The city of Conroe is proposing a $218.1 million budget for fiscal year 2019-20—which could include a property tax rate increase to fund a number of proposed projects, according to Conroe Chief Financial Officer Steve Williams.
Conroe’s staff-recommended proposed tax rate for FY 2019-20 is $0.4454 per $100 assessed value, up from $0.4175 per $100 assessed value. City Council heard the first public hearing on the new tax rate Aug. 8 and set the final adoption of the FY 2019-20 budget for Aug. 28.
Officials said the tax rate would be frozen for people who are over age 65, are disabled or who have homestead exemptions. Officials said if passed, the result would be a $6.97 monthly increase in taxes paid on a $300,000 home.
“A lot of cities are proposing going up to the max this year because you’re going to be capped next year,” Williams said ahead of the meeting. “In the Austin area, in the metroplex, I’ve just seen a lot.”
Senate Bill 2, a property tax reform bill passed by the state Legislature in May, limits the annual growth rate of cities’ maintenance and operations revenue to 3.5%. New construction is not factored into the year-over-year growth, and the maintenance and operations revenue is generated by a portion of the city’s total tax rate.
City staff showed how Conroe’s tax rate had changed historically, dipping with decreases. In 1993 it was $0.4386; in ’94 it went down to $0.42; and in ’95 lowered further to $0.4. Officials also pointed out decreases in 2002 and 2003.
“The concern about Senate Bill 2 and the cap going from 8% and the rollback tax rate to the 3.5%, we feel like that’s a limitation,” Assistant Director of Finance Collin Boothe said. “But when we look at the demands of service here, we’re trying to position the city best to handle the situation. We’re doing our best to look at the crystal ball and present what we think is going to happen on a reasonable, conservative basis.”
Council members said the city has been behind on keeping staff salaries comparable and behind on collecting property taxes for decades for political reasons.
“It was a political move. We weren’t forced to [lower the property tax rate] because we were making so much we had to back it off,” Council Member Raymond McDonald said. “As we look today and realize if we stick with the rate we have, at one point we’re going to have to start cutting some of the things we have proposed to do; we’re having to look at things that are real cuts, real figures, and reduce over time.”
A few citizens commented during public inquiry Aug. 8 against the property tax rate increase.
“Pretty much this tax rate is a pain and is very burdensome for me, for a lot of us peons that live in the city,” resident John Nicks said. “I want you to think before you pass a much higher rate that’s going to hurt peons who live and work in Conroe.”
Williams said the $0.4454 rate would generate an extra $2 million to the general fund.
Officials said a few items still open for discussion include hiring a new downtown manager to implement the long-term plan for $46,775; starting new hires Oct. 1 for $128,711; three new firefighter battalion chiefs for $552,150; and adding a 5% market adjustment for $1.8 million.
To combat costs, the city is considering reducing travel and training by 10% for $66,567; reducing part time by 10% for $100,197; reducing overtime by 10% for $111,582; and removing the 2019 compensation study suggestions for $3 million.
Because of the compensation study, which found many departments including police and fire were paid nearly 20% below the average of comparable cities, bringing salaries up to a competitive level was a hot topic at the Aug. 7 City Council meeting.
“You can’t ride the bull sitting on the fence,” Council Member Jody Czajkoski said. “I don’t see any way to adjust this and pay people what they’re worth without raising taxes.”
City Administrator Paul Virgadamo said if council members want to add the $3 million in staff salary compensations, it would come at the cost of the new battalion chief and new downtown manager positions. He said as long as the city’s revenue stays constant, officials can do another 5% market adjustment in the next budget year as long as the budget can support it, slowly phasing in the comparable pay grades—and ultimately recruiting and retaining talent.
“The majority of the reason behind that recommendation [to raise the tax rate] is because of the rollback rate,” Virgadamo said. “We don’t know what that will do to us next year, we might not be able to raise the rate next year.”
Staff asked for direction from council as to which items to include in the budget and which to cut.
“I’d like to take a closer look at any potential budget amendment coming forward and … at funding on a longer-term basis into this salary study proposal, dropping the impact less and less each year and spreading it out so it has less effect on the budget,” Mayor Pro Tem Duke Coon said.
The city of Conroe, among other cities such as Austin, is increasing tax rates. About 29% of Conroe’s general fund is generated from property taxes and about 43% from sales taxes, Williams said.
“We’re overweighted on sales tax versus property taxes,” Williams said ahead of the meeting. “So we’re heavily dependent on an economically elastic revenue source.”
The Texas Property Tax Reform and Transparency Act, signed into law June 12, requires cities, counties and other districts to hold an election if they wish to levy a 3.5% increase in property taxes from the preceding year. Previously, the threshold, called the rollback rate, was 8%, at which residents had the ability to petition for an election to be held.
The growth rate calculation does not include new construction value and can be averaged over three years, so taxing entities can occasionally exceed 3.5% as long as it averages out. Cities with a population of less than 30,000 are not subject to the automatic election, but residents can petition for a vote.
The second component of city taxes is the interest and sinking rate, which funds debt on the city’s facilities.
“Your interest and sinking rates can grow as much as it needs to grow without being subject to the rollback,” Williams said.
The rollback rate counts the year-over-year growth from the previous effective operations and maintenance rate. Now, the rollback rate is known as the threshold.
“If the tax base goes up, then in order to keep the levy the same, the rate has to go down,” Williams said.
“Say the base went up, and the effective [operating and maintenance fund] is going down—then you go 8% above that,” Williams said. “It works in reverse: if property rates go down, effective rates can go up.”
Williams said the main reason the city needs more money this year is due to staffing; currently the city has about 575 employees.
He said the city saw about $19 million in requests for the general fund, but the city can only fund about $9 million of those. He said about $3.1 million would go toward staffing.
“A good chunk of that [$9 million] is in the compensation study,” Williams said. “And then a good chunk is the … vehicle and equipment and replacement fund.”
Williams said the city can allocate funds for six new full-time police officer positions and six firefighters—but the Police Department asked for 19 more officers and a sergeant, and the Fire Department wants four men to a truck every shift.
A 2018 study from the Texas Municipal Police Association showed Conroe’s police officer salaries throughout its ranks to be 10%-15% below comparable nearby departments, such as in Bryan, League City, Pasadena and Pearland.
Alongside that, the Conroe Fire Department responded to 9,593 calls in 2017 compared to 7,179 in 2013. To handle the demand for emergency services, Conroe Fire Chief Ken Kreger said the department built two new stations since he became chief in 2005.
Williams said the city is working on a long-term plan to phase in the necessary positions for public safety.
“There’s a strategy but no identified revenue source for that strategy,” Williams said.
WATER AND SEWER
A major rate increase this year is the sewer rate. On Aug. 23, the city raised sewer rates up 20% from $59.94 in 2019 to $71.93 per 10,000 gallons in 2020.
“The wastewater treatment plant is still the biggest CIP project,” Williams said.
It is part of the city’s plan to increase sewer rates by 92% and water rates by 20% by fiscal year 2027-28 to fund the $63 million wastewater treatment plant, the largest single item in Conroe’s capital improvement projects budget.
Conroe City Council on Aug. 23 also approved $63 million for a new wastewater treatment facility in the fiscal year 2018-19 budget after Hurricane Harvey partially ruined a 2016 rehabilitation project that updated the existing wastewater plant.
To fund the expansion needed to satisfy the growth, last year the council increased monthly water rates by 4% to $31.10 and sewer rates by 15% to $59.94 for an average user who consumes 10,000 gallons per month. In the city’s 10-year plan, water rates are projected to increase by 20% to an average of $37.31 and sewer rates by 92% to an average of $115.38.
City officials said the new wastewater treatment plant is needed in part because of industrial growth in Conroe Park North and the Deison Technology Park areas. The new facility is planned to accommodate 12 million gallons per day, and Phase 1 will include the first 6 million.
Alex Hosey contributed to this report.