Councils response to surplus pondered


I attended the study session of the Lake Oswego City Council on Sept. 13. I was interested in what the council intended to do with the recently discovered surplus of $2.8 million.

The discussion was very illuminating. It appears there was general agreement to return the library reserve money (approximately $400,000). However, the majority of the council seemed reluctant to reduce our franchise tax increases by the 2 percent they had been increased (by a 4-3 vote). One rationale was that property taxes could not be used for school district funds, so if you reduced the franchise taxes, you would have to use property taxes to make up the difference. However, there are all sorts of city revenues that do not come from property taxes and it is simply a matter of moving them from one fund to the general fund to make up the difference. The real attitude of the four councilors comprising the majority seemed to be plaudits for the finance department for developing the surplus and a desire to figure out the how best to spend the money. The suggestion by the more financially conservative members of the council to return the franchise tax to its previous level instead of further taxing us fell on deaf ears.

Having a $2.8 million surplus might be good if you were talking about a business that makes its money by selling its goods to willing buyers. However, this is a public entity that gets its revenue primarily by taxing its citizenry, who presumably do not want to pay more than it takes to cover expenses. In this case, the city had a surplus because it imposed higher taxes than were needed to cover its annual expenses.

Isn't it good to have 'extra' money at year end to take care of unexpected things? Of course it is, and state budgeting law has a bias toward surpluses, but the city budget already has built into its funds an amount for contingencies and reserves. The general fund contingency amount, for example, is set as 14 percent of the operations plus an amount for risk management. The contingencies are in the budget specifically to 'cover unforeseen events and emergencies.' As long as the council dips into the contingency or reserve fund for a short term - like they did for the one-year $2 million pledge to the school district this year, our bond rating is not affected. That being the case, a surplus of $2.8 million is overreaching.

The surplus of that size also has a psychological effect that is subtle, but important. Now the money is available, already in the hands of the city. The questions then swirl around how best to spend this windfall. That is a much different process than the one that starts with, 'we don't have the money for the project, so we have to decide if the project is important enough to justify additional expenditures and we have to decide where we will get the money to cover those expenditures.' The four members comprising the more fiscally liberal part of the council had a number of ways they wanted to spend our tax dollars, and I suspect that is one of the main reasons the money is not being returned to us by way of reducing the franchise taxes on utilities.

Kent Studebaker is a resident of Lake Oswego.