Proposed City budget grows by 34%



Following the shift toward expanding the City staff during the last budget cycle, the Liberty Hill City Council discussed a new proposed budget that includes more of the same.

This year’s proposed budget, outlined for the Council Monday by Finance Director Becky Wilkins, includes nine new positions above what was approved last September. That adopted budget added 18 positions to a staff that totaled 37 last summer. If approved Aug. 24, the City will have 63 total positions, and a general fund budget of $5.68 million — an increase of 34 percent over the current budget of $4.24 million.

While the increase in expenses is dramatic, it does not include a tax rate increase. The proposed tax rate of $0.454559 per $100 valuation is a rate reduction.

“This is around a four-cent drop from the current rate this year,” noted Mayor Rick Hall.

While the City touted the rate reduction, under new rules set by the Legislature, it is not a decision truly in the hands of the Council.

Due to changes mandated by Senate Bill 2, passed during the last legislative session, allowable revenue increases for Texas cities has been cut by more than 50 percent. The new proposed rate is the highest rate allowed without voter approval.

“Senate Bill 2 also caps the amount of revenue that you can increase with new property taxes at 3.5 percent,” said City Attorney Tad Cleaves. “The old rollback rate was capped at 8 percent, so your revenue could increase year to year without having voter approval of a new tax rate.”

It is projected that even with the lower rate, the expanded tax rolls and increased property values will generate about $1.4 million in local property taxes next year, compared to just over $1.1 million in the current year. Wilkins said the current rate – if it were adopted – would have generated $2.2 million in the upcoming year.

The current Liberty Hill property tax rate is $0.490187 per $100 valuation. Under the current rate, a home valued at $250,000 would pay $1,225 in property taxes. Under the proposed rate, a home valued at $250,000 would pay about $1,137.

There is a temporary loophole for that rate cap, though, due to the COVID-19 pandemic that would have allowed the Council to set a higher rate. According to Cleaves, due to the COVID-19 emergency, cities can use the previous cap.

“In an emergency, if any portion of your municipality has been affected by a state declaration of emergency you can go back to the 8 percent for that one year and maybe even a second year, and depending on the value of your property, maybe even a third year,” he said. “Currently with the COVID emergency that’s statewide, any city in the state could in fact without voter approval recommend a rate or adopt a rate to raise 8 percent of revenue without having to go to voters.”

In addition to the rule changes for setting the tax rate, other changes allow the City to speed the budget approval process this year.

“On the 24th it is our hope that we will be approving a budget and a tax rate at that meeting,” Wilkins said. “Because of the rate we’re proposing we don’t have to have public hearings so we don’t have to carry this process all the way through September like we normally would.”

The budget has a different look this year, with some departments separated out and shifts in where some costs are categorized.

“We’ve sort of overhauled the budget,” Wilkins said. “I’ll tell you when I got here it was a little difficult to navigate and to try and untangle some things and how things work. Typically, when a general fund employee would come into the City, their salary would be split across a couple of different departments – wastewater, water, sewer and general fund. It was extremely difficult to get a true cost of each segment of our budget.”

Across all funds (general and enterprise funds), salaries are projected at $3.68 million, up $486,971 over the current budgeted salaries.

Not only is that total considerably higher than the current budget, the actual salary expense for the City this year was much lower due to staffing changes and unfilled positions. While not an exact annual expense, a list of City personnel by position and salary acquired by The Independent through an open records request in May showed the total annual salary of all City employees on the payroll at that time was $2.88 million.

The $100,000 in salaries approved last year for the Mayor and Council members was again included in the new budget. None of those costs were realized in the current budget due to the delay of the May election. After the November election, the $40,000 salary for the mayor’s position will take effect, and the monthly $1,000 salary for Council members Kathy Canady and Tony DeYoung will begin as neither were opposed in their bid for reelection.

Salaries for the administrative department increased more than $200,000, even after the planning department, City Council and property maintenance departments were separated out.

Salaries for the police department are up $103,560 over the current budget and are projected to increase $327,326 over actual expenditures this year.

Fifteen of the City’s employees fall under the wastewater and water funds, totaling $813,500 in salary expenses.

Revenue for the general fund – which includes all property and sales taxes, development and permitting fees – is projected at $5.68 million.

Wilkins said in projecting property tax revenues the City set the number at $1.48 million, which is slightly lower than anticipated revenues should all taxes be paid.

