BY MARK WOOD, ICMA-CM
Colleyville, Texas, has a simple budgeting strategy: Begin each year with the effective tax rate (the tax rate that brings in the same amount of property tax revenue excluding new growth) and justify anything requiring new property tax revenue. This is exactly what we did for fiscal year 2020, and for the second consecutive year, adopted the effective tax rate.
One could describe the traditional city government approach as keeping the property tax rate the same from one year to the next, claiming success because the tax rate was not increased. But in an environment where property values are substantially increasing year-over-year (as they are in northern Texas), the no-tax-rate-increase misnomer increases property taxes and the burden for residents can quickly become overwhelming.
Under this scenario, a large windfall is created and the city then finds a way to spend the additional funds (albeit on programs and services to better the community), rather than starting at zero and determining which priorities, if any, require additional money. In Colleyville’s case, keeping the tax rate the same would have meant an additional $600,000 for fiscal year 2020. Had the city taken the full increase allowed by state law, residents would have owed an additional $2 million over the last two fiscal years.
Colleyville’s model is different than the traditional approach. We seek to offset increasing property values by decreasing the tax rate and only generating new property tax revenue if it can be justified by meeting a city council, thus community, priority. Not only did we adopt the effective tax rate, the city council approved a budget that:
• Is balanced (and provides for a projected $400,000 surplus).
• Expands public safety services (new police sergeant, three new firefighters, reclassification of three firefighters to field supervising officers, increase in fire operations overtime to match previous years’ actuals).
• Provides conservative and realistic revenue estimates (we didn’t overinflate sales tax to make up for “loss” in property tax revenue).
• Invests in infrastructure ($1.5 million general fund transfer for capital projects).
• Furthers community beautification (landscaping projects, rights-of-way tree program).
• Retains a fund balance well over financial policy requirements (150 days, policy is 90).
• Provides ongoing commitment and support of city employees (absorbs health insurance premium increase, funds 3.5 percent merit pool, expands deductible reimbursement program).
Since we have implemented this strategy, we have received calls from communities both large and small asking the same question: How do you do it? The answer is as simple as the strategy: Start early and ensure the city council and staff share the commitment to making it happen.
I do not recommend attempting the effective tax rate as a result of the first budget public hearing with no prior thought or effort in doing so. Too often, such efforts force last-minute cuts that could affect service delivery, or, on the other side of the equation, could cause adjustments to other revenues to make up for the decrease in property tax that are not realistic or properly analyzed.
As stated above, our efforts begin each budget cycle with the effective tax rate. In reality, this means that we operate on a continual basis of discovering efficiencies to help us achieve our goal. One recent example comes to mind.
Last spring, the city’s fleet services manager announced his intention to retire in the summer. We had expected this was coming soon as we frequently analyze our workforce, including years of service, time with the city, and so forth to forecast potential retirements and thus substantial payouts. The easy path would have been for the public works director to submit a form requesting to fill the vacancy, city manager signs it, position is posted and filled, and everyone goes on as they were.
Instead, the city manager’s office and public works identified a potential opportunity to not fill the position, reassign (and compensate) some of the duties to another employee, and hire an outside firm to manage some of the fleet services responsibilities. Doing so saved this city money from the retiree’s salary and benefits as well as cost savings from outsourcing some duties.
Another example focuses on the ability to consolidate positions within and across departments. Many individuals in our organization hold multiple titles. The additional responsibility is seen as an opportunity for professional growth rather than an effort to cut costs. On a regular basis, positions are added or restored when workload need necessitates. We don’t seek efficiency because we need to, instead we do it to improve. This distinction means we have the flexibility to expand or contract to meet the city’s needs, not a bottom line.
Taking Pride in Our Culture
A shared commitment to making it happen starts at the top and permeates throughout the organization. It is our culture. We take pride in being able to achieve the effective tax rate. We celebrate the achievement—at city council meetings and staff meetings. When we do hire, we look for those who fit this culture and who are not afraid to roll up their sleeves and join us in this work.
To use an analogy from my favorite sport, the vote to approve the effective tax rate is the final pitch of the last at-bat to clinch the World Series title. Like a Major League Baseball team that makes it to that point, we had to endure a long 162-game season, with many ups and downs. We had to put the right players in the right positions and provide encouragement and rewards along the journey.
Sometimes it’s fun, sometimes it’s challenging, sometimes it’s stressful. But when you get to celebrate in the locker room with your teammates, those that you’ve been to battle with, it’s something special … it’s family.