Monday, August 24, 2015

Aubrey, TX Tax Rate Shenanigans

My first entrance into local government, was a former mayor telling me that I needed to go take out a loan every August, and repay it in October.  When I asked why, he said that was the only way to keep the tax rate high, otherwise you would be subject to a rollback election.  The rollback is the figure that local governments can raise taxes annually.  However, this process can be manipulated by accruing additional debt.  The debt and operational portions of the budget go into the tax formula.  New short term debt is usually enough to keep the rollback rate higher.   If the rate is higher than the rollback rate, there can be a petition drive, which could overturn the council's decision on the tax rate.

My thoughts on that discussion was, "why on earth would I want to manipulate the tax rate to charge higher taxes”?  That simply did not make good sense to me.  If there was a good enough reason to have the tax rate above the rollback rate, be open and honest with the public and let them decide.  However, transparent government appears to be a thing of the past, and now we are subject secret back room deals, from our local governments all the way to the top.  We should demand transparency in our government at all levels.  

I had thought that the days of seeing officials who are willing to manipulate the system to charge a higher tax rate were behind me.  Unfortunately, in my first budget process with Aubrey, TX, those old shenanigans are still being used.  On August 18, 2015 we had the first of many budget meetings.  This meeting was the one where we approved the proposed tax rate of the 2015/2016 budget. 

The proposed tax rate last year, was at the rollback rate of $0.588482 per $100 valuation.  This year’s proposed rate was at the rollback rate of $.566997 per $100 valuation, a drop of $.02 per $100 valuation.  As this was being explained by the town's financial advisor, there was a discussing of moving $92,000.00 of debt around.  So we were essentially taking out some short term debt to pay off other short term debt.  Which as previously mentioned is a tactic to keep the rollback higher. 
I asked a direct question "are we taking out this debt to keep the rollback rate higher".  Although I asked a direct question, I did not get a direct answer.  The answer talked around the subject and led me to believe that this swapping around was actually retiring debt, which I support.  However, after the meeting, a former local official and Aubrey citizen spoke more in-depth with me about this and it appears as though the sole reason for taking out this debt was to manipulate the rollback rate; to keep taxes higher than is legally allowed without an election.  

I voted to support the proposed rate, with the assumption that what I was told was genuine.  Without the manipulation the rollback rate would be around $.54 per $100 valuation.  Therefore, this manipulation raises the property taxes on Aubrey citizens $.02 per $100 valuation.   

There will be a series of public hearings that will allow the public to weigh and also modify the proposed rate.  I will do everything in my power to not support the debt swap and keep the rollback rate at its genuine rate.  As previously mentioned, if there was a valid reason to keep the rate higher, this should have been clearly explained.  However, due to the manipulation, at this point, I will not support a higher rate than the legitimate tax rate under any circumstance.  If it came down to it, I would circulate a petition for a rollback election myself.

Frankly, it bothers me that we have to even be at the rollback rate, which the highest legal rate that we can charge without an election.  However, some of the previous leaders, left this town in a financial mess.  We have a debt obligation of over $600,000.00 this year.  So to provide basic services, we are forced to stay at the rollback rate.  If we did not, we are subject to be in much more vulnerable position financially. 

According to the Texas Local Government Code, the mayor is the budget officer for the city.  Specifically, Title 4, Subtitle A, Chapter 102 states:

Sec. 102.001.  BUDGET OFFICER.  (a)

The mayor of a municipality serves as the budget officer for the governing body of the municipality except as provided by Subsection (b).

(b)  If the municipality has the city manager form of government, the city manager serves as the budget officer.

The town of Aubrey does not have a city manager form of government, so the budget is solely the responsibility of the mayor.  I am not certain of who all participated in the development of the budget, or who came up the shenanigans, but it is the responsibility of the mayor.

I am thankful that a concerned citizen brought this to my attention, otherwise this scheme would have worked.  Unfortunately, most people are probably unaware that this loophole exists and if they are aware, they are naive and think that their officials would never do this.  Officials can't do things like this when the people are educated and involved. 

Again, I will do everything in my power to get this matter resolved.  I sincerely apologize for not catching this sooner.       

Saturday, August 22, 2015

My First "No" Vote.

On June 25, 2015 at a specially called meeting, I cast my first "No" vote since being elected for my second round of serving in local government.  This particular action item was to approve a Public Improvement District (PID), for a development 7 miles from Aubrey, which is now been annexed into the corporate limits of Aubrey.  Some people who I admire and respect spent a significant amount of time and energy working on this development, and I appreciate their efforts. Although, it is very likely that this will not be my last time to vote no on an item, I do feel compelled to explain the rationale behind this particular decision. 

In short here is the explanation of a PID -

Here is the law that governs a PID -

Essentially, if the majority of the property owners in a defined area agree, they can petition the municipality to create a PID.  The city can then sell bonds on behalf of the development, based on the assessment of the property to fund public improvements.   Which on the surface seems not only reasonable, but a practical way to improve certain neighborhoods or business districts, and the expenses are only the burden of those who directly benefit. However, this not the manner in which it is predominantly being used for here in Texas.  It is being used to install infrastructure for new developments.  This allows larger development with a smaller investment. It is easy to get the majority of the property owners to agree, since it may only be a few individuals or investors.  The money for the infrastructure is raised through the selling of bonds, so the developer are shielded from financial risk as well.

