BUDGET MESSAGE

To the Honorable Mayor, City Council, and Citizens of Marble Falls:

The Adopted Annual Operating Budget for Fiscal Year 2022-2023 is hereby submitted for your review. The budget is representative of the vision set forth by the City Council and in support of the best interests of the community. The document is set to serve as an implementation guide in accomplishing the goals that have been established through strategic planning, input from dedicated boards and commissions, and the community at large.

The budget document details programs and services approved by the City Council totaling $94 million, with $16 million allocated to the General Fund, $8.2 million allocated to the Proprietary Fund, and the balance in other funds. The majority of the increase in the budget is due to planned capital improvements. The budget is balanced while accounting for a 6.5% increase in sales tax revenue, a 13% increase in ad valorem taxes, and a reduction in the property tax rate to $0.5577.

I would like to express my thanks to the City Council, City Staff, and the boards and commissions for their contribution to the budget process.

Presented is an annual budget that sets a strong financial foundation for the City's ability to provide our citizens with the highest quality and most efficient municipal services possible while achieving our strategic goals and maintaining fiscal responsibility.

Sincerely,

Mike Hodge

City Manager

The City's Strategic Planning Framework is the standard by which priorities are set and supported. The priorities established by City Council are vetted and coordinated utilizing the Comprehensive and Five-Year Capital Improvement Plans. They are then incorporated into the appropriate Departmental Service Plan. Finally, fiscal forecast reports determine the time frame in which we can accomplish set priorities, ensuring we are on track to meet our goals.

In May of 2021, City Council convened to update the Strategic Priorities for 2021-2026. The Strategic Priorities are the following:

1. Investing in the park system,
2. Creating a vibrant downtown,
3. Improving connectivity,
4. Supporting economic recovery,
5. Establishing financial stability,
6. Investing in municipal services,
7. Maintaining a small town culture.

What has been funded in this year's budget is tied to the Council's strategic priorities. The department's budgets reflect these priorities through their respective department goals and planned accomplishments.

SERVICE LEVELS

Again, Marble Falls is seeing unprecedented growth. Department heads evaluated the impact of this growth and its effect on departmental budgets. In order to ensure service levels will be maintained or improved, the impact has been accounted for in the annual budget. Service level increases include the addition of personnel and equipment in support of public safety, which is paramount in the City's responsibility to the community. The increased allocation for equipment and maintenance across departments are making available the fund levels necessary to operate our plants and parks, maintain our streets, and provide quality essential services.

STAFFING AND RESOURCES

Personnel is the most prominent expenditure of the annual budget. The FY 22-23 Annual Budget includes funding for 141.5 full-time equivalent (FTE) positions. The new positions added this year include an human resources generalist, two communications officers, one parks maintenance technician, and an assistant city manager.

Investing in staff and promoting professional development is also a priority for the organization. To support this effort, the city currently conducts four in-house professional development programs. The programs equip staff with the management and leadership tools they need to effectively support their departments and advance within the organization.

Additionally, an average 6% merit increase was calculated for all staff in order to improve retention and remain competitive in the challenging job market. On the benefit side, staff negotiated no increases in healthcare premium costs for employee and dependent coverage.

GENERAL FUND

Total revenues in the General Fund are projected to be $15,890,637 with the majority of the increase attributed to a 13% increase in property tax revenue, and a 6.5% projected increase in sales tax revenue for FY22-23. Together, property and sales taxes comprise 79% of General Fund revenue.

As a retail hub for the hill country region, the recovery from the pandemic has shattered revenue records for Marble Falls. Given the economic boom taking place all across central Texas, we remain confident that this trend will continue into the coming fiscal year. However, as inflation and supply-chain issues continue to impact the economy, the City is taking a conservative approach to budgeting for economic growth, in particular sales tax revenue.

Total General Fund expenditures are $16,064,928, which represents a 16% increase from the prior year's budget. The General Fund emphasis is to reflect the impacts of growth, inflation, and supply-chain issues, whilst maintaining the reserve fund balance at or above 25% of operating expenditures. The fund balance is estimated to be $5.65 million or 35% of general fund operations at the end of FY 22-23.

UTILITY FUND

Revenue for the Utility Fund is generated by the sale of water and wastewater. Together they represent 90% of the total revenues for the fund. The accompanying graphs depict the ten year trend analysis for both water and wastewater revenue from sales.

Total revenue from the fund is projected to increase to $8,198,600 or 20% compared to the FY 2021-2022 budget. Most of the increase is due to a projected $1.0 million impact fee collection as a result of expanding development. Utility rate increases, averaging 2% for water and 12% for wastewater, will be implemented in 2023 per the utility rate study adopted by Council in 2020. The increase in utility rates will offset a portion of the rising cost of operations and fund major infrastructure improvements.

Expenses in the fund are projected at $8,198,131. The total increase is 23% compared to last fiscal year's budget. Expense categories that comprise the increase include funding for vehicles, equipment and inflation for fuel and cost of materials.

The goal of long-term financial planning is to project need, create reasonable expectation, and to assess the feasibility of attaining the organizational goals set by City Council. The two major components of long-range planning are forecasting in conjunction with strategic planning. The financial factors assessed annually include budget projections, fund balance, and debt service.

While long-term financial forecasting remains a challenge for a city so heavily dependent on fluctuating sales tax, we utilize conservative five-year projections for the General Fund to set realistic goals for Maintenance and Operations. Sales tax projections have been adjusted and are conservatively calculated at 4.5% for years beyond 2023.

Property tax revenue forