Although it was foreshadowed, the seismic shift in Denton's budget came Thursday morning with the unveiling of the 2017-18 annual program of services: a 4.548 cent cut in the city's property tax rate and tax relief for some homeowners.
Denton's new city manager, Todd Hileman, told City Council members last spring he would prepare a budget with the "effective tax rate." Required by state law, the effective tax rate is supposed to tell taxpayers what the property tax rate would be to collect the same amount of money on the same property year to year.
It's a complicated calculation required by the Texas Legislature. The calculation is supposed to improve transparency with taxpayers. Recent city mangers in Denton calculated the effective tax rate, but they did not prepare a budget using it. Instead, they would prepare an annual budget — and a five-year forecast — for a proposed property tax rate. Oftentimes that proposed tax rate would be the same rate as the year before, or increase by a penny or two.
Taxpayers began to recognize the ruse as property values spiked in recent years. Their tax bill increased even though the tax rate ostensibly stayed the same.
With the 4.548 cent drop in the tax rate, homeowners may think they will see a cut on their city tax bill. (City taxes are not quite one-third of the average annual property tax bill in Denton. Homeowners also pay property taxes to the county and the school district for their services.)
A tax cut is certainly possible for some. However, most Denton homeowners have seen their property values rise significantly in the past five years. The average homeowner is still expected to pay more in city property taxes in 2017 than they did last year, or even five years ago.
In 2012, the average home value was $154,000. This year, that value climbed to $214,000.
So, in city taxes in 2012, the average homeowner paid $1,064. This year, that bill climbed to $1,366 — about $30 more than last year.
City Council members noticed the difference in the way the budget was prepared and presented.
"Last year, we didn't have any presentations on cost containment," council member Sara Bagheri said.
Hileman told council members the budget expenses were an important part of the equation. Nearly $4 million in expenses moved to other, more important work.
"The department heads did a good job," Hileman said. "We're reprioritizing what's in the budget."
For example, the city asked an architect to evaluate the American Legion Senior Center in Fred Moore Park, in the hopes the building could be repaired and renovated. The architect said the building needed to be replaced, Hileman said.
The city budgeted about $614,000 to replace the building next year.
Council member Dalton Gregory pressed Hileman to make sure the $1.1 billion budget (with $518 million for capital projects) did not include cuts in services. Hileman assured him the city plans to deliver the same level of services.
The budget includes raises for city staff and step increases for police and firefighters. Health insurance premiums and deductibles stay the same. Some vacant positions won't be filled, but other jobs with different priorities will be created, increasing the city staff by about four full-time jobs.
Thursday's discussion didn't settle all the budget issues before the City Council members. They'll take up the budget every week between now and mid-September to discuss other priorities, including shifting downtown reinvestment grants to a different fund, as well as the contracts for the city's 1-year-old technology incubator and economic development with the Denton Chamber of Commerce.
Each penny of the proposed 63.7856 cent tax rate raises about $1 million for city coffers. Council members could opt to increase the property tax rate by a penny and set up a fund that pays cash for some vehicles and capital projects. It would take several years to fully fund the initiative, but once in place, the city could lower the debt portion of its property tax rate by a penny or more, said Chuck Springer, the city's finance director.
Council members asked the staff to prepare a short analysis with other alternatives for setting the tax rate, showing what would happen if they cut the property tax rate further or increased the homestead exemption.
Currently, the city does not assess property tax on the first $5,000 in value of an owner-occupied house. If the City Council increases that amount, a higher exemption could provide some relief to low-income homeowners. The city has already increased the homestead exemption to $50,000 if the homeowner has a disability or is age 65 and older.
This year also is the first year of a property tax freeze for those same homeowners. The property tax rate the city sets this year has new significance in that it will set the freeze amount for homeowners who are disabled or age 65 and older.
For example, the owner of a $100,000 home would see his or her property tax bill freeze at about $319 for as long as the person owns the home, if council members agree to set property taxes at the effective tax rate.
If they set the rate higher, that dollar figure will freeze slightly higher. If they set the rate lower, it will freeze lower.
Bagheri also pressed for an analysis to understand how cutting utility rates at certain percentages would affect the water, sewer and electric department budgets. The 2017-18 budget contemplates no increases in utility rates, which should save ratepayers $1 to $2 each month next year.
The City Council is expected to discuss the budget again next week. Members also agreed to call public hearings for the 2018 budget and tax rate for Aug. 15 and Sept. 12 to invite public participation in the decisions for next year. The city's fiscal year begins Oct. 1.
For more information on the budget, visit the city's finance webpage.
PEGGY HEINKEL-WOLFE can be reached at 940-566-6881.
FEATURED PHOTO: Seniors enjoy a game of bingo Thursday at the American Legion Senior Center in Fred Moore Park. The city has found $614,000 in next year's budget to replace the center. The facility is a neighborhood gathering place for seniors who live in Southeast Denton.