By BILL PETERSON
Editor at Large
KYLE – Of all the voices discussing the local economy, that of Kyle City Manager Tom Mattis has been among the least pessimistic. As Kyle awaits the opening of a new hospital and the completion of two million square feet in retail space at Kyle Parkway and Interstate-35, about the worst Mattis has ever said is that Kyle is bound to strike it rich at the end of next year.
But as tumbling stock prices, a tight credit market and massive declines in corporate earnings bring tough times even to Hays County’s fastest-growing city, Mattis also sees municipal governments across the country facing low revenues, increased service demands and massive layoffs. Mattis told his city council Tuesday night that it’s time to act, just in case.
Mattis announced to the council that the administration will freeze capital purchases, selected hires and market pay adjustments for the staff until at least the end of December, at which point he and Finance Director Charles Cunningham will re-assess the situation and consult the council on his to proceed. The city council, fresh off the tremulous experience of setting a new budget, raised no objections.
The spending freeze would save the city up to $1.75 million during the next three months, keeping the city solvent in case revenues come in well below projections for the budget year that began on Oct. 1. The $1.75 million represents the amount of revenue lost if the city only collects 90 percent of its property taxes while sales taxes, franchise fees, water sales, sewer service charges and community development funds come in 15 percent below projections.
In other words, it’s the amount of revenue the city would lose “if things get pretty bad,” Cunningham said.
City officials don’t know for sure that they will face such a large revenue shortfall, but they do know they can avoid spending the money until they find out. Thus, the staff will implement its “provisional expenditure deferral program” which is a very expensive expression for “freeze on new spending.”
The city is, essentially, buying time until it gains a more concrete understanding of how the economy will effect the town treasury. By the end of December, Mattis expects to gain a better handle on property tax collections, which are a stalwart of city revenues. Property tax collections begin in October and most property owners pay before the end of December so they can take the property tax deduction on the next year’s taxes.
“This is the first time in my lifetime I can remember so many people saying, ‘I don’t know what’s going to happen,'” Mattis said “… I’ve been a city manager in poor towns and affluent towns, and in every one of those towns, every year you can count on a 97- or 98-percent collection rate for property taxes. This year, I don’t know what it’s going to be.”
Mattis said the city doesn’t yet need to take formal action to adjust the budget, adding that the spending freeze should allow the city to avoid staff layoffs under a grim scenario such as a $1.75 million budget shortfall. If the city’s outlook at the end of December is more encouraging, Mattis said, the city can then go ahead with those capital purchases, market pay adjustments and hires.
“I’m confident that we’re going to weather the storm very well,” Mattis said. “We’re just looking at scenarios.”
Among the capital purchases to be delayed are $420,000 in new and replacement vehicles and equipment, including police cars. City officials said the hiring of 11 new police officers before the end of the year will take place as planned, but other hires will be delayed. City staff also will receive the cost of living adjustments in the original budget passed last month, but pay adjustments to bring salaries in line with the market will wait until at least January.
“The problem is that you can’t ask for (money) back,” Cunningham said. “So, we’re trying to keep as much of it in our pocket as we can … This will give us the maximum flexibility we need.”
The city passed a $33.3 million budget in October, including a $15.8 million budget for general operations. To support the budget, the city raised its property tax rate by 10.24 cents, from 27.07 cents per $100 to 37.31 cents.
During budget deliberations, Councilmember David Wilson proposed several spending cuts, including delayed hirings and a deferral on buying new police vehicles. However, the council didn’t second his motions and the items went into the budget as Mattis wished. If the city goes through completely with its spending freeze, then Wilson will end up with the spending cuts he wanted, though Mattis got the tax rate he wanted.
The biggest shortfall factored by the city is $930,000 in water and wastewater revenues, in case housing development slows down and a rainy 2009 reduces demand for water. The city generally tries to run a profit on water and transfer the extra money to the general fund as a way to keep the tax rate down.
Sales taxes are an especially tricky call for the city, which fluctuates between increases and decreases almost on a monthly basis. Kyle received $152,000 on its October sales tax check from the state, down $23,000 from Oct. 2007. However, the city received $180,000 on its September check, up $18,000 from Sept. 2007.
The budget anticipates an average of about $205,000 in monthly sales tax collections for the new fiscal year. The 15-percent shortfall on which the spending freeze is based assumes an average monthly collection of about $178,000, well below the average of about $192,000 for the fiscal year ended on Sept. 30.
Mattis said the anticipated spring 2009 openings of a Kohl’s department store and a Lowe’s home improvement store aren’t factored into the city’s sales tax projections.