San Marcos City Council Discuss Tax Rate Increase Of No-More Than 7%

On Tuesday, the San Marcos City Council received an update on the Fiscal Year 2020 budget and the preliminary Fiscal Year 2021 Budget.

Bert Lumbreras, City Manager, opened the meeting by noting that the City of San Marcos had received better than expected news regarding Sales Tax revenues, but they remain very conservative in its expectations for what remains of FY 2020.

Melissa Neel said the city is currently projected a NET shortfall of $2,000,000 for the general fund, $975,000 for the Hotel Occupancy Tax fund, and $400,000 for the Enterprise Funds.

This year to date, the city has only received 45% of its annual HOT collections; last year at this time, the city had collected 70% of its HOT collections. 

Neel said sales tax revenue for the last few months has exceeded the city’s expectations; however, they do not expect to receive more than 60% of the outlet malls sales tax and 80% of the base sales tax collections over the last three months of FY 2020.

According to the Expenditure Base Assumptions, operations budgets have seen a 5% decrease after a zero-based budget exercise.

While personnel requests are not funded at present, the expenditure assumption does assume non-civil services will receive a 4% merit increase and TMRS, worker’s compensation increase.

Lumbreras said the city has promised its workforce to avoid layoffs, furloughs, and early retirement practices to help balance the budget with COVID impacts.

Council posed the idea of looking at temporary salary reductions to help offset shortfalls due to COVID-19; however, Lumbreras didn’t recommend it.

“I just think, for a variety of reasons, there is a lot of demands from the community and this council in terms of what ya’ll need,” Lumbreras said. “I just figure that will just put us in a whole different arena in terms of the market; we have several key hires that we need to make. I just think that is not a good strategy.”

On June 4, the city council approved a resolution directing staff to calculate the tax rate in the manner provided for a special taxing unit by using an 8 percent threshold for revenue.

“I know we have very real needs,” Councilmember Ed Mihalkanin said, “But in the face of increased valuations of property and what’s going on, I don’t want to go above 7% [tax rate increase].”

Councilmembers Melissa Derrick, Saul Gonzales, Mark Rockeymoore, Dr. Jocabed Marquez, and Maxfield Baker agreed the city should move forward with the proposed scenario B, which would have the city look at a tax rate capped at 7% instead of 8%.

Director of Engineering & Capital Improvement Projects, Laurie Moyer, gave council an update on the stormwater utility rate model and base assumptions.

The new rate structure for FY 2021 will use impervious cover instead of lot size to determine rate charges. Billing changes in ordinance, which bills to the owner instead of the resident.

According to Moyer, there was no stormwater rate increase for FY 20, which creates a greater revenue need for FY 21.

Moyer said the city has reduced the FY 21 CIP by $4.0 Million with the use of existing funds.

In FY 18 and FY 19, the stormwater rate saw a 15% annual increase as part of a five-year direction to respond to citizen concerns. In FY 2020, the city council decided not to do an increase in FY 2020 due to the restructuring of the utility.

Moyer said the city will require a 12% increase in FY21 to achieve financial policy goals.

“Our goal is as we roll out the new structure, we want to know what those rate increase will be so we can prepare those bills for folks ahead of time and work with them,” Moyer said.

However, Moyer provided the council with options for rate increases over the next four years and the consequences of each option.

Moyer said over the weekend, the staff came up with a fourth option, which would allow them to lower the rate increase for FY 21 as well as the following years and cause the delay of only one or two priority projects.

Fiscal Year 21 priority stormwater projects are:

• IH-35 Stormwater Oversize (Sunset Acres) – $5.3 M
• Academy/Sessom Improvement – $1.5
• Hills of Hays – $3 Million

Fiscal Year 22 priority stormwater projects are:

• Wallace Addition Offsite – $4.5M
• Sunset Acres – $4M
• Castle Forrest Channel – $1.5M

Council shared a consensus to go with option 4, which proposed a 6.5% rate increase for FY 21 and FY 22 and 5% increase in FY 23 and FY 24.

FY 21’s CIP budget would be increased to $6M with an annual budget of $6 M for FY 22 and beyond.

Moyer said the advantages were that it would lower the annual rate increase on resident and maintain the FY 21 priority projects; however, the city’s fund balance goal for FY 21 (25%) would not be met, and at least one FY22 project would be delayed by a year.

The City of San Marcos’s financial policy aims for CIP fund balance to be at 25% at the end of each Fiscal Year.