Richardson City Council Budget Sessions August 5th & 6th, 2024
AUG. 5TH
All councilmembers are present as well as City Manager Don Magner and City Secretary Aimee Nemer.
No speakers are present for tonight’s meeting.
Mayor Dubey explains that this first session will include a macro-overview of the proposed budget. Deep dives were conducted in previous Council meetings leading up to this.
City Manager Don Magner begins the budget session. Tonight will cover economic factors, focus areas, additional considerations for a one-time transfer, key fund areas, and tax rate discussion. Tomorrow will highlight the major funds and debt management. The new budget will be implemented beginning in October.
The General Fund gets 43% of its revenues from property tax and 30% from sales and business taxes.
Economic factors that are affecting this next budget include inflation and high interest rates, reduced consumer spending, and a declining office market. Don says that the office market is the biggest concern. The COVID-19 pandemic caused most of these factors. Population growth in North Texas has also contributed to supply issues. Prices are up so spending power is down. Thus, tax revenue has been affected. Political volatility is also contributing to business investment pauses. A sales tax analysis was conducted. This analysis concluded that technology-related spending was the highest impacted category. He explains that the pandemic caused a lot of remote business technology spending. Replacement cycles will need to be calculated to estimate what years will have higher technology spending. Insurance-related spending (claims to repair damages) is the second highest impacted category of sales tax, so weather events will need to be kept in mind to estimate sales tax. Construction-related spending is the third highest impacted category.
The office market is experiencing roughly 20% vacancy nationwide. Dallas is the second most vacant office market in the country. This is because we are overbuilt, Don says. All office seekers are looking for newer, higher-quality space. Commercial loans are also being defaulted on in the billions nationwide. Office values in this budget are down 9%.
Here is how the city plans to respond. Outdated office buildings will be a target for “placemaking” and replaced with housing, restaurants, entertainment, etc. The city will also invest in “Class A” offices with modernization updates. Don highlights two projects where lower-class office property is being converted to housing next to transit and trails. These projects take properties from a $5M value to a $150M+ value. The third strategy will be closing the gap for tenant improvements and helping to close deals to upgrade industry-specific offices. Retail property strategies include attracting quality local owners, assistance with external improvements, and assistance with helping restaurants and retail achieve a full vision to open. This helps keep spaces occupied and positively affects tax revenues long term.
Don highlights four key focus areas in this budget: recruitment and retention, infrastructure, public safety, and economic development. The employee vacancy rate for the city is down to 7% from 9.4% the last two years. RPD now has only one vacancy for 911 operators and 5% vacancy in the whole police department. Fleet & Facilities and Public Services has 13.5% vacancy. Don recommends up to a 3% increase for police, fire, and general employees. This budget also sets a minimum hourly wage of $19.45. Don says the police and fire associations are supportive of this strategy.
$1M will be transferred into the General Special Projects Fund from the Hotel/Motel Tax Fund as performance has outpaced expectations. (Great news!) This will be used for eight areas of projects, including $200K to replant trees in Richardson. The plan is to give away 1,000 trees and plant 100 trees in parks in the first year of the Richardson Replants program. Bur Oaks and Desert Willows will be offered.
Budget Officer Bob Clymire continues the presentation. Property tax revenues are up $2.6M over last year’s. Franchise Fees up $819K from last year. This year saw a decrease of $5M in sales and other business tax compared to last year. Other revenues are $3M over last year. Ambulance transport fees are being increased by $200. Building inspection fees are also being raised by roughly $100. Several Parks & Recreation fees are also being raised based on needs and market comparisons.
Don presents the proposed tax rate. Residential makes up 42% and commercial makes up 58% on this year’s property tax rolls. The current rate is .0056095. Don recommends the maximum allowed by law without requiring voter approval, which would be a .0054218 rate. The average increase to a property tax bill would be $131, a 6.7% increase. A public hearing on this rate will be set for September 9th.
Councilwoman Justice asks why interest rates are still projected to remain high instead of lowering. Bob explains that fund balances are higher. Since this year’s rates didn’t decrease, interest income came in over estimates. FY25 does predict some gradual rate reductions but this area is insulated thanks to this year’s results.
Councilman Hutchenrider asks for a comparison of property tax types by city to be shown at a future meeting. (Commercial vs Residential percentages) He also asks if the last city employee pay increase affected anything in a negative way. Don states that it affected recruiting in a positive way and has not impacted the budget negatively. Police vacancies are down from 18 to 4. Overtime pay has been reduced, saving the city about $400K annually.
Councilman Barrios asks how actual sales tax collected compares to original estimates. Bob answers that sales tax is down 9%. Councilman Barrios encourages economic development opportunities for sectors in outside of just technology.
