City Council - Special Meeting

Welcome to the City of Pearland. I'll call the meeting to order at 3 p.m. At this particular time, we'll have the roll call. Roll call certification. Madam Secretary, I believe we have all council members present except for Councilmember Echols. Moving on to citizens' comments. Mayor Pro Tem. There were no comments provided or submitted, so moving on. Councilmember Byram, would you present new business item number one, please?

Sure, Mr. Mayor. Presentation regarding fiscal year 2027 proposed budget for property tax supported from the general fund. So, staff presentation.

Thank you, Mayor and Council. Good afternoon. We're here. Welcome to budget discussion number three. This is the big one. This is the one that covers our general fund, our tax-backed debt fund, and the tax rate. So, we can go ahead. What we're going to cover tonight is our strategic priorities and budget framework, as that is the driver for how we put together our budget every year. We'll talk a little bit about the budget development process. And then, of course, with the general fund itself, go through the overview, property taxes, other revenue sources, expenditures, and supplementals included in the budget. And then we'll follow that with walking through the tax-backed debt fund and how we support that with our tax rate. And then just a note in wanting to acknowledge that we do have some outstanding questions from our previous budget discussions, which will be covered in upcoming Thursday packet memos. And same thing for tonight. Anything we have outstanding questions from tonight, we'll follow that up with a memo as we continue to move through the budget process. So, we always like to start with our strategic priorities, and of course, our foundational strategic priorities down there at the bottom are how we do everything. We have to have resilient finances, and we have to have trusted government so that we can do the day-to-day. We can do the what we deliver, and that's a safe community, strong economy, sustainable infrastructure, and a connected community. And it's all to meet our why, and that is to be the community of choice here in Pearland. We also like to take a look at the way we view our organization by strategic priorities. And while each department or division that you see depicted here often covers many of our strategic priorities, if not all of them, most departments have one strategic priority they're most closely tied to, and we tie them to that specific one in a way that we view our overall budget. And as we look at how the budget supports the strategic priorities, this is how we're looking at the different offices and divisions and departments within the budget. So, some of our key ongoing strategic initiatives that do come out of our strategic planning session that we do early every year. Under trusted government, we continue through the process of updating our website. That's in the early stages. We are also developing and made some progress on our artificial intelligence policy framework. Under strong economy, of course, the unified development code update continues on, and we'll continue on that through the fall. We also continue to pursue and expand our sports tourism. And then the Old Town Master Plan implementation, we've got several projects in the early stages of implementation that came out of that strategic plan. For safe community, we continue to replace large fire apparatus. And then we've got our fire effectiveness of coverage study, which will be starting here in the next couple months. We also have under sustainable infrastructure, we continue the 2019 and the 23 bond programs, keeping those projects on task and on schedule, working through our water master plan update, and then also a motor pool, a long-term strategy with our motor pool to make sure that's sustainable as well. Under resilient finances, we have gone through this year a fund balance and internal service funding policy analysis that looked at that from a risk-based standpoint. So, that is a way we were able to achieve some of the things we did in this proposed 27 budget. And then also, mid-range financial planning, we continue those efforts to make sure we're looking not only this year, next year, but into the future. And then under connected community how we're working to our parks master plan update as well as continuing to expand and enhance our ability to provide customer service there apparently an experience team and then also early stages of the cultural arts master plan implementation.

We lose it.

So, just wanting to put the budget in context with a few things we're dealing with. Of course, we continue to deal with some inflationary pressures that continues to make our operational cost increase. Aging infrastructure, we also always have to be cognizant of that and put the right amount of dollars forward to continue to renew our infrastructure as we move forward. New state legislation shapes a lot of things every year. And part of that we'll talk about as part of this budget. It's really left us little room with this budget we're proposing this year for any downward fluctuations in non-property tax revenues, so sales tax or fees and fines. So one of the things we wanted to point out is that when you look at the net taxable values, although the gross have gone up slightly, we've seen a drop from last year. And a big portion of that was linked to Prop 9, which was a constitutional amendment that passed this last fall. And that increased the personal property tax exemption for businesses from $2,500 to $125,000. So if you kind of look at that in totality, our net increase in exemptions, so the net increase in what no longer is taxed at our property tax rate, was about $180 million, and that equates to about 0.8 cents on the tax rate. So we saw that reflected. You see that reflected in basically where the no new revenue rate is compared to our current tax rate. And so that's a great thing for our businesses. It takes a lot of pressure off of our small businesses with that, but it also does have an impact on what we have to deal with moving forward, with this year and moving forward. so operational impacts this budget does focus on maintaining services while meeting the no new revenue rate goal that was set forth we did use some what we will term as short-term strategies to really get there and that's the target based budgeting which has really been a three-year process over the last three budget cycles we've tightened down on what we have in individual departmental budgets, trying to reduce the amount of dollars that are left sitting there unspent at the end of each year. So this three-year process really culminated this year in pulling those departmental budgets down. in what I would term a significant amount to help us reach that. Also going through the risk-based analysis of our fund balance policies. Again, we say that's short-term because you employ those dollars that have been sitting on the sidelines in all these different fund balances. You employ those. You can employ those one time. And then, moving forward, we've got to generate revenues to continue those things or reduce service levels. So, these strategies, in summary, have that one-time effect, and we're going to have to look at other things in the future if we want to continue in the no new revenue environment. So with that, framing the overall discussion tonight, I'm going to hand it over to Rachel Winslow, Head of Office Management and Budget, to walk us through the budget presentation tonight.

Thank you, Mr. Epperson. Good afternoon, Mayor and Council. So we start with what is a budget? A budget is a policy document for our city, a financial plan for all of us, an operations guide for our department, and a communications guide to the public. Our budget cycle started in February with the council strategic retreat, and when budget entry opened for departments, departments continued entering their budgets and meeting with the Office of Management and Budget and their city manager throughout February through April. Budget amendment two was brought forward in July, or excuse me, June. And then July we began discussion of the proposed fiscal year 27 budget, so we incorporated Council feedback and began the proposed discussions this year we brought all non property tax related funds for discussion in July. This continues to break the budget up so that funds that are not dependent or related to property taxes can be discussed first and the general fund can be reviewed in August, along with the tax back debt fund. We'll continue those discussions throughout August, and then in September, we'll have the readings to adopt the budget, the tax rate, the capital improvement plan, all fee changes to prepare for the fiscal year start on October 1st. Briefly, I'll hand it back over to Mr. Epperson.

So, we are a people-first organization, which is not just an external and internal reality. It's also a mentality, I think, we hold, because we are a people-based organization. What we provide, public safety, infrastructure, recreation, all the different things we provide the public are all people-intensive. So being people first has an external focus because we provide all those services to our residents and our customers, but it's also an internal focus because internally we have to do the same. And that's provide great internal coordination and great internal service so that we can provide that excellent customer service externally to our residents. One of the key factors in doing so is ensuring that we attract and retain a highly qualified and trained workforce. Next slide. So, within that, our annual compensation goal is to survey the competition, the people we compete with for employees, and ensure we provide competitive market adjustments to our pay plans. Past practices many years ago was to basically examine the market about every five-plus years, and that often resulted in very large, difficult-to-absorb financial impacts all in one year. so our current practice is to do a survey of our public safety competitors annually and then new and we've had that going for i think three years on pd a couple of years on on on the fire side of things and then um new this year is that we conducted a study for basically all other positions. And then we're gonna get those into a three-year rotating basis so that we can examine those even more closely than we were able to this year to make sure we're staying competitive within the market. So what that means for FY27 is we're already locked into year two of our meet and confer agreement with the police department civil service employees. So that number is already locked in. And then working with the fire administration and the association, we've got proposed an updated pay plan that's got a new rank structure, changes some of the lengths of the steps. That really is a good cost-effective way as we roll into civil service for this year and as we head into most likely a meet and confer agreement with that association as well. And then the compensation study I mentioned a minute ago identified areas that we've fallen behind the market, and this budget aligns those positions with the market data that we went through in the study. And then we also included a 2% market adjustment to the pay plan along with the 2% step, so 4% total for everybody else outside the other pay plans. So with that, I'm going to hand it back to Rachel to walk us through the rest of the budget.

