City Faces Rising Demands on Expenses and Pressure to Lower Taxes

Monday, the City of San Angelo Council and staff hold a workshop to begin the process of developing the FY2015 budget. According to city planning operations, this workshop is the first stab that City staff has at presenting to Council the next year’s budget.

The City government is the second-largest local government taxing entity in the city limits and it operates on $123 million in operating revenue, according to last year’s budget. There are three primary streams of revenue into the City. They are:

1. Property taxes
2. Sales tax revenue
3. Revenue from City services or enterprises (water, wastewater, municipal court, venue rents, fees, and etc.)

Property and sales taxes amount to about $50 million of the City’s annual revenue. Water, at $23 million in annual revenue, accounts for the largest enterprise fund source.

Tax Revenue

Last month, the Tom Green County Appraisal District (TGCAD), a separate governmental entity contracted by most taxing entities in the county, delivered notices of increased property values. The expectation to the casual observer of City, Tom Green County and school district governments is that TGCAD entities will receive a windfall of new revenue from the announced $1 billion increase in total county-wide property value.

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Above: City of San Angelo property tax rate history. (Contributed, City of San Angelo)

The Assistant City Manager and CFO Michael Dane said Tuesday, that so far, the TGCAD has only sent projections of a four percent increase in property tax revenue for the next fiscal year. The expectation is that this will be revised upward, but until it does, the City assumptions remain with the lower number.

Source: City of San Angelo Operating Budget, Fiscal Year 2013-2014.

Water Enterprise Revenue

Selling water is big business for the City of San Angelo, accounting for $23 million in annual revenue but falling. The drought and concentrated conservation efforts on the part of the citizens, along with restrictive watering drought levels throughout the past year have reduced demand for water. Pressure is mounting to raise water rates to make up for the shortfall in revenues that conservation created. City Councilman Rodney Fleming delivered a rousing speech at the July 1st City Council meeting demanding that the City “gouge” customers who are using an exceptional amount of water over the average household, like 20,000 gallons per month and over. Councilwoman Charlotte Farmer wants to hold the rates as-is, or reduce them, referencing historical events where the water rates were adjusted upward, at the time thought to be temporary, but never reverted back to the older, lower rates.

There are two thrusts of thought developing around the water rates. One is the Fleming approach to use rates as a hammer to promote conservation on the demand side. The other is to attempt to conserve water on the supply side, primarily by reducing evaporation of surface water in the lakes through water master transfers to deeper pools, and by harvesting storm and wastewater in two projects on the table.

One such proposal is the Red Arroyo project that will capture water runoff into deep pools to be built near the south side of town. The other is to treat wastewater to drinkable levels and recycle it.

In addition to the surface water initiatives, 2015 will be the first year that ground water is added to the City’s water supply with the Hickory aquifer project and treatment plant planned to be put into operation later this year. The City is already mixing some Hickory water with the existing surface water supply.

Demand-side arguments will push for higher rates to both encourage conservation, and also hopefully, increase water enterprise fund revenue. Supply-side arguments want to increase supply so that the city can increase water enterprise revenue with volume at existing or lower rates.

Other Needs

Several large expenditures have been highlighted over the past year. Street repair and refurbishing was estimated by the City staff to be a $9 million to $11 million per year ongoing effort over the next seven years, totaling as much as $77 million. Water infrastructure problems have also surfaced, raising questions about how viable the old water mains are. Repairing or replacing them will be an enormous capital expense. Finally, the police have been negotiating with City staff over pay raises. There is also a group of proponents who want to build a new, modern police station.

What to Watch

City Council will be balancing a moderate projected growth in revenue with a growing laundry list of needs that outstrips revenues. At the same time, Council is facing the perception from the citizens that they are being taxed at record levels since the TGCAD notices appeared in their mailboxes announcing record-breaking valuation increases.

The current Council has displayed a conservative approach to taxation by wanting to keep taxes lower. In last year’s budget vision, a goal was made to lower the City property tax rate to a level that removes San Angelo from the top ten highest taxed cities in Texas with more than 50,000 population, according to the Texas Municipal League.

Citizens can download examine last year's budget in this 329-page *pdf document.