SAN BENITO — As officials consider passing a proposed $15.8 million general fund budget, concerns are rising as they plan a 2-cent tax cut amid climbing costs and a utility system that has run deficits for years.
On Wednesday, Mayor Rick Guerra questioned slicing two cents off the city’s property tax rate of 72-cents per $100 valuation as officials plan to use part of the city’s $9 million share of the American Rescue Plan Act to help bail out the utility system.
During a special meeting Tuesday, Gavino Sotelo, a former Harlingen city manager who has served as general manager of the Laguna Madre Water District, questioned the proposed tax cut.
Second thoughts
Last week, City Manager Manuel De La Rosa proposed cutting the tax rate from 72 cents per $100 valuation to 70 cents, about a week after Commissioner Pete Galvan made the proposal.
During a meeting, De La Rosa told commissioners a 2-cent tax cut, which would slash about $160,000 in revenue, would be “sustainable.”
When the proposal came up for a vote, commissioners unanimously voted to cut the tax rate.
Now, Guerra is having second thoughts.
“The food’s going up — as much as I want to give people a little relief, if there’s a way, I’m for it,” he said, referring to the proposed tax cut. “I’m in the middle. We still got questions. I still need more information.”
City needs raising concerns
Concerns include a proposal to pull more than $3 million from the city’s $9 million share of the American Rescue Plan Act to help offset shortfalls in the utility system, which ran a $2.8 million deficit last year, Guerra said.
For years, previous city administrations held off on raising water rates, leading the utility system’s annual deficits to swell.
To offset annual shortfalls, officials had been dipping into the city’s general fund budget.
“What if it’s going to cost us after we exhaust those federal funds?” Guerra questioned, referring to the city’s big federal stimulus check. “Once these federal funds run out, are we going to have to bring (the tax rate) back to 72 cents?”
Meanwhile, both the police department and the fire department are requesting the city hire a total of six personnel, he said.
“As it is now, we’re short-handed,” Guerra said. “We don’t have enough people. The police department wants more people — the fire department wants more people.”
As part of his proposed budget, De La Rosa is planning to hire a police officer and a firefighter along with a procurement agent while proposing to pull $500,000 from the city’s $11 million unassigned funds account to bolster a $1 million street paving project.
“I’m looking at everything,” Guerra said. “You have to budget within your means. We can’t be sugar-coating this. We need to be up-front with the people. I don’t want to give people false hope.”
Galvan sticking to proposal
Despite concerns, Galvan is sticking by his proposal to cut the tax rate as commissioners consider the proposed budget’s projections showing sales tax revenue to remain at $5 million while property tax revenue is set to climb from $5.5 million this year to $5.6 million during the upcoming fiscal year.
“The finance department said it was possible,” he said. “It’s about $160,000 in revenue lost. When you factor in the amount we’ll get in sales tax and property tax, it will more than balance it out.”
Meanwhile, Galvan is proposing dipping into the city’s unassigned funds account to help offset the utility department’s shortfall until new water rate hikes kick in for households in two years.
After months of debate, in June commissioners set commercial water rates to climb by 8.3 percent to as much as 9.8 percent each year over five years, based on water usage, starting next month.
Meanwhile, households are getting a two-year break before their rates start climbing by 10 percent over a five-year period starting October 2024.
Garcia points to strong reserves
While he stood opposed to a tax cut last month, the city’s financial figures are showing officials can afford the proposed tax cut, Commissioner Rene Garcia said.
“Initially, I did have concerns it was too soon to do this,” he said, referring to a tax cut. “But they crunched some numbers and eliminated (requested) positions of several departments that were not needed now.”
Garcia said the city’s $11 million unassigned funds account and $4.5 million fund balance would help officials offset the proposed tax cut.
”The city does have a lot of needs. Our street repair fund — we need to expand on that,” he said. “We do have a good fund balance and reserve fund.”
Background
In 2012, a previous commission passed a 4-cent tax increase, boosting the property tax rate to 72 cents per $100 valuation.
In 2003, the city raised its tax rate from 67 to 68 cents.
