City Manager Talks About Revenue, Savings, and Planning for the Future

Don Purdum
Post Editor

November 25, 2008

On Monday morning, The Post sat down with Forney City Manager Brian Brooks in a question/answer time. The discussion was about the local economy and sales tax revenue, savings in the city budget and its use, and potential effects of deflation in the housing market.

Question: Since the beginning of the year, how has sales tax revenue looked?

Brooks: We’ve had two months of activities (new fiscal year began October 1st), and it’s already up and down.

The way sales tax works, payments the city receives in the current month actually reflected sales two months ago. So the numbers you see for October and November are actually for August and September, 2008.

In general, the sales tax numbers for the budget year that ended in September 2008 were down from the original projections of 15% growth, but we scaled back to represent a 4% increase. We ended up at 5.5%, slightly up for our second projection.

For the 2007/2008 budget, we were very conservative considering the two previous years were 30% and 27% growth.

Of course, the economy was different in the 2005/2006 and 2006/2007 budget years because the city was growing and new stores were opening. It was a different economic dynamic.

So, how do you manage it when the sales tax revenue is up and down?

The 2007/2008 budget year was a tough one. We began to see a maturing of our sales tax, meaning the numbers were stabilizing, and giving us an indicator of where we would be for a while.

When we began planning in May for this year’s budget, we planned a 2% increase. In October we were up 14.7%, and in November we are up 3.59%.

What we are probably going to see is another roller coaster year.

One benefit to Forney in this economy is that we don’t have upper end retailers, which are taking a big hit. Most of our retail comes from Wal-Mart and Lowes. A lot more people are shopping at these two stores right now because the prices are low, and they are close by.

The trend is towards the discount stores, and that’s good because it’s our main retail source.

We have a good start to this year, but you never know what is going to happen.

Question: What other sources of income does the city receive by sales tax revenue?

Brooks: The base revenue is property tax. It’s base because it’s not as volatile, it doesn’t fluctuate as much. Property values can go up and down, but over the years it has gone consistently up.

Now, we are seeing a leveling off, or a plateau. It may be even trending down a small amount.

But basically, property tax doesn’t move that much and provides you with an expectation of what you have for the city’s operation costs. So, when you tie salaries and ongoing cost, we try to tie them to the property tax.

Projects and one-time item purchases get tied to the sales tax. That way, if the sales tax does not come in, we don’t purchase it. That did happen last year, we scaled back on some of our equipment purchases by $500,000.

Question: Short-term, if certain budgeted income turns into a surplus from expenses such as fuel decreases, and when the electric bill savings are realized, will that money be used or saved? If used, how? If saved, where to?

Brooks: One of the savings tools we found was in the electric bill. There is recognition by the market to go and find business with cities, and they lowered the price for. So, we jumped on that and signed a 5 year contract that gives us a savings of $18,000 per month.

We’ve seen savings on vehicle rates. We participate in cooperative group purchasing agreements that help lower those expenses.

I’ll give credit to Police Chief, Rick Barnes. The Chief identified a gentleman in Oklahoma who works with police departments and helps them purchase vehicles.

What he does for police departments is purchase slightly used or auctioned vehicles, which refurbishes and provides a three year warranty.

In another case, we were going to buy a large SUV for the Parks and Recreation department. Richard Curry, Parks and Rec. Director, went online and found a 2006 or 2007 Ford Expedition. Six months earlier, we purchased an Expedition for $26,000, a great price. Richard found a slightly used one on this website and it has the same warranty on it for $18,000. It was a huge savings for us.

We budgeted $28,000 for a Parks and Rec. vehicle, that’s a savings of $10,000 we’ll carry forward and put towards other equipment purchases if we need to.

Project costs have also gone down. With fuel cost going down, it relates back to asphalt, concrete, and project prices tied to petroleum driven industries. Thos prices have decreased as well.

What it has made us do is look very closely at the numbers. It helps us squeeze and become a little more competitive.

An example, as a result of some of the savings from construction costs in the Eastside community, we were able to use those savings to expand street repairs in the Eastside paving project. There were some much needed street repairs not in the original scope of the project. Ultimately, this helped the whole neighborhood.

We’ve also seen savings in labor cost in contractors. Contractors have reduced their cost to bare minimums to ensure they have work. Ultimately, that helps the city get some much needed work completed done, and it helps everybody.

Now, you don’t count on the savings until you have a full grasp of what is going to happen throughout the year. We will not allocate any savings until the end of the year. We want to see if the numbers hold on sales tax.

We’ll keep those savings in the general fund or the water/sewage fund.

If we have a surplus that we can use for capital items or one time expenses not in the budget, staff will go back to the City Council and inform them of the amount of savings, and that we would like to use it for a specific projects or needs.

Ultimately, as we get closer to planning for the next year’s budget, if I can get some projects completed this year, thus have an overall reduction in the tax rate or burden, or shift some priorities around for the next budget year, that is exactly what I want to do. I want to maximize the dollars we save here, but I want to do it in a conservative fashion.

Question: If deflation hits and sales taxes and property values are heavily affected, what would be effect upon the city?

Brooks: Deflation actually goes back to a longer-term problem that affects property values. Like I said, there is very little fluctuation usually in property values.

However, if you start seeing deflation happen and property values go down, it affects the city’s operational cost. Then you have start looking at the operational cost to see how to react to the situation.

Three weeks ago, I was at the Texas Municipal League Conference and the big topic of concern was that we would likely be out of the economic slump the end of 2009 from the consumer point of view, but there is a lagging effect on property values that may impact cities.

If property values go down in 2009, that effects property taxes in 2010. It was projected in the conference that we could come out of the economic downturn the end of 2009. However, because the property tax reflects values January 1, 2009, you’re looking at a lag. 2010 will likely be a very lean year.

The good news is we can anticipate and plan for it. In the budget planning phase this year, we looked at a lot of operational expenses. There were a lot of legitimate employment needs.

We saw the request, but when you project what you see coming in 2010, we want to be sure we are not in a position like so many cities were this year having to layoff employees.

I was more worried about the following year than the current budget year. So, as we wrote this budget, my mind was on next year. You have to look ahead.

Once you take on operational cost such as salaries, ongoing expenditures, you will forever be paying that. If there are questions about the money being there in two years, in the long-term you haven’t done your job.

What a lot of city managers are worried about is not if it’s going to hit us this year, will it will next year?

That is where we are putting our mindset right now.