Councilwoman Justice asks how storm recovery costs impact next year’s budget. Don answers that this was paid out of a reserve. 65% of the costs will be recuperated and will replace the reserve.
Mayor Dubey adjourns this first night after 2 hours and 58 minutes.
AUG. 6TH
The next day begins with another opportunity for public comment. Again, no speakers are present. So, the budget discussion resumes.
City Manager Don Magner presents highlights from each of the four remaining main funds. Proposed water and sewer rates will go up by 3%, which is still less than the 5% rise in wholesale costs. Solid waste rates are proposed to increase by $2. Residential drainage fees are proposed to increase by $1. Commercial drainage fees are also proposed to go up an equivalent amount. Hotel occupancy tax is projected to continue to improve. Eisemann Center revenues are also projected to increase. Annual arts grant funding will be increased to $375K. Proposed golf rate increases were presented at the July 22nd Council meeting.
Budget Officer Bob Clymire continues the presentation. The Water & Sewer Fund budget is projected to increase roughly 7% with the new rates. The Solid Waste Fund budget is projected to increase roughly 5.5% with the new rates. The Golf Fund budget is projected to increase by 28% on the revenues side and 16% on the expenditure side. The Hotel/Motel Tax Fund budget is projected to increase by 10% on the revenue side and 4.5% on the expenditure side. (Seeing the last two funds increasing on the revenue side more than the expenditure side is a great thing.)
Don continues the final portion of the presentation on capital and debt planning. With the current interest rates, refinancing any existing bonds is unlikely to be beneficial. The debt plan uses conservative estimates of rates between 4.75% - 5.5%. Series 2024 actual interest costs are around 3.8%. FY25 proposed debt issuance includes a total of $91.4M. $63.6M of that will be 20-year GO (General Obligation voter-approved) bonds for the 2021 and 2023 bond programs. $17.4M will be 15 & 20-year CO (Certificates of Obligation no voter-approval needed) bonds for water infrastructure needs. $6M will be 20-year CO bonds for golf course improvements. $1.9M will be 8-year COs for solid waste equipment. Finally, $2.4M will be 8-year CO bonds for fire equipment.
The city estimates that the average homeowner will experience a $213 increase in property tax and city utilities costs annually due to rising property values and the increased rates. This is roughly a 5.5% increase for taxpayers. A public hearing on the proposed tax rate of .0054218 will be scheduled for Sep. 9th. A public hearing on the proposed budget will be scheduled for Sep. 16th. The budget will be made available for public review on Aug. 15th. A presentation to Council on that final proposed budget will take place on Aug. 19th.
Councilwoman Justice asks for an explanation of the substantial increases in the Water & Sewer Fund ‘Capital’ expenditures category. Bob answers that it is due to the cost of a new excavation vehicle. She also asks if the projected increase in golf revenues is too aggressive. Bob answers that this is based on actual revenue from FY23 when both courses were open for play. Course 2 will open back up towards the beginning of FY25. FY24 estimates were based on only one course being open. Don offers to provide a midyear report on golf revenues to benchmark the projections. She also asks if they can consider establishing a 60-day fund balance goal for the Golf Fund. Currently, the goal is 30 days building to 60. Don answers that they will review this policy. She also asks about the increase in the Hotel/Motel Tax Fund ‘Contracts’ expenditures category. Bob answers that this is due to a recategorization of Wildflower Festival support expenses. The amount was moved from ‘Professional Services’ to ‘Contracts’.
Councilman Corcoran asks for an explanation of the increase in debt service categories. Don answers that projects and equipment cost more. Rates are not the reason for the increase. In order to accomplish the same with capital infrastructure needs, the city has to take on more debt.
Councilman Hutchenrider asks about the increase in Eisemann Center parking garage contractual services. Bob answers that the $170K increase reflects the new contract. He also states that this was still substantially lower than other bids.
Councilman Barrios asks how residents could find information on contract costs for specific programs or projects. Asst. Finance Director Todd Gastorf answers that the Traditional Finances page on the city’s website has links to view amounts for checks written to vendors. Citizens can also view specifics about bond program projects on the city’s website.
Mayor Dubey asks if they could charge citizens less for paying fees without a credit card as that comes with an increased fee. Staff answers that they are saving money by encouraging card payments due to the efficiency it brings. Todd answers that there are different processing costs for different types of cards (debit/credit) but they are prohibited from encouraging one type over another. Mayor Dubey concludes by suggesting that the golf course and other recreation programs will see a boost due to the interest generated by the 2024 Olympic Games.
Council unanimously sets public hearings for Sep. 9th and Sep. 16th on the tax rate and budget respectively, and the meeting adjourns.