One week into its budget discussions for fiscal 2019, the Killeen City Council is looking at a proposed spending plan that is balanced with no new taxes or fees and few cuts to personnel or community services.
However, there is a lingering question: Will the budget pass council muster?
As part of the $84 million operational budget considered Tuesday, the city would mostly keep its personnel numbers intact while holding on to the city’s vulnerable community services. The city has 1,281 full-time equivalent positions. However, the city did not have a plan to address millions of dollars in backlogged street maintenance and city-owned building repairs.
“It’s been a couple of decades since I’ve had sleepless nights over a budget — but I’ve had a couple over this budget,” City Manager Ron Olson said. “These are not simple issues, and there are complicated answers.”
Among Olson’s intermediate moves was a planned 2.6 percent citywide raise — envisioned to make employee pay slightly more competitive with the market — and the allocation of more police resources to traffic enforcement to boost ticket revenue.
While the budget is balanced, Olson called the plan an “imperfect solution” as the council debates possible moves to bring new revenue into the city and address long-term concerns on the horizon.
Among those concerns:
Re-working the city’s retirement system through the Texas Municipal Retirement System at an initial cost of $4.4 million.
Tackling the city’s deferred street maintenance backlog, with an annual deficit of around $1.6 million and a “fix-everything” cost somewhere around $40 million, according to city estimates.
Addressing the city’s aging building infrastructure, with a 10-year cost forecast of $42.1 million.
Here’s a summary of the biggest moves in this year’s budgets and two issues that could drastically change the budget before the Oct. 1 deadline.
The single largest new expense in the 2019 budget is an across-the-board 2.6 percent pay raise for all city of Killeen employees.
According to the city, base salaries for every employee category are below market average, or the mean salary for cities of similar size and demographics in Central Texas.
The city said its worst compensated employees — those in labor and clerical work classifications — approach 40 percent below market average. The average for all city employees is 26.7 percent below market average.
In addition to the 2.6 percent blanket raise, Olson said civil service employees in police and fire would also receive percent “step” increases, with police employees receiving between zero and 3.3 percent raises per years of service, and firefighters receiving between zero and 3.6 percent raises per years of service.
Employees with salaries furthest away from market average would receive an additional 9.4 percent raise. For qualified non-civil service employees, that would equate to a 12 percent raise.
Olson said the raises were a step in the right direction in the city’s move but warned the council that the 2.6 percent increase would likely only keep up with cost of living and not move most salaries toward market average.
“I don’t know if we’re going to gain much ground in the market place,” Olson told the council Tuesday.
During his presentation Tuesday, Olson highlighted four “key decisions” to help balance the budget, including:
Moving $1.75 million from the city’s debt service fund to the general fund reserve to prop up operational spending. The move of unallocated reserves would drop the fund’s reserves from $5.03 million to $3.2 million — or 20.68 percent of the fund’s annual expenditures. Olson said the city is working to decrease its overall debt as it pays nearly $16 million in tax-supported debt service alone each fiscal year. The debt service fund, like the general fund, takes property tax revenue and is used to pay for the city’s outstanding debt.
Dedicating police overtime to traffic enforcement and citation generation. Olson said focusing officer time on traffic enforcement had an estimated net gain of $575,000 to city coffers.
Dedicating a position at the Killeen Municipal Court to the recovery of unpaid fines, which Olson said total $305,000.
Unfunding five vacant positions throughout the city. Olson said the five positions were chronically unfilled — the longest vacancy was 13 years.
All of those decisions, Olson said, could be changed by the council before the budget is approved. Olson warned council members that any new expenditure or revenue stream would have to be matched to keep the budget balanced.
In his presentation, Olson gave the council a list of possible moves it could make to shore up revenue — some of those options have been divisive for the current and past councils:
Raise the property tax rate around 0.8 cents per $100 of taxable value assessed, bringing in an additional $420,000 in revenue.
Adopt a street maintenance fee on resident and business water bills that would help counteract an annual maintenance deficit of around $1.6 million.
Eliminate more vacant positions throughout the city. In the current budget, the council approved the cuts of 22 vacant officer positions in the police department.
Eliminate the city’s funding agreements for its “community partners,” which include the Killeen Economic Development Corporation, Greater Killeen Chamber of Commerce and The Hop regional transit system, saving $3.2 million per year.
Adjust exempt airport parking fees at the Killeen-Fort Hood Regional Airport.
Making some or all of those cuts could help the city allocate funds to a number of long-term priorities on its list, including re-working its retirement system, tackling its deferred street maintenance backlog and beginning to address its aging building inventory.
The long-term problem with a possible immediate impact is a re-working of the city’s retirement system, which has been underfunded for decades, the city said.
Most city employees are eligible for retirement benefits through the Texas Municipal Retirement System, to which the city contributes annually on an ad hoc basis with the city controlling the amount it contributes to the system each year.
Olson has told the council he would rather the city contribute to the retirement system on a “repeating” basis, with set annual matches for employee benefits. Making the change would lock in the city’s required annual contribution rate to the state system and limit overall contribution payments in the future.
If the city does not switch, Olson said, its annual contributions would have exponentially increase to keep up with the required matches for employee benefits.
City firefighters are the only employees that have their own retirement fund, with a board that operates the fund independently.
In the short term, making the switch to repeating contributions would cost approximately $4.4 million — the difference between matching employee benefits on an ad hoc or repeating basis.
Although the current ad hoc contribution is around $5.4 million per year, that figure is expected to spike exponentially in coming years, reaching an astronomical $36 million annually by 2051. Meanwhile, if the city switches to repeating contributions, its payments will peak at around $17 million per year in 2038 and then decrease over time.
The annual contribution cost would start at $9.8 million for repeating if the council decides to fund the switch.
An additional benefit of adopting “repeating” contributions is the city would be fully matching all employee benefits by 2042, as opposed to 87.7 percent matched on an ad hoc basis.
Olson said one way or another, the city would likely need to make a decision on the system within the next few years.
“If you (wait) 15 years out, there will be an issue with solving this problem,” Olson said. “There’s really a ticking clock when it comes to making that decision.
But how would the city cover the $4.4 million it needed to change its retirement system contributions?
One option, if the city’s math is right, is to create a street maintenance fee on resident and commercial water bills — and a separate fund — and take all road maintenance expenses out of the general fund.
The financial effect of doing so, the city said, would free up $4.4 million in property tax revenue in the general fund — around the amount needed to fund repeating retirement contributions.
Here’s how the scenario would work.
If the council voted to approve a street maintenance fee that would be assessed monthly on resident and commercial water bills, the new source of revenue would necessitate a new fund separate from the general fund to keep track of revenue streams. At that point, street maintenance expenses could be shifted over to the new fund, leaving the property tax revenue currently used for road repairs unallocated in the general fund.
At that point, the council could decide how to use those unallocated funds or could lower the property tax rate to ease the burden on homeowners.
As it stands today, the city is again planning to underfund its booming street maintenance needs — putting $300,000 in fiscal 2019 toward an estimated $1.9 million in needed maintenance annually.
The concern for the council if it favors instituting a fee is that it is enormously unpopular and, in some residents’ minds, a new tax. The fee has twice been voted down by council after the 2017 budget was passed, but a renewed push from Olson and some council members has brought the measure back up for consideration.
The council is expected to receive an update on the city’ deferred maintenance needs in a workshop later this month.