About the Budget and Tax Rate

The new fiscal year for Frisco starts on October 1, 2009, and your city council is finishing up the budget process. We are very close to approving the tax rate. The economy has been difficult for everyone, including the City of Frisco, and this year has been a little different than those in the past. Our challenge is not just handling our budget, but making sure we do not place a burden on our citizens. We remain vigilant to ensure that we provide the level of services our citizens demand.

I have received a few messages along the lines of "less government, cut - cut - cut" and generally pushing some measures that may actually have the opposite effect of keeping the cost of living expenses down. My reply to some of these e-mails may be good for everyone to read as it does not make the case for higher or lower taxes, only the data we are considering. Please take the time to send us your opinion on this important issue.

If you do not like reading long messages, I will give you a warning that this is one of them. However, I will also tell you that the message is saying this: your city council is evaluating whether to keep the tax rate the same (.45 cents per $100) or increase the rate, but not the effective tax rate (.4650 cents). In other words, the tax amount would bring in the same revenue as last year, and the average home would not see an increase. The difference between the two rates is approximately $44 per year for the average priced home ($291,000). The message below may explain it better, and I welcome your opinions(s).

"Your City Council is taking the time to deliberate this issue and evaluate all available data. I know they appreciate hearing your views, and we need your help to stay focused on the right solution for Frisco. These are difficult times, but our decisions should always follow the basic logic of efficient government and great services. We should not allow outside factors or national politics influence our judgment as to what is right for our community. Together, we need to work toward common goals: the long term health of our community, public safety and welfare of our citizens. We do this transparently and allow input from our citizens on the direction they would like to take. Our form of government is closest to the people, and you are encouraged to contact your Mayor, city council members and administration to get your questions answered and opinions considered. Please help me keep that level of cooperation, open government and transparency in our process to always do 'the right thing' by considering all the options.

First, I need your help to stay focused on the right decision for Frisco. These are difficult times , but our decisions should always follow the basic logic of efficient government and great services. We should not allow outside influences or national politics to enter into doing the right thing for our community. We do that together with the same goals in mind: The long term health of our community and the public safety and welfare of our citizens. We do it in a transparent way and allow input from our citizens on the direction they would like to take. Our form of government is closest to the people and you are able to contact your Mayor, Council and City Administration easily and get your questions answered and your opinion considered. Please help me keep that level of cooperation, open government and transparency in our process and to always do “the right thing” by considering all the options.

Please read this note in a way that is meant to give you as much data as I can and not as making a case for keeping the same tax rate or increasing it. I need your participation in this process, but even more so, your informed participation. That is my goal, to give you information to help you understand our process.

Currently, Frisco has a tax rate of .45 cents per $100 valuation. To see how that impacts your home, multiply your home value X .45 and divide by $100 and that is what you are paying your City. Of course, a majority of our home taxes are school district taxes, which is a separate entity and we also have Collin College and Collin County if you live in the Collin County part of Frisco and Denton County if you live in the Denton County portion of Frisco.

The city’s tax rate is divided into two components: Maintenance and Operation (M&O), which helps fund the operation of the city (not including water, sewer, sanitation and convention and visitors bureau) and Debt Service, which is used to pay for the general obligation bonds that are voter approved. The City of Frisco uses .21 cents per $100 valuation for debt service and .24 cents per $100 valuation for M&O. Our M&O, or what it costs to operate the city, is one of the lowest in the entire region. I believe the next closest city to us is Plano at .32 cents per $100 valuation. Some cities run their cities on double or even triple our M&O rate. While each city is different and I don’t like to typically compare cities, it is never a bad idea to take a snapshot of where you are as a community.

City Tax Rate M&O Rate

Frisco .45 .24

Allen .556 .42

McKinney .5855 .406

I am very proud of our efficient city government and our low M&O rate. There are always ways to make improvements and we have made some major reductions in expenses (see below)

I taped a special “Mayors Corner” with George Purefoy, our City Manager, and Nell Lange, Assistant City Manager, to discuss the budget. It can be viewed here: http://sire-cntl-vid01.siretechnologies.com/SIRE/friscocity/Mayors%20Corner/4521/4521.wmv

The effective tax rate notice can be located here: http://www.friscotexas.gov/communication/Documents/rptNoticeOfEffectiveTaxRate--CityofFrisco-2009.pdf

The proposed draft budget can be found here: http://www.friscotexas.gov/communication/Documents/rptNoticeOfEffectiveTaxRate--CityofFrisco-2009.pdf

The Video and Minutes of the last Public Hearing held on the budget and Council and Citizen Comments can be found here: http://sire.friscotexas.gov/sirepub/agdocs.aspx?doctype=agenda&itemid=7356

Currently, the City Council is considering two proposals. One is to keep the current tax rate of .45 cents. This would mean that the average home in Frisco would see a decrease in taxes paid to the City of $45 annually (the average value of a home in Frisco is approximately $291,000). The other option is to raise the rate to bring in the same amount from the average home in Frisco (what we call the effective tax rate). That would take the rate to .4650 per $100 valuation (again, that would be a $44 a year over the .45 rate, but not a tax increase for the average home. In summary, if we approve the same tax rate as last year, the average homeowner would see a decrease in the total taxes they pay the city of Frisco. If we approve the effective tax rate, the average homeowner would pay the same amount of taxes as they did last year. The City Council does not have a proposal to increase taxes over the effective rate (in other words, to increase your taxes over what you paid last year).

