City Council gave direction on a five-year financial plan, with the goal of finding the best path forward for funding upcoming drainage projects and ensuring future city councils are not left with financial challenges.
The plan helps guide the budgeting process, which is scheduled to begin in June.
What’s happening?
This is the second phase of discussions regarding the financial plan, as Director of Finance Summer Fleming shared three additional scenarios with City Council showing changes in the city reserve, tax rate and debt services.
Projections for governmental services expenditures in 2030 show that public safety will account for the most expenses, representing 47%, while public works is expected to make up 27%.
One City Council question was the total interest debt incurred if drainage projects were funded through bonds rather than city reserves. Over the next five years, the city will need to fund around $1.61 million in drainage projects.
Fleming said the total interest paid on drainage projects over the bond lifetime would be around $1.14 million, bringing the total cost up to $2.75 million, assuming a 5% interest rate over the next 20 years. This interest value is estimated and would depend on the interest rate at the sale of the bonds.
Another conversation from City Council was focused on whether to reduce the reserve.
Fair Oaks Ranch's policy is to keep reserves at 50%, representing around six months of operating expenses. Fleming on May 1 explained that the recommended reserve for cities is more than two months of operating expenses, according to the Government Finance Officers Association.
While city council did not decide on whether to decrease the reserve, Mayor Greg Maxton highlighted that there was no desire to use the reserve to fund city operations, instead using reserves to support one-time costs or emergencies.
Council member Keith Rhoden said the council and staff would need to look at risks to the city to determine what the reserve policy would cover. City Council agreed that the policy would need to be reviewed and clarified before any decision on a reserve reduction could be made.
“First thing is we need to define the policy for what the function of the reserve is, and part of that discussion would be what risks the city faces that it would have to fund,” Rhoden said.
What’s next?
The five-year plan serves as a guide for developing the budget, meaning it can be altered to fit the needs of the fiscal year.
City Council will move forward with the budget process during the June 5 meeting and will consider a notice of intent to use bond funds for the drainage projects.
A notice of intent does not lock the city into the sale of bonds, but allows bonds as a funding mechanism if that is the direction City Council decides to go.
