2017 05 11 WS MinutesMINUTES OF THE REGULAR WORK SESSION OF THE
CITY COUNCIL OF THE CITY OF BAYTOWN
MAY 11 2017
The City Council of the City of Baytown Texas met in a Regular Work Session on Thursday
May 11, 2017, at 5:41 P M. in the Hullum Conference Room of the Baytown City Hall 2401
Market Street, Baytown, Texas with the following in attendance
Laura Alvarado
Council Member
Charles Johnson
Council Member
David McCartney
Council Member
Chris Presley
Council Member
Terry Sam
Council Member
Stephen DonCarlos Mayor
Rick Davis
City Manager
Ignacio Ramirez
City Attorney
Leticia Brysch
City Clerk
Keith Dougherty
Sergeant at Arms
Mayor DonCarlos convened the May 11, 2017, City Council Work Session with a quorum
present at 5:41 P M. all members were present with the exception of Council Member Hoskins
who was absent
DISCUSSIONS
Discuss the City of Baytown budget and revenues
City Manager Davis presented the agenda item and noted that the City has a good problem to
have at this item which is that even with an 8% rollback threshold the City is in position to
exceed this amount by at least 2% flus year He stated that because of this, the City is faced with
the possibility of having to reduce property tax which ultimately results in a small impact on the
real property taxes, but has a pronounced negative effect on IDA revenues
Mr Wade Nickerson Director of Finance stated that he has four (4) major things to point out
regarding this item which relate to (1) the anatomy of the City's property tax (2) the City's
current financial situation (3) the potential impact of lowering the tax rate, and (4) proposed
solutions
Mr Nickerson stated as it relates to the first item, that the City's property tax is made up of two
parts (l) the maintenance and operations budget (M&O) and (2) its debt service He stated that
these two (2) items come together to make up the City's property tax rate He further stated that
the effective rate is the rate that will generate the exact same M&O revenue in dollars as it did in
City Council Work Session Meeting Minutes
May 11 2017
Page 2 of 4
prior years which means that the city cannot Increase revenue If they have to stay within the
effective tax rate He stated that the rollback rate is really the City's ability to grow In value
which Is 8% over the effective tax rate which means that this Is the most that we can
increase it without the possibility of being petitioned to hold a rollback election Mr Nickerson
stated that currently the City's rollback rate Is 8%, which Is the maximum that can be increased
In the preliminary tax rolls He noted that the preliminary numbers from the tax appraisal
districts were 10% higher than last year for Hams County and 12% higher than last year for
Chambers County He stated that another piece that's adding to this issue is that the City's
principal and interest requirements In the debt service is $400,000 less than the prior year
Mr Nickerson noted that the property value tax rate Impacts the IDA formula, therefore if the
tax rate is lowered, the rate of the IDA revenue is lowered
Mr Nickerson noted that there are a couple of things that are exempted values from the rollback
calculation, which are new properties annexations and the Tax Increment and Redevelopment
Zone (TIRZ) values He stated that the city is not penalized for new residences or commercial
buildings but It does come Into play when those new additions increase the values of the existing
properties He stated currently staff is not certain as to how much of the preliminary valuations
Include any of the before mentioned exemptions, so It s difficult to gage the new values He
further stated that another variable to this piece Is that the Hams County Appraisal District
(HCAD) valuations tend to have a plus or minus 5% error rate that results in about a million
dollars in revenue therefore, moving forward, the calculations are based on these values being
based on appreciation
During further discussion Mr Nickerson stated that the City's property tax rate Is 82203, which
broken down Is M&O at 47706 for and the debt service rate is 35197 He stated that this result
in property tax revenue per penny of $339,821, the effect of that per penny revenue on IDAs Is
an additional $587 400 or a l 1 73 ratio He noted that ultimately, lowering the tax rate will have
a definitive Impact on the City's operations and capital projects Mr Nickerson stated that the
effect per penny on the lowering of money for services is about $340,000 He noted that the
Finance Department did some quick calculations based on a $150,000 valued home with a
homestead exception with the current tax rate that will end up as $986 and if lowered by a penny
Is $974, which is a dollar per month per house for a total of $12 per year He further stated that
the tax savings for the resident on the city side is not very substantial, but the Impact on the
City's operations and capital protects Is significant
Mr Nickerson stated that a proposed solution for the Council to discuss is to hold M&O portion
of tax rate to 8% shift the balance of debt services by paying off future high Interest debt now
and then Issue a $20 million in new debt with a ten or fifteen years term Certificates of
Obligation depending on how the final rates come in He noted that the new debt would go
towards funding numerous projects that need funding and that this would be a great opportunity
to tackle some of those bigger projects, which may Include
• 6.8 million to complete Hunt Road from H E B to Main Street
4.5 million to complete the 110 on & off ramps
