This is the second of a two-part series on the City of Sherman's 2009-2010 budget planning process.

BY KATHY WILLIAMS

HERALD DEMOCRAT

Addressing increasingly complex administration of the city in a poor economic climate, Sherman budget planners conceived a longer range view of its finance. Thursday, the city council got its first official view of the 2009-2010 budget and a five-year projection of financial issues.

Before looking at the value of a wide-screen view of its financial future, the council worked out details of the current year's income and expenses. The general fund budget is down nearly 3.5 percent from last year's expenses. And it's balanced.

Although the city likely will take in more property tax dollars than it did last year, the increase will come from new building and increased property valuations, not a higher rate. Sales tax dollars also will increase in amount but not in rate because a full year of the quarter-cent total sales tax increase is figured into the budget. Last year included just 10 months of the increased rate voters had approved the year before.

The utility funds -- solid waste, water and sewer -- did not work out so well. The council will have to raise rates on all three to cover increased costs. Councilors pointed out that even with the increases -- 1.5 percent on water and sewer; about $2 on residential trash and 6-percent on commercial solid waste -- costs the city incurs to provide the services outpace revenues.

Texoma Area Solid Waste Authority recently raised the price to dump trash by $2 a ton, the second increase in as many years. Fuel costs are going up, so hauling the waste from homes to the transfer station and from there to the landfill are higher.

City staff had proposed raising rates by $1 for residential customers and no increase for commercial. They reasoned that commercial business might pick up and balance that account next year and that they might have to raise residential rates again next year. The lower rise in residential for the upcoming year would mean both accounts would still be in the red.

So councilors decided to take the "rip off the Band-Aid" approach, as Mayor Bill Magers said, and raise both enough to get closer to covering costs. Councilors Chip Adami and Joe Smith also said that residential customers should not have to bear the burden of increase, even though the accounts are separate. Magers said these are costs over which the council has no control and is just responding to increases in "hard costs" associated with doing business. With the increase, Sherman's residential customers will be paying about $14 a month.

Smith asked if other cities that are members of Texoma Area Solid Waste Ahthority are having similar difficulties. Staff members answered that Denison residents pay $21 a month and Gainesville $18.

To prevent steeper increases in the past and to postpone them as long as possible in the 2006-2007 and 2007-2008 budget years, the city reduced the fund balances in the utility funds.

"I think we have no choice but to go up," Smith said.

Assistant City Manager and CFO Robby Hefton outlined the city's new long-range financial projections. The figures actually are solid only for 2009-2010, and even those are contingent upon forecasts of the value of the property tax roll and the vagaries of the retail market that produces sales tax receipts and interest rates on investments. Also, items like water sales and commercial solid waste will sway with the economy as the downturn causes plant and business shutdowns or allows them to stay open.

The city embarked several years ago on a multiple-year capital improvements project, funded by contractual obligation bonds, to build thoroughfares, utility extensions to high growth areas and new and expanded parks as well as a significant upgrade to Brockett Street.

The Sherman City Council is midway through the approval process of the draft Comprehensive Master Plan, which details Sherman residents' and leadership's common vision for the future. The city has also engaged in other long-term projects, such as passing a special sales tax to accelerate its road maintenance program, to prepare for growth that will come from the Dallas-Fort Worth Metroplex.

The city also is looking far into the future to secure as much water storage (future water supply) from Lake Texoma as possible. And it has entered a 40-year contract to sell water to Panda Energy, which is proposing to build an steam-powered electricity generation plant in Sherman. The plant will require a lot of water and thus have a significant effect on water sales revenues.

The city also has some long-term debt and expenses that it must ensure are covered. These also will affect future spending decisions. Such known expenses include paying for the CO bonds and paying increased city worker retirement costs and cost of living increases. Hefton explained that the long-term projects include only extensions of known factors.

Hefton explained that the Five-Year Financial Projections look at the city's finances from a "very, very high level ... it lays out the financial impact of the things we decide today combined with the decisions over the past years for projects. We've chosen a five-year time horizon ... what you will see are five-year projections of expenses trends and revenue trends. So this is not an attempt to balance a budget in any year other than 2009-2010. ... It's just to give you guys a heads up on the long-term consequences of the decisions we make today.

The council welcomed the new long-term budget planning mode.

Adami, the longest-serving member of the council, said, "The one thing I haven't seen in my years on the council, and this is a compliment to George and Robby, is this type of forward-thinking. In a $30 million budget, you need to have this type of foresight."

Hefton accepted the compliment, but added, "But here's the kind of selfish part of it. We are not satisfied with a AA bond rating, and to get to the next level, AA+, we needed to do this, because long-term planning is part of the checklist they go through, like written debt policy ... when they set your bond rating."

Councilor Cary Wacker also applauded lengthening the planning process and council terms. "It's a much more complex set of issues we're dealing with, the sales tax election, the bond issue, the comprehensive master plan, the ongoing capital improvement programs. It just make sense to evaluate these issues with a longer view."

Magers added, "And it makes it easier for the voters to hold the council accountable. I'm not going to say that future councils aren't going to deviate some from the comprehensive master plan, but they better have some really good reasons for doing so."