The PID is an alternative to "Special Districts" which essentially serve the same purpose, but are implemented without city involvement.  Special districts are created through the legislature.  There is also some differences in the amount of upfront money that the developer has to put up, as well as the total amount of money that can be raised by selling bonds.  Therefore, it is beneficial for the developer to work with the city and have a PID.  This arrangement can also be a good options for cities, particularly if the property included in the PID is located adjacent to the corporate limits of the city.  This allows the property to be annexed into the city and developed under the standards set forth by the city, as well as other concessions.  I am certainly no expert when it comes to these districts, and may have gotten some aspects of this off a little, but don’t miss the forest for the trees. 

In this particular instance, the development is Jackson Ridge, and it is located seven miles to the Southeast of Aubrey, but has annexed into the city.  This development will consist of 1,394 homes, which is actually more homes than currently exist in Aubrey, so this will more than double the population of the town. 

There were many questions that I had regarding the PID, I knew that the bond debt would be issued by the city, but was not sure how much liability the city would have.  As it turns out, the previous council did a good job of shielding the city of liability.  The city's only obligation will be to issue the debt and perform foreclosure proceedings.  If the development goes according to plans the city should also see some increased tax revenue for the community.  As part of the agreement, the developer deeded the city 23 acres of land, and will turn a portion of this into athletic fields, which will be maintained by the homeowner's association.  There are other things in the agreement, which is the size of an encyclopedia, so I cannot realistically go through everything, but if you wish to read it, you can go to the city for a copy.  In theory this should not impact the current Aubrey residents through higher taxes. 

With all of these perks, you might ask what is not like about this development?  Why would I vote “no” for something on the surface looks so beneficial to the city?  As I explained to those in attendance, I am fundamentally opposed to this kind of development.  Quasi-governmental entities and public/private partnerships get some of the privileges of government with none of transparency requirements.  Also, this limits the ability of traditional developers to stay in business.  It becomes more about getting the district approved by the state or local government and less about developing the land in a quality manner and building a good product. 

When this development began, I was under the impression that the city would have to issue around $10,000,000.00 of bond debt for this development, which I believe to be excessive to "offset" development costs for a development this size.  So when the final numbers came out to be $ 55,000,000.00 in bond debt, this was simply more than I could support.  To put that number into perspective, with 1394 lots being developed, that is around $ 40,000.00 of debt per lot, which technically is more than each will likely sell for.  So the developer will not make his money selling lots, he will make money by the city issuing bonds and turning the money over to him.  It is not the developer's business model that will make this development successful, but rather the ability to get politicians to approve this massive debt.  I made a commitment to not approve any debt that would raise the Aubrey citizen’s taxes. 

Having served in local government during the 2008 downturn, I saw firsthand that developers will pull the plug and file bankruptcy the moment things do not look good.  This protects them from deep losses, and this will be the same should we have another downturn.  However, in this case Aubrey will be the ones that will have to do the foreclosure proceedings. 

Everyone is also acting as though this is free money.  However, history has told us there is no such thing as a free lunch.   Each of the 1394 lots will be assessed with an approximately $ 40,000.00 fee, so by the time it is all said and done each person that buys a home in this development will pay around $ 50,000.00 above the original selling price of the home.  This does not include any home owner's association fees, etc.  So the homeowner's in this development will pay for ball fields and infrastructure; it is not free money. If the economy turns south, the developers and investors, walk away, the bond holders are holding the bag, and the city will be doing a lot of foreclosure proceedings.      

The person who buys a home in this development will be notified at closing of the assessment. Not sure what that looks like and whether it is clear or obscure how much extra they will have to pay for their home.  Frankly that would not change my opinion either way.

It seems that whenever you take exception to something or ask questions, everyone triggers that you’re "anti" something.  Therefore, it has been suggested that I am "anti" growth, and that is simply inaccurate.  I moved to Aubrey for the same reason that everyone else did; the small town feel and good schools.  However, growth is coming, and you can either both plan and be a part of the growth, or you can deal with the outcome of the growth. We absolutely need quality growth, which makes this community stronger.  It is very difficult to run a city on property taxes alone, you need sales tax.
One reason commonly given for cities to become part of developments like this is that if they are part of the city, they have to meet the city's construction standards.  The argument is that if they develop outside of the city they may have shoddy building standards that will drive down property values, increase crime, etc.  Which could be true if the development was adjacent to the city's corporate limits; however, in this case the development is 7 miles from the city center, and it is doubtful that most people in Aubrey even know where this development is, much less being impacted one way or the other by the development.  Furthermore, there will also be zero impact to the Aubrey business community from this population growth.    

Another aspect to this is that the number of rooftops will more than double in Aubrey. Once this development is completed, the demographics of Aubrey will change considerably. Also, in 10 years it is likely the controlling votes of this community will be 7 miles from the actual city center.  The legacy Aubrey citizen may be along for the ride at that point.  Which may be good or it bad, history will be the judge of that. 

Immediately after the meeting, I was asked by a local reporter if we should expect to see more votes on principle? My answer, was of course yes.  If we do not have a set of principles that we act by, then eventually nothing matters.  I am sure that there will be an occasion when I will hold my nose and vote yes on an item, but I will always make principled decisions.  What you believe in should be something deeper than a political speech.      

In defense of those who did support this, I understand their point of view.  One of the reasons I ran for office again, was the weak financial situation that the city was in.  We have a massive debt per capita, and our income simply can’t support the things that need to be done in this community.  The good ole’ boys (and girls) that have run this town for so long has mismanaged basically every aspect of the local government.  So there was a feeling that something needed to be done immediately to get the city out of the ditch we were in.  And if the economy in this area continues down the same path, the city will benefit financially from this.  So although I can’t support this, I understand why others did.