To fund next year’s budget, which includes additional police and firefighters, and 2 percent raises for city staff, Pearland City Council is backing the effective property tax rate of $0.7092 cents per $100 in value, a 2.41 cent-increase.

The new tax rate uses the effective rate calculation as dictated by state law. It is the rate at which the city will generate the same revenue from the prior year, not including new construction property values. When construction is factored in, the city expects $795,000 in new revenue.

The city will hold hearings during council meetings on Sept. 17 and Sept. 24 to allow for further input on the $354.4 million budget, about a third of which is funded by property taxes.

“This is your police, fire, public works, roads, libraries—the stuff you use every day and count on to make this a place you want to live,” City Manager Clay Pearson said.

City staff recommended against a higher tax rate that would have generated $600,000 more in revenue, opting instead to slash the road maintenance budget by half and putting off some expenses such as vehicle and equipment replacement.

“It pains me to do that,” Pearson said. “The bulk of the budget is set—it’s wages and salaries, things like that. All you can do is whittle around the edges a bit.”

While it is an increase over the current rate of $0.6851 per $100 valuation, the new rate will affect property owners differently, Pearson said. About half of them saw their values stay flat or decline, resulting in an overall value increase of 1 percent, according to staff reports.

Council members are concerned the city may need to grow its reserve fund in future budgets and restore street maintenance funds, which should be around $5.5 million a year to maintain current conditions, according to staff projections. The 2018-19 budget has about $454,000 for streets.

The city’s reserve fund, currently set at a minimum of two-months of operating costs, has been shrinking after being above that mark in recent years, leading to a negative outlook from credit rating agency Moody’s Corp. last month.

“Future reviews will focus on the city’s ability to restore operating balance and improve its reserve position especially in light of annual budgetary growth,” an Aug. 2 statement from Moody’s reads.

Despite the report, the city has the third-highest credit rating from Moody’s, and its ability to pay down debt is strong, with a decreasing debt per capita, Pearson said.

“I’d like to have some discussion at some point on increasing our [reserve] policy … from over two months to something a little bit larger. I know we’re not going to get there overnight, but we should be increasing our general fund balance,” Council Member Tony Carbone said at the Aug. 11 budget discussion.

Beyond 2018-19, the city is forecasting tax rate increases for two more fiscal years as it anticipates taking on more debt for capital projects and hiring more police officers and firefighters.