The Kyle Report

The Kyle Report

Saturday, May 6, 2017

Council discussion ignores potential $26.5 million gap in Utility Fund

Today’s city council roundtable discussion of the budget for the next fiscal year completely disregarded City Manager Scott Sellers’s projection that the Utility Funds’s new budget needs exceed its new revenue estimates by $26,512,450 and instead concentrated on where to set the property tax rate.

Discussions with Sellers and Mayor Todd Webster after the meeting adjourned did deal more with the infrastructure needs funded by the Utility Fund. In fact, Webster went so far as to say it would be "irresponsible" not to deal with those needs, but, the actual council discussion itself seemed more like the opening salvo of November’s mayoral campaign than a reasoned approach to fund the services the city needs to provide.

Sellers, as is his unflappable style, took it all in stride, promising the city’s staff would not "reduce the level services to our citizens," regardless of where the council eventually sets the tax rate.

"The council wants to reflect the increased valuations that will come upon the homeowners by some form of reduced tax rate," the city manager said following the formal adjournment of the council’s gathering. "Staff understands we will not reduce the current level of service delivery, but yet we will operate at an effective rate rather than the new rate which will be given to us later. Where we land in there is up to our budgeting process over the next two months, but we will ensure that we do not reduce the level of services to our citizens."

Sellers said despite the fact the council did not discuss the need for funding the needed water/wastewater infrastructure improvements required of a city growing as quickly as Kyle, those needs will not be ignored as the staff prepares the actual proposed budget it plans to deliver to council at the end of July.

"The other thought is that the priority is on the infrastructure development of the city," the manager said. "We are obligated. We have a responsibility to extend our wastewater infrastructure as the city grows to accommodate that growth. We are expanding the wastewater treatment plant to match that growth as well. The interceptors — those sewer lines that will accommodate that growth — unfortunately need to be put into the ground before the development occurs. Over time we will recover those costs, but today those costs are coming due. So the budget will reflect that wastewater and water infrastructure that we need to sustain a growing community."

Those wastewater infrastructure needs are paid for out of a Utility Fund which derives its income predominantly from water and wastewater fees paid by residents, not the General Fund, whose money source comes predominantly from property taxes, sales taxes and franchise and other corporate fees. More than two thirds of the General Fund goes to financing public safety as well as parks/recreation as well as paying off debt service incurred by bond sales.

Sellers said a drastic reduction in the tax rate would have an effect on city services far greater than the overall proportion of that reduction

"The overall property tax rate used to fund the General Fund has two components," Sellers said. "The debt component is the larger component of our tax rate so the city service delivery is really only from 24 cents of the current overall tax burden (of around 57 cents). So when you put that into perspective you realize that much of what has happened in the past from a tax rate and a utility perspective has been done to manage the rapid pace of growth."

Mayor Webster emphasized the General Fund over the Utility Fund in a post-meeting discussion, saying it could be difficult to enact a major property tax rate reduction, as at least one that one council member proposed, because "it’s clear there isn’t any fluff in the budget."

"There’s not fluff in anything they talked about here," the mayor said. "It’s all real needs. It’s very hard to look at what was presented and say any of these things aren’t something you could qualify as something the city needs to have. At the same time, what I think you heard from a majority of the council is a desire to try to balance those things."

Webster did touch tangentially on the possible Utility Fund deficit.

"I think the desire is to do things as fast as possible — and I share that desire — but if doing them fast results in a substantial increase in costs to taxpayers we have to balance that out." he said. "At the same time, the city went through a long period where the city either didn’t have resources or just didn’t have the wherewithal to address a lot of these things. So I’m lucky I walked in when the recession was over. But I think the growth in appraised values and the growth in commerce in this city is a reflection of the commitment the city has made to infrastructure."

He called today’s gathering "a really good meeting."

"It was clear to me that a majority of the council seemed to have a very clear understanding in ways I haven’t necessarily seen in the past," the mayor said. "I think the conversations and the feedback from the council was a higher level from what I’ve experienced.

"And everyone on the council — except one — seems to be putting some real thought into it in terms of how can we really balance what the needs are versus what we can afford to do."

Webster echoed Sellers’s concern that reducing the tax rate has a far greater impact on the city’s ability to provide services than the amount of that reduction would suggest.

"That’s the thing that’s going to hang us up the most when it comes to dealing with the tax rate," Webster said. "A good 60 percent of our tax rate is covering debt service, so when you reduce the M&O (maintenance and operation) side, you create a further imbalance there so you become very debt heavy. And that has impacts on lots of things. It has impacts on your potential bond ratings. So we have to demonstrate some wisdom when we push through it."

The mayor said the message Saturday’s meeting sent to the average Kyle taxpayer is that "the council is looking to try to find a way to fund the city to the extent possible within the existing revenue stream and we will do our best this time around not to try to grab all that growth."

Webster said he was hoping this was the budget cycle the city could say it had made all the needed investments in its infrastructure and then could simply concentrate its efforts on daily municipal operations.

"But there’s no question it would be irresponsible not to plan for and acquire the water we need for the long term," the mayor said. "And historically there has been very little accomplished for more than a decade in terms of upgrading our wastewater infrastructure. So we’re now having to pay for years of catch-up on wastewater.

"So there is a desire and there’s going to be a serious effort to really come to the budget to try to find a way — given all the things we’ve identified — not to just grab all the additional revenue that’s been generated and spend it,

"The second thing is everyone really needs to understand that there are some very significant infrastructure issues coming, one of those is our wastewater infrastructure which would have a horrible impact on them if we don’t deal with it. If we don’t deal with it, it’s irresponsible."

Webster said residents must be aware that the city council’s budget deliberations must include deciding on where the city’s future water needs are going to come from.

"We have a plan for that," he said. "We’re trying to keep that as low as possible and we have 13 entities and communities all coming together to bring water to this region so that as the growth comes everyone who lives here and is invested here continues to have water. But that costs money and it costs a lot of money. And our share of that is a lot of money. The decision there is what do you do now versus what do you do later.

"But the wastewater thing is literally a problem right now. If something isn’t done with wastewater it will prevent us from growing commercially. It will have health effects. It could lead to state intervention, fines and a whole bunch of things. And you could see a situation where, in a worst case scenario if something isn’t done, you could actually see wastewater backup."

Webster noted that council member Shane Arabie advocated for keeping the tax rate at its current level so that the city can invest in all its needs while council member Travis Mitchell went to the opposite end, proposing a reduction to the effective tax rate, i.e., the rate that would provide the city the same amount of revenue it received in the current fiscal year.

"The answer I think is that it will be somewhere in between," the mayor said. ‘And that’s just the nature of the compromises that have to be made. It’s going to be a hard conversation."



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