When the Killeen City Council passed a balanced annual budget in September 2017, it capped a new era of relative stability in the city’s finances.
The budget also set the defining tone on Killeen City Manager Ron Olson’s tenure: The city would not rely on reserve funds to pay for a deficit budget and — most importantly — hard cuts would be made when necessary.
However, Olson told the council last year, the balanced spending plan in 2017 relied on a number of short-term solutions and cuts that would likely not be replicable if general fund revenues continued to flag into the future.
That future is today.
The city is expecting less money for operating expenses in the coming fiscal year budget than last year, according to preliminary figures provided to the council May 22. That’s a problem considering the city’s continued growth and a number of general fund departments that have already been cut to the bone.
Last year, those cuts took the form of community services being scaled back and 25 police vacancies being eliminated. But what happens when there are few vacancies left to cut?
That’s the reality the council could be facing when hard budget talks begin in early August.
On top of those immediate concerns, the city is facing an existential crisis of sorts when it comes to disabled veteran property tax exemptions, a state-mandated revenue drain largely responsible for a quarter of Killeen’s properties being off limits for taxation.
Although the city receives a little more than $1 million in disproportionate impact aid from the state, those exemptions stripped around $3.5 million from the city’s budget in 2018.
Although the city has not received hard figures on its taxable base and has not yet formed solid departmental budgets, the council could find itself cutting to the bone this year, and in future years, if revenues do not make a turn around.
Where to cut?
According to a city budget schedule, departments will enter the “balancing phase” in June — the period in which all departmental revenue and expenditures are added up to create a proposed budget for council approval.
Fiscal year 2017 was the first time the city has worked a balanced budget in years, after the council adopted a series of deficit budgets over the course of the 2000s and early 2010s.
That system came to a halt in summer 2016, when a preliminary budget showed an $8 million shortfall in the city’s operational fund. Results of a special audit reported in September 2017 showed years of mismanagement by some former city officials.
After months of cuts, the council eventually balanced the general fund budget in January 2017, largely due to the uncommon move to transfer $1.67 million from the solid waste reserve fund to the general fund.
In the act of balancing an operational fund predicted to be millions of dollars in the red in 2019, the most likely result is expense cuts. If recent history is an accurate marker, those cuts could include community activities, public facility hours or city personnel.
In 2017, the council approved an annual budget that built in broad program cuts throughout the community services department — most notably in the elimination of morning hours at the Killeen Community Center, an activities and events hub next to the Bob Gilmore Senior Center at East Veterans Memorial Boulevard and South W.S. Young Drive.
The community center offered 30 hours per week of open gym time free to the public, according to a presentation. The center’s new hours, which begin at noon each day, cut most of those free gym hours. The community center also closed on Mondays.
At Lions Club Park’s Family Recreation Center, the department cut half of its free classes for its 356 members amid declining membership rates in 2016. The recreation center offered 26 fitness classes a week, including Zumba, yoga and indoor cycling. The center now offers 13 classes.
The city also cut four sports from the adult team sports program, which had 117 registrants in the 2017 fiscal year. The cuts included the volleyball, basketball, flag football and kickball leagues. The city kept slow-pitch softball.
The most significant personnel cuts in the current budget were in the police department, where 20 vacant commissioned officer positions, three vacant noncommissioned positions and two vacant animal services positions were eliminated.
In 2017, then-interim Police Chief Margaret Young said the cuts could have a “slowing impact” on criminal investigation as the department underwent a reorganization to allocate more resources to patrol.
According to Killeen Director of Communications Hilary Shine, the department currently has 24 officer and 27 civilian vacancies.
With fewer vacancies left to cut, the department could be forced to eliminate filled positions in the coming budget — particularly as federal grant money to help support police personnel is phased out of the budget over the next two fiscal years.
According to city projections, the amount of intergovermental revenue into the general fund as a whole is expected to drop from $3,965,295 to $2,112,806, a more than $1.8 million cut, in fiscal year 2019 — mostly tied to the expiration of a 2015 COPS grant from the U.S. Department of Justice. Killeen City Manager Ron Olson has previously said the city would limit its reliance on federal grants without first identifying a long-term funding source for personnel or other continuing expenses paid for by a grant.
