By DAVID WILFONG
Herald-Banner Staff
ROYSE CITY
August 24, 2008 11:51 pm
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An unforeseen shortfall in Royse City’s cashflow as city leaders scrambling to come up with a solution.
The Royse City City Council met in a specially called meeting on Aug. 21 before a packed audience to hear reports regarding the city’s financial situation and discuss the impact on next year’s budget and tax rate.
Larry Lott, who along with city attorney Jason Day is acting as city manager after the suspension of Karen Philippi, reported to the council that a budget for the new year had been “hurriedly” put together in light of the unforeseen shortfall in the city’s cashflow.
Royse City found itself unexpectedly $1.8 million short of necessary funds to make necessary payments last week. On Friday, the city used unexpended funds from three unencumbered bonds to make due payments of more than $800,000, but still fell $1 million short. At last week’s city council meeting Lott estimated the shortfall could reach $1.3 million by the end of the year.
Lott outlined a three-part process needed to bring the city out of its current financial crisis.
“We’re going to have to come up with $3 million next year simply to meet our obligations that we have now,” Lott told the crowd.
“First we have to find a short-term borrowing mechanism to pay the debt that we have today,” Lott said. He went on to explain that the State of Texas allows cities experiencing shortfalls to issue a “tax note” to cover discrepancies. However, that note must be repaid within a year and must be included in the city’s operating fund budget.
The second part was the adjusting of the budget itself.
“We must find a way to cut $2 million from the budget,” Lott stated. He expects most of the cuts to come from resources and line items. He said that he had been able to come up with a budget, but had received minimal input from the different city departments. The budget leaves Royse City with between $6 million and $6.5 million to run the city on.
“It is a balanced budget,” Lott said. “But it does include significant financial reductions.”
The third part of the equation is what Lott sees as an inevitable increase in the city tax rate.
“We can’t cut the operating budget enough to accommodate this,” Lott said to the crowd. Lott reported that after the sales tax adjustment, the city could charge up to 65.86 cents per $100 valuation without having to hold a rollback election and that was his recommendation. This would constitute an increase of more than 33 percent over the current rate of 49.45 cents.
James Sabonis, a financial planner who works for the city, gave the audience a brief overview of what had happened.
“No one wants to be here tonight,” he said. “And this is not the high point of my career.”
Sabonis stated that as he had reviewed the city’s financial materials, it appeared that the city manager had set up budgets with the assumption that Royse City’s previous rate of growth would have continued unabated. He added that in the past year the growth had almost shut down. He also noted that because of the downturn in water use, the city’s water department had actually lost money when it was expected to be a revenue generator.
He reported that a buyer for the city’s tax note had been found at 2:20 p.m. earlier that afternoon.
“The good news is that if you get through this year, the future is going to look bright,” he concluded. “This year is going to be difficult. I know this is not going to ease your pain, but you are not the only city that’s going through this.”
Royse City will hold a public hearing on the tax rate on Sept. 3 and Sept. 10 at 7 p.m. A public hearing will be held on the city budget at 7 p.m. on Sept. 17.
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