You can’t cut your way to prosperity.
That phrase has been echoed by politicians and economists for years.
The reason it’s been around so long is that there’s a lot of truth to it.
It stands to reason that if you have a finite amount of money coming in and a larger amount going out, trimming expenditures is bound to help the bottom line — for a while. But you can only cut spending so far before the integrity of the business — or other enterprise — begins to suffer.
That’s the situation Killeen city staffers, administrators and council members are facing as they head into the upcoming municipal budget process.
The city already did some serious penny-pinching in delivering a balanced budget last year — a combination of eliminating vacant positions, trimming programs and reducing hours at city-run facilities.
But the actions taken last summer to achieve that result were technically a Band-Aid on what is a larger, long-term problem.
Projections by City Manager Ron Olson last fall showed a budget shortfall of $27.6 million by the year 2037 if current spending trends continue — and as much as $50 million if nothing is done to restructure the city’s burdensome employee retirement system.
The first year of that projected deficit is 2019, with the city looking at a red number of about $2 million. That fiscal year will be starting in less than four months.
Granted, part of the shortfall is due to the state’s inadequate compensation for an unfunded mandate — full property tax exemptions for military veterans who are 100 percent disabled. The state law also provides smaller exemptions for veterans at lower disability levels.
Subsequent state legislation has provided some compensation for disproportionately affected cities like Killeen, but the $1 million the city received from the state last year didn’t come close to offsetting the $4.5 million in exemptions doled out to deserving veterans.
And with the city’s tax-exempted property doubling in value over the past three fiscal years, the revenue crunch is likely to get worse before it gets better.
Again, the city can only cut so much to make ends meet.
With employee pay rates lagging and infrastructure needs mounting, officials may be running out of options for ways to trim expenditures — without harming public safety or crippling necessary programs and services.
With that in mind, council members must give serious thought to identifying new revenue sources and putting them in place.
At least three options should be on the table when council members begin budget talks this month: impact fees, transportation utility fees and a transportation bond.
With most council members unwilling to raise the city’s property tax — already one of the highest among area cities — other ways to generate a stable source of revenue must be given serious consideration.
Impact fees are already on the table. The council approved the implementation of the fees in August 2016 as a way to provide revenue for new road and water-sewer infrastructure. Impact fees cannot be used for maintenance of existing infrastructure, according to state law.
However, that fee is nowhere close to becoming reality. State law requires the city have a five-member committee to discuss the fee structure, with members coming from different areas — both inside and outside the city. To date, few residents have applied to be on the committee, and those who have don’t meet some of the required geographic criteria.
An impact fee would put most of the burden on the builders and developers, with the idea that they would contribute to the infrastructure their developments would require.
However, there’s no reason they couldn’t pass the fee on to buyers. Also, it would take up to two years before the city realizes any revenue from implementation of the fee.
One fee that would produce revenue quickly would be a transportation utility fee. It would be assessed to residents, possibly on monthly water bills.
The fee could also be charged by zone rather than citywide. The idea behind that setup is that residents in a portion of the city needing infrastructure improvements would pay for their improvements directly.
However, even though it’s called a fee, it’s essentially a tax — and a regressive one.
People in the older parts of Killeen — the areas needing the most infrastructure work — tend to be in the lower income range. Targeting their neighborhoods in implementing a transportation utility fee would put a disproportionate burden on these residents.
Another revenue-producing solution would be a transportation road bond.
The council briefly considered such a bond earlier this year after learning that a proposed new high school in south Killeen would require improvements to the existing roads in the area.
With the passage of the Killeen school district’s $426 million bond issue last month, the stage is set for growth in the area of the new school, which will open its doors in 2022.
The council deferred action on a potential $30 million bond issue until the city can study other potential sources of funding for the road projects.
It’s questionable as to whether Killeen voters would be open to the idea of another bond issue in the wake of the school bond’s passage, since the road bond would require a tax increase.
However, if the city were to construct a bond issue that would also address other infrastructure needs across the city, residents might be more inclined to view it favorably — even though it would come with a higher price tag.
The bottom line is that the city needs more revenue to work with — period.
Killeen’s population growth virtually ensures that the city will have to allocate an increasingly large percentage of its general fund budget to programs and services, to include public safety.
Yet, the city’s residential property tax base is heavily dependent on primarily modestly priced housing. Coupled with the growing number of exempted properties, ad valorem tax revenue is likely to be stagnant, at best.
Consequently, the city manager, council and city staff must develop a plan to identify and harness new, stable revenue streams while continuing to make strategic reductions in expenditures, where possible.
Budget cuts alone won’t keep Killeen’s budget in the black.