Fiscal Year 2018 Proposed Budget
The fiscal year 2018 proposed budget has been prepared using conservative assumptions for property tax revenue based on the effective tax rate plus 3%, consistent with the City Council adopted Financial Management Policy Statements and Council direction at the spring retreat. The effective tax rate - or "no new taxes rate" - represents the tax rate needed to raise the same amount of property tax revenue for the City of Sugar Land from the same properties in both the 2016 tax year and the 2017 tax year.
Fiscal year 2017 sales tax revenues have come in 5.3% lower than the original budget, 7.4% lower than the prior year and 1% lower than projections; revenues from sales tax are budgeted with no growth in fiscal year 2018.
The proposed general fund budget is conservative, with no new programs or services, and moves rehabilitation work from the capital improvement program into the general fund at a reduced level. The budget includes $2.9 million in reductions from the prior year, including $655,000 in reductions from fixed costs, such as fuel, electricity and streetscape beautification; $561,000 in salary savings to offset budgeted salary and benefits; and $1.7 million in rehabilitation funding. Costs related to the annexation of Greatwood and New Territory are covered from restricted funding set aside by the City and the districts in advance of the annexation.
Required Calculations
The effective tax rate and rollback tax rate have both been calculated based on the certified roll. The effective tax rate is the tax rate that is necessary to collect the same tax revenues in 2017 as the City did in 2016, allowing for exclusion of new value, refunds of prior year taxes and court ordered value reductions. The rollback tax rate is the rate that allows for an 8% increase over the maintenance & operations effective tax rate, plus the tax rate necessary to repay debt.
The calculated rates are as follows:
2016 Tax Rate: $0.31595
Proposed Tax Rate: $0.33007
Effective Tax Rate: $0.31293
Rollback Tax Rate: $0.33352
Effective Tax Rate Plus 3%: $0.32233 (Rate needed to support FY18 Budget)
Notice of Proposed Tax Rate and Pubic Hearings
The City Council directed staff to publish the attached Notice of 2017 Proposed Tax Rate at a rate of $0.33007, which would fund the budget as proposed and provide additional rehabilitation funding to supplement the funding levels in the proposed budget, which were reduced in FY18 due to the decline in sales tax collections experienced in FY17. Recognizing that the maximum proposed tax was for discussion purposes - two public hearings were held on August 22 and September 5, and the Council received input from the public on the published rate.
Based on the Certified Tax Roll, the tax rate necessary to fund the budget as proposed is $0.32233, which is the effective tax rate plus 3%, consistent with the City's Financial Management Policy Statements.
The City is following the process defined by Local Government Code 140.010 (e) for public notice of the proposed tax rate. The process requires the proposed property tax rate be published in the paper of record or mailed to all residents no later than September 1. The notice must also be placed on the City’s website by September 1. Cities that provide notice under Texas Local Government Code 140.010 (e) requirements are exempt from the notice, publication and injunction provisions of the Tax Code. The City published the tax rate notice on August 15, 2017. The notice has also been placed on the City’s website. Since the proposed tax rate exceeds the effective tax rate of $0.31293, the City held two public hearings in accordance with the Local Government Code. The tax code requires adoption of the tax rate no sooner than 3 days and no later than 14 days after the second public hearing.
Based on the discussion and recommendation of the City Manager, staff recommends adoption of a 2017 tax rate of $0.32233. The tax rate is adopted in 2 parts: Maintenance and Operations and Debt Service.
The recommended allocation is shown below:
| Maintenance & Operations |
$0.18392 |
| Debt Service |
$0.13841 |
| Total |
$0.32233 |
The state has required language for the motion to adopt the tax rate and verbiage that must be included in the ordinance. The FMPS effective plus 3% calculation is based strictly on the effective tax rate as calculated per the truth in taxation law, plus a 3% increase overall. Language for the budget cover page is based on an overall increase in tax revenue as compared to adjusted revenue from 2016 tax year (FY17 budget), including refunds and lawsuit settlement, so the percentage increase is less than the actual tax rate percentage increase. That statement also recognizes the increase in revenue from new property added to the 2017 tax roll. Finally, the language mandated in the ordinance reflects only the maintenance and operations increase; since we are changing the allocation of the tax rate between debt and operations, the operations increase is greater than the overall increase. Although the tax rate is 3% over the effective rate, the operating increase is 6% compared to the effective maintenance and operations rate and the debt portion is a 5% decrease compared to the prior year. While this can be confusing, the recommended tax rate is consistent with the City's Financial Management Policy Statement and the language used in the ordinance is compliant with state law.
The motion to adopt the tax rate must be stated as: "I move that the property tax rate be increased by the adoption of a tax rate of $0.32233, which is effectively a 3.00 percent increase in the tax rate."
Since the recommended tax rate exceeds the effective tax rate, under the tax code an affirmative vote by 60% of the Council is necessary for approval.