City Sets Stage to Raise Your Taxes

SAN ANGELO, TX — The City of San Angelo will likely lower the tax rate for the FY 2023 budget according to a presentation to council last week by City Finance Director Tina Dierschke. The budget workshop held in council chambers on August 11 ended with council proposing a significant pay raise.

The Tom Green County Appraisal District certified the value of all property inside the city limits at $6,929,054,685. This is a 23.5 percent increase over the total value presented at last year’s budget presentation. Of this, $73,865,776 was new properties added.

As a rule-of-thumb, every penny increase (percent/$100 of valuation) of the City tax rate raises $667,481 in revenue. This is significantly up from past years. In FY 2021, one penny added to the tax rate raised approximately $540,000, Dierschke said.

Residential property taxpayers comprise 71 percent of property tax revenue generated. Commercial property generates only 14 percent of money to the City general revenue fund via property taxes. The remaining 15 percent of property tax revenue comes from taxable personal property, inventory, and business fixtures.

City Manager Daniel Valenzuela said San Angelo is unique in its revenue split where most other cities have a 60/40 split for residential and commercial property. San Angelo’s is 71/29.

“We need our commercial (tax) base to grow because that takes some of the burden off our residential property taxpayers,” added Dierschke.

The first look at the FY 2023 City of San Angelo budget shows that City staff believes the tax rate can be lowered 3.8 cents, from 0.776/$100 valuation to 0.7380/$100 valuation. That 0.7380 is the maximum tax rate that will stay within the Texas Legislature’s 3.5 percent annual increase of year-over-year revenue cap before the City is required to hold a special election for voters to approve the tax rate.

Sales tax collections during FY 2022 were very good. Sales tax revenue is up $1,805,021 over the amount expected last September when the FY 2022 budget was adopted. August 2022 revenue alone is up 7.03 percent over August 2021. For FY 2023, Dierschke proposed budgeting sales tax revenue to be 5 percent less than last year.

In FY 2021, property tax represented 45.5 percent of general revenue while sales taxes comprised 26.4 percent.

On the expense side, City Human Resources Director Bryan Kendrick warned about retention and recruiting. He said overall inflation over the past 12 months was at 9.1 percent. Normal inflation over the past 14 years averaged 2.77 percent per year. This puts pressure on city leaders to increase pay. Additionally, Kendrick said vacancies across all non-fire and non-police departments has exceeded 18 percent. In 2017, just five years ago, vacancies were never more than 6 percent. He said normal vacancies are in the 2 to 4 percent range during pre-Covid years. Part of the problem was a city hiring freeze for over a year during the pandemic. Even still, vacancies soared starting in January 2022.

On the public safety side, Kendrick said that overall interest in applying for a job as a first responder has been on a rapid decline. Ten years ago, the City held one testing session for applicants per year. That one test generated more candidates who passed the test than openings available. Today, the City is holding multiple testing sessions but the number of applicants is less than half when compared to a decade ago. About 22 percent of the City’s first responders are eligible for retirement today. That number is growing.

“Within the next three years, we can have 30 percent of our fire and police force retire,” Kendrick warned.

To combat vacancies in non-civil service positions and downward projections of retention of first responders, City staff recommended a 7 percent across the board pay increase for all City employees. In addition, Kendrick proposed spending just over $5.5 million in American Rescue Plan Act (ARPA) money to give $2,500 and $2,000 one-time stipends to City employees in FY 2023.

City Manager Daniel Valenzuela said that it is now impossible to hire entry-level positions because the big box and fast food chains are paying much more in starting wages than the City is currently. Valenzuela said the City needs to set forth a five-year plan for raising the pay immediately. At the current rate, the city manager warned, within 6 months he predicts vacancies will rise from today’s 18 percent to over 25 percent. At that time, Valenzuela warned, the City would have to shut down some of its services due to lack of manpower. Entry pay at the City is currently $12.02 per hour. Kendrick wants $13.30 per hour starting salaries in FY 2023.

“We cannot kick the can down the road,” Kendrick warned. McDonald’s is advertising a starting wage of $14 per hour, Kendrick added.

Dierschke said that the sales tax revenue was already budgeted very conservatively and she was confident that property valuations to continue a rapid increase in future year. This makes the salary increases sustainable.

Mayor Brenda Gunter instructed staff to work up an ordinance to implement the plan staff proposed to include the 7 percent pay increase for all City employees. In addition she requested language to be added to pay employees a one-time $2,500 stipend. Councilman Tommy Hiebert was in full support.

Nothing more was discussed about lowering the tax rate below the rollback rate. Even still, if nothing changes the council’s mind, expect City employees to enjoy that 7 percent pay raise and the gross amount San Angelo businesses and residents pay in property taxes to increase due to the rapid increases in valuations and the need to increase spending for payroll.