“The reason we are doing that is that as a state and a country we haven’t truly faced the economic impact of people who may not be able to pay their mortgage and may not be able to pay their tax bill,” Wilkins said. “If people are still paying their mortgage and taxes and insurance then we’re good, but there could be some situations where people just don’t have the money and we’re not going to see those payments.”

On the sales tax side, Liberty Hill is projecting $825,000. Fiscal year to date, the City has collected $736,112 in sales tax revenues, and last year it brought in $832,000.

“We took a very conservative approach to revenues this year, but even doing so we’re still able to look at the lowest possible tax rate for the citizens,” Wilkins said.

Permitting fees are projected to generate $1.67 million for the upcoming budget, and in “other income” a wastewater management fee is projected to net the City $750,000.

The wastewater fund is projected to generate revenues of $5.93 million, the sewer fund $1 million and the water fund $1.84 million. These funds are separate and can’t be used in the general fund.

Debt service
About a third of the property tax rate is for debt service. The Interest and Sinking (I&S) – or debt service – portion of the total proposed tax rate of $0.454559 is $0.145096.

The debt service included in the proposed budget is $647,075, and that stems from two outstanding tax notes.

“Our property tax must include the rate necessary to pay our bond payments for the next year,” Wilkins said.

Increased bond or tax note debt would, in future budget years, increase the I&S rate, reducing the amount of the property taxes raised that could go to general fund expenses such as salaries and operations.

On the enterprise fund side, the City currently has two sewer, three water and three wastewater bonds.

“The (enterprise fund) debt is revenue based and paid for with the fees we collect,” Wilkins said.

New equipment
Among the new equipment items listed for the upcoming year is a postage machine with an envelop stuffer, allowing the City to streamline mailings.

The police department will be getting radio upgrades and weapons upgrades.

The Council approved the financing of a new dump truck for the City as well at its last meeting.

Capital improvements
There is nothing budgeted under capital improvements for the upcoming year, but Wilkins pointed out that it doesn’t mean the City can’t take on new projects.

“It’s not something we technically budget for in the budget process,” Wilkins said. “Council can come back anytime and say ‘let’s do this project and do it under CIP and here’s how we’re going to fund it.’ At any point you can do that.”

This past year, the Council met its CIP needs by transferring funds from the reserve fund, and the proposed budget shows a transfer to capital projects of $3.29 million in the current year, with at least some of that being pulled from the reserve fund.

Any capital projects added for the upcoming year, which would include the swim center and downtown intersection of Loop 332 and CR 279, would have to be covered primarily through the issuance of new bonds.

In the discussion of handling capital improvement projects in the future, Wilkins indicated that bonds should be issued for particular projects, again indicating that previously the City was not handling projects this way. However, when tax notes were issued in previous years they were issued for specific projects.

A recent look by the Council at the City’s projects showed there was little remaining in funds to address projects, with the final $710,319 said to be available likely going toward the planned community center approved in July, at an estimated cost of $750,000.

Any bonds issued next year would likely not impact the I&S tax rate until the 2021-2022 budget. The current tax notes are in year four of their seven-year payment plan.

“When it comes to the next budget cycle we would have to budget for that out of our expenditures so we can make sure we have enough money to cover that,” Hall said.

Issuing bonds for future projects would be a decision made by the Council.

“People think when you say bonds it is something like a school bond that you have to go vote on, it’s not,” said Council member Kathy Canady. “It is something that we vote on, but it’s not something that has to go out to the public to be voted on.”

Reserve funds
In a brief discussion of the reserve fund, Wilkins commented to the Council that perhaps as revenue streams grew – sales tax in particular – in coming years that the City might be able to divert more funds to the reserve account.

“Hopefully, we will be in a position to maybe increase our reserves in a couple of years with some excess sales tax and build for the future so that when a CIP project comes up we’re not having to go bond, we maybe have some savings,” Wilkins said.

But last year that is exactly what the Council voted to do in taking money from the reserve fund to cover capital projects. Rather than putting more into the reserve fund, which was at approximately $2.7 million at the end of the 2018-2019 fiscal year, the Council voted on a new policy that only holds four months worth of reserve, which last year totaled $1.06 million. The remainder of the reserve was redirected to cover other expenses in the current year.

There is no plan to add to the reserve fund in the proposed budget.