Thank you. So this slide identifies some of the key priorities that were not funded in budget year fiscal year 27. So for information technology, we were not able to budget any additional funds for it capital. And we had to remove the 400,000 that was budgeted for the IT hardware replacement plan. Future public safety technology is being evaluated Our citywide staffing, most departments submitted supplemental requests for additional personnel beyond the means of this budget up to $4.5 million. And so these are submitted through staffing papers and supplementals and are used as the basis of future personnel requests. Least requested additional personnel most highly identified in support roles such as telecommunications, animal control, jail, and record staff. For fire personnel, this budget does allow for the addition of three battalion chiefs, but does not overall improve our ratio of available personnel per shift for minimum staffing requirements. This will be guided further based on the upcoming effectiveness of coverage study. motor pool, we're addressing the age of our fleet and replacing about $4.5 million in vehicles for general fund in total, but that leaves $17.4 million worth of vehicles that are eligible for replacement, but not funded in this budget. Additional funds will be requested in future budgets to make the motor pool sustainable. For streets and sidewalks, we're increasing the streets program But we're still $2.8 million shy of the $5.97 million annual investment needed to maintain the current PCI level. And for facilities, there are no additional funds for capital facility allocation in the budget. And future budgets will need to fund the $9.4 million identified in the facilities assessment study over the next four years. The big picture for the general fund budget that was adopted is that this is a balanced budget. Our annual revenues for fiscal year 27 do exceed expenditures. The fiscal year 26 amended expenses reflect the amended budget, including carryovers. So revenue is recorded in the year it was received, but there were a number of budgeted expenses in fiscal year 25. that did not actually occur until 26, which is why four fiscal year 26 amended expenditures do exceed revenue. But ultimately, due to the amount that was over the 90-day policy minimum for the fiscal year 27 budget, we are recommending utilizing 800,000 in a one-time contribution to the motor pool lease fees for a total of $2.1 million. The general fund budget is supported through partially through property taxes, the proposed property tax rate for fiscal year 27 is below the no new revenue rate, and it is 627892 that is also below our existing property tax rate. So as a result, the property tax revenue based off of the proposed tax rate is 50.1 million for general fund plus a $15.5 million TERS administrative fee for a total of 65.6 million under the proposed tax rate. Under the no new revenue rate, which is slightly higher, it would be 51.5 million with 15.9 for the TERS administrative fee and 67.4 million total. There's about a $1.4 million difference to the general fund. Our own M rate has increased from 35 cents to 35 and slightly more sense in fiscal year 27. And our debt service tax rate has decreased as we have shifted additional allocation from our debt service fund to our own M rate. This slide shows the net taxable value by county since fiscal year 2023, including frozen values, indicating a moderate increase this year. And then this next slide shows the net taxable value, including frozen values with the city and the TERS. Overall, this slide shows a history of the City of Pearland tax rates from fiscal year 17 through 27, and the proposed fiscal year 27 property tax rate is a .2108 cent decrease in the total rate from fiscal year 26, and again, is below the no new revenue rate. This slide shows a median home value for Brazoria County with last year's tax rate compared to this year's tax rate. And here we see that the city of Pearland with the proposed tax rate, this would reflect the $74 overall change to the individual or median homeowner. This reflects the difference between the proposed tax rate and the no new revenue tax rate, both for fiscal year 26 against the median home value. So the difference between the no new revenue rate and the proposed rate on a median homeowner would be $35 a year. General fund is supported by additional revenues. But first, we want to look at that property tax growth over time, bringing it back to our mid-range financial planning. So this is an updated mid-range financial planning scenario, which, again, assumes property tax growth from new value only or about $700,000. Some of our assumptions from prior year models also hold true. So this assumes sales tax growth in line with a three to five year history, as well as other expenditure trends in line with the three to five year history. It is not assuming any supplementals or anything like that. So while we do meet the revenues over expenditures for this year, That may be reflective of the one-time expenses and we do continue to meet that 90-day fund policy in fiscal year 27 going forward through fiscal years 28 and 29. There will be expenditure reductions required to make sure that the budget continues to meet policy and that expenditures do not exceed revenue as they are shown to do here. So this slide compares all the revenue sources from the fiscal year 26 amended to the fiscal year 27 proposed. Property taxes include property taxes shown here include the revenue from penalties and interest as well as prior year collections in addition to the increased operations and maintenance rate, licenses and permits is decreasing slightly due to trend through the Sales and use taxes include the mixed drinks tax and reflects the overall projected increase. Sales tax overall or sales tax directly is estimated to be a 4.5% increase. Our charges for services is primarily made up of the TERS administrative fee and other departmental charges, including EMS and parks. Other revenue for fiscal year 27 is primarily investment earnings at 2.6 million with additional revenue from building rent, sale of property and other sources. The fiscal year 27 revenues include changes to fees across departments and categories, including development and non-development fees. These changes are in alignment with legal changes, cost recovery methods, updates, or efforts to bring our fees into alignment with ordinances. All fee changes and new fees requested are listed in the budget highlights of the proposed budget book. City Council Chambers, and specifically decreased from the amended budget due to carry over there was a carryover street funding from fiscal year 25 to 26 from the infrastructure reinvestment fund. This slide shows the overall sales tax revenue anticipated through fiscal year 26. We continue to see high sales tax growth, and we continue to monitor this every month through both the sales tax report and the variance report. So sales tax revenue is budgeted at $34.99 million in fiscal year 27, which is 25.4% of total general fund revenue. Additional sales tax revenue is budgeted in the PEDC for about 17.35 and that is dedicated for use as defined by state law. So 82% of general fund revenue comes from three main streams, property taxes, sales and use taxes and charges for services and all other revenue makes up only 18% of general fund revenue. For general fund expenditures, just to recap, our expenditures do not exceed our revenues. So we do have a balanced budget. And we are utilizing the amount over policy minimum for a total expenditures of 138.5 in fiscal year 27, leaving an amount over policy of $79,690. So during the fiscal year 27 budget, we utilized a three-year budget utilization method to provide departments with a target-based budget. We came back for an additional 3% reduction, and overall, this approach resulted in 1.5 $3 million worth of savings. These were savings to departments operating accounts, which is anything between office supplies and capital outlay. It does not include anything related to transfers to internal service funds or any salaries and wages. So changes from the prior meetings that did end up impacting the general fund. For the facilities fund, which is an internal service fund supported by the general fund and the enterprise fund, there is a 10% reduction in operating costs. And we also reduced their fund balance so that it will not carry a fund balance anymore or carries limited amount of fund balance. In the IT fund, we removed a $400,000 capital outlay for ongoing IT hardware replacement and also reduced their fund balance to be a nominal recurring fund balance. For the motor pool lease fees, we had identified a plan to transfer 2.5 million annually in lease fees to the capital holding fund. As a result of the budget reductions needed, this amount has been reduced to $1.3 million. Or sorry, we had to reduce that to $1.3 million of recurring transfers, and an eight and a one time transfer of $800,000 for total transfer in fiscal year 27 of 2.1 million. We with that having one time dollars in it, we do not expect that to be able to continue. So for supplementals in fiscal year 27, we only added a limited number of positions. This includes three battalion chiefs and one firefighter funded from the end of January, 2027. These are funded partially by cost savings from the end of part-time positions in the fire department, as well as potential cost savings through overtime. The costs reflected here are the full costs from January without those costs offsets. In the sustainable infrastructure category, we have added an additional 500,000 to the streets and sidewalk repair account, increasing funding from the adopted fiscal year 26 budget of 2.6 million to 3.1 million for the fiscal year 27 proposed budget. In fiscal year 27, we continue to try and highlight the budget by strategic priority This is tied to strategic priority on the department level. So as a result, there are some changes. Previously, the functions of the fire marshal as well as code and health department were aligned with safe community. But the fire marshal's office was moved to trusted government and code and health removed to strong economy. Safe community sees an additional reduction based off of the lease fee removal. All motor pool lease fees were previously budgeted on a departmental level, but now they're budgeted together in the other requirements department or division, and that is reflected under trusted government. So the operations and maintenance support for the internal service fund continues to be budgeted in departments administration divisions for IT facilities and fleet, but not for any capital replacements. Trusted government has increased based off of the full year of the fire marshals office and the now fully staffed customer experience team. So these are positions that were previously budgeted elsewhere in the city and are now being transferred to city managers customer experience office and they are offset by an operational transfer from the enterprise fund. So there's a corresponding revenue transfer that offsets a portion of them. Again, trusted government also includes the other requirements division, which includes the transfer out to support motor pool risk fees, our risk management fund, and also to enterprise fund for water use. In addition to the budget by strategic priority, we can look at the proposed budget expenditures by expense category. Salaries and wages is the largest expense category for fiscal year 27 and includes not only salaries and wages and overtime, but also other benefits such as health insurance and retirement, as well as all costs associated with employee payroll and makes up 70% of the proposed operating budget. Internal service fund transfers include transfers out to maintain the risk fund, motor pool fund, facilities, and IT fund. These transfers are primarily seen in the administration division of departments or in the other requirements division. And due to the reduction in lease fees and the reduction in fund balance in the internal service fund, transfers do show a slight decrease year over year. Buildings and grounds sees an increase from FY26 due to the incorporation of the additional $500,000 for streets, excuse me. We did break out the top professional contractual services expenditures here. So anything over $100,000 that was in that category is shown here. This does compile all utilities across departments and anything that was similar was compiled together to be reflected here. Now we switch to our tax-backed debt funds. So this is our City Council Chambers, interest, also known as our interest in sinking fund and this fund is where the city budgets, the revenue and expenditures for all our tax back debt, it also includes. City Council Chambers, money to pay for the mud rebates it has our tax rate does have two components, the O and M and the debt service, and this is where the revenue generated by the debt service goes. The primary driver of tax back debt payments are the CIP projects. And the fiscal year 27 proposed debt rate is 0.276211 and will generate an estimated amount of 39.34 million for total property tax values including 39.7. So this shows the debt fund income statement here. The miscellaneous revenue includes TERS reimbursement for defeasance as well as UHCL rent. And the transfers in revenue includes contributions from the enterprise fund for mud rebates. They pay for 67% of the mud rebates. Other expenditures shown include all of the current mud rebates and the interest expenses includes all principal and interest payments. Our current financial policies indicate that we will maintain a fund balance of 10% of our debt service payments per year. We will not be maintaining that 10% for fiscal year 27, and we will be bringing forth a recommendation that that be covered by the overall general fund balance policy in order to align better with the intention of truth in taxation. which requests that you do not record or maintain an ongoing fund balance here. It will maintain a positive fund balance, but it will no longer be recommended to be at 10% of our debt payments. So looking forward, forward, we do have an additional budget discussion possible on August 24, if needed. And that's for any proposed changes or questions related to anything that we have covered. And then on September 14, we will have the budget public hearing and then the first reading of the budget adoption property tax rate and fee changes both our development and non development fee changes and the adoption of the capital improvement plan. And then because we are not proposing a tax rate increase for fiscal year 27. There's no need to have a tax rate public hearing. but we will have then on the September 28th, the second reading of the budget property tax rate and fee changes. With that, I'll turn it back over to Mr. Everson.

