Big Spring City Council is faced with a tough fiscal decision in the coming weeks, as the municipality will have to choose between going more than 2 cents above the proposed tax rate or find a way to make up for more than $130,000 in lost revenue.
The proposed tax rate for the coming year — the rate published by the city and certified by the Howard County Appraisal District — is 86.5043 cents per $100 property valuation, council members were told Tuesday.
However, due to a mistake made by the appraisal district in accounting for the values of property appraisals currently being protested, the rate that would bring in the same amount of tax revenue collected last year — known as the effective rate — is now being estimated at 88.8275 cents per $100 property valuation.
According to City Finance Director Peggy Walker, the mistake will cause an estimated $134,694 shortfall in the proposed 2012-2013 budget.
“Every year, the chief appraiser certifies the values which have been fully appraised and includes with that a list of items which are being protested,” Walker said. “The problem we've run into is the tax code states those values should be included at the prior year's value because they have not gone before the review board. These (protested appraisals) are actually listed at the current value, the new appraised value when it should have been the prior year's (value).”
Walker said the certified taxable value — set by the appraisal district and published as $540,530,655 — currently includes protested values totaling $56,959,334. However, the value of the protested appraisals, based on 2011 data, should have been $41,388,584.
According to Walker, the $15,570,750 difference in protested values would drive up the effective rate to 88.8275 cents per $100 property valuation.
“We have published the effective rate and the chief appraiser can only certify one time,” Walker said. “I don't believe, through the tax law, he (Howard County Chief Appraiser Ronnie Babcock) has any ability to re-certify or to make a correction.”
Mayor Tommy Duncan said he feels the council has been clear in its desire to adopt the effective rate, but fears the last-minute jump in the tax rate from what was previously published will leave the governmental body with a “black eye.”
“The bottom line is we, as a council, have committed to the community we would shoot for the effective tax rate,” Duncan said. “I know you and all of the department heads have beat every bush for every penny in order to get there. However, the effective tax rate that was published in the newspaper and certified is 86.5 cents. And, from what we're being told tonight, there was an error in the calculation and the true effective rate should have been published as 88.82 cents.”
According to Babcock, he followed procedures used in previous years and that was what caused the miscalculation.
“Essentially, what we did was followed a past year's procedures and, come to find out, that's not correct,” Babcock told the council. “We filled out the forms this year just like they have been done in the past, and because of the high amount of volume of protests this year, it made a difference.”
Although the certified effective rate cannot be changed, both Babcock and County Tax Assessor and Collector Kathy Sayles agreed the rate would have been approximately 88.8275 cents if the error had not been made.
“It's important for the community to know if we go with the 88.8275 cents, even though it was published at 86.5043 cents, we are not misleading them,” Duncan said. “We are targeting the true effective rate. That's our goal, to collect the same amount of (tax revenue) this year as we did last year.”
Babcock said the miscalculated value won't effect any of the other taxing entities in Howard County because none of them had such a high rate of protested appraisals. Duncan pointed out he believes none of the other taxing entities were attempting to adopt the effective rate.
“They weren't actually shooting for the effective rate?” Duncan asked Babcock.
“That's correct,” Babcock said. “Well, I don't know what they were shooting for."
“Well, at least they haven't indicated they were (pursuing the effective rate),” Duncan said quickly.
According to District 5 Councilman Craig Olson, the other taxing entities in Howard County — which include Howard College, Big Spring Independent School District, Howard County and the Permian Basin Underground Water District — have gone above the effective rate.
“My understanding is the other three entities have gone above the effective rate,” Olson said. “So this is going to be a moot point to them. They couldn't care less. I think it's us who are going to get the black eye.”
District 3 Councilman Glen Carrigan said even though attempts will be made to explain the situation to area taxpayers, he's still very worried about how the matter will “play out.”
“We have been very adamant in all we have been saying up to this point that we are not going to go above the effective tax rate,” Carrigan said. “Even if we put out an announcement, I'm very concerned with how that is going to play. We've made a big thing about not going above the tax rate and I'm very concerned with us going back now and changing that.”
Unfortunately, even if the city council decides to take an estimated $134,694 loss, the hemorrhaging of city funds won't end with the coming year.
“Whatever rate we adopt this year will impact the rate we adopt next year,” Walker said. “So, if we go with the 86.5 cents, it's actually below our true effective rate and we're stuck with that again next year. If we try to maintain the effective rate over an extended period of time ... we will be lowering our effective rate next year, then again the next year and every year after that.”
City Manager Gary Fuqua said the municipal administration would “sharpen their pencils” and look at additional ways to cut the proposed budget to cover for the loss.
“This is a council decision. We're financially in the shape where we could make that adjustment, if we need to,” Fuqua said. “However, Peggy (Walker) is right, we need to consider this will change it (the effective tax rate) for the future. It's not a one-time $135,000, we'll be giving that up every year because it will reset our effective tax rate for next year.”
Duncan said the council will hold a second public hearing on the tax rate during its first meeting in September and instructed the council members to consider what avenue they want to take.
Also during the meeting, the council passed on the first reading of ordinances adopting the 2012-2013 tax rate and proposed budget. The council also approved an agreement with Parkhill, Smith & Cooper Inc. for the wastewater and water treatment plant bond project.
The council is expected to hold its next meeting Sept. 11.