During the city of Killeen’s fiscal year 2018 budgeting process in May, one number jumped out: $27.6 million — the projected shortfall in the city’s operational fund by the year 2037.
But according to a presentation from City Manager Ron Olson earlier this week, that projection didn’t account for a number of initiatives the city has historically underfunded, and the projected shortfall could be closer to $50 million.
The newest projections came as part of a long-term budgeting strategy session held with the Killeen City Council at its Tuesday workshop. Olson targeted a number of recurring expenditures the city has underfunded for years, including the city employee retirement fund, deferred street maintenance, deferred city building maintenance and employee pay.
The numbers are troubling.
According to Olson’s early market comparisons, city 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 this fiscal year alone.
With those needs adding up, Olson recommended the council prepare to reconsider its approach to all of those programs before the wheels come off.
The situation was most extreme for the city’s employee compensation plan, for which Olson recommended a complete tear-down.
“In order to fix the issue, we’ve got to do this different than we’ve ever done it,” Olson said. “Our system is so far out of whack that it needs to be rebuilt.”
Another option was fundamentally changing the city’s retirement fund contributions from “ad hoc,” with city matches for employee retirement benefits contributed to the fund over a 15-year timeline, to “repeating,” with benefits pre-funded.
The city also has the option of funding cost-of-living allowances for retirees and Updated Service Credits for current employees. The council voted in the last two years to not fund the credits or retiree COLA.
With a shift to “repeating,” the benefits are clear.
The retirement fund would be fully funded by 2042, as opposed to 87.7 percent funded on an “ad hoc” basis. The city’s contribution rate would double over the next couple years, remaining flat until it halved in 2042. Meanwhile, the city’s ad hoc contributions would skyrocket over the coming decades — surpassing “repeating” contributions rates by 2032.