San Marcos Mercury | Local News from San Marcos and Hays County, Texas

August 17th, 2009
More taxing times ahead for Kyle

Kyle Director of Finance Charles Cunningham, left, and City Manager Tom Mattis, right, discuss the proposed city budget with the city council. Photo by Lance Duncan.

By LANCE DUNCAN
News Reporter

KYLE — No Hays County city is ever in quite the same position as Kyle, which boomed like no other county city during the early years of this decade.

Now, those relatively new property owners face increasing burdens in times of economic hardship and decreased state road resources while the city attempts to meet increasing demand for services and amenities.

The present budget season includes, for the second consecutive year, the prospect of a large ad valorem tax rate increase as a city grown from 5,340 in 2000 to nearly 30,000 today pays on $73 million of borrowed funds in the last ten years. After increasing the tax rate last year from 27.07 cents per $100 of taxable value to $37.31 cents, Kyle staff and councilmembers now are contemplating a further increase to 49.6 cents for Fiscal Year 2010.

Kyle City Manager Tom Mattis said the proposed rate is “certainly the biggest tax increase in ten to fifteen years,” adding that “the issues that are driving the tax rate are very typical, especially for a city in Kyle’s situation.”

While this year’s proposed increase of 12.29 cents is similar to last year’s increase of 10.24 cents, the details tell a different story. Last year, the city increased its tax rate roughly evenly between the maintenance and operations (M&O) side and the interest side (I&S) side, going up from 12 cents to 17.31 cents on M&O and increasing from 15.07 cents to 20 cents on I&S, which is the debt service side of the budget. This time, the lion’s share of the increase, 10.6 cents, is on the debt service side, which would rise from 20 cents to 30.6 cents. Meanwhile, the operations side of the budget would account for 1.69 cents of the increase, from 17.31 cents to 19 cents.

Mattis told councilmembers that four cents of the debt service increase results from a recent tax note financing plan by which the city is borrowing $5.6 million for seven years to make critical equipment purchases.

Another six cents of the debt side increase results from the city staff’s recommendation against buying down the tax rate by spending fund balance, as the city has done in the past. The city charter calls for a fund balance equaling 25 percent of annual general fund expenditures. The city’s fund balance is now 36 percent of a $9 million general fund budget, which comes to about $3.2 million. If the city were to pay down the tax rate by six cents, it would drop the fund balance by $712,000, bringing the balance to just more than 25 percent of general expenditures.

“This is a very precarious position,” Mattis said. “It’s taken us quite a while to build the fund balance we have.”

Another factor in the higher tax rate, Mattis said, results from a decline in property valuations in the city. Even with the 1.69-cent tax rate increase in the operations side, the city is counting on generating $1.9 million, compared with $2.2 million at the present fiscal year’s lower rate.

The city manager added, however, that the proposed tax rate keeps Kyle competitive with other local cities of similar size. San Marcos levies an ad valorem tax rate of 53.02 cents.

“Most cities hover around the 45 to 50 cent mark,” Mattis said.

But the prospects for Kyle to remain in that range for the FY 2011 budget are virtually non-existent. On that budget, the city will begin paying on $14 million of debt for TxDOT projects. If the city also decides to build a new police station for about $4 million and a new library for about $3 million, then if voters approve $18 million for a recreation center in a May 2010 bond election, the city faces a tax rate of nearly 70 cents in FY 2011.

Among the expenditures accounting for the city’s present indebtedness are $14 million for the building of Kyle Parkway, about $20 million for an extension of the parkway east of IH-35 for the Seton Hospital project, and other funds to improve FM 150 on the far east side of town, along with improvements to Kyle Crossing west of the Interstate.

“It is important to make people realize that 25 percent of every tax dollar is for TxDOT (Texas Department of Transportation) highways,” Mattis said. “People should know what they’re paying for.”

City staff anticipates that the city can start bringing down its tax rate again in FY 2012. Faced with near tripling of the tax rate in a three-year span, however, councilmembers are concerned.

Councilmember Becky Selbera is reluctant to support the new tax rate, saying that “the economy is bad, and I’m afraid that people are not ready to pay 49 cents.”

While Kyle Mayor Mike Gonzalez agrees about cutting the tax rate, he told councilmembers they would have to find specific services to cut.

“We expect our sales tax to start doing a lot better,” Gonzalez said. “This is the one year where we kind of have to fill the gap.”

Mattis reminded the council that it would “literally have to cut our entire operation in half” to maintain the FY 2009 tax rate.

“We’re trying to simply maintain existing services,” Mattis said.

“We can all agree that we’re not going to get to .3731,” Gonzalez said, referring to the current tax rate.

It remains to be seen if Kyle councilmembers can summon consensus on cutting specific programs or purchases. Councilmembers Lucy Johnson and David Wilson made, between them, at least a half-dozen cut proposals during last year’s talks, but Mattis argued them down and none of their motions received seconds from other councilmembers.

Gonzalez and others said the prime items to consider for cuts would be the 2.74 cents on the tax rate for summer programs and recreation, along 1.69 cents allocated for emergency medical services (EMS) contingency.

Councilmember and Mayor Pro-Tem Michelle Lopez said the tax rate proposal “is not something with the economy the way it is today that we want to impose on the citizens,” but that “I’m not for cutting any of the existing services we have,” pointing out the loss that would occur in jobs, specifically in seasonal employment if the funding for recreation were revoked.

Councilmember Ray Bryant said the 49.6-cent rate is unacceptable, especially for Kyle’s poorer citizens, adding that the recreation funding would be a good place to start looking at cuts.

Councilmembers are going so far as to consider whether it’s prudent to provide a budgeted two-percent cost of living raise for city employees, While Johnson said another the two-percent is due, Selbera it should be delayed to keep the tax rate down.

On Gonzalez’s request of council to make a list of possible cuts, the council agreed to look at the recreation fund, the community development fund, the EMS contingency fund, tax notes savings, the potential review of three replacement cars for the police department, and the two-percent employee raise.

Mattis responded that he doesn’t see the city staff changing its recommendation for the tax rate.

“I’m confident we will explain to you that the impact would be so adverse that you, as mayor, will say ‘We can’t live with this,'” Mattis said.

Following last week’s budget workshop, Gonzalez said he still believes the council can shave a couple cents off the proposed FY 2010 tax rate, adding that government is responsible for making cutbacks, just as citizens are doing.

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