Thank you, Rachel. First of all, I want to thank the budget team, which is led by Rachel, and includes Chan Tran, Erica Weakley, Henry Anderson, Gabriela De Los Santos, and Nathan Rojas, so thank you guys. Great job on the budget this year. It's lots and lots of work, and to get this thing turned out in the short time that we have between getting the tax valuations, getting the tax rate worksheet, the complicated tax rate worksheet worked through, and everything and budgets in your hands, it's always a mad rush and they do a great job with it. Also wanna say thanks to all the departments and our directors for being flexible, innovative, and understanding throughout the budget process as we were pretty, we pushed on them real hard this go around. So, also want to recognize that in tonight's council meeting, item three is an item to establish the max tax rate that we can adopt. We set that as part of the item tonight actually at the no new revenue rate. So, that's that .637892, which is actually one cent above the recommended tax rate. But the no new revenue rate meets that goal. We set into that to allow council to have some flexibility to allocate additional funds towards streets, the capital holding funds for IT or facilities or any other priorities. But of course, that's at the council's discretion on where to set that tonight. And just want to point that out. The other thing I wanted to talk about a little bit is we've talked a lot about no new revenue rate. and just want to share what that means for the public. No new revenue rate really doesn't account for the inflationary cost that we see as an entity. It's the same inflationary pressures felt by our citizens and our businesses, and it hits all of our departments. No new revenue rate only provides the same amount of revenues from the same properties year over year. So, as our personal cost, our supply cost, infrastructure cost, training cost, just all the costs that go into what we do to provide service to our citizens. As those increase at no new revenue rate, we have to cover those costs by either new valuation, new assessed value going on the ground, increased sales tax, or increased fees, which it's not normally possible at our current development stage as a city to continue to cover those increasing costs just by new value, increased sales tax, or increased fees. So while, you know, able to actually exceed the goal to present to Council a no new revenue rate for FY27, what we've done this year to get there is not really repeatable year over year. You know, looking at the risk-based fund balance policies, looking at pulling down the budgets for the individual departments with the target-based budgeting, those aren't necessarily repeatable year over year. So basically, at our current service levels, that means no new revenue rates are unsustainable long term. But knowing that we all have a lot of pressure on our water and sewer rates at the same time, I understand why we want to hold the line as best we can on property taxes. We've got to look at both of those equations, but they're also, even though they are separate. And I say all this just to say if we want to continue to have no new revenue as a goal in the future, one of the things we're going to need to do is really have a better long-term strategy that looks at both our service levels and how we deliver services, so that's the expense side of things, what those service levels are and how we deliver them, and also how to better encourage growth and infill, which is the revenue side of things. So what are some better long-term strategies to make this sustainable? And when we talk about service levels, some examples are, How frequently we mow the medians in the parks? Do we go with less frequent restaurant inspections? Are we more reactive as a code enforcement, the code enforcement things we do, as opposed to trying to be proactive? Do we have to look at how we deliver streets and drainage improvements and the sustainability there? Do we look at the community events that we host and how we subsidize those? And then we also have to look at the way we deliver services, use of AI, use of outsourcing or insourcing, if there's an ability to reduce costs there. In summary, while delivering a budget for FY27 that continues the services, the current service levels, it leaves a little room for fluctuations in sales tax or other non-property tax revenues. So while we look forward to your input on this year's budget, While we also think about the long term, which we plan to really kind of focus on and examine in a lot more detail at our next strategic planning session early next year. I just wanted to kind of put that out there that while I think we've delivered here a good tight functional budget, keeping service levels, we've really got to start thinking more strategically long term on what we and how we deliver it if we want to continue to be sustainable and deliver for the long term. So with that, Mayor and Council, I'll hand it back to you for any questions about this year's budget. Thank you.

