City begins FY26 budget discussion, examines core issues

The city of Graham began its upcoming fiscal year budget discussions last week and a template to move forward as it looks to adopt a budget by August.

The meeting Thursday, Feb. 13 was led by City Manager Eric Garretty, who discussed the key budget issues faced by the city as it begins the planning process. Garretty wanted guidance on the budget from the Graham City Council to take back to the city departments in March or April.

“I’ll hand out the proposed budget sheets to each of the departments, each of the departments and they’ll go line by line. What they’re primarily looking for there is any of the ‘known knowns,’ we call them, (such as) increases to contracts that we have to get… all those kinds of year over year, recurring expenses,” Garretty said. “…Then they’ll talk about any initiatives that they need and discuss those with me so that when I come back to you in the May time frame ...and then that leads to the discussion of the tax rate as we move into the heart of the summer, with the ultimate goal of having a budget passed and adopted by the end of August.”

One of the biggest issues the city is facing is declining sales tax revenue, but this month the city did receive the positive news of a 129.2% increase from the previous year, or an increase of $234,451.33. 

“If sales tax revenue does not recover to a level of $3.1 million or higher, and property tax values increase by 4% or less, ...we won’t be able to give any cost of living adjustments to any employee without cuts to another program, like streets,” Garretty said. “If we don’t give some form of cost of living adjustment the city manager thinks we may lose folks as surrounding cities continue to raise compensation levels.”

The city’s sales tax collection year to date stands at $977,000 and the city is estimated to collect $2.9 million of its budgeted $3.1 million, or a $200,000 difference.

The city council wanted a proposed budget with Cost of Living Adjustment (COLA) added in and believed not having one was not an option. Council Member Jack Little said core services are central to the city.

“We’re talking... police protection, fire, streets, water and sewer. ...That is our obligation as people on this council to drive our city, but that’s the core that we provide to our citizens,” Little said. “...When we get to where we can’t do that, we have failed. When we get to we don’t have people to take care of that, we have failed. When we’re not taking care of our people that do that, we have failed.”

The city manager estimated a 1.5% COLA increase adding $150,000 to the base budget, a 2.5% COLA increase adding $200,000 to the base and a 3.5% COLA adding $260,000 to the base. 

“Last year we did a hybrid COLA. ...We took everybody to $13.50 an hour, to give them a better wage for our lowest paid employees,” Garretty said. “In this (new) hybrid (we’re) taking them to $14 an hour. Concentrating on police and fire, we just got full staff in both of those departments, trying to retain them, giving those folks a 3.5% COLA. On the top three salaries, which would be the city manager, assistant city management and the city secretary, taking them at 1.5% and then everybody else, anybody who doesn’t fall into one of those three categories, at 2.5% rough math says that’s about $230,000.”

The council spoke about planned vehicle replacement, but came to no conclusion on the direction on if vehicle replacement should be included in the proposed budget. 

“There is a hidden cost to not replacing your fleet vehicles. Your vehicles are used by your city employees to provide services every day,” Garretty said. “Not replacing vehicles increases maintenance costs, it reduces service availability while vehicles are in the shop and we’re kicking the can down the road for future replacement.”

The city manager recommended budgeting $918,000 for cash-funded water projects which breaks out into $200,000 for water line replacement, $618,000 for water pump station rehabilitation and a potential $100,000 for engineering services to study Graham’s water supply system.

“When I think about the kids and grandkids of the people in Graham, there’s going to be an extended period again in north Texas where it doesn’t rain, and the lake is going to get down to 20% or 30% again,” Garretty said. “I think if we don’t at least take the opportunity (to hire engineers for a study) to see if there’s some way we can help protect their future, I don’t think we’re doing our duty to them.”

Another large ticket item for the city is debt for a proposed sewer plant rehabilitation project. Garretty said the city is working with its engineers Freese and Nichols to develop a wastewater master plan and probable cost for the rehabilitation project, which could run upwards of $15 million.

“By my estimate at current interest rates, the annual payment on a 20-year note of $15 million is about just short of $500,000, (or) $496,000,” Garretty said. “I realize that sounds like a lot of money, and it is, and it would equate to between a $9 and $11 a month increase in the sewer rate to be able to service that debt of $496,000.”

The city’s current property tax rate is $0.665 per $100 valuation, and the city is moving forward with a scenario that would raise that rate to $0.695 per $100 valuation. 

Following the no new revenue rate or the current tax rate would put the city in an estimated deficit of $453,203 or $276,005, respectively. 

“I think at a minimum, we’re going to have to go up four cents on the tax rate to 69.5 (cents) and that $73,500 (deficit) there’s going to be enough ins and outs in wiggle room that I think we could balance it out,” Garretty said. “But if that sales tax number stays at $2.9 (million) it’s going to cost us four cents on the tax rate just to balance the budget at more or less the current one.”

The city is also budgeting for an increase to the water and sewer rates of 7% for water on the standard residential meter base charge and standard resident meter volume charge. 

The city is also budgeting for a 4% increase on the sewer base charge and 5% on the volume charge.

“We’re going to have to have a series of increases year over year in water and sewer rates until we get caught up, because we’re behind,” Garretty said. “...We went from 2017 to this year without touching the rates.”

The city manager also requested to save approximately $250,000 to add to the city’s $853,000 in reserves. 

Garretty will move forward to establish a proposed budget for presentation to the council at a later date with the new hybrid COLA and increase in the property tax rate included.

“I think what I should do is I should present to you the budget initially, right at the $2.9 (million budgeted) on the sales tax …and that 69.5 tax rate and don’t put anything else extra in that’s not a must pay and let’s look at where we’re at in terms of revenues, expenses,” he said.