The annual budget is a planning and policy document that sets the course for the City for the fiscal year. Under Section 6.03 of the City Charter, the City Manager is charged with filing a proposed budget by the City Charter at least 60 days before the end of the fiscal year. The Charter also requires a multi-year capital improvement program, as well as a current year capital budget. State law also requires that a budget be filed and adopted by the City Council. 

The proposed budget for FY19 follows the guidelines in the City Council adopted Financial Management Policy Statements (FMPS), maintains existing service levels, and seeks to implement the top City’s priorities. The proposed budget continues to maintain high quality City services for residents and visitors to Sugar Land, ensures continued financial strength by continuing to utilize innovative constraint and resiliency initiatives, and meets all fund balance requirements.

Last year, falling sales tax revenue and a downturn in the regional economy led the City to tighten its belt and identify over $1.5 million in recurring budget reductions. Despite these challenges – and others such as Hurricane Harvey, the City was able to focus on strengthening its resilience to maintain consistent delivery of high quality services to residents. These efforts were praised by Fitch Ratings as our AAA bond rating was re-affirmed in 2017 - stating the City has a “history of prompt responses to changing economic conditions; the most recent example is fiscal 2018 budget adjustments and a reduction in planned capital spending/borrowing over the next five years in response to a more cautious tax revenue outlook.” Ultimately, these resiliency efforts resulted in the City ending the year in a positive financial position and successfully achieving a list of major accomplishments despite the challenges.

As part of the FY18 accomplishments, the City is pleased to highlight the successful annexation of Greatwood and New Territory. The City has been able to meet all of the goals of annexation, which includes providing the same level of service to the newly annexed areas, ensuring there was no decrease in existing services as a result of annexation, and that the annexation would generate sufficient revenues to pay for services within the areas so that existing taxpayers did not experience any increased costs. The residents of these communities are now paying the same taxes and fees as all other residents. As a result, the budget for FY19 does not differentiate between the newly annexed areas and other residents; the proposed budget supports services and projects in all areas of the City. 

The General Fund operating budget is focused on the delivery of core services within the City and funding the base operating budget. The operating budget maintains the resiliency initiatives implemented in fiscal year 2018, including budgeting recurring rehabilitation in the General Fund and funding that rehabilitation from a more diverse and reliable revenue stream. The budget implements a planned increase in recurring rehabilitation funding, along with a boost from one-time sales tax revenues received in fiscal year 2018.  The other major resiliency initiative that has recently been adopted as part of the FMPS is the conservative approach to forecasting sales tax revenue, due to the highly elastic nature of the revenue stream. This methodology uses current year-end projections as the revenue estimate for the next year’s budget, with no additional growth from either recurring or one-time sales tax. Any one-time sales tax that is received will be recognized at year end, and will be available to fund one-time initiatives, such as the additional rehabilitation funding proposed for FY19.  Overall, these initiatives are a major part of how the City is able to withstand cyclical downturns in the regional economy and still continue to provide both the high quality of services valued by residents and one of the lowest property tax rates in the State of Texas among cities our size. 

As a personnel-driven public safety and service provider, a main driver in the City’s budget is employee compensation and benefits - approximately 75% of General Fund expenditures are directly tied to employee compensation. A merit pool equal to 3% of budgeted salaries is included in the proposed budget. This funding allows management to develop a merit matrix that provides an incentive for outstanding performance from employees only slightly greater than the 2018 CPI increase of 2.6%.

The Five Year Capital Improvement Program (CIP) provides project funding similar to what has been proposed in previous years, with significant projects proposed in the Drainage, Streets and Municipal types. The capacity to fund the additional projects is primarily the result of the following three factors: the assumption of the effective tax rate plus 3%, declining debt service, and the change in strategy for debt assumed from annexation, which provides for capacity to fund significant capital improvements earlier than previously anticipated.  

The five-year CIP, required by the City Charter, totals $153 million of which $27 million is proposed for funding in the FY19 budget. It’s important to understand that only the first year of the CIP is appropriated in the budget, while the remaining years are included for planning purposes and will change from one year to the next based on the best information available at the time. Throughout the five-year period, the CIP focuses on Drainage with 28% of funding, while Streets, Fire and EMS needs, Facilities, and replacement of the City’s aging Enterprise Resource Planning (ERP) System are also highlighted, with an emphasis on operational efficiency and improved organizational accountability.

The FY19 proposed operating budget and CIP strives to maintain current service levels and implement completed capital projects, while continuing to invest in the City’s infrastructure. The FY19 proposed budget totals $245 million, excluding inter-fund transfers. Of the total, $218 million is for operations, and $27 million is for Capital Projects.

Consistent with the FMPS, the budget has been built around a property tax revenue stream based on the effective tax rate plus 3%. The actual nominal tax rate needed to generate this revenue stream will depend on the certified tax roll and effective tax rate calculations.  There are no changes to the homestead exemption, which remains at 10% for this year, along with the optional exemption of $70,000 for over 65 and disabled persons.  Should the policy direction of a budgeted revenue stream at the effective tax rate plus 3% not be sustained, adjustments will need to be made to both the operating budget and the capital improvement program to constrain them within available revenues. 

In compliance with both state law and the City charter, the proposed budget for the fiscal year beginning October 1, 2018 will be presented to the City Council during the meeting. Staff will be reviewing the proposed budget in more detail during a series of budget workshops beginning on the July 24th workshop and on Thursday mornings through the month of August.  The City Charter requires the budget to be adopted by City Council no later than September 25th.   A public hearing on the budget will be held on August 21 to receive feedback from residents on the budget proposal.

The proposed FY19 annual budget and CIP documents will be distributed to the City Council at the meeting and will be available on the City's website after the meeting.