Staring at a projected $10.7 million funding gap, Waco is poised for its third consecutive year of difficult budget decisions with little fat left to cut.
City staff and council members, all but ruling out a tax hike, are getting behind a seven-pronged strategy to close the gap. That includes a hiring pause on 55 vacant positions and departmental budget cuts and freezes.
Also on the table is cutting $1 million from this year’s contribution to Greater Waco’s main fund to recruit industries. The city and county each pitched in $4.5 million this year to the Waco-McLennan County Economic Development Corp., and county leaders signaled they would match the city’s contribution this year.
Cutting Waco library hours and closing the Texas Ranger Hall of Fame and Museum one day a week appear to be the only service cuts that would directly affect residents. Street maintenance funds are preserved in the current budget plan, as are planned raises for city employees, police officers and firefighters.
“There will have to be hard decisions made,” said Waco City Manager Ryan Holt in a Tuesday interview with The Waco Bridge.
City staffers are drafting a proposed budget for the City Council to review on Aug. 8 after property tax rolls are certified. The budget will be adopted late this summer and go into effect Oct. 1.
The city’s general fund is its main day-to-day bank account, paying for services such as street maintenance, police and fire services, parks and recreation. It excludes user-funded services such as utilities and trash collection.
Property and sales taxes keep the general fund filled — and the core city services that depend on it running. This year, the city is struggling to balance expenses and revenue to prevent a general fund deficit.
The revenue side
- City staff said the war with Iran is depressing consumer appetite for shopping and dining, resulting in a 3.3% decrease in sales tax this May compared to last year. That slump could persist as gas prices remain elevated.
- Home values grew slightly, but when projected appraisal protests are taken into account, new taxable value is effectively flat, cutting into the city’s property tax revenue.
- Meanwhile, the city’s Tax Increment Finance zones have captured most of a $1.4 billion boost to industrial property values created by the Graphic Packaging International paper mill and other new industrial development, depriving the general fund of some $8 million. However, that money is available for reinvestment within the zones and to relieve general fund pressures in some limited ways.
The expense side
- Police and fire salaries account for 57% of the general fund after several years of raises to bring salaries in line with the midpoint average among peer cities, Holt said.
- The Iran war and tariffs are contributing to broad-based, double-digit inflation to items ranging from fuel, chemicals, pipes and even food for Cameron Park Zoo animals, Holt said. The average cost of a new fire truck doubled from around $750,000 in 2020 to $1.5 million today, he added.
In an interview, City Council Member Darius Ewing said the financial challenges did not catch the city off guard, and officials were able to identify savings without layoffs or major service cuts.
“We have been really intentional working with staff to make sure that any cuts or changes we have to make to get to that $10.7 million are done with the mindset of impacting the ratepayer and the constituent the least,” Ewing said.
Stepping back on incentives
Ewing voiced support for the one-time reduction of industrial incentive funds from $4.5 million to $3.5 million.
“From my position, I would feel comfortable decreasing that spend on a one-time basis to help with our budget for this year, because I feel as if we’ve got (the development’s) we need in the bag right now,” he said.
The Waco-McLennan County Economic Development Corp. was established in 1997 to help Greater Waco compete with other cities for industrial relocations and expansions, with incentives based on job creation, wages and tax base. Recent incentives include $6 million to SpaceX’s McGregor expansion, $2 million to Uzin Utz and $8.6 million for Graphic Packaging.
In a Wednesday interview, McLennan County Judge Scott Felton was not enthusiastic about city’s plan to cut its contribution by $1 million this year or the county’s obligation to match the one-time cut.
“I think we’re going to be all right,” Felton said. “We’ve been adding to that (EDC fund) each year, and I wish we could keep doing it because we have a lot of competitors out there for the type of industry that we want. Having a hefty fund there is important.”
Road map to balanced budget
Other staff-recommended cuts and transfers that council members have backed include the following:
- $4.2 million: Delaying a cost-of-living adjustment sought by retired city workers and maintaining the existing retirement policy.
$2.3 million: A hiring freeze for 56 positions across several departments, exempting police officers and firefighters. - $1.9 million: Cross-department cuts to office supplies, travel and training and purchase services.
- $517,000: Reducing the number of assistant city manager positions from four to two by eliminating two vacant positions.
- $447,000: Transferring purchases of new police vehicles from the general fund to Waco’s abandoned motor vehicle fund.
- $386,000: Using hotel occupancy tax revenue rather than general funds to cover city-sponsored events and concerts, such as Brazos Nights.
- $191,000: Closing the Texas Ranger Hall of Fame and Museum on Tuesdays and cutting library hours by 10 to 14 hours a week across the city’s library network. Library hours were also cut last year.
The council did not reach consensus on other cost-cutting options staff floated in June, including a short pause in employee and civil service raises; a $2 million reduction to street maintenance spending; and using Tax Increment Financing Zone No. 4 funding to replace general fund support to the Texas State Technical College WorkSITE facility.
“There are no low-hanging fruits (left),” said Waco’s Chief Financial Officer Blu Kostelich in an interview with the Bridge. City Manager Holt added that the reductions come after “we cut $32 million last year and $10 million the year before.”
“We’re still doing great things for Wacoans during these times, we’re just we’re just being very smart,” Holt said. “Streets are going to be repaired, sewers are going to be repaired. When you turn the tap on, the water’s still going to come.” Holt said residents can still expect marquee city projects to continue apace, from the $25 million Alice Martinez Rodriguez Park to the Barron’s Branch District, a $213 million park and mixed use development on the Brazos riverfront. “We’re still doing all the things the community needs us to.”
