Sulphur Springs Officials Discuss City Tax Rate, Budget During Workshops

Reduction In Tax Rate, Small Increase In Utility Fees Proposed

Sulphur Springs officials have been hard at work this summer shaping and tightening up a budget for the 2021-2022 fiscal year. After two special meetings with Sulphur Springs City Council, officials anticipated proposing a city tax rate that will be not quite 2 cents lower, while recommending a small increase to city utility fees to keep up with inflation and apply toward infrastructure maintenance and upkeep.

All operations would be funded in the FY 2021-2022 budget, along with a few capital projects, some large equipment purchases for some city departments, and a 3 percent across the board cost of living raise for city employees. Some city departments, however, could see additional increases to help them retain personnel and better compete with other agencies in the next funding year.

Tax Rate

Sulphur Springs Assistant City Manager/Finance Director Lesa Smith introduced the budget to the City Council in a packed hour-long work session prior to the Aug. 3 meeting. Another work session was held Tuesday evening with the various city department heads present to give a brief overview of their departments and answer any questions the City Council members might have.

Earlier this month, Smith reported that budget was figured using the same 44-cent per $100 property valuation tax rate the city has imposed for about 20 years. She noted that number could change, however, after additional appraisal figures are in. At least 300 appraisals had been challenged and were still pending, so the first budget draft presented for fiscal year 2021-22 was figured at the 2020-21 rate. Smith said she’d be in contact with the Appraisal District and anticipated presented updated numbers at the next budget work session of Aug. 10. Based on the Aug. 3 estimate, the 44-cent tax rate would generate $4,487,570 in tax revenue for the city.

On Tuesday, Aug. 10, Smith reported as expected some things had changed and, at this time, anticipates proposing a tax rate that is actually $0.01308 per $100 tax valuation lower than the current rate. The tax rate is figured based on the formula assigned by Texas Legislature. The highest the rate the city can adopt without requiring a tax election is $0.42692. That would generate $4,230,300 in tax revenue. That’s $257,270 less than was projected one week before.

Smith explained that the 2021 calculated tax rates for 2022 takes into account three different numbers, the no-new-revenue rate (previously known as the effective rate), the voter approval rate (previously the rollback rate) and the de minimis rate.

The no-new-revenue rate is the tax rate that the city would need to adopt to generate the same property tax revenue as the previous year from the same properties. The city’s now-new-revenue rate is $0.38130 per $100 property valuation.

The voter-approval rate is a calculated maximum rate allowed by law without voter approval, 3.5 percent added to the no-new-revenue maintenance and operations tax plus unused increments. The city voter-approval rate is $0.41506.

The de minimis rate is designed to give cities with a population of less than 30,000 some relief from the 3.5 percent voter-approval rate. The de minimis rate is the sum of a taxing unit’s no-new-revenue maintenance and operations rate. The de minimis rate, when applied to a taxing unit’s current total value, will impose an amount of taxes equal to $500,000 and the taxing unit’s current debt rate. The calculated proposed de minimis rate for 2021-2022 for Sulphur Springs, based on the most recent figures, would be $0.42692. This is the amount city officials are proposing the city tax rate be set at.

(The full 9-page 80-step 2021 Tax Rate Calculation Worksheet can be viewed on the city website, or by clicking here.)

However, that does not mean people’s tax bills won’t increase in 2022. Appraisal values in Sulphur Springs are up, so an increased appraisal on taxable property would mean a higher tax bill, even if taxed at the lower rate.

Even with the 2-cent drop in the tax rate, the city anticipates the total tax levy on all properties in the city increasing by almost $308,700 to $4.935 million, with just over $44,700 coming from new construction and the rest from increased appraisal values on taxable properties.

