City Council

Killeen Mayor Jose Segarra, right, speaks during the Killeen City Council meeting Tuesday, March 21, 2017.

The city of Killeen’s 31-year relationship with its chamber of commerce will soon encounter its biggest hurdle as the nonprofit organization faces a future without public funding.

On Tuesday, the Killeen City Council moved to gradually stop giving city property tax revenue and water and sewer ratepayers’ money to the chamber as part of a “transition plan” to rework how the city’s two economic development organizations are funded.

However, the details on when and how that plan will take effect are still undecided, the city said.

The chamber, which alongside the Killeen Economic Development Corporation works to attract and retain business in the city, will eventually be tasked with making up the more than $338,000 it receives from the city annually and potentially ending its shared staffing with the EDC.

The council will vote Tuesday on its two-year term agreements with the two bodies, which will next expire in September 2020.

Chamber President John Crutchfield could not be reached for comment this week. Any changes to the chamber will have a direct effect on the development corporation, which not only shares staff with the chamber but also receives similar funding from city coffers.

Moving ahead, the reworked chamber agreement could be a standalone move to free the city from its financial obligations to the chamber — or a bellwether for more changes to come on how the city funds economic development.

‘Transition plan’

Tuesday’s major development was the council moving 4-3 to kickstart a “transition plan” to strip public funding from the chamber and work to uncouple the chamber and corporation’s shared staffing.

So far, the details of that plan are vague.

On Friday, Killeen Director of Communications Hilary Shine said the plan would be hashed out in future planning and discussion sessions, including a timeline for when the chamber’s funding will eventually be phased out.

“The City Manager will work with interested parties to determine a plan for future Chamber and KEDC funding,” Shine said in a text. “The issue will require study and planning so Council can make a final decision.”

In fiscal 2019, the chamber is scheduled to receive $338,700 from the city’s general and water-sewer funds. The city’s general fund is primarily supported by property tax and sales tax revenue, and the water-sewer fund is supported by customer water bills.

Councilman Hugh “Butch” Menking said that on a recent visit to the Texas Municipal League he was told the city’s arrangement to fund its chamber was unusual. Other chambers typically are supported by member dues.

“I was really stunned by the amount of people who said ‘you have a huge city that still subsidizes their chamber,’” he said.

The city’s agreement with the chamber dates to Sept. 29, 1987, with a long list of “explicitly required” functions, according to the city. Those include:

  • Plan, organize and direct the city’s “economic development program.”
  • Coordinate the economic development activities of various stakeholders.
  • Liaise with the Governor’s Office of Economic Development and other organizations.
  • Prepare and administer a budget and work program for economic development.
  • Maintain an economic development website.
  • Initiate and maintain contact with business prospects to promote their location in Killeen.
  • Develop and present programs to business prospects regarding opportunities in Killeen.
  • Conduct public information programs regarding development activities.

The chamber currently has more than 700 members and associates that pay monthly or annual membership dues that range from $100 per month to $3,600 per year.

In return for the city’s money each year, the chamber is required to make monthly reports to the council to include a progress report on expenditures, a chamber board report, a “consolidated economic development report,” and a report that “tracks the performance measures, financial accounting responsibilities, and action plan established by the agreement.”

The city’s money, according to its agreement, can be spent on day-to-day operations, supplies, salaries, office rental, travel expenses and other related administrative costs.

On Thursday, the Herald requested a copy of the chamber’s past two annual budgets. The request had to go through executive vetting, according to Jennifer Hetzel, the chamber’s director of research. Hetzel said only the portions of the chamber’s finances that are funded by public money are available for public review.

On Tuesday, the council also had proposed a “sunset clause” on the chamber agreement, but there was no solid direction provided during its discussion. A typical sunset clause specifies a termination date for an agreement without formal renewal.

The city’s agreements with the chamber and EDC both have two-year terms, with the current agreements expected to expire this month.

The council will vote on renewing those agreements Tuesday.

EDC’s future

Any change in funding for the chamber would have a direct effect on the Killeen Economic Development Corporation, which shares staffing with the chamber.

According to the chamber’s 990 tax return from 2017, the organization employed 20 positions.

