Friday, Dec. 05, 2008

City adopts plan for budget shortfalls

By SARAH JUNEK

Keller is joining the number of cities taking second looks at their annual budgets, preparing for any hits brought on by the ailing economy.

The City Council approved a four-phase plan Tuesday to cope with revenue shortfalls in the 2008-09 fiscal year. Each phase calls for various measures to reduce costs or raise income. The measures are triggered by the number of consecutive three-month periods in which revenue falls short of the budget’s projections.

The plan is "just a guide, not hard-and-fast rules," finance director Johnny Phifer said.

First- and second-phase measures include: hiring freezes; reduced working hours for part-time and seasonal employees; postponing or deferring new projects and cutbacks in nonessential operations; dipping into savings; and raising the property tax rate, franchise taxes and service fees.

Layoffs could occur after nine or 12 consecutive months of shortfalls, depending on their severity.

It’s unlikely that any of the plan’s measures will be implemented before property tax revenue is tallied in January, City Manager Dan O’Leary said.

Making up 43 percent of the $27.5 million operating budget, the city is heavily reliant on property taxes. The tax rate, which has been 43.219 cents per $100 in valuation since 2006, is expected to generate $16.8 million this year.

Property tax revenues were expected to increase by 13.3 percent at the beginning of the budget year.

"Over the last 10 years we’ve only had one year where we collected less than 99 percent of our property taxes," Phifer said.

During a shortfall after 9/11, the housing market "was not affected as much as it currently has been," Phifer said. Officials made some short-term adjustments to departmental expenses to compensate for that loss.

This year, with foreclosures on the rise and home prices dropping, a reliance on property taxes leaves Keller vulnerable, O’Leary said. If payments are late or don’t come at all, "that’s where we could see a significant decrease in our revenue," he said.

But a heavy reliance on sales tax would be worse, he said, calling the levy on consumer goods a volatile source of income. The city budgets conservatively for sales tax revenue, O’Leary said. It makes up a small percentage of the operating budget, but it is virtually the only source of income for special park, public safety and street maintenance funds.

Keller has traditionally drawn pretty healthy development fees, he said, but "those could almost disappear" with the slowdown.

Building permits, projected to be $1.2 million, and development fees, projected to be $500,000, may drop due to lack of construction activity. The city has already canceled three planning advisory board meetings in the last two months and has canceled its Dec. 8 meeting due to lack of applications.

Somewhat vulnerable in the investment market, only 1.3 percent of the general fund comes from investments. A large portion of interest income goes toward the capital projects fund where money is pooled and invested while projects are under construction, said Phifer.

Franchise taxes are projected at $3.6 million this year, 13 percent of general fund revenues.

"When the economy tightens up people don’t spend as much on cable services," said O’Leary. "Everybody tightens their belt so we’re vulnerable to a decline in the franchise tax which is a percentage of their sales."