Residents of the Queen City will soon see higher bills as Mercedes officials struggle to balance a budget whose needs outweigh the city’s ability to pay for them.
Residents can expect both their property taxes and their water bills to go up in the coming months, as the Mercedes City Commission mulls both a 3 cent rise in property taxes and a separate increase to the water and sewer rates.
“The property tax rate for 2020 was set at 0.74750 for every $100. This year, staff’s recommending an increase of (3 cents) to 0.7750,” explained Mercedes Finance Director Nereida Perez during a city commission meeting Tuesday night.
The city is also looking at increasing the amount it charges residents for water and sewer service by an average of $13.47 per month per customer.
The proposed increases in both property taxes and water rates come as a consequence of previous city administrations failing to adequately address the city’s needs in the past, explained City Manager Alberto Perez.
“What I understood was very clear — that this specific item has been brought up in previous years. And we’re talking CPAs were here four years ago also, and they were facing the same situation,” Perez said of raising taxes.
“At the time, the commission decided not to raise taxes and, in essence, move the problem forward. And now we’re facing it again,” he said.
Mercedes has struggled with its fiscal budgets for several years. Part of those struggles have come as a result of problems in the city’s water and sewer fund, which have resulted in the city paying for the utility department’s operations.
In most cities, utility services are revenue making operations that generate enough funds to not only pay their annual operational costs, but also replenish a city’s general fund.
Utility services in Mercedes, however, have been running at a loss for years, forcing the city to pump hundreds of thousands of dollars into the utility fund to keep it solvent.
“At the end of the day… it was sinking. Our reserves were sinking but now they’ve sunk, correct? So our reserves are beyond helping us make it through another year now,” said Mayor Oscar Montoya.
Adding to the issue, much of the city’s water and sewer infrastructure is in desperate need of repairs.
Perez laid out just how stark the funding needs are — Mercedes needs some $3.5 million for equipment and another $50 million to address its most pressing infrastructure needs.
Earlier this month, Mercedes brought in financial advisers from Estrada Hinojosa, an investment banking firm with several offices across the country. After examining the city’s finances, those advisers recommended the city take on $8 million in new debt in order to start addressing some of those needs.
The bulk of that debt — $5 million — will go toward infrastructure projects, while $2 million will go toward purchasing equipment and the remaining $1 million will go toward capital improvement, Perez said.
The city will borrow that money via certificates of obligations, a form of public debt that can be paid off via property taxes, and therein lay the reason behind the proposal to raise property taxes by three pennies.
“The preference is to go to 3 cents, being that two-and-a-half (cents), two (cents) is gonna be kind of tight,” said Roberto “Bobby” Villarreal, who works in Estrada Hinojosa’s San Antonio office and previously served as the budget control officer for Hidalgo County.
“I think that will accomplish what you need to do,” Villarreal said.
As for the water rate increase, the advisers’ recommended increase of $13.47 per month per customer is expected to generate about $800,000 in revenue each year.
However, the proposals were met with opposition by at least two members of the city commission — Place 2 Commissioner Leonel Benavidez and Place 3 Commissioner Jose Gomez.
Indeed, much of Tuesday’s lengthy meeting devolved into tense disagreements between Benavidez and Montoya as the pair traded verbal volleys over how best to address the city’s financial crisis.
Though both men agreed that the city’s financial needs outweigh its current capabilities, they disagreed vehemently on how to rectify the issues.
Benavidez repeatedly expressed concern with increasing the city’s debt obligations. He urged the commission to come together to look for ways to achieve cost savings via contract negotiations and targeted budget cuts.
He also reminded the commission that Mercedes is expecting to receive about $2 million in COVID-19 relief funds via the American Rescue Plan, which was approved by Congress in March.
“The way I see this (is) as a worst case scenario,” Benavidez said.
“There’s still some negotiating being done, so monies that we are going to have. And there’s a couple of contracts that can be looked at, … the city manager’s been looking at reducing some costs on one of the contracts,” he said.
But for the mayor, the point he tried to drive home was that Mercedes has already reached a worst case scenario — that the discussions over rate increases weren’t meant as a foil, but because Mercedes’ finances have indeed bottomed out.
“I’m not pointing fingers at anybody here, but at the end of the day, there was $3 million here, they’re down to $500,000,” Montoya said, referring to the city’s general fund.
“And that $500,000 is gonna have to be used to pay payroll next year if we don’t do this. And nobody wants to do this. There ain’t nobody up here that thinks this is just a great idea,” he added, referring to raising taxes.
During budget planning discussions last fall, Mercedes initially faced a $1 million deficit before city staff and then-City Manager Sergio Zavala were able to balance the budget just before the statutory deadline for the commission to adopt it.
Speaking on Tuesday night, however, Nereida Perez, the finance director, referred to that budget as “barebones.”
“Right now we are over budget on the general fund by over a million (dollars),” Perez said.
She cautioned that if the commission didn’t take some sort of action to raise revenues soon, Mercedes would be forced to again work with a barebones budget at the expense of services and personnel.
“Barebones is basically what we had last year … and we ran out of money by April,” Perez said.
The fiscal year runs from Oct. 1 to Sept. 30.
At several points in the hour-long discussion over the tax rate, however, the debate between the mayor and Benavidez devolved into accusations of political posturing.
“We need to consider the residents here and put our political careers aside as far as how much we got done. I know we can be efficient. I know we can,” Benavidez said.
“You’re gonna get more political mileage out of going against this than we are going for this, to be honest,” the mayor retorted.
“It’s not just the loans. You keep saying that. We’re behind on our reserves. We don’t have any more reserves. … We’re paying for our water, which we should not be paying, and that’s going to continue to deplete our reserves until we don’t have money,” Montoya added a moment later.
At the end of the discussion, both the city manager and Villarreal, the financial adviser, implored the commission to consider that any delay in generating revenues will ultimately cost Mercedes taxpayers even more.
A divided commission voted to move forward with both the property tax increase and utility rate hike. Both issues will need to be brought back to the commission for final approval.