• 4.4 million to complete Hunt Road to San Jacinto Boulevard to John Martin and
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May 11 2017
Page 3 0£4
4.3 million for other Garth Road Improvements
City Manager Davis stated that the City is a victim of its own success and is exceeding the
rollback rate and have three (3) options (1) to proactively lower our property tax which would
impact the City's budget by $4.5 million due to impact on IDAs, (2) hope that no one petitions
the City for a rollback election or (3) remove funding from the M&O side of the equation and
issue debt for some very strategic transportation projects that remain a major citizen goal
City Manager Davis stated the City is facing a tsunami of development that will greatly impact
transportation He stated that as early as today, staff met with another company who is interested
in developing the area north of I 10 which will greatly impact this area He further stated that it
is critical that the City (1) establish a vital east west route comdor in Hunt Road, (2) continue
to assist in the mall redevelopment area by helping the on and off ramp of I 10 in order to orient
people towards San Jacinto Boulevard, and (3) meet the commitments related to improvements
to Garth Road all in preparation for the existing and future development in this area City
Manager Davis noted that these are very important transportation projects that will allow the City
to stay within the threshold and use the $20 million in debt services to pay for these critical
projects which is a better option than taking a $4.5 million dollar loss in the budget
City Manager Davis stated that if the Council would like to move forward with the issuance of
the debt, they would need to identify the projects and issue this debt before the beginning of the
fiscal year
Deputy City Manager Bottoms stated that staff was comfortable with the issuance of $20 million
in debt because they want to maintain the City's financial health and not reduce the debt capacity
in case a large project emerges that requires funding
The council discussed various opportunities for infrastructure projects that could be included in
the list of projects related to the issuance of the previously mentioned debt
Council Member Presley stated that his concern was regarding the issuance of debt to balance
out the tax rate year after year and noted that this could become a liability to the City if they
continued to increase debt and then see a reverse in valuations Deputy City Manager Bottoms
noted that two (2) years ago the City tax was at 37 cents and is now at 35 cents, he noted that
this additional debt will keep the City at around the 35 37 cent mark as far as the cost He
further noted that this is all based on the value increases and it is an opportunity to get nice
projects completed and in the future to lower our tax rates Mr Nickerson noted that for future
years, the City would not necessarily have to issue new debt, and the City could always pay off
cash to fees debt, which allows paying off future debt now
Council Member Sam requested that the creations of an east west corridor for Archer all the
way to San Jacinto Boulevard be considered as one of the projects on the list for the issuance of
debt City Manager Davis noted that the recommended transportation projects are not frivolous
but are very necessary and critical to the City's development, and up to this point there had been
no funding identified
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May 11 2017
Page 4 of 4
Mayor DonCarlos stated that the presented solution is brilliant and the sooner the City can build
these projects the better as it can have a considerable cost savings, particularly as it relates to the
Texas Department of Transportation (TxDOT) contract with the on and off ramps for 1 10
Council Member Alvarado stated that she would like to see how a rollback on the tax rate
would impact lower end homes. Council Member McCartney stated that for a home valued
at $75,000 they would save $6.00 per year Deputy City Manager Bottoms noted that Council
Member McCartney's statement is correct assuming that the home appreciated at the 10%, but
also noted that if the home did not appreciate at all they were not going to pay anymore tax
Additionally Deputy City Manager Bottoms stated that this also depends on the value of the
home
Council Member Presley stated that if this issue continues that there are a number transportation
issues and needs in the older parts of town that need attention so that they can also see some
benefit to their transportation
City Manager Davis stated that they've talked about paying dividends to the tax payers for
having to accommodate this explosive growth and get to a point where they see the benefits for
their support He noted that he believes that showing these dividends with these types of projects
will be a good thing and Council could also decide in the future on other types of dividends that
could include a new police station a recreation center, the market square districts, an expanded
annual shelter, etc
Additionally City Manager Davis noted that with the consensus of Council staff will move
forward with the next step in the process which is to move forward with the issuance of the
Certificates of Obligation
b Discuss any or all of the agenda items on the City Council Regular Meeting Agenda
for May 11, 2017 which is attached below
This nem was not discussed
2 ADJOURN
With there being no further business to discuss Mayor DonCarlos adjourned the May 11, 2017,
City Council Regular Work Session at 6 13 P M
Le is 13rysch, City Clerk
City of Baytown