Decision Points

City plans budget reductions as revenues decline

You may have seen in the news in January that Round Rock bucked statewide trends when its sales tax revenue increased 10 percent compared to a year ago. Most cities saw double-digit declines in sales tax revenue for the month.

Because sales tax revenue makes up 50 percent of the City’s $84 million general fund budget – and usually reflects what’s going on in the local economy – an increase is always good news.

However, the increase we saw in January reflects one-time, out of the ordinary activity from Dell. If you factor out that anomaly, which corrected a prior accounting miscalculation, the data shows the significant sales tax decreases the City has been experiencing the past six months are continuing. If we adjust for the anomaly, sales tax revenues were down 10 percent for the month.

Dell’s presence in Round Rock has been a significant benefit to local taxpayers since the company began operations here in 1994, generating around $45 million cash for capital projects that we would have otherwise had to issue debt for. (When Dell sells a computer or other product via the web or catalog in the state of Texas that generates local sales tax revenue to the City.) Had we issued debt for those purchases, our property tax rate would be 10 cents higher than it is today. Since Dell’s arrival, the City’s policy has been to limit our reliance on that single source of revenue for daily operations because of the volatile nature of retail sales in general and the computer industry specifically.

As Dell’s business model has evolved and the company has begun selling more products in retail stores in recent years, sales tax revenue from the company has been steadily dropping. Because of the changes at Dell and the national economic recession, the City forecasted conservatively when the budget was formulated last summer. We projected that Dell revenue would be down 10 percent, while non-Dell revenue would be down 5 percent. Combined, that’s 7 percent less than last year.

But the revenue decline has been worse than expected – sales tax revenues are down 15.7 percent so far this fiscal year, which began in October – as the recession continues to impact retail sales both nationally and here at home. So City staff is developing a plan to reduce the budget accordingly.  The cuts will include position reductions, and other permanent budget reductions. The plan will be presented to the City Council at its winter retreat, scheduled for Feb. 17.

We will provide details on these and other future changes to City operations – which could include decreased levels of service in some areas – as the City Council provides guidance. Our goal is to deliver the services citizens say are most important while sustaining the City’s strong financial standing.

Your thoughts on the services that are most important to you are welcome, as well as suggestions for reducing expenses. We went through an extensive public process in 2006 to gauge the public appetite for service level changes as well as how to pay for services. That input has influenced budget deliberations ever since. Now, it's time to begin the conversation anew.Join us.

Posted: Feb 10 2010, 02:50 PM by Will Hampton | with no comments
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