Based on financial information collected, Missouri City City Council may defer certain capital projects from its capital improvement plan, according to city officials.
If the city wants to maintain the existing tax rate of $0.60 per $100 valuation, City Council must reprioritize the needs of the city, staff members said late January as city leaders kicked off the preplanning process for fiscal year 2018-19, which begins Oct. 1.
“There is no city in the United States of America that 100 percent funds every one of their transportation ideals, their infrastructure challenges,” City Manager Anthony Snipes said. “What we have to do is make sure that we understand and try to address the best way we can those issues that are failing and have strategies that look at it.”
In the upcoming months, staff will review the city’s budget projections to guide City Council’s decisions, Assistant City Manager Scott Elmer said.
“What’s got to happen is, ultimately, City Council has to set a tax rate that they want to apply to the debt service [fund]—the interest and sinking portion of our budget,” Elmer said. “When they set that tax rate, that decides how much money we have to reprioritize the [capital improvement projects].”
Capital Improvement projects
Because Missouri City is getting older, its infrastructure requires a significant amount of work to maintain service levels, Elmer said.
“Do we need to make an investment in infrastructure?” he asked rhetorically. “Yes, but that’s similar to every city in the United States.”
The City Council has not yet determined which projects from its capital improvement program to table, Media Relations Specialist Cory Stottlemyer said.
The five-year program includes $39.7 million worth of projects scheduled for the fiscal year 2018-22 period, Finance Director Edena Atmore said. Bonds have not been issued to pay for these projects.
“All projects are evaluated annually, prior to issuance of debt, to determine what is actually needed to complete the projects,” she said.
The $39.7 million program does not address the four projects included in the 2017 Fort Bend County Mobility Bond package, which voters approved in November, Atmore said.
“That is not a formal commitment,” Elmer said. “There are some other options we can look at on Fort Bend County bond projects.”
Missouri City may look to other entities, such as special districts, to help fund projects, he said. The city may also swap or combine some if needed.
Over the years, voters have approved a total of $132.5 million in bond packages to pay for capital projects through elections in 2003, 2008 and 2014, Atmore said. The city has issued approximately $91.8 million and have an unissued balance of $40.7 million.
However, just because voters authorized the bonds does not mean the city has the debt capacity to issue them, Snipes said.
“We make determinations based on our ability to pay—what we’re going to issue—in order to bring those [projects]to fruition,” he said.
Tax rate options
The city uses the revenue generated from the interest and sinking tax rate to issue bonds and pay for capital projects, Elmer said.
The overall tax rate of the city has two components: the maintenance and operations tax rate and the interest and sinking tax rate. The maintenance and operations portion of the tax rate funds the city’s day-to-day operational procedures, and the interest and sinking portion funds the city’s debt service fund.
The city’s current interest and sinking rate is nearly $0.16 per $100 valuation, according to the city’s website. It is recommended the council set the interest and sinking tax rate at $0.17 per $100 valuation with an equal principal payment schedule, which allows the city to pay off debt faster, Atmore said.
With this rate, staff has concluded the city can issue approximately $28.39 million of bonds over the next five years to help complete these projects, Atmore said. This means approximately $11.3 million worth of projects face deferment unless alternative funding sources can be found.
City Council may even decide to increase the interest and sinking tax rate to $0.18 per $100 valuation if it decides that is necessary, Atmore said.
City Council has not made any decisions regarding a potential tax rate increase as it is still early in the budget planning process, Stottlemyer said.
“We will receive the preliminary assessed values from the County Assessor’s Office in July, which will give us a better sense of what the estimated [interest and sinking]and [maintenance and operations]rates will be,” Stottlemyer said. “We will receive the final values in July, which, with our new budget calendar year, will determine our tax rate.”
Even shifting one penny has a direct effect on the city’s operational budget, which may affect city service levels, she said.
“One penny is worth $630,000,” Atmore said. “When you look at one penny on the tax rate—whether you add or take it off—that’s approximately $630,000 based on our assessed [property]value.”
Atmore said staff recommends an interest and sinking rate of $0.17 per $100 valuation because it maintains a good balance between the two funds.
“If I was trying to stay within $0.60 [per $100 valuation], then the $0.18 takes money off of the operation and maintenance funds,” she said. “Then, I have less money to pay for my operation and maintenance expenditures. When we look at [the budget]as staff, what’s important is we keep people running the city and providing services.”
Plans for 2018
The city has already made the decision to issue $12.985 million in bonds for FY 2017-18, but if council members decide to increase the interest and sinking tax rate to $0.18 per $100 valuation, the city can potentially issue nearly $7 million more in bonds for FY 2018-19, Elmer said.
“[Fiscal year 2018-19] is where their decision-making is because it could go from $5.25 million to $12 million in available funds, dependent upon where they decide to fall on the [interest and sinking]side,” Elmer said.
With the $12.99 million to be issued, the city plans to spend it on facility improvements and renovations, sidewalk replacement, street rehabilitation and construction, bridge maintenance and park improvements, Elmer said.
Snipes said staffers will review the city’s operations and expenditures and identify which projects are the most critical at this point in time and make determinations on how to proceed.
“At this point, we’re not anticipating a [bond election]for 2018,” Snipes said. “I think one of the things we’re trying to do is focus in on what we currently have to make sure that we continue to be fiscally sound in our decision-making.”