Bellaire looks at budget

July 24, 2018

Bellaire City Manager Paul Hofmann presented the city council with next year’s proposed budget and forecasts for future years at their July 16 meeting.

He said the city should work to address projected revenue issues in fiscal years 2020 through 2023 by drawing more sales tax dollars through retail and commercial development and by possibly raising property taxes.

Hofmann said the 2018 budget was unique in that between the time it was presented in July 2017 and when it was adopted months later, 2,000 Bellaire homes were flooded by Hurricane Harvey, a storm that is still affecting the community nearly a year later.

“It changed the nature of what we did and how we did it for the next several months. In large fashion, it is still impacting what we do on a day-to-day basis,” he said.

He said fortunately, planning helped the city be prepared for the impact.

“Thankfully, good planning doesn’t mean predicting the future. Good planning prepares us for reality even though we can’t always anticipate the specifics of it,” Hofmann said.

Looking ahead to next year’s proposed budget, he said the city typically evaluates pay standards for its employees every three years and would not be due for that process. However, with the past year being highly stressful for many Bellaire city employees due to the hurricane, Hofmann said the fiscal year budget for 2019 has allotted for a 1.5 percent across-the-board salary adjustment plus a 3.5 annual step increase for eligible employees.

“This is not always an easy job. It’s not always an easy place for people to work. I will say it is a high-stress job,” he said.

Hofmann said the pay increases and rising costs of employee benefits make up more than half of the city’s increase in forecast expenditures. The other increases, he said, will come from improvements in public safety, information technology, development services, recreation and the library.

Hofmann projected in fiscal 2020, Bellaire will have $21.05 million in recurring revenues and $21.68 million in recurring expenses (a deficit of $630,000), a gap that would widen by fiscal year 2023 to $3.01 million. But Hofmann said the numbers are all based on certain assumptions.

“We continue the assumption of no new property tax revenues for the fiscal forecast period, and we do continue to show expenses going up, and that is primarily for salaries and benefits,” Hofmann said. “We continue to show an annual increase of salaries and benefits of 5 percent and very nominal increases in commodities and purchases and services and that sort of thing.”

But the issue lies in the amount of money the city takes in, Hofmann said, not what it spends.

“I think this is essentially a revenue problem. I know that is a hard message for me to say and perhaps for you to hear,” he said.

Bellaire Chief Financial Officer Terrence Beaman said cutting expenses would mean an impact on services the city’s residents depend on.

“In order to reduce expenditures, there would need to be service delivery reductions as well,” Beaman said. “For example, do we mow right of way property less frequently? Do we clean public restrooms less frequently? Do we clean public parks less frequently? These are things council will need to consider if the direction is to reduce expenditures.”

The decision will come down to what priorities the Bellaire city council will want to pursue, he said.

Another issue Beaman and Hofmann cautioned about was the fund balance component of the budget. Beaman said Bellaire has a Comprehensive Financial Management Policy Statement, that requires it to keep a 60-day reserve (fund balance), basically 60 days of recurring operating expenditures in the bank. By fiscal year 2020, the required fund balance is projected to be $3.61 million, but the ending fund balance after expenditures is projected to be $2.31 million, leaving a $1.3 million deficit.

Bellaire is trying to address some of the revenue problems by growing retail and commercial development that will produce more sales tax, Beaman said.

“Although groceries are not taxable, with the H-E-B renovation and opening of a much larger store, sales tax should increase with the goal of attracting other retail and commercial development in the downtown and surrounding areas in the city of Bellaire,” he said.

Hofmann said while the O&M (operating and maintenance) tax rate for homeowners will hold steady for fiscal year 2019 at $0.2678, the debt service rate will go up by about a third of a penny, making the total tax rate $0.4196 per every $100 in assessed value. But he said that rate is still lower than the state average of $0.4660.

Beaman said the O&M rate is remaining the same to help residents, many of whom are still recovering from Harvey. He said in in future years, the city council may need to consider raising that rate in order to maintain its level of services.

Beaman said while there are some issues with the forecast budgets, they will be addressed proactively and that Bellaire is still in a great financial position.

“The city manager has never and will never present a budget to council that is not structurally balanced (recurring revenues exceed recurring expenditures),” he said. “In addition, the city of Bellaire is one of 34 municipalities out of over 1,200 in the state of Texas that have a AAA bond rating, and one of the main reasons the city receives such an honor is due to having structurally balanced budgets.”

A budget hearing for fiscal year 2019 is slated for Aug 13 and will be followed by two budget workshops Aug. 14 and Aug. 20. The city council will then vote to adopt the budget Sept. 17.


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