Thanks, Mr. Everson. And thanks to your staff for the information. Council, I'll now open the floor to just general discussion and comment.

Thank you, Mayor, and thank you, Rachel. Very informative. So, I do have a question, or I don't know if we can maybe look at the 25 tax rate and the prior year value loss in 25 compared to 26. that we can actually see the impact that that new Proposition 9 has impacted our tax rate. Because our non-new revenue tax rate is currently higher, the proposed one is currently higher than our adopted tax rate. So, I think if we can get some more information on that, Victor, and maybe do a comparison, that would be great.

Yes, I think Trent and his preamble referred to it in the memo that we put out after this. We can include that, yes.

Thank you. I have one other question. So on page 15, we're showing that we have a balanced budget, but then on page 59 of the budget binder, we're at a net loss. So I'm just assuming that that's the $800,000 transfer from the fund to the motor pool?

Correct. We're not able to highlight one time through the system, but that is the reflection. Thank you. Thank you.

General floor, it's open for discussion. Thank you, Mr. Mayor. I have a series of questions, thoughts. First of all, thank you guys. I think this budget reflects the fact that we all take strategic planning seriously at the beginning of the year. That's where we set our goals and our milestones, and we said we wanted to look at a no new revenue rate budget, and you guys delivered on that, made some hard decisions. in order to do that, so I appreciate it. One of the questions that I had is, one of our strategic priorities is sustainable infrastructure, and where does our IT infrastructure land? Would that be where we would put it? Because I don't see it really called out anywhere. I would think that's where it would be.

Yes, IT is included along with sustainable infrastructure.

Sustainable infrastructure, okay. And previously, we had an analysis of our long-term IT infrastructure that's going to require, or at least the study said was going to require a $26 million investment over the long term. When was that study done?

I believe it was done three years ago, 2023.

And how much of that 26 million have we actually funded at this point? What was shown in that study?

Not much. In all honesty, I want to say last year, or this current year was 400,000. The previous year was 600, if I'm not mistaken. but I'd have to get back to you on the exact numbers, but nowhere near 26 million.

Sure, but if we could get those numbers on how much we've actually chipped away from that, away at that 26 million, and what that study said, was that 26 million over 10 years, 20 years, five years, I would like to know that as well.

So I can answer part of that. It was $26 million over five years, but that was with an understanding and an expectation that certain software solutions and hardware solutions were coming due for replacement. Some of those have been backed off from the vendors, right? So we've been able to extend that out a little bit further, but we're actually going through a whole analysis on when things, software solutions and hardware solutions will be coming due. And then if you guys are or if councils unaware, technology has been incredibly expensive lately with some of the advances of like data centers and all that. So those costs have gone up considerably. And so long term or short term, making some of those investments probably isn't necessarily in the best interest of the city. So if we can extend what we currently have, that's what we're trying to do.

Okay, great, and I appreciate that last comment as well because my concern in all of this, I mentioned it last year, is obviously we have a finite amount of money and we can only invest in certain places. We can invest everywhere, but if we keep not investing in IT, that's going to jump up and bite us in the future if we don't pay attention to it. I definitely appreciate the perspective that now might not be the time because of cost of things. Again, reflects Shell's commitment to protecting our taxpayer dollars. But I would like to see those numbers and kind of where we're at as we make these budgetary decisions on how we're dealing with with our IT infrastructure in particular. On the preamble from our book, as Victor mentioned, commented a couple times, and Trent, you said it this evening, that some of these changes are short-term moves that we can make. Does that mean, short-term really mean one time? Or does it mean we might be able to do this a couple of more years? Can I get a little clarity on? I would say one time.

Victor's shaking his head. And, you know, a lot of that's the examination of our fund balance policies from a risk-based standpoint. Just, you know, looking at them across all of the different funds and recognizing that while we carry a 90-day fund balance in the general fund, That allows us some flexibility to not carry as large of fund balances as we have in the past in some of our other funds that the general fund ultimately supports. So, you know, we're in our health fund, health insurance fund, we've typically carried somewhere between 20 to 30% in there. We looked at, examined those from a risk-based standpoint. What is our risk? And if we really did have a problem there, we still have our 90-day general fund fund balance policy. So, instead of having those dollars basically just sitting there on the sidelines year over year, going ahead and employing those dollars.

Okay. Thank you for that. On the TERS, Correct me if I'm wrong, the TERS ends in calendar year 29, but it hits our tax rate or our books in fiscal year 30. Is that right? Okay. Yes. And so, in the meantime, we're getting an administrative fee, not the property taxes. Do we know kind of what percent that administrative fee is compared to the taxable value?

So, I think the administrative fee this year is about 58%. 58%. 58%. And so, kind of the way, and it all goes into the operating fund, the O&M side of the equation. And our operating fund, the portion of our tax rate that goes towards our operating fund right now, if you look at O&M versus the debt service, is about 56%. So we're not too far off from when that comes on the tax rolls that we would see about the same amount going into the O&M, but then the balance of it would be going into the debt side of the equation. And just as a reminder, we do have schedule. We've actually scheduled it now, the first meeting in November, to do that deeper dive into what the end of the TERS may look like, and we're going to couple that with also looking at some of the the mud rebates and the potential to look at when some of the in-city muds may be ripe for collapsing potentially.

Okay, thank you. Two more questions and I'll be done. Slide 13 from the presentation. So, obviously, we have different percent raises depending on, we have meet and confer, and we have step, and we have everything else. Is there a way, as we often look at, well, what is COLA year over year? Is there a way to kind of calculate this out and let us know? What I looked at is COLA somewhere would project to be 3.6 to 3.8 percent, or 27. Is there a way to kind of aggregate this and say, on average, we're doing an increase overall of X?

everybody together well I know we can take yeah I think you almost have to you know look at it like what are we doing on on the PD under the meet and confer which is basically it's effectively a market adjustment of six percent it's done in two different step two different time frames, and then they also have their step once they hit their anniversary. And then on the fire pay plan, it'll be an advancement to their next step. But we can give some more details on that. But, you know, we look at it less as a COLA and more of a what is the market telling us, you know, from being able to attract and retain. So we do more of a market study than what's the cost of living going up.

Okay, fair enough. Would we be able to get a little more detail from that study?

Yes. Do we have a memo coming out? We do on Thursday. There's a memo that'll detail the process we went through. And like I said, we've done, I think, two to three years with PD and a couple of years with fire. A lot of detail going into that and looking at who we compete with for employees to retain and attract. And so taking that same approach with the rest of our staff is, is new this year. And that's a lot of what, what will be detailed in that memo. So that's coming out. Yes, sir. Yes, sir. Thursday. Thank you.

And then my last question, slide 39, um, You guys do an excellent job presenting all this information. Rachel, you said something about, and I'm sorry, I just didn't quite follow you. You said something about 10% being offset by the general fund. Can you explain that a little better or a little more? Not better. That's probably my fault.

No, it is okay. Our current financial policy states that our ending fund balance should be 10% of our overall debt payment, which would not be a number you could pick out from looking at this. But in light and truth in taxation, we will not meet that 10% of fund policy minimum goal. And so we will be recommending in September, we'll bring our financial policies forward. We will be recommending to decrease that. And then we will also cover the debt service fund with our general fund reserve policy instead of maintaining a 10% minimum here.

So, related to what we talked about a little bit earlier, that's part of that risk-based analysis of our fund balance policies. And this one is, I think, also driven by the truth in taxation. So, the actual tax rate worksheet, when you work through that worksheet, if you've got any fund balance in your debt service fund, it basically applies that. So, Victor's probably...

