Updated: Pearland raising taxes to balance future city needs

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Editor’s note: This story was updated on Oct. 20 to reflect the city of Pearland’s correct tax increase amount from FY 2017 to FY 2018.

Local municipalities have adopted property tax rates for the 2017-18 fiscal year that began on Oct. 1.

The city of Friendswood dropped its property tax rate by nearly two cents over the previous fiscal year to the city’s effective tax rate of 52.73 cents per $100 valuation on Oct. 2. By adopting an effective rate, residents will pay the same amount in city taxes in 2018 as they will this year when tax bills begin circulating in late October.

“The council as well as staff is always interested in giving our taxpayers the best services at the lowest rate,” Friendswood Mayor Kevin Holland said.

On the other hand, Pearland City Council raised its property tax rate by 4/10 of one cent to 68.5 cents per $100 valuation on Sept. 25, which will raise eight percent more revenue compared to the 2016-17 fiscal year.

“This represents between 20-30 percent of the total tax bill that a property owner would receive,” Pearland City Manager Clay Pearson said. “We need this revenue for operations. It pays for the police, fire, public works, parks and recreation—essential services that are offered to citizens throughout the year—and it pays for all of our debt service for repaying capital bond financing.”

Balancing future needs
Although Pearland city staff initially proposed to drop the tax rate by one-eighth of a penny to 68 cents per $100 valuation for the FY 2018, City Council took a different approach to ensure funding for major expenditures.

Pearland City Council considered a tax rate ranging from 68 cents to 70 cents per $100 valuation before adopting the city’s rollback tax rate of 68.5 cents per $100 valuation. The additional half-cent will be allocated for city operations, not debt service, according to budget documents.

If Pearland adopted a rate above the rollback, which is an 8 percent revenue cap, the city could have been subject to a citizen petition for a rollback election, according to the Texas Comptroller of Public Accounts.

“When we talk about our tax rate we’re looking at what happened to our city and the growth process and the needs for that as well as the damage done by Harvey,” Pearland Mayor Tom Reid said. “We’re not going to complete FEMA or other reimbursements on all of the damage that’s been done; we’ll have to pick up through our tax dollars at some point.”

The city’s tax rate has fluctuated between 65 and 71 cents per $100 valuation for at least the past 11 budget cycles, according to budget documents.

About two-thirds of property taxes is used for debt service and is not allocated to the general revenue fund.

“It’s completing very real, very important capital projects, things that we see and use everyday here,” Pearson said. “It’s a part of our challenge of where we’re at today as a city. The operations are tight, and we’re managing them and will continue to do that.”

Pearland expects to generate $79.1 million in the general revenue fund for city operations and is slated to expend $78.72 million. About 70 percent of general fund expenditures is for employee salaries, and public safety comprises more than 50 percent of that.

Property taxes only comprise about one-fourth of Pearland’s general revenue fund with the single-largest source of revenue being sales tax. Other sources of revenue include charges for service, fees, fines and permits.

“I think what we really need to do is be cautious with how we spend our money in case things don’t occur like we think on the budget,” Reid said. “I’m not too sure we’re going to be able to get our money the way we think it’s going to come in.”

While most Pearland property taxes pays for debt service, less than 20 percent of Friendswood taxes pays for debt service, according to budget documents.

Friendswood City Council approved a $56.4 million budget with general fund expenditures of $26.6 million. About one-third of general fund revenues is generated through property taxes. More than 20 percent of the total budget is allocated to public safety.

The FY 2018 tax rate of 52.7 cents per $100 valuation is at least a 39-year historic low for the city.

“Over the last 39 years our tax rate has decreased about 20 cents,” said Katina Hampton, deputy director of administrative services for the city of Friendswood and the budget officer.

Investing in retention
The costliest increase to the city of Pearland’s operating expenses is salary raises for staff, which will cost $465,000 to implement starting in the third quarter of the fiscal year, according to budget documents. The raises will cost an additional $1 million in the future for the 2018-19 fiscal year budget.

Pearland City Council approved the raises for city staff after reviewing the results of a commissioned salary and compensation study in July that revealed large disparities between employee pay plans and market value for certain positions. The last compensation study was done about 11 years ago by in-house staff.

“We are a service-based organization,” said Michelle Graham, director of human resources for the city of Pearland. “As a local government, we don’t have a widget that we produce or base things on sales or goals of production. … We have to make sure we are adequately and fairly compensating those people in order to retain them.”

Only 11 out of 48 positions, not factoring in department heads, in the survey results had salary ranges above market value, according to final 2017 report. Pay scales in the study were as low as 64 percent below market for minimum base salaries. The Pearland Fire Department had the worst funded salary schedules, with nearly every position in the department requiring a pay scale adjustment, from paramedics to fire captains.

“City employees are not asking to be No. 1. We’re not asking to be the highest paid in the state. We’re just asking to be paid average, market, midpoint whichever phrase you wish to choose,” said John Despain, a police detective for the city of Pearland and president of the Pearland Police Officer’s Association.

Another $800,000 increase to the FY 2018 budget was approved for additional city staff. Pearland City Council approved additional police officers, a jailer, mechanics and a senior city planner. The fire department will roll out its continuous onboarding starting January as part of a long-term recruitment plan to add 70 fire fighters in six years.

Unfunded city projects
While Friendswood residents may rejoice in knowing the tax rate will remain flat next year, the city has $1.8 million in unfunded general fund projects for FY 2018.

“I can understand a bunch of these given that our budget is going to be tight, and that’s on purpose because we like to keep the budget down,” Friendswood City Council Member Steve Rockey said.

Some of the unfunded projects include improvements and restroom renovations at Stevenson Park, a street sweeper, additional city staff and a list of 14 Friendswood Volunteer Fire Department line items.

“Every year, we have submitted that set of priorities in priority order,” said Rick McFee, president of the Friendswood Volunteer Fire Department. “They’re here and now and impact our operational needs on a daily basis.”

FVFD requests include additional funding for workers compensation insurance, medications for emergency medical service, vehicle insurance increases, additional weekend staff, training field improvements and additional funding for existing positions that were previously underfunded by the city.

McFee said the No. 1 priority this year for the department is funding for additional paramedics. However, the department every year also looks at its needs and operational budget to determine where impacts relative to cost increases, new programs and new needs may come up.

“I can see the argument of, well, do we want to improve the fire training field now?” Rockey said. “It may not be the year to do that, but other [FVFD requests] give me slight bit of concern that we’re not recognizing they’re subject to the same forces of insurance.”

Council members expect to discuss mid-year appropriations to cover FVFD’s insurance requests.

“That funding can occur mid-year,” Friendswood City Manager Roger Roecker said.

The city is also considering putting out a bid request for third-party a emergency medical services contractor instead of contracting for ambulatory services with FVFD.

“We’re going to continue to provide the service that we have that our residents expect and pay their taxes for,” Holland said. “It’s an ongoing discussion with the entities, and we’re working together.”

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