MANAGER’S MESSAGE

Manager' s Message Lake Jackson TEXAS

The Manager’s Message is submitted as part of the Proposed Budget on July 7, 2021. Later, the Adopted Budget Transmittal Letter is published in the opening pages of this document, and itemizes any changes to the Proposed Budget as approved by the City Council. The message outlines major issues facing the City now and in the future. This section also provides a general overview of this City’s financial status, as well as a discussion of proposed revenues and expenditures.

Honorable Mayor and City Council,

It is my privilege to present the Annual Budget for Fiscal Year (FY) 2021-22. It has been prepared in conformance with the requirements of the City Charter and is balanced and presented in a “lineitem” format.

The proposed budget contains my and staff’s recommendations. It is based on direction received from Council during our annual strategic planning sessions, staff input and requests, and economic trends and forecasts.

While this budget gives the appearance of the final budget, it is not. Our City Charter requires that the City Manager submit a full and balanced, detailed budget proposal to you each year. The final adopted budget will be developed through hard work and input of the City Council, interested citizens, and our dedicated City employees.

Introduction

The past year has been trying on our employees, residents and business owners who have shown strength and resilience in the face of the pandemic. Our health care workers, first responders, citizens and employees cared for each other in ways both large and small. During the fall water event, we received an outpouring of help that can never be repaid. We are forever in debt to those who assisted us.

Like many cities, we continue to face fiscal challenges due to the pandemic. Recovery has been slower than anticipated and struggles remain within the lodging, restaurant, and recreation market segments. Accelerated changes from in-person retail toward online shopping, legislative erosion of franchise fees and low returns on investments have also impacted the budget. That said, overall economic trends are improving, and the City’s overall fiscal health remains strong due to decades of prudent fiscal stewardship.

Considering the economic challenges, its impact on City resources, and the priorities expressed in the annual Council strategic planning sessions, the FY 21-22 proposed budget focuses on three key priorities:

 Increased capital investment dedicated to maintaining and improving City infrastructure ($14 million).  Restored operational funds that ensure a proactive approach to maintenance and replacement of existing assets.  Continued investment in our employees so that we can attract, train, and retain staff that can maintain and improve the City’s services to the community.

In the following pages, I will touch on the highlights of the budget and how we propose to address these key priorities.

Executive Summary

The budget tells the story of our local government to our community. It shares both our opportunities and the challenges we face. The budget sets service expectations, identifies and funds capital projects and establishes the financial human resources necessary to accomplish Council’s priorities.

The FY 21-22 budget is a balanced General fund budget of $22,474,610 with a recommended tax rate of 33.40 cents.

FY 19-20 (ADOPTED)

FY 20-21 (ADOPTED)

FY 21-22 (PROPOSED)

GF REVENUES $22,340,112 $21,636,818 $22,474,610 GF EXPENDITURES $22,340,112 $21,636,818 $22,474,610

UF REVENUES $14,672,592 $14,450,633 $15,124,805 UF EXPENDITURES $14,672,592 $14,450,633 $15,124,805

Note: In FY 19-20 major reductions in expenditures were made ($1,512,977) due entirely to the lockdown for the COVID-19 pandemic.

Major budgetary highlights for the upcoming year include:

a) At 33.40cents, the tax rate is proposed to increase one-half cent. The proposed rate is under the voter rate and raises $375,372 more than this current year. b) At $22,474,610, the proposed general fund budget is $837,792 more than the adopted FY 20-21 budget or $134,498 more than the adopted FY 19-20 budget. This equates to less than a 1 percent (0.6%) increase since October 2019. c) At $15,124,805 the proposed utility operating budget is $637,399 more than the FY21 budget or $452,213 more than FY 2020 or a 3% increase since 2019. d) Utility base rate and per thousand-gallon rate proposed to increase 5%. Per thousandgallon rate over 20,000 proposed to increase 6%. e) The Brazosport Water Authority rate for the water we buy is increasing from $3.28 per thousand gallons to $3.46 per thousand gallons or $132,000 per year. f) The Seabreeze Landfill rate is increasing 4.17% or $155,000. Our solid waste disposal contract allows rates to be adjusted each year to reflect changes in the CPI-U (May to May). g) Wastewater revenue losses of $262,000 due to closure of the Wayne Scott main prison unit. h) Proposed budget focuses on restoring maintenance line-items and unfunded positions, providing a 4% market adjustment to all positions, and refunding pay-for-performance plan.

