t figured that out.

Robert Selvaggio is a long-time Fox Meadow resident. He is a graduate of the University of Pennsylvania and holds a Ph.D. in Economics from Brown University where he was a University Fellow. Dr. Selvaggio is a member of the American Economic Association and National Association of Business Economists, and is a BAI Certified Risk Professional in Credit and Treasury/ALM.