Here are some of the questions I have received and some answers/comments:

1) In tough economic times, you should reduce taxes, not increase them. You should cut services and reduce expenses.

· Frisco put in place cost reductions starting in the summer of 2008.

· A hiring freeze has been in place since 2008. There are 34 unfilled positions, 11 of which are in the fire and police departments.

· Staff was requested to cut 10% from their FY09 proposed budget, which was achieved.

· Staff was further requested in 2009 to cut another 4%, which was achieved

· The current budget also reflects these savings (Fiscal Year 2010)

· We deferred capital equipment expenditures for Fiscal Year 2009 and in the current proposed Fiscal Year 2010 budget, including reduced library materials.

· Staff imposed restrictions in travel in Fiscal Year 2009 and also in the current proposed budget (Fiscal Year 2010)

· The proposal is not to increase effective taxes. Please keep in mind that there is no effective tax increase being proposed or even looked at. The question that the Frisco City Council is facing is whether to keep the same tax rate, which will actually lower revenue from existing value or increase the rate, but not the amount, for an average home. In other words, if Frisco adopts the effective rate, which is 1.50 cents higher, the average Frisco home will not see additional taxes being paid. Meanwhile, Frisco is still experiencing growth and new population figures. Since start of summer in 2008, we have added approximately 5,000 citizens to our population (approximately 5%) with no increase in staffing levels. In fact, some areas saw a decrease and all departments have reduced budgets. We are not like many other cities that are not experiencing growth – we are still one of the fastest growing communities in the country.

2) Why is the current revenue not enough?

· We have a reduction in revenue in some funds and an increase in costs in others:

· Revenue is down approximately $6 Million from the new home permits due to the slow down

· We have been successful in reducing water consumption per state mandates, but at a loss of $5 Million in revenue

· The cost of water that the City of Frisco purchases has increased

· An anticipated Health Care cost increase of 10% was actually 29% percent which is approximately $750,000.

· Unfunded Mandates: Unfunded mandates are new laws passed by the state that require funding through you, the local tax payer. For example, the new cell phone law in schools is an unfunded mandate. The City is required to post signs in all school zones. The approximate cost is $18,000. This is paid by the local tax payer. Some unfunded mandates are passed on to the citizens in other methods besides general fund/property taxes. For example, the new irrigation requirements that the State of Texas passed are funded by a fee for sprinkler system installs or expansions. Again, this is a form of unfunded mandate that you pay for.

3) If the City Council chooses to keep the rate at .45 cents, which collects approximately $44 less per year from the average home in Frisco, how will we balance the budget?

a. As already stated, we have a hiring freeze in effect, which we will maintain.

b. We will use some of our reserve funds (approximately $2 Million)

c. We will not sell any additional capital improvement bonds this year (such as roads, facilities, etc.). This will delay future bond sales also.

4) If the City Council chooses to set the tax rate to an effective rate of .4650, what actions will be taken?

a. We will still use some of the reserve funds (depending on council, approximately $750,000)

b. We will hire 17 critical positions (11 Public Safety, 3 Parks and Recreation and 3 Public Works

c. Depending on Council, minor bond funds may be sold for infrastructure.

5) Why not use the reserves to fund all the needed services?

a. In my opinion, that would be unwise. What happens next year if the economy does not improve? I have view the reserve as a catastrophic reserve fund. It was not long ago that we had a major hurricane that put Frisco in its sights. Luckily, it did veer away from us (although we spend many dollars in preparing). Major man-made or natural disasters can impact our community and we have to always be prepared.

6) Lower our tax rate even more!

a. There is an inherent danger of not having enough money to fund critical city operations. Most City Managers and economists would agree that .24 cents per $100 valuation for a city of over 100,000 may be an inadequate amount for city services . Some of the things that could take place if you are not adequately funding city operations include:

b. Lower bond ratings, which make it more expensive to borrow money for infrastructure (which the taxpayer pays for). This would create a situation where we pay more in fees and interest to build the same infrastructure. Our Citizen’s dollars would not go as far.

c. Lower quality of life, thus less attractive of a city for new corporate relocations and a downward pressure on home and business values (a downward spiral would be created)

d. Higher indirect fees. For example, the exact same home in Frisco has a home insurance rate approximately $150-200 less than in Allen, McKinney or Plano annually. Thus, potentially, for a savings of $44 per year on the average home (value of $191,000), you may lose the cost savings you see in insurance rates due to a fully funded, trained and well equipped fire and police department.

e. We saw what could happen with road funding in our area. Our representatives, while vocally saying they would never raise taxes by increasing the gas tax 10 cents, allowed SH 121 to be tolled when it did not need to be. Now, for the average car, driving on 121 to work 5 days a week, instead of a $60 annual increase, the user pays approximately $1500-1800 annually in tolls. Unfortunately, not enough citizens joined us as our city attempted to stop this un-necessary and unfair taxation of our citizens

I know this was a long message, but I tried to give you some of the many moving parts to the information needed to understand this issue. I hope this, along with the actual draft of the budget, the questions you are asking and your own sources of what it is like living in Frisco, gives you the information to help us as we determine what our rate should be. Please do not bring national politics to Frisco. Let’s make the right decision, whatever that is, with a cool and level-headed look at where we want our city to be and what makes sense for our community. Frisco is a success story. I receive national and international visitors on a regular basis who come to see our financial model. Let’s continue our well planned growth while keeping government small and non-intrusive.