This past May, our citizens overwhelmingly approved $25 million in bonds for streets, drainage, and facility improvements. This fiscal year will begin the design and construction of a new animal control facility, replacement of Pin Oak St., North Shady Oaks, and Forest Oaks Lane, $1 million in street panel replacement and new carpet for the library.

The City’s 4B ½ cent sales tax remains a significant source of revenue for the City to invest in parks, recreation and infrastructure that supports economic development. Though sales tax revenue dipped over the past two years, sales tax revenue is forecasted to return to its previous level. Based on the request of the Parks Board, I am recommending the issuance of $3.5 million in certificates of obligation to fund the replacement of playgrounds and park restrooms throughout the city.

The City’s fund balance, or the City’s “savings”, remains healthy. The major actions taken this previous year to reduce expenditures helped us maintain our savings for future emergencies. The City’s general fund balance, after transfers to the capital projects fund, of $5,710,945 provides 3 months of operating expenditure coverage and serves as a financial cushion for unexpected events.

General Fund Revenue Highlights

The City is fortunate to have a diverse revenue stream. The City’s primary general fund revenue sources include sales tax, property tax, industrial district revenue, utility franchise payments and a variety of other revenues that include permit fees, court fines and recreation user fees.

Property tax revenue is based on the City’s appraised property values and an adopted tax rate. At approximately $2.6 billion, the City’s assessed value is stable. The City has a well-rounded property tax roll with a good mixture of residential and commercial development.

The City typically does not receive actual tax values until after the proposed budget is presented to City Council. As such, the Brazoria County Appraisal District has estimated our values to be 4% more than last year’s certified tax roll of $2,605,805,122.

At $5.34 million, combined commercial and residential property taxes make up 23.7% of City revenues. This revenue almost covers (77%) of the cost to operate the police department. FY 2122 property taxes are anticipated to be $375,000 higher than projected in the FY 20-21 budget.

Misc Revenue 15% Property Tax 24%

Franchise Fees 8% General Fund

Revenue

Industrial District 23% Sales Tax 30%

If adopted as proposed, the tax rate will increase one-half cent to 33.4 cents. This rate is split between 22.7189 cents for operations and maintenance and 10.6811 cents for general debt service. The tax rate follows the 3.5% limit on increases to the maintenance and operations rate with our unused increment from last year factored in, marginally raising our voter approval rate. This in effect allows us to bank our unused rate increase and carry it forward for three years. Our property tax rate continues to be one of the lowest in the state for cities with a population greater than 20,000, with a rank of 86 out of 90 cities surveyed.

At $6,900,000, sales tax makes up the largest category of City revenues. FY 21-22 sales revenues are forecasted to increase $400,000 as our economy recovers. At $5,280,000, Industrial District revenues are stable and are increasing based on the CPI. At $1,730,645, utility franchise payments for the use of our rights-of-way are expected to decline overall as more revenues become exempt from state and federal legislation. Revenue in this category is forecasted to decline $71,962 after increasing our solid waste franchise fee $50,000 to the general fund. I anticipate this trend to continue. Court fees are expected to provide $465,000 to the general fund for FY 21-22. This is $6,000 less than the FY 20-21 budget and $45,000 less than the FY 19-20 budget. Development permit fees are also anticipated to decrease slightly, $3,500 from last year. These fees can vary significantly from one year to the next depending on local construction activities. Based on knowledge of pending projects and historical trends, staff projects fees at $274,000 for FY 21-22. This is significantly lower than the $478,000 budgeted in FY 19-20. Recreation fees are projected to increase slightly but are not projected to return to normal operating levels this year. For FY 21-22 staff forecast recreation fees will be $662,500.

Houston-Galveston Region Tax Rates

0.80

0.72 0.72 0.71

0.60 0.56 0.56 0.53 0.52 0.51 0.49 0.47 0.44 0.40

0.34 0.33

0.22

General Fund Expenditure Highlights

The FY 21-22 budget projects $22,474,610 in expenditures. Expenditures include costs for personnel, supplies, materials, equipment, utilities, professional and contracted services, and other items. Personnel costs represent the single largest category of expenditures.

Overall, general fund expenditures are $837,792 more than the reduced FY 20-21 budget and $134,498 more than the FY 19-20 budget.

At $9,519,470, and representing about 42% of the City’s overall budget, Public Safety is the single largest category of City expenditures. As the Southern Brazoria County area continues to grow with residents, visitors, and businesses, demands on public safety will increase.

The City of Lake Jackson is a service organization and therefore most of the operating expenses are related to labor costs, at approximately 66%. The FY 21-22 budget includes a compensation and benefits package that allows the City to recruit and retain quality employees, one of the major objectives outlined in the City’s strategic plan. For the City to begin regaining its competitive market edge, the budget includes restoration of our merit-based pay as well as a 4% market adjustment for all positions. The cost for market and merit increases is $518,000 in the General Fund.

The proposed budget also accounts for the restoration of two unfunded positions, elimination of 4 part-time nursery attendant positions at the recreation center, and the regrade of four positions due to increased job duties. The total net cost to the general fund for these changes is $5,000.  Restore Parks Groundskeeper - $45,000  Restore Streets and Drainage Laborer - $45,000  Eliminate (4) Part-time Nursery Attendants – ($100,000) Recommended regrades (budget impact of approximately $2,500 each):

 Emergency Management Coordinator to Assistant Police Chief  Administrative Sergent to Lieutenant  Police Officer to Evidence Sergeant  (1) Personnel Generalist to HR Specialist

The proposed budget also accounts for a tentative health insurance rate increase of 2% due to annual inflation. The cost of absorbing this increase is approximately $28,000 to the general fund and $23,000 to the utility fund.

Utility Fund

Water & Wastewater

The recommended rates for FY 21-22 primarily cover the increase in the Brazosport Water Authority rate which will increase 18 cents to $3.46 per thousand gallons ($132,000) and additional funds for maintenance of the system ($340,000). While this rate increase will help us make small improvements, it is essential that we begin a comprehensive analysis of our infrastructure so that we can forecast the needed rate increases to fund future projects.

The average residential customer uses 5,000 gallons of water. For those residents, that cost will increase $2.90 per month from $56.35 per month to $59.25 per month. The new water base rate is proposed to be $14.50 per month for residential customers. The new multi-family/commercial rate will be $29 per month. The residential base sewer will be $14.75 per month, and the multi-family/commercial sewer base rate will be $29.50 per month.

New monthly base rates for residential customers as proposed:

FY 20-21 FY 21-22 FY 21-22 Over 65

Water

$13.85 $14.50 $8.70 Sewer $14.00 $14.75 $8.85 Total Bill 2,000 Gals. $27.85 $29.25 $17.55

Per thousand-gallon rates above the base bill as proposed:

Water 2,000 – 20,000 Over 20,000

FY 20-21 FY 21-22

$4.50 $4.75 $5.00 $5.35

Sewer 2,000 – 15,000 $5.00/tag $5.25

Water & Sewer 5,000 gal Monthly Cost

$100.00 $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00

Sanitation

An increase in sanitation rates is proposed for FY 21-22 to address the rising cost of landfill fees and operational expenses. To pay for these increased costs, a $1.30 per month rate increase is proposed for residential customers, bringing the total monthly sanitation rate to $19. Corresponding increases in commercial sanitation rates of 5% are also proposed along with a $7 per cubic yard increase to $16 per cubic yard for commercial brush brought to the mulch site. I also propose hiring a rate consultant to assist us in revising our rate structure so that sanitation revenues can fund operations without assistance from water and wastewater revenues. In May, Waste Connections, Inc. informed us that they will close the Seabreeze Recycling Center in June 2022. Over the next several months we will study alternatives for transporting our recyclable materials to viable markets so that our recycling program can continue.

Household Garbage Monthly Bill Comparison

$35.00

$30.00

$25.00

$20.00

$15.00

$10.00

$5.00

$0.00

The cost for market and merit increases is $128,000 in the Utility Fund.

The proposed budget also accounts for adding a new Laborer II position to assist “Pepe”, the Light Equipment Operator who most may know from the Mulch Site, at the new Customer Convenience Center and the reduction of overtime due to improved scheduling of overtime during Monday through Friday.  Laborer II for Customer Convenience Center - $45,000  Reduction in Sanitation Overtime – ($150,000)

4B Half-Cent Sales Tax / Economic Development Fund

The 4B half-cent sales tax fund operates a separate source of funding for the City. It shifts items out of the general budget and into the sales tax fund. This lessens the burden on the City's regular budget. In Lake Jackson, this fund was restricted by the voters to Park & Recreation expenditures and capital infrastructure that supports economic development.

The fund annually transfers funds to assist Recreation Center operations, the Golf Course and maintain downtown landscaping. The FY 21-22 budget proposes to increase the transfer to the General Fund $50,000 to $400,000 per year to assist the Recreation Center. This transfer has not been increased since 1996 when it was first established.

Also proposed is the issuance of $3.5 million in debt paid over 10-years to replace playgrounds and park restrooms, and $1,075,500 for park, recreation, and golf course improvements.

Capital Project Funds & Bond Funds

These funds account for resources used for the construction of major capital items. Currently, there are two funds, one for general projects and one for utility projects. The City’s Capital Improvement Program (CIP) –included as part of the budget –provides detailed information about each fund and future projects that could be completed in the next three years. Capital funds are mostly derived from end-of-year savings but may also include grant funds.

With a proposed twenty-four projects totaling $4,188,136, the City has numerous capital projects to manage this coming year.

These projects, along with the first list of 2021 bond projects, Downtown Phase 3, and remaining bond projects, will keep staff extremely busy. These nine additional capital projects found in the multi-year funds summary total $23,963,704.

American Relief Fund

The COVID-19 public health crisis and resulting economic crisis have put local governments under unprecedented strain. The Treasury Department is providing needed relief to state, local, and Tribal governments to enable them to continue to support the public health response and lay the foundation for a strong and equitable economic recovery.

Through the American Rescue Plan Act, the federal government has allocated $5.9million directly to our City government. These funds provide substantial flexibility for each government to meet local needs—including support for households, small businesses, impacted industries, essential workers. These funds can also be used to make necessary investments in water, sewer, and broadband infrastructure.

Staff plans to submit emergency service personnel salaries and benefits for the entire $5.9 million to allow Council the ability to determine projects to spend the funds on. Submitting these projects directly to the federal government, instead of the salaries and benefits, would result in added stipulations and requirements, which would require substantial resources. In the upcoming year, staff will present Council with a list of proposed projects and costs at a public workshop. Initial projects under consideration include generator replacements for the Oak Drive water distribution plant and the wastewater treatment plant, and major updates to the wastewater treatment plant.

Budget Presentation & Workshop

Lake Jackson takes pride in presenting a complete and thorough budget that is easy to read and use. The Government Finance Officers Association (GFOA) establishes guidelines for an effective budget presentation, which are designed to assess how well a City’s budget serves as a policy document, financial plan, operations guide and communications guide. We have been honored to receive twenty-nine consecutive “Distinguished Budget Presentation Awards” from GFOA.

This document could not have been prepared without the hard work of our Directors and Department Heads and the invaluable contributions of the budget committee consisting of Pam Eaves, Finance Director, Toni Truly, City Controller, Milford John-Williams, Assistant to the City Manager, Lora-Marie Bernard, Public Information Officer and Meagan Borth, Assistant City Manager. Their contributions to this document are significant. Staff will provide an overview of the proposed budget at the July 10th Budget Work session scheduled to begin 8:00 A.M. at City Hall. Staff looks forward to presenting the preliminary budget and supporting information to Council.

Conclusion

After withstanding the most challenging year in recent memory, the City is focused on recovery. I am proud of how our residents and business owners stepped up and pulled together during this time and even more so now as we move forward as a community.

I am thankful to the City Council for the extraordinary support given to staff, setting a positive tone, and providing leadership to keep the City moving in the right direction. Your commitment to community service is commendable and appreciated.

I am especially proud of our City employees who work tirelessly to carry out the priorities set by City Council. They deserve much of the credit that goes along with our noteworthy accomplishments and success. I am thankful for their contributions during this past year.

If you should have any questions about the proposed budget, please contact me or Meagan Borth, Assistant City Manager.

Respectfully submitted,

Modesto Mundo City Manager