Yeah, sure. So the intent clearly of truth and taxation is to allow you only to raise taxes related to debt payments you actually have to make. So it eliminates the scope to have essentially a fund balance. We have accumulated one over time and effectively the truth and taxation worksheet is requiring us to apply that. And this year essentially will eliminate the fund balance. So going forward, there won't be one.

So this was kind of a fund balance on top of our fund balance policy. So we're smoothing that out. Correct. Awesome. Okay, thank you all.

Thank you, Mayor. First of all, to the budget team and to all those that put this presentation together, I just want to say thank you. This is a very tedious, it's my second budget to go through, and I know there's a lot of effort that's put in, a lot of hours that are put in, so I just want to echo what Trent said and say thank you. Thank you to everyone that spent so many hours putting that together. If we can go to slide 21, it's more of a, I guess, I don't know if this is a correction needed, but it was a little confusion for me until I crunched the numbers. And I think where it says at the top, FY27 is a 0.2108 decrease in total rate from 26. Shouldn't that be 0.002108? Because by the looks of it, I mean, it looks like it's 21 cents.

It's maybe a little bit confusing. I think we usually put a dollar sign in front of this, but we put the cent sign behind it, so it's actually .2 cents. Okay. But if it were a dollar sign in front of it, it would be .0021.

Okay, so I just, you know, from the average, you know, not only did I look at that, I was like, okay, I crunched the numbers, but anyone, any citizen looking at this, I just want to make sure that it's as accurate as possible. Moving on to, let's see, let's go with slide 33. Can we put a little bit more context as to three battalion chiefs and those money spent for 27? I heard that there was maybe some titles being restructured and there's some things that are going on, but I'd like to have a little bit more understanding on three battalion chiefs because those are such high-level positions, if I can get a little bit more context on that.

We can provide that in the follow-up. There's also a little bit of that in the introductory transmittal letter, but we can provide more detail in the follow-up.

Okay, let's see.

Just to expound upon it a little bit, is that going to civil service, we had part-time firefighters And under civil service, we basically have to eliminate those positions, so we're taking those funds and really addressing kind of the top priority need identified by the department from a personnel standpoint, and that is at the battalion chief level, because on any given shift, with our seven stations, six, how many? Six stations. We have one battalion chief on duty. It creates, with the size of our city and the amount of our calls, it creates a span of control issue and concern. And then anytime any of them are out, that drives a significant amount of write-up and overtime pay as well. So it's those two things driving that is the highest priority there. But we'll provide some more follow-up. Okay.

Last question that I have is, what is the penny difference? What is that? If I heard correctly, it was $1.4 million. Is the difference in that penny between the no new revenue rate and the proposed tax rate that y'all are proposing? That's correct. Okay. Thank you.

Hi. The budget's beautiful. Thank you so much. On slide 26, I just have one question. It says, the other revenue, I think you mentioned a little bit about it, but why is that such a big difference?

The major component is on investment income, and that's a function purely of interest rates. So we're making less money on the money we have, and we have a little bit less money to make money on to start with. So the two things together mean it's about a million dollars less.

Wow.

All right. Thank you.

Just to remind, floor is open.

Thank you, Mayor. So I do appreciate your time, Trent, and your team's time on this. And I know I advocated for the new tax, no new revenue tax. I think earlier, I know I missed the meeting about the water budget hearing. And I think we were talking about a 12% and we brought it down to 10%. And I think the council had a, I would say a very heartburn at even 9% increase in water rates. So I'm gonna take the unpopular route here and explain that we may need to consider a couple of things. One, when I looked at your budget, and I couldn't get the exact dollar amount, and maybe Rachel, you can help me out. What is the natatorium cost of operating that? Do we know what the cost is? I couldn't find it in the budget.

It's a combination of our parks aquatics division with some costs taken out and some costs from other places. So we already have a question concerning the natatorium operations and we expect that to be in a Thursday packet this week.

Okay. Just to clarify, sorry. Natatorium alone or Recreation Center and Natatorium?

I think Natatorium alone. And the reason I ask you, I've been given a lot of numbers in the past of what it costs to run that Natatorium. And in the past three years I've been here, I've always said that we need to find a way to have that break even. My take is on this council, we're not in the... I guess, business of an auditorium. I see Lifetile Fitness and the new one that opened up recently helped me out here, Crunch. And I don't think we're gonna be good at this. I think this council needs to have a deep conversation of what is the savings if we exit and dispose of this asset. That is not our primary business. And I think if we're going to sit here and talk about budgets, I think that's a very important conversation we need to have now and really consider exiting something that is not good for us. And I think we need to understand what the cost is, what it costs to operate it. I know we spent, I think, correct me if I'm wrong, $3 million or $3.5 million recently, Kerry?

On the capital repairs for the building, yes. Our portion of that project was about $3.5 million.

And I know that this Paraland ISD exited, which was a smart move on their part. And I think that's another conversation, because I think that will help us understand how much money it costs to run this at a net loss. I think that's really important, because that impacts our general funds. The other thing I would tell you You know, I know we're going to talk about the policy change, and I get it that it's a one-time hit. Right now, it's a 90-day. What does it look like if we go down to 60 days? My calculation was we would save $11 million, approximately free up to $11 million. It's a one-time hit. I get it. But it's $11 million that you would save up if you went to 60 days. And again, Victor, you can correct me if I'm wrong, but another thing I would ask you, later on tonight, we're looking at McCalla Transit Pipeline water line. And the reason I'm bringing that up now is we have significant amount of money coming into EDC. Now, I don't know, Victor, correct me if I'm wrong, that McCulloch project is being paid by the city, not the EDC, correct?

It's, I believe, about 80% funding coming from the feds, and then the 20% is coming from where? The city.

Okay. How can we pass those projects? That can be justified. Because there are plenty of businesses on McCullough at 20%. I think that project, how far north is it, 22 million, 27 million?

The full cost or our share?

Our share.

Our share is about, right, 20.

20 million.

Ballpark.

If we can pass those costs on to the EDC, plenty of businesses there where I can justify the two-mile pipeline going in there. The other thing I would ask you is, you know, you earlier said citizens, businesses, they all are incurring, I guess, inflation. And so are we at the city. But most businesses are holding firm, and I'll send you some articles, on pay raises. Now that's a hard conversation to have in this room. It's a hard conversation to have in any room. But I think we need to consider what would it look like reducing the 4 percent or the COLA down to reality. What every one of us in our businesses are facing. We may also consider a hiring freeze. And I don't know what positions are open that we can't fill. Maybe we need to revisit it. If it's not, we need to adjust that cost and bring it back to our fund balance. Lastly, I would ask you, is this flat adjustment of pay raises and COLA, it's not fair if you guys are not doing evaluations. I think we had this conversation a few years ago. And correct me if I'm wrong, I guess this is a flat across the board, correct? There is no evaluation-based performance or anything?

We do evaluations, but this is not.

Flat, correct. So someone who's working their ass off, excuse my language, is gonna get the same as someone who's... One warning.

Sorry? One warning.

Yes, sir, I apologize, my apology. Swear to joy, I can use that. No, you'll be rich off that. You would kind of think it's not a fair system for people who are working a lot harder than who are not. And I think we need to kind of consider that instead of just doing flat across the board for everybody. And I am absolutely okay even if you went to 6 percent for someone who is just an outstanding employee than someone who is not to get 4. So, I would like to see this budget, if you can make adjustments, right, to see what would it be if we didn't do, I guess, a 2 plus 2. What would it be if you did what the, correct me if I'm wrong, I think the national average was less than 3 percent on the inflation. But I think there is still some room that we can squeeze.

So the saving by eliminating the 2% market adjustment I assume you're referring to for everybody else excluding police and fire is $360,000. $360,000.

And just adding to that, we've, you know, looked at the market. So that's what is everybody else in this region doing that we compete with for employees retaining and attracting. And if you strip out the public safety side of things, which are generally higher, the average we've gotten information from the cities we're able to get them from was right at 4%.

And I do appreciate that, Trent, but everything's on the books. Everything should be on the table at this point. So that's my take.

Thank you, Mayor. First off, as a proponent for the no new revenue rate, I want to say thank you to everyone from Trent all the way through the departments that looked at this, came up with this, went on to go ahead and come up with a budget that was a penny under. no new revenue rate, which puts us underneath our current rate. So I appreciate everyone from department heads down as well as Rachel's team for accumulating everything and presenting this. So thank you very much for that. To kind of echo some of what Member Patel said, one, on the nanatorium aspect, I think it would be good to take a look at it. so that we kind of have an understanding, a grasp of what we have because we did let the school district out of that and we're the sole owner now with uh with responsibility for everything so i think that would be a a prudent thing to do um as far as uh the macawa road uh expansion and and have an edc that is a highly uh at least in the parallel side of it highly industrial part of our city um so i i think that would be an excellent And then on the pay raises, I get market study that's kind of like keeping up with the Joneses. Our current inflation, according to the U.S. Bureau of Labor and Statistics, is 0.8% as of June this year. So when we look at raises, a 4 percent, no matter how you get there from COLA to market to STEP, is a fairly healthy raise. And I'm not saying no raise, but I think that those type things are things that we do need to look at because previous inflation rates for the Houston area have been plus or minus right in the 1 percent rate. So, with that being said, we've been given 4 and 5 without having them uniformed. and I think that's something that we do need to look at. So I would support some type of discussion on those pay raises. Not that I'm against a pay raise, but at the four and 5%, I think it is a fairly healthy raise. So that's what I've got to say.

Thank you, Mayor. So I do have a question. What percentage of the budget is allocated to fire and police of O&M? Is that 50%, 60%? No, it's over 60%. 60%, OK. And I wouldn't be opposed to looking at what that COLA rate would be or a CPI if we can maybe look at that as far as salaries. I mean, I do believe that, you know, everyone is deserving of a raise. I, you know, there's many staff out here that really work extremely hard. And so, I think it's important that they are recognized and paid their market value. But I would like to see what does that budget look like if we were to do, you know, 2 percent or 3 percent.

Well, I've already told you that 2% with the staff that you can actually impact because you're locked in to a meet and confer for police. You're about to... I would assume walk into that with fire. So you're not talking about touching public safety pay. You're talking about everybody else. That is correct. Right. So 2% is roughly $360,000 to $370,000 impact on the general fund from everybody whose pay you can actually practically change through this budget.

Thank you, 2%. Thank you.

a couple of comments uh i would agree as we not necessarily trying to to hold up the current budget but possibly going into strategic planning for the beginning of the year looking at total cost of an auditorium that we can have a discussion in february what does that look like because If we went down that road, we know that's going to be a long-term process to look at and a lot of work that's going to have to go into figuring out. And we unloaded what we need to unload it at, you know, cost-wise to recoup our dollars and all of that. So I would be in favor of looking at that. Sorry, I have to write my notes down or I'll lose my brain. That's why I have my notebook. I also do like the idea, Member Patel, if EDC has the dollars and we can justify it within the legislation on Micahwa, I do know that we, we all know that there's significant projects that EDC is already funding that's already in the pipeline, so we gotta be careful there, but if that's a way that we can help the tax rate, I think that would be fantastic. Victor, I don't know if you guys have an answer to this question right now, but through this new approach to the budget, I know you guys made some adjustments earlier in the year for budget amendment two. You've made some additional adjustments in cutting costs across departments with this I don't remember the term Rachel used, risk-based approach or something of that nature. I'm not an accountant like some of these guys, so I don't know all those financial terms as well. But how much did you guys, by taking that approach, how much were you guys able to save overall?

I think we had a slide on that, didn't we? But that was the target-based budgeting?

Right, that was the target-based.

So while we get that slide pulled up, just I want to comment on Macau real quick. So, you know, EDC is funding, you know, they're far exceeding the 20% commitment for infrastructure projects. And then the other portion of Macau, the other thing with Macau is that that was a voter-approved GO bond program, or bond project, 2007. I think just a couple things to consider as we look at whether EDC would contribute to that or not.

Thank you.

McCowell Road.

So this 1.53 that you've got listed on here, I want to say it was somewhere around 700,000 that y'all were able to reduce the budget for budget amendment two.

I think that was FY25 to 26, wasn't it? And there was another reduction at amended?

So there was a reduction at budget amendment two and then this reduction.

Are both of those caught up in this 1.5?

So the 1.5 is a reduction compared to the current amended budget. And the current amended budget does also have some carryovers in it. So we did recognize some cost savings, but we do also have some one-time expenses from FY25 in there too.

And ultimately what I'm getting at is You guys put a lot of effort and spent a lot of time getting these numbers down and getting us to a budget that we worked at. And I would like to see what that total effort reflected in total savings overall, not just this one portion of it.

We can find that number.

But all of it. And my point behind that is, well, we always want to look at savings everywhere that we can. I don't want to cut our nose off in spite of our face on top of it, which is the reason I asked for that study to see where we are in the market. In my own business, I have to understand where I am compared to my competitors to be able to continue to function. So I believe you said Thursday we're going to see that memo. So I'd like to see that as we have this discussion. But I also want to see what the overall dollar figure was on the yielded savings.

Thank you, Mayor. Just a follow-up comment, just to give direction to the staff. I would also be in favor of discussing the natatorium next year at the strategic priority. A little bit more fuller in depth. I think we have to be mindful of the citizens liking the amenities, but also the reality of... what the numbers look like, if there are loss, how much loss there is, and just bringing that forward. I believe the study was done several years ago, and so I'd like to just have an updated numbers pertaining to that, so.

Okay, so just wanted to, and I had some context to what I was hearing, but also had some questions. First, Mr. Everson, you mentioned November, something about a mud. What was gonna be discussed in the mud, the turds in the mud?

So, we've got a planned discussion of the TURS II, the first meeting in November, which will examine potentially what that looks like when the TURS ends. Just pre-planning as we move through the next few years and approach the end of the TURS, what impact that's gonna potentially have on our tax rate and our budgets. And so, As part of that, we also, every year we examine the in-city muds, especially the ones that we provide the rebates to. And so there's, I think, three muds, Joel's here, three muds, four muds that the rebate does not go away until the mud actually goes away. Some of the newer muds, The rebates went away as their tax rate dropped. And so those go away kind of naturally, but the rebates to these four don't go away. And so those are the ones we really want to examine what their financial situation is, as far as debt, so that, you know, at the appropriate time, we can dissolve those muds and eliminate that tax rebate that we pay to those muds annually.

What's the total amount we pay in tax mud rebates?

Right now, it's a little over $3.8 million.

And then would you mind, I believe it was slide 20. It was the slide that showed the 90-day unbalanced reserves. It showed a decline, a steady decline. Yes. So 24, 25, 26, 27, 28, and then 20 in fiscal year 29. And could you explain what potentially systematically causes a depletion?