The EDC, which operates a business attraction body for the city, is scheduled to receive $386,354 in city contributions in fiscal 2019, coming in equal portions from the taxpayers’ general fund and ratepayers’ water-sewer funds. The city’s contribution from these funds accounts for around 34 percent of the corporation’s annual revenue. Other revenue includes rent income from EDC-owned property and investment interest.

Unlike the chamber, the EDC can’t use city funds on staffing.

Shine said the city pays half of its contribution from the water-sewer fund to promote industrial development. Meanwhile, the operational funding is used for the corporation’s staff and administrative costs.

“Water and sewer funds are contributed toward economic development for the purpose of encouraging industrial development,” Shine said.

On Tuesday, the council asked about the possibility of changing the corporation’s funding arrangement to pledge local sales tax to fund the corporation instead of water-sewer and property tax revenue.

“To me, that makes a lot of sense,” Menking said. “If sales tax drives their revenue, they’re incentivized to help boost more sales.”

However, a path to sales tax funding is a steep one.

According to state law, cities can choose by voter proposition to create what are known as “4A” and “4B” economic development corporations, named after the associated statute in the Texas Tax Code.

The two designations allow voters to decide whether to allocate a portion of a city’s optional 2 percent local sales tax to fund economic development. Doing so would tie an EDC’s revenues to local sales taxes — theoretically driving the organization to boost retail sales, according to the state Comptroller’s Office.

However, the Killeen EDC is neither a Type A nor Type B organization.

According to city data, Killeen voters in 1990 opted to impose the 2 percent local sales tax, but instead of using it to fund economic development, voters decided to use 1.5 percent to offset city property taxes, the city said. An additional 0.5 percent was dedicated to Bell County.

Now, the city has maxed out its 8.25 percent sales tax rate mandated by state law, and redirecting those funds to economic development would likely require a hike in property taxes to make up the difference.

Even if the council chose to go that direction and place a proposition on the ballot, there’s no certainty it would pass voter muster — particularly if a property tax rate increase is attached.

Defining performance

The question the council struggled over the most Tuesday was how much input it should have in the corporation’s negotiations after a public debacle in July 2017 led to calls for greater public transparency.

On Tuesday, Councilman Gregory Johnson proposed a motion for the corporation to require council approval for property tax incentives, citing the corporation’s deal with MGC Pure Chemicals America in 2017.

The EDC negotiated a performance agreement with the Japanese chemical company for a super-pure hydrogen peroxide plant in the Killeen Business Park that brought push back from residents concerned about air and water security.

As part of its agreement with MGC, KEDC agreed to reimburse MGC for up to $486,000 in property tax payments; oblige the city to waive $20,000 in city tap, platting and permitting fees; pay closing costs up to $10,000; offer $224,000 in job creation grants; and reimburse MGC for up to $500,000 in infrastructure improvements, among other incentives.

In return, the plant is obligated to hire 28 positions with an average salary of $66,600, make a capital investment of approximately $23 million for its 20,000-square-foot original facility, and create an additional 28 jobs and make an additional $20 million investment if the facility expands.

After the agreement’s public announcement, some council members chafed that they received news of the plant in the Herald rather than from the EDC itself.

Johnson’s motion died 3-4 with Mayor Pro Tem Jim Kilpatrick, Councilman Juan Rivera, Nash-King and Menking voting against.

Councilwoman Debbie Nash-King, one of three council representatives on the EDC’s board of directors, said the council was casting a negative spotlight on the corporation, which recently secured 180 new jobs with Solix in downtown Killeen.

“All the sudden, this year, the EDC is an archenemy (for some council members),” Nash-King said.

Solix, a Parsippany, New Jersey-based governmental services firm with a call center location at 402 E. Avenue D, will expand its current services in Killeen and bring up to 180 jobs over the course of three years, according to a news release.

But the underlying current of the council’s discussion was whether the EDC was doing enough and how much information it should be giving the council in that process.

Councilman Steve Harris took the unusual step of pushing for the EDC to brief the council in closed session on all ongoing negotiations the corporation undertakes.

“I can’t excuse the KEDC doing anything without us knowing about it,” Harris said.

kyleb@kdhnews.com | 254-501-7567

kyleb@kdhnews.com | 254-501-7567

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