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July 31st, 2008
Debt, declining revenues push Buda towards historic tax hike

By BILL PETERSON
Editor at Large

BUDA – The days of unusually low property taxes in Buda appear to be going away as a perfect storm of growth, sales tax decreases and debt service are forcing the city council to consider a 33 percent increase on property levies.

The city council took its first official look at a Fiscal Year 2009 budget proposed by the city staff this week, feigning no pleasure when Finance Director and Interim City Manager Sarah Mangham asked for a property tax rate of 25 cents for every $100 of assessed property value.

Mangham proposed a total budget of $9.1 million, including $4.2 million for operations, $1.4 million for water service, $1.9 million for wastewater service and $1.6 million for debt service.

Though Mangham offered $1.1 million in budget cuts to offset an expected $1.1 million decrease in revenues, councilmembers asked her to produce more cuts before they reconvene next Tuesday night for another look at the budget.

“We spent about three hours on it Monday night and (the council) asked us to go back and make more cuts,” Mangham said. “Whatever we reduce will have to come out of the general fund budget.”

During the spring political campaign in which the city seated four of its seven councilmembers, the victorious candidates all pledged their fealty to Buda’s 18.7-cent property tax rate as one of the city’s appealing features.

However, budgetary pressures will likely force the city to at least raise property taxes by some degree, if not all the way up to 25 cents. In order to come in at 20 cents, the city would have to cut roughly $225,000 from a general fund budget that’s already $1.1 million slimmer than a year ago.

The city won’t cut its water and wastewater funds, which are self-supporting through fees paid by the city’s residential customers. Conceivably, the city could short its debt service payments, but on pain of damaging its credit and bond ratings. The city could also pay its entire debt payment out of the fund balance, but that would reduce the fund balance to the bare minimum of $1.2 million provided by the city’s guidelines.

Mangham’s general fund budget calls for $4.2 million in expenditures and $4.118 million in revenues. A draw of nearly $100,000 from the fund balance makes up the difference and still leave the city with a fund balance of $2.8 million, about $1.6 million more than the city’s ideal fund balance based on 3.5 months of expenditures.

After projecting $2.3 million in sales tax revenues for the current budget, the city now expects only $1.8 million and budgeted $1.8 million for the next budget. Towards make up for the $1.1 million decline in expected total revenues for the next budget, Mangham cut a net of one position from the city staff while eliminating capital outlays for vehicles and equipment in the street and parks departments. The city spent $308,000 on this year’s budget for street equipment and another $451,500 for parks equipment.

But even those cuts weren’t enough to balance the budget because of debt service payments totaling $1.58 million, more than double this year’s debt service of $725,446.

Though the city retired small sewer bond debts from 1985 this year, the new budget will introduce payments on Certificates of Obligation (COs) issued in 2006 and 2008 for Main Street beautification and drainage projects.

Thus, Mangham recommended the property tax increase of 6.3 cents from 18.7 to 25 cents. Every penny of property tax rate generates $45,718 in city revenues.

The proposed property tax rate signals a substantial venture into the world of debt for Buda, which traditionally borrowed virtually no money until three years ago.

As of the FY 2005 budget, the city’s 16.3 cent tax rate included not even a penny (0.6 cents) on the Interest and Sinking (I&S) side, with the other 15.7 cents going to Maintenance and Operations (M&O). On the FY 2009 proposed budget, the M&O rate is down to 6.7 cents, but the debt service side is all the way up to 18.3 cents.

The new I&S rate is higher than the city’s entire property tax rate of 16.7 cents in FY 2007. The present budget (FY 2008) calls for 10.8 cents on the I&S side.

If the city approves the 25-cent rate for the new budget, it will represent a near doubling of the FY 2003 rate, which came in at 13.01 cents.

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