During a recent financial update, the Sherman City Council was told the city received significantly more sales tax revenue last year than had been anticipated.
Director of Finance Mary Lawrence told the council that in the city’s General Fund there are approximately 84 days worth of operational funds — known as a fund balance — even though Sherman’s budget only anticipated 78 days of fund balance. Lawrence said that windfall was “entirely due” to a “good sales tax performance” in the city.
“A lot of this is one-time money from industrial construction, which I think you know what that is,” Lawrence said in reference to construction at Finisar Corp.’s Sherman facility.
Lawrence also discussed a property tax reform plan featuring revenue caps proposed by Gov. Greg Abbott that city staff wrote, in a document created for the council, would “severely curtail” Texas cities’ abilities to issue debt in the form of certificates of obligation. Lawrence said the proposal would “really hurt growing cities.”
“We look at this and think, ‘Well, if they’re trying to address property tax revenues being too burdensome, it’s really not the cities that are doing it,’” Lawrence said. “Statewide, city property tax is about 16 percent of all the property tax revenue, so it’s really not cities that are driving the problem I think they’re trying to address with the property cap.”
City Manager Robby Hefton said the prospect of a revenue cap for the city could become a significant issue as Sherman continues its “march forward in progress.”
“It’s just going to create a whole lot of pressure for us and could limit us in our ability to do those things, depending on where they land,” Hefton said. “The governor’s office is considering not only an element of the revenue cap overall, but also capping that amount of debt in the rate.”
Hefton said debt hasn’t been an issue for Sherman, and said the city’s financial staff have done a “great job of managing” it.
“Our issue is we’re in the mode of building roads, which is incredibly expensive,” Hefton said. “So we could be curtailed in our ability to do the projects we believe need to be done ahead of the growth or as the growth is happening with what’s going on down in Austin.”
The city’s most recent debt issuance was in August, when Sherman issued $19.5 million in certificates of obligation at an interest rate that is expected to save the city $1.57 million over the rate used for budgeting. City staff said the funds generated from the sale of the bonds will go toward the construction of sports fields at Pecan Grove West Park, infrastructure in the city’s Tax Increment Reinvestment Zone No. 7 on the southeast corner of the intersection of U.S. Highway 75 and FM 1417, participation in work being done by the Texas Department of Transportation and street projects such as the West Travis Street development.
Hefton said the state legislature’s ultimate decision on Abbott’s property tax reform plan could impact Sherman’s planning for 2020, though there are parties making sure legislators are aware of concerns such as Sherman’s.
“We have folks on our behalf that are trying to get the message heard,” Hefton said. “I believe there is going to be a revenue cap in place that is lower than the current cap. The level at which it happens could have a dramatic effect on us.”
Lawrence told the council the revenue cap proposal could limit Sherman’s ability to determine how it funds city operations.
“We don’t need a revenue cap because citizens always have the power to influence the tax rate through you and through elections,” Lawrence said to the council. “If we want to raise our rate or don’t want to raise our rate, that’s really your choice and not someone else’s.”