‘Flipping’ City tax rate provides more revenue for daily operations
By SHELLY WILKISON
The Liberty Hill City Council on Monday voted to restructure the City’s ad valorem tax rate and in the process opened the door to a possible rollback election.
During a two-hour workshop on the tax rate and proposed budget preceding the Council’s 3-1 vote to adopt the rate, City Administrator Greg Boatright and the City’s financial consultant explained that restructuring the tax rate is a positive move for the City.
The tax rate, which is not changing from fiscal 2016, will be $0.50 per $100 property value. The change adopted by Council divides the rate so that $0.35 goes toward Maintenance & Operations (M&O), and $0.15 goes to Interest & Sinking (I&S).
Currently, $0.09730 goes to M&O and $0.40270 to I&S. The portion designated for I&S or debt service was pledged to pay in-city sewer debt by a previous council in 2006.
“It’s time for us to get the structure of our tax rate correct,” said Boatright. “We need to put the majority on the Maintenance and Operations side because that’s what underwrites the daily function of our city.”
Boatright said that by “flipping the tax rate”, Liberty Hill’s financial structure will look more like most cities.
He said this was a good time to make the change because the in-city sewer fund is now paying for itself as a result of growth within the city limits.
“It’s generating revenue and standing on its own, and I thought to put us on the right side of being financially sound, it was time for us to get the structure of the tax rate correct,” he told The Independent following the meeting.
Boatright commended the 2006 city council for making the decision it did to fund the sewer with ad valorem revenue.
“That was the only option they had, and they knew sewer was needed to be part of the city for it to grow. Here we are 10 years later and we have better options now,” he said.
With the majority of the tax rate going to M&O, it places the City above the 8 percent growth cap that could result in a rollback election should a taxpayer start such a petition. The rollback tax rate is $0.312256 per $100 value — 12 percent lower than the rate proposed. Debt service is exempt from rollback.
The effective rate — the rate needed to raise the same amount of property tax revenue as fiscal 2016 is $0.472324.
Prior to the vote on the matter during a regular called meeting held after the workshop, Council Member Wendell McLeod suggested the Council should adopt the effective rate. However, because a motion was in progress to adopt the higher rate, there was no more discussion on McLeod’s suggestion. The $0.50 rate was adopted by a 3-1 vote with McLeod opposed.
Council Member Ron Rhea, who has been absent since January due to health issues, was not present Monday.
The Council will hold two public hearings on the proposed tax rate — at 6:30 p.m. on August 21 and August 28.
Under the budget plan proposed by Boatright, the City would utilize tax notes to fund additional capital improvements. The proposal suggests $1.5 million in tax notes could be combined with the estimated $500,000 that will be remaining from the current year’s tax note issuance. With added funds from the Economic Development Corp. and Parks & Recreation fund, there would be about $3 million available to pay for transportation improvements, draining improvements and park improvements.
“We’re using the tax notes as a tool to help us maintain the tax rate while funding some capital projects deferred in the past,” he said.
Boatright said the proposed $0.50 tax rate will generate about $1 million. Additional revenue of $600,000 is projected from the sales tax. Combined, the $1.6 million should underwrite the General Fund services. The proposed General Fund budget is $2.2 million, and the gap is funded from other sources of revenue, including one-time fees.
Boatright said the Council will also need to consider increasing water rates, and the firm that conducted a rate study two years ago will come to Council August 28 to offer a plan.
A rate study was conducted two years ago, but the Council chose not to increase rates. In the meantime, costs have increased and debt remains to be paid.
Boatright said rates may need to increase incrementally over the next three years as much as 22 percent with a 45 percent increase for debt service. He said a long-term solution is to add new customers. He said there are now 680 meters and 120 more are projected this budget year. He said 950-1,000 meters is the “break even point.”
City water customers currently pay $31.24 as a flat monthly rate before usage. Out of city customers pay $39.05 per month before usage.
FY 2017 expenses
Boatright said his goal is to hold expenses to a minimum for the next three years, as far as salaries, employees, capital improvements. He proposed to do that by contracting out for some services associated with the building industry, such as inspection services and code enforcement.
“Wherever we can, we should try and fund a service we need to provide that is associated with this time of high growth,” he said.
He said adding employees isn’t just about adding salaries and benefits, but also making workspace available.
“We need to take a conservative approach when adding people. We are limited on where we’re going to house additional employees,” he said.
He proposed using the one-time fees to pay for the contractual expenses “as long as it makes sense.”
Boatright is proposing adding four new employees in fiscal 2017 — one in administration, one in the police department and two in utility services.
“There’s no way we can meet all the requests of the department heads,” he said. “All those needs can’t be met in one budget year.”
Police Chief Maverick Campbell was not present, but Boatright told The Independent he had requested four additional officers and three new vehicles.
Boatright is proposing to add one officer. He said to add one police officer position costs the city an estimated $100,000, which includes salary and benefits plus all the costs of equipping the officer, including a vehicle.
Campbell’s request of three additional vehicles is included in the proposal presented to Council Monday.
Mayor Connie Fuller said it’s time the entire Council make decisions about what their police department should look like.
“Maverick is wanting much more than what is allocated in this,” she said. “It’s up to the Council to decide what kind of police department it wants. We hired a person focused on having the very best here.
“I’m not saying I’m opposed to what you have here,” Fuller told Boatright regarding his proposed police budget. However, she wanted the Chief to explain the proposal and Council to have a discussion about the department.
The Council delayed departmental requests for the police department and others until August 21 so that Campbell and other department heads could present their own requests.
The proposed City budget includes a 15 percent increase in salaries — an amount that could change according to results of a salary study that is being conducted for the City by an outside firm. Boatright said he expects the results to be provided before a budget is adopted, but in the meantime is estimating those recommendations could be as much as 15 percent over what is currently budgeted for salaries.
The Council voted in May to approve a 5 percent pay increase across the board, with some receiving an 11 percent raise.