So this is our mid-range financial planning visualized. And what we do is we, for the most part, project a three to five year trend on expenditures and revenues going forward. We do adjust for things that we know about changing. So if we were trying to model, for example, longer term opening a new fire station, we could adjust for those staffing costs. Or if we wanted to adjust for increased staffing, this does not reflect any increased staffing, this just reflects trends. So, salaries and wages probably increases by about seven to 8% a year. So that reflects that growth trend over a number of years. Our personnel costs are about 70% of our operating budget. So that's going to be the main factor. I don't know all of the exact numbers, but generally our transfers to our internal service funds, those costs are going up. So we forecast some of those increased percentages. For the revenue here, we held our property tax growth to no new value only. So in this specific scenario, we are only modeling the no new revenue rate. All of this could change. Also, if there were large amounts of new value growth, we're estimating this also based off of trend. So this is only a snapshot picture using a limited number of assumptions. And the further out you get, the less accurate it is. But it is the information we have. And what we wanted to show is that at this current trend, we will have to make significant expenditure reductions in order to meet policy.

So two questions on that. So from 2024 to now, how many years did we have a no new revenue rate?

This is the first year.

First year.

We've had a no new revenue rate or lower in this timeframe.

So based on, and I'm just kind of putting in context the conversations that we're having, which I believe are all justified in that in order for us to deliver the quality of life that I think residents want to see, we have to make some significant decisions or important decisions on how we pay for the quality of life that residents here anticipate and we feel deserve. there's conversations about an auditorium i think justified however i would just put out there that some things can't be cost modeled and i think it's really up to the residents i think it'd be a good discussion to have but just like i think the proposal from macau was to offset some of the costs to the users or the people that would benefit from said road I think the same probably could be approached for the natatorium, where people who enjoy those amenities and quality of life, perhaps we could find other ways to offset some of those costs so it wouldn't be as impactful to the city's budget. I think we're pulling at straws if we're thinking we're gonna cover the cost of increases moving forward for inflation by minimizing staff personnel. I think that discussion, it's a moot point. when police and fire adequately impact personnel costs. Sales tax revenue, I saw it was a 4% increase. Was that the average that's used over the last four years? Or what's the variance? What has the variance been for sales tax revenue increase?

That's actually more in line with the more recent growth we're seeing. We have met or exceeded 4.5% growth for at least the last year to two years. So that one's a more current trend. Sales tax is also more volatile. Sure. Depending on who you want to listen to, we're looking at signs of recession, which could impact sales tax. But we also thought that during COVID and then performed well. So it can be very hard to model. And that's one of the reasons why we report on it monthly.

Sure. But the 4.5%, what you would say is a conservative approach or?

We call that optimistic reality. It's a more optimist, moderate approach.

Optimist, moderate, okay. And then for the foreseeable, in one of the slides I also saw, I believe it was slide 22, 23, where it showed a breakdown of the tax ratios. Just as maybe a courtesy for some residents who may not be in the school district for Palin ISD, just maybe as an addendum or something, would you be able to reflect it just in the future for someone who sent their kids to Alvin ISD, just as a model, just to see what that impact would be? Because I know even in some of those areas, There may be additional muds or community college costs. So when we're looking at trying to estimate what the impact would be for those residents, I know varying geographical areas across the city will be impacted differently. So it just would help for those residents who are analyzing the budget and trying to understand what the impact means to them. It may be beneficial. So just as something to add, if it's not too much of a lift. And then as we kind of continue to move forward, I believe the Pearland Prosperity Plan is what kind of drives how we're making decisions and the things that we're going to invest in. There's some, I guess, some areas of deferred cost. I believe it was our projects. Was it slide 25? It showed, I believe, through the strategic priorities. If I'm not mistaken, it was one of the slides. It had strategic priorities, and it said, these are the things that we are going to defer. And it had $9 million facilities, That's the not funded. Not funded, yeah, sorry, thank you. Keep going. This one, yes, okay. So I have an ask, similar to my colleagues on the natatorium. Would it be possible, well, optimistically possible to have a reality, a table that would outline our deferred obligations so we can understand based on sidewalks, IT, fleet, motor pool, facilities, personnel, staffing, over the next maybe five years, what that deferral would actually look like, and then what perhaps we would need to do to cover that, and then what that impact would be as far as a sales, not a sales tax, a tax increase. Because we've all been talking about costs, deductions or reductions as far as how we're going to pay for the quality of services. But what would the implementation be if the city were to get additional revenues, either from property taxes or sales, to help move these forward? Is that possible? Because we're talking about what we're not going to do, right? But at the end of the day, I think Council Member Byram said it, these IT services and infrastructure kind of has to happen if we're going to be, if we're going to protect our government from malicious attacks or to make sure that we're productive. I mean, to defer these costs would not be, I think, realistic in some aspect. And we would have to incur these. So, the question then would become how? So I think, let's see, I believe that's, all the comments that I had and questions. Yes, sir. Council Member Patel.

Council Member Patel Thank you, Mayor. Real quick, I would ask Trent, I know we talked about 20 percent of the EDC going to infrastructure, but I think my understanding is that's the base. That's not to stop. EDC funding additional funds. And I know they do. I know you're gonna go on that speaker and hit that button and say they already did.

I was just gonna get Matt to say what that average is over the next five years.

And that's fine, that's fine. And I understand that presentation was made and it's significant. But at the end of the day, That money is the taxpayers' money, and that money's coming from, a lot of it is coming from outside, which is great because it's part of the sales tax. The bonds, I understand, were sold or approved in 2007. That's 20 years ago, and I'm pretty sure most of them don't remember that bond package they passed. So my ask, if it's possible and if council will agree, is I think EDC is able to sell significant bond. They have the bonding capacity. And it is my understanding that EDC is required to sell bonds and have bonds on their books, correct? And if we can move some of these capital projects going in the future off our books and move it on the EDC's debt, which is funded through sales tax. It's a win-win for everybody. And I think we ought to evaluate, even though we may have sold the bonds from ACABA, or approved the bonds, but we haven't sold them, I think we don't need to sell them if we can find other channels to find funding. So that's one thing.

Rachel, can you go to slide 25? While she does that, Member Patel, on that topic, just to be clear about my comment related to the EDC funds, I'm all in favor of using them. I just want to be careful that we don't overutilize them and cut ourselves short on other projects that we may have either already committed to or have the potential to commit to. That's all I meant.

And I appreciate that. And so, my request would be, let's analyze. They're getting at $16 million annually. That number's only going to increase. So imagine what the bonding capacity could be. We don't know that plug, that number. So last week, unfortunately I wasn't here, but you guys approved a significant development by Bass Pro Shop. It is my understanding from what I read, that that development is committing to $400 million. I'm assuming that's not being reflected in this budget on this debt. Am I correct? So, this gap gets narrower when that value gets added in the next three to five or seven years. Is that fair to say? Okay.

Yeah, I'd say it's outside of this forecast when we'll start to see significant dollars come in.

Absolutely. But I'm just, again, we're forecasting, so we're kind of trying to, how do we bridge this gap closer? It is also fair to say it's going to generate significant sales tax revenue there, correct? It is my understanding that the city will get majority of that sales tax back, correct? It's not going into an incentive, right? So, we may have other, in the next three to five years, this is going to look very different, right? And so, don't get hung up on this 74 days or 52 days, because in three years, we may see these other projections. Every year I sat with Matt on a budget for 10 years I was on EDC, he gave us the gloom was falling over, and EDC kept growing their fund balance, which blew my mind. Now, the other thing I would tell you, Trent, if you're taking some advice and asks, we talked about the natatorium. I would ask you, anything that taxpayers are subsidizing should be on the table of reevaluating and exiting. If we're not breaking even, if we're not recouping our costs, we should not, our taxpayers of the city of Pearland should not subsidize anybody else. It is a fair point, and I'll get to this, why I say this. Down the line today, we're gonna talk about the ESDs. I think that's a fair point to go back and consider, and I know the study was put off, and we're gonna go back to the study, but we need to consider this, because all of that is subsidizing, and this is where our tax rates are so high, along with chief and the police department. I WOULD TELL YOU I WANT TO UNDERSTAND WHAT IT COSTS TO HAVE THE TRAINING CENTER AND SUBSIDIZING WHEN PEOPLE COME TO TRAIN IN OUR CENTER. BECAUSE THAT IS A COST THAT'S BUILT INTO YOUR BUDGET AND IS BAKED IN HERE THAT WE ARE FUNDING TRAINING OTHER PEOPLE. I DO NOT HAVE A PROBLEM. MY PROBLEM IS WE SHOULD AT LEAST BREAK EVEN. We're not here, if we're subsidizing other people's training or cost, it is not fair to our constituents. I want to get an understanding of every department that you can pinpoint to say, we're helping some other department and we're not breaking even, it's costing us. And I think that's a fair proposal. I know it may be late today, But I think this is a long-term conversation this council and future council must have, and it's a tough decision that will come. Thank you.

