Plano city staff members have warned in recent years against adopting a tax rate that would slow the annual growth in property tax revenue.
This year, however, they said they are finally in a position to maintain steady collections while still handing out raises and meeting a rising demand for essential city services.
“We’ve added a number of positions over the last several years that were needed,” City Manager Mark Israelson said. “The last several years really did have a major impact on why we were able to do that this year.”
The city of Plano is considering a $602 million budget for the coming year that would provide 3% raises to employees and would add the fewest new personnel the city has seen in years. This would be done without increasing overall tax collections from existing properties.
Plano City Council on Aug. 12 committed to publicize a property tax rate of no greater than $0.4482 per $100 valuation. This rate cut, combined with growing appraisal values, is expected to result in roughly equal property tax collections on existing properties.
The proposed budget was met with praise from Plano City Council members who campaigned on freezing tax increases. Others urged caution for what this approach might look like in future years.
In the meantime, Israelson said, city staff is confident this proposal meets growing demands for city services this year without raising overall tax collections on existing properties.
Why the change?
Israelson said the city began looking at options earlier this year as proposals made their way through the Texas Legislature that would cap the amount by which cities could increase property tax revenue year over year.
In the end, the state adopted a new law that would require cities to hold a public vote to approve a property tax revenue increase of more than 3.5%.
But for some Plano City Council members elected in the last two election cycles, that 3.5% increase was too high. Shelby Williams, who joined the council after winning a runoff election in June, campaigned on holding the city to no new property tax revenue—also referred to as the effective tax rate.
Ultimately, a city budget can be adopted only if it gains the support of at least five of the council’s eight members.
“After this election, it was no mystery that the effective tax rate would be requested of the city staff,” Williams said.
In the lead-up to the unveiling of the budget July 24, Israelson said he met individually with each council member. He said he takes council member opinions into account along with those of the city’s various department heads and new state laws.
“Absolutely, it weighs in on how I approach things,” Israelson said of his conversations with council members. “Understanding their goals is something that’s very important, but it’s also balancing those needs of what we need to keep up with our programs and services.”
Anthony Ricciardelli, a third-year council member, is also a proponent of the effective tax rate. He recounted a conversation he had with Israelson the day before the budget was unveiled.
“When [Israelson] was telling me about some of the features of the budget that was going to be presented tonight, the first question I had for him was, ‘Do we have that 3% raise in there for our employees?’” Ricciardelli said at the July 24 budget presentation.
The city was in the thick of the budget process when Israelson succeeded former City Manager Bruce Glasscock and directed the staff to prepare for lower property tax revenues, city Budget Director Karen Rhodes-Whitley said.
Israelson said he was watching the revenue cap proposals in the Texas Legislature earlier this year when he gave that direction.
“The change in the way we approached our budget really had its genesis when we saw what was happening with the Legislature this past session,” Israelson said. “That really was the start, because we really didn’t know what was going to come out of the session.”
How they did it
The city managed to balance the competing interests of raises for employees with implementing the effective tax rate. But it took growth in other revenue sources—and a bit of creative budgeting—to make it work.
The city was able to substantially make up the revenue gap by tweaking how it decides the amount of sales tax revenue it expects to collect, Rhodes-Whitley said.
In recent years, the city had used a relatively conservative approach, she said. And when the city collected millions more than it had budgeted, staff would bring the sales tax revenue back to the council later in the fiscal year to be allocated.
Now, the city believes it has a better estimate that will more accurately reflect next year’s sales tax revenue, Rhodes-Whitley said. This would result in about $5 million of additional revenue upfront in the budget. It also means potentially less revenue would come in later in the year.
Some council members expressed caution at the July 24 meeting about adopting the effective tax rate in the future.
Council Member Rick Grady, who supported increasing property tax collections to fund city services in years past, said lowering the tax rate might be manageable this year because the immediate risk of an economic downturn is probably low.
“As the economy is doing well, as home prices are going up, the tax rate goes down,” Grady said. “The inverse is also true. The economy goes poor, home prices go down, tax rate goes up. That’s just the way the math works.”
Council Member Maria Tu, who was elected in May, pointed out this year’s budget would add fewer new personnel than the city has done in years.
“This is not something that’s going to happen every year,” Tu said. “What’s going to happen the next time when we need an increase [in personnel]? How is that going to be assessed into the budget?”
Williams, a supporter of the effective tax rate, praised city staff for coming up with a balanced budget that maintained increases in spending and compensation without raising taxes on existing properties.
“What we [on the council] have essentially done is say, ‘We’d like to build the most fuel-efficient car on the planet—oh, and by the way, let’s make it the fastest car on the roads,’” Williams said. “That’s the easy part. What y’all have done—the city staff … actually delivering on that—is monumentally more challenging.”