The challenges facing the department were enough for Councilman Juan Rivera, who campaigned for his May 5 re-election on public safety, to say he was “very concerned” by the possibility of new cuts.
“If your plan was to worry me, you did that,” Rivera told Olson on May 22. “If we don’t do nothing right now, we’re not going to have the services we need to provide.”
As the council will inevitably search for new revenue in the coming years, property taxes could be largely off limits.
According to city figures, total property tax exemptions now encompass an estimated 24 percent of the city of Killeen’s taxable base — meaning the city cannot draw property tax revenue from nearly a quarter of properties within city limits.
The total value of exempt property in city limits has nearly doubled since fiscal year 2014 — from $4,918,147 to an estimated $9,744,080 in the coming fiscal year.
Although that total includes tax exemptions for nonprofits and churches, among others, Olson said the single largest drain was the disabled veteran property tax exemption, which has grown exponentially in the last few years.
“The rapid increase over the past couple years has been almost completely disabled veteran property tax exemptions,” Olson said.
Per state law, veterans with a Veterans Affairs-approved, 100-percent disabled veteran designation are exempt from paying property tax on their homesteads. Veterans with lower disability designations receive pro-rated discounts on their property taxes.
In the current fiscal year, the city is scheduled to lose $3,848,134 from the 100-percent exemption alone. Nearly $1.1 million of that total will be reimbursed from the state — still leaving the city behind by around $2.7 million.
Of concern for the city is the exponential growth of those exemptions since they were approved by Constitutional amendment in 2010.
The amount of taxable property exempted for 100-percent disabled veterans in Killeen has more than tripled since 2014, with more than $513 million in property off limits in 2018. In 2014, that total was around $168 million.
According to estimates, the disabled veteran exemptions will put 14 percent of all Killeen properties off limits for taxation in fiscal year 2019.
Exact exemption values will not be available until the city receives certified valuations from the Bell County Appraisal District on July 25.
With all those short-term challenges on the docket, a group of looming financial hurdles are fast approaching.
Among the multi-year issues the city administration is facing:
Killeen’s civil service employees — including police and fire — are paid approximately 7.5 percent below market average. Non-civil service employees make a whopping 13.29 percent below market value on average.
The employee retirement fund, established through the Texas Municipal Retirement System, is only 85 percent funded with little future growth projected, and city contributions are expected to skyrocket over the coming decades.
The city’s deferred street maintenance costs — somewhere in the range of $35 million — is only about 17 percent funded in the 2018 budget. A 2013 survey of the city’s road infrastructure recommended the city budget about $1.8 million per year for maintenance expenses; however, the city only budgeted $300,000 in 2018.
Of the city’s 43 buildings, 27 will need roofs over the next 20 years, Olson said. On top of that, the city is legally obligated to replace HVAC units at all of its facilities — a cost of $360,500 in fiscal year 2018 alone.
On May 22, Olson said he wanted to begin tackling those issues starting in the 2019 fiscal year budget, likely beginning with complete tear-downs and rebuilds of some of those city programs. Olson has said all of those programs need thorough reviews prior to the city and council taking action to address them.
The most pressing, Olson said in January, is the city’s employee compensation plan, for which Olson recommended a complete re-imagining.
“In order to fix the issue, we’ve got to do this different than we’ve ever done it,” Olson said Jan. 12. “Our system is so far out of whack that it needs to be rebuilt.”
However, it remains unclear how far the city can push its annual expenditures without making a balanced budget out of reach.
According to rough estimates from a city graphic, the general fund will be nearly $2 million in the hole — without addressing any of the four issues above.
Despite those challenges, Olson said he would bring a balanced general fund budget to the council without losing sight of the city’s core mission of providing adequate services to residents.
“We are absolutely going to balance the budget and do it in a responsible way,” he said.