Thank you. Mayor, thank you. I have a question. If we went to 60 days of reserve, how much would that free up, Victor? 11 or so. 11?

I would just caution that with the risk-based analysis we've done of all of our fund balances this past year, that puts a lot more reliance upon that 90 days than we've had in the past. And so, I think we would also want to take a look at what the ratings agencies would potentially look at that like. Because one of the drivers that took us from 60 to 90 many years ago was, you know, was some comments from, from the ratings agencies is what I believe drove some of that.

So but there's $33 million somewhere earning less interest based on this or when we can use it 11 million of it anyway, to some of those things on the slide that are not getting the attention they deserve. And we're not doing it just because we might get a lower credit rating. That's our reasoning. Or because 90 days is better. I mean, I know it's better than 60 days, but 60 days is still a comfortable position. And anyway, and the rec center, can we really do anything with the rec center since it was voted on by the residents?

I don't think that precludes us from doing anything that's been talked about.

Is it a, I don't know how to ask this, is the rec center a loss every year?

I think the information we provided to you show that it, you know, all of our recreational programs just about, except for maybe summer camps, you know, there is they're not making money. We're mowing the parks, and we don't charge people. We charge for use of pavilions and things like that, but the mowing costs far outweigh what revenues are.

My recollection, pre-COVID, we were about 105%, so you can call that break-even. COVID hit, and we dropped to 55%. We were subsidizing pretty heavily. And then the last report we had, and Carrie can probably back me up on this, was somewhere around 75%.

Yes. Last year we were at 64%, and this year, I'm sorry, hold on just one second.

So can we clarify that this, what your numbers are, are the recreation center and the natatorium, not just the natatorium? Correct.

Yes, when we report, we do report on recreation center and natatorium together because it's very difficult with membership revenue to assign that to one particular site of the facility. But we were, last year we were at 74% cost recovery and this year we're trending towards, and we'll provide you a memo with some more accurate, more detailed information, but we're turning towards 83% in FY26 and 84% in FY27. And that is correct that before COVID, we were over 100% cost recovery.

We've changed some of our methodology since then, though, right, to make sure we're capturing all the cost?

We do have more technology that allows us to capture the cost more accurately.

You're saying that that technology, more accurate numbers where it might have been a little less. Is that what I'm hearing?

I think it's we're able to track our expenses more accurately when it comes to facility maintenance, mostly facility maintenance.

Okay. No, I was just trying to understand because those were just rough numbers, what I remember through the years of having the reports given to us.

Thank you, Kerry.

Any other comments, discussions? And Council Member Patel, I think it was, appreciate the added context for the fund balance. And my point in bringing it up was just that regardless of what the days are, in anything that we estimate, it shows a negative trend, which means there's something that we're doing that is causing a depletion. And so if we continue to operate in this fashion, it is self-defeating. And so, however drastic that may be, and to your point, I know there's some investments that we've decided on or planned in three to five. As Rachel mentioned, I want to make sure I get the term right, optimistic reality. We don't know what that's gonna be or look like, but what we do know is that historically, it shows a downward trend in depleting the fund. So we should take a serious look at how we are voting on the rates at which we provide residents with the quality of life that I think they're asking for. That's just, whether that's natatorium, whether that's police services, fire services, all of that, I think everything needs to be on the table in discussion, because I think, as they say, the preamble said, it's gonna get tight pretty soon. Any other comments or questions? Oh, sorry, yeah, go ahead.

Yeah, I just had one question. In regards to our fund balances, I think at one point, were we at like 25%? The state rolled us back to 20, somewhere along the line. We had something come back at us one time where they said you need to reduce what you've got.

I don't recall that unless it's related to the debt fund.

Yeah, it was the debt fund.

Okay, and that's what Rachel and Victor mentioned earlier is that the way the tax rate worksheet works for truth in taxation is it basically forces you to where you can't set the tax rate on the debt side any higher than you need for your debt payments that year. So you can't set it higher so that you have a 10% fund reserve or anything like that. So that's why we need to bring back the modification to our comprehensive financial policies to eliminate that.

Okay, I remember something along that and I couldn't remember where. All right, thank you.

Thank you again, everybody. I don't think any other comments or concerns or questions, discussion? Seeing none.

So, just to maybe wrap up a couple things. Yeah, heard some things like the natatorium cost to operate and those things. We'll get some updates there. I think, you know, that's a great topic to work on some things between now and when we get to our strategic planning session as to what that looks like long-term. That's exactly, you know, the type of things that I was mentioning we're gonna have to look at moving forward to determine, you know, what level services that we provide across the board. But I think we got good notes on any of the other questions that we can come back and answer those. And then next meeting, Rachel, the next discussion, we're gonna cover

So there's the option to have discussion for on the second meeting in August, which would only just cover the fee changes in more detail if you had questions and maybe some follow up from this, but I didn't hear other than the natatorium any concentrated discussion topics.

So, you know, we've got what Rachel referenced there is, you know, we took the direction we've gotten over the past year that we need to look at our rates annually and look at where cost have increased, that those go up as well. And so we've looked at all of our across the board fees there. So if there's any questions on that, we can cover those. But if there's no questions there, and this is the extent of the questions here, then we could dispense with budget discussion number four and just provide the memos to follow up. And then, of course, we have to come back, both meetings in September for the budget hearing and the adoption of the budget and tax rate. Any desire to have another budget meeting?

Just a question. So when we talked about the water sewer and utility rates, was that, and they had the 9%, I guess.

9.9, I believe, was the direction. And I believe that there was some questions on some different scenarios, and we'll have those out this Thursday in a memo.

Okay, would that require another discussion?

I don't believe so. I think we got the input we needed at that point to move forward.

Okay, just double check.

That's okay, I can send it via email.

What's that?

He said, why are we looking at other scenarios if you got what you need to move forward?

I think there was an ask for what those would look like, so we plan on sharing those. Both of them are scenarios that I guess would eliminate in its entirety any reserve fund and actually make the fund go negative, so I don't think either one of them are realistic. I think they're kind of just a look at a stress test, you know, of what that would look like, but we'll provide those in the memo.

Got it.

So next budget, budget workshop in two weeks, or we good?

I think you said the next one, we would forego, that's what I'm hearing, we'd forego the budget workshop.

So we've got one scheduled for August 24th, just wanted to see if there was a desire to go ahead and have that fourth discussion.

I think we keep it. I'm fine with keeping it.

Okay.

I agree.

So then we will just briefly touch on the fees and if there's any outstanding items from any of the follow-up memo stuff, we can cover those as well. And if there's anything in between, just shoot us your questions and we'll go from there.

All right. Thank you for the summary and wrap-up. And there's no additional new business. I'll adjourn this meeting at 4.41 p.m.