Round Rock considers property tax increase

Round Rock considers property tax increase

Written by Eric Pulsifer Friday, 05 September 2008

To reduce Round Rock’s reliance on sales tax revenue, the city council is looking at ways of diversifying the local economy and discussing an increase to the city’s relatively low property taxes to compensate for the recent decrease in sales tax revenue.

By law, whatever property tax rate the city settles on will be no greater than the current rate of 36.522 cents per hundred dollars. But with the average value of a home in Round Rock up nearly $10,000 from last year, to $185,325 in 2008, even with a lower tax rate, owners will see a cost of around $650 to $676 next year, an increase of approximately $30.

Because of Round Rock’s substantial sales tax revenue, the city has enjoyed lightning-fast growth and some of the lowest property taxes in the state over the past decade. And the company that helped put Round Rock on the map plays a big part in ensuring low rates for area property owners.

Since its 1994 arrival in Round Rock, Dell Inc. has generated sales tax for the city with every internet and catalog sale in Texas.

But sales tax revenue from the computer giant has been down for two years as more of the company’s business shifts from catalog and online purchases, which benefit the city, to sales through big-box retailers such as Wal-Mart and Best Buy, which benefit the cities they are located in.

Though tax revenue from Dell is down, it is projected that 24 percent of the city’s 2009 general fund will come from the company.

Economic roller coaster

For the current fiscal year — which ends Sept. 30 — nearly 62 percent of the general fund came from sales tax, almost twice as much as Austin and four times as much as Pflugerville. City projections show that portion will be down to 58 percent in Round Rock next year. Even with the decline, Dell will still account for $20.3 million of the $49.8 million in sales tax revenue for the city.

Round Rock Communications Director Will Hampton said the city’s budget is structured differently than most cities, but the council has been working to achieve a more sustainable balance.

“Sales tax is a volatile revenue source,” Hampton said. “When the economy is going [well], it’s great; but when the economy is down, sales tax revenue is down.”

City councilman Scott Rhode said leaning away from sales tax dependence would allow for a more consistent and predictable budget outlook.

“If we don’t take a balanced approach and are so reliant on sales tax, then we’ll be subject to future whims,” Rhode said.

In years when sales tax revenue exceeded the city’s projections, the council was able to fund projects and improvements without borrowing money. But if the city does not make changes to the budget, it will go from a projected excess of $2,000 in 2009 to a $3.5 million deficit by 2010 and a $4.3 million deficit in 2012.

Assistant City Manager David Kautz said regardless of economic conditions, the city has always kept in mind the fickle nature of sales tax.

“We’re seeing a softening in sales tax, but it’s not greatly affecting us because of the safeguards we have in place,” he said.

Kautz said that he is optimistic that the city is showing concern and considering solutions sooner rather than later.

“The problem is not here, it’s in the future,” Kautz said. “We wring our hands in advance.”

In the year 2100

At the United Heritage Center, located within the baseball field that bears Dell’s name, the city council held its annual retreat on Aug. 19 and 20. The two-day session is a chance for city staff and elected officials to get on the same page, begin considering the upcoming fiscal year’s budget and long-term strategic planning.

The 2009 proposed budget would maintain current service levels but add police and parks and recreation staff. But rather than stopping at plans for 2009, city officials discussed everything from population to prosperity through the year 2100 to focus on what changes could be made today to affect the future of Round Rock.

At the 2003 strategic planning session, years before IKEA, the Round Rock Premium Outlets and the education and medical growth in the northeast, the council discussed issues such as major retail strategy, economic development, transportation and northeast Round Rock.

“We have a really nicely filled bucket right now, but it’s only half full,” City Manager Jim Nuse said. “What this council is faced with is, how do you fill up the rest of the bucket?”

Nuse said that the city has prepared for these scenarios in the past, but that strategic changes can still be difficult.

“It’s made it easier, but it’s still hard,” Nuse said. “The council has a daunting job, but I think they’re up for the task.”

Based on discussions at the retreat, the task at hand for the upcoming months seems to be growing the city’s tax revenues by redeveloping downtown, growing the lucrative tourism industry and solidifying northeast Round Rock’s status as a medical education hub.

Although attracting new schools and hospitals that do not pay property tax may not seem to affect Round Rock revenue directly, Nuse said they help by expanding the city’s revenue sources.

“Most of those types of facilities are off the tax roll, but they still bring in great value to the community on many different fronts,” Nuse said. “[They bring] the intellectual capital obviously, but also create a lot of jobs that provide private support for those types of public facilities.”

As these types of schools and employers bring in more people, property tax is typically lowered and sales tax revenue increases. This creates a cycle of growth where more talented residents attract new employers looking to relocate near an established labor force.

Searching for experiences

Tourism consultant Roger Brooks, who helped the city establish the Sports Capital of Texas brand four years ago, returned this year to encourage the council to strengthen its brand and explained the importance of creating distinct experiences to attract tourists.

“People don’t search for towns — they search for experiences,” Brooks said.

To strengthen the claim to the title of Sports Capital of Texas, Brooks said the city should look at adding a special events center, attracting the sports medicine industry and recruiting more sporting goods stores and training facilities.

Brooks said the brand is important because it creates a niche. These specialized offerings allow even smaller towns to bring in tourists by highlighting the unique experiences they cannot get closer to home.

To help sales tax, Brooks said the city should look to offer more diversionary activities within walking distance of each other after 7 p.m., when a majority of tourist dollars are spent. A revitalized downtown would keep tourists in town for Dell Diamond events from heading to The Domain for shopping and dining afterwards.

“If your locals don’t hang out downtown, neither will visitors,” he said. “You need to decide what your downtown needs to be.”

Quality of life

At full build out, Round Rock’s population is expected to be 250,000. Councilman Carlos Salinas said while that milestone may be unavoidable, the city can work to make sure the transition is less painful.

“As far as growth, I don’t think we can control it,” Salinas said. “But we can certainly try to manage it so that it adds to the quality of life in Round Rock.”

As the council moves forward over the coming months and years, Mayor Alan McGraw said he hopes the decisions made today will be looked upon kindly by posterity.

“The city has an opportunity to shine because what we’re doing is unique,” McGraw said. “Now is the fun part. We get to work on it.”

Lower rates, higher costs

The Round Rock City Council is considering raising the property tax rate higher than the effective rate and looking at ways of diversifying the local economy to reduce the city’s dependence on sales tax revenue, which has decreased over the past year.

The original fiscal 2009 effective rate, or the amount necessary to take in the same amount of revenue as the previous year, was 35.096 cents per $100 dollars of property value. The city may raise the rate as high as the current rate of 36.522 cents.

The property tax rate and the 2009 budget will be voted on at the Sept. 11 and 25 city council meetings.