So, in essence, a Sulphur Springs homestead that is valued at $115,229 (the average taxable value) would pay $15.04 less in city taxes during FY 2021-2022 than the $463.01 paid this year if the homestead’s appraisal value remained unchanged in 2021. However, according to the Notice of Public Hearing posted by the city Aug. 11, 2021, on average that same homestead in 2021 is now valued at $115,012 (a 9.29 percent increase). So, at the 2021 tax rate of $042692 per $100 property valuation, the tax bill for that homestead will actually be $491.01, a $28 increase in FY 2021-22.

A commercial property valued unchanged at $5.9 million would pay $772 less in city taxes in 2021-2022 than they would with a 44-cent tax rate. However, commercial properties too have be appraised at higher values over the last year as well.

According to the projection the Notice About 2021 Tax Rates posted Aug. 11, 2021, on the city website, the city anticipates having $4.4 million left in the general fund and $8,641 in the debt service fund, that are unencumbered by corresponding debt obligation, at the end of the fiscal year.

The Notice About 2021 Tax Rates can be viewed and downloaded from the city website, http://www.sulphurspringstx.org/, by clicking the REQUIRED TAX RATE AND BUDGET POSTINGS link on the main page, then selecting Notice about 2021 Tax Rates, or by clicking here.

Utility Rates

During the Aug. 3 meeting, Smith said city staff is proposing increases in utility costs.

A 2 percent increase is proposed in sewer rates, this would help keep up with inflation, which has increased the cost the city pays for chemicals, materials and employee wages to treat wastewater. In terms of city utility bills, that would increase the rate from $27.55 to $28.10 per 4,000 gallons, the rate would increase from $3.99 to $4.07 per 1,000 gallons after 4,000 gallons for residential rates.

A 5 percent increase is proposed for sanitation rates. Smith explained that the City of Sulphur Springs’ contracts with Sanitation Solutions and Republic Services allows for the two companies to adjust the rates charged to the city by the CPI in October of every year. As of June 30, 2021, that amount was up 6.1 percent from June 2020. Last year, the contracted prices increased by 1.3 percent, but the city did not increase customer rates.

So, the city is proposing increasing the hand collect sanitation rate for residential customers from $12.45 to $13.07 and raising the commercial hand collect rate from $24.90 to $26.15.

City officials also anticipate proposing a water rate increase. The base water fee would rise from $7.86 to $8.02, according to data presented on Aug. 3.

Overall, the rate increases for the three utility functions would increase the minimum city utility bill by $1.33 per month, raising the minimum bill from $47.86 to $49.19 per month for residential customers, as proposed.

A Texas Municipal League annual study of 568 cities showed that the average wastewater cost per 5,000 gallons for residential customers is $36.09 and per 50,000 gallons for commercial customers is $285.73 in the 29 cities with a population of 15,001-20,000, into which Sulphur Springs follows. That means the proposed wastewater rate increase would still be $3.92 per 5,000 gallons below the average rate for residential and $70.41 less than the average commercial rate in cities of a similar size.

Sulphur Springs water usage rates, according to the TML study of 592 cities, would still be less than the average of other Texas cities of similar population. The average water fee among the 29 cities with similar population and 5,980 customers is $33.87 per 5,000 gallons of water for residential and $328.27 per 50,000 gallons of water for commercial customers. That man even with the proposed increase, Sulphur Springs’ water rates would still be $5.60 less for residential and $117.75 less for commercial rates than the average rates for cities within the same population range, Smith reported.

Additional Funds

The city also expects to receive $4,022,557.09 in American Rescue Plan Act funding, with the amount divided over 2 years. In fact, all of the ARP Act funding must be spent by the end of 2024.

It also must be kept separate from the general fund budget. Smith said it will be deposited into its own sub fund within the Special Revenue Fund named simply ARPA Fund. As expenses and uses are identified, the funding will then be transferred into the appropriate fund within the overall city budget.

The majority of the funding has been earmarked for water plant upgrades. ARPA funds may also be used to reimburse funds for lost revenue due to the pandemic.

Capital projects earmarked in the 2022 budget include $1.712 million from the general fund for street and drainage work; $50,000 from the enterprise fund and $200,000 in EDC contributions approved in 2019 by voters for park improvements, specifically the construction of a new senior citizens center and new Grays building; a $750,000 Texas Parks and Wildlife Department Park Grant for a new playground and renovations to Pacific Park; and interest on cash balance will go toward preparation of the old Thermo mine property for development.

The parks projects will include finishing the design for and construction of the senior citizens activity center. The city has been awarded the grant, but is still waiting on a contract from TPWD for the $750,000 grant for the Pacific Park improvement to move forward. Additional funding is in the works. Once that contract is signed, the city will begin the Pacific Park remodel, which is to include the playground, sports pavilion, splash pad, restrooms, small pavilion and greenspace.

A total of $1,310,280 will go two toward street and drainage improvements, including annual overlay program and repair of College Street to Patton Street, along with some drainage repair as well. These street and drainage improvements will be performed without any additional debt, using funds put back into the general fund annually.

Smith said the tourism fund comes from two sources, the hotel occupancy tax and interest earned on cash balance. Hotels remit 3 percent of their gross receipts to the city, making up the hotel occupancy tax. Although the hotel industry was initially impacted negatively by the pandemic in 2020, this budget is back to pre-pandemic levels, Smith reported.

This will go to help pay for department operating expenses, $50,000 to the downtown department, and grants to local historical and art organizations as decided by the Tourism Board.

The Airport Fund, as of the Aug. 3 budget work session, was projected to receive $542,310 in revenues from the sale of fuel and leases, a $50,000 grant, $59,000 in COVID relief funding; with an additional $45,000 transferred in. A total of $536,647 has been allocated from the sales and leases for airport operating expenses and $125,000 in the airport fund will go toward airport capital expenses.

Funding from the I&S portion of property taxes, late tax and interest payments, transfers from other funds and fund balance will be used to make the city’s $1,958,618 debt payments, $3,500 in bond fees. Also in 2022, the city anticipates a remaining principal of $12,218,124.

The city anticipates the internal services fund will be composed by transferring in $1.48 million, $230,000 in dependent health insurance payments, interest from cash balances, property and liability claim receipts and some use of fund balance. These funds will be used to pay the estimated (as of Aug. 3) $1.52 million in health coverage for city employees, and property and liability insurance and claims.

The Downtown TIFRZ Fund is also included in the city budget. The base value in 2007 when the FIFRZ was created was $14.1 million. The estimated value of the area in 2021 was almost $30.5 million. That’s an estimated value capture of $16.3 million. That’s an increase in taxable value of 115 percent since 2007.

These are a few of the function and funds within the overall city budget that have been discussed during the Aug. 3 and Aug. 10 budget work sessions between city staff and the City Council. These are projected amounts. The city staff will continue to tighten the budget and firm up numbers. The budget is not official until approved by the City Council. A draft of the proposed budget is expected to be available on the city website for anyone to review prior to the public hearing on the budget and tax rate.

Budget, Tax Rate Hearings

At the conclusion of the Aug. 10 budget work session, the City Council officially set the schedule for adoption of the FY 2022 budget and adoption of a tax rate. The hearing is required because the proposed 2021 tax rate is expected to generate more revenue than the 2020 total tax levy

• On Sept. 7, during the regular 7 p.m. meeting at the Municipal Building (City Hall, 201 North Davis St.), the City Council will be asked to consider on first reading ordinances adopting the budget as proposed that evening as well as the tax rate and utility rates. A public hearing will be conducted. The Notice of Public Hearing on Tax (Revenue) Increase, can be viewed on the city website or by clicking here.
• The City Council is slated the convene again on Sept. 21, at 7:30 p.m. for a public hearing to hear any public comments regarding the the proposed budget, tax rate and utility rates. The second and final reading of ordinances adopting the budget, tax rate and utility rates will be conducted. If approved, this would make rates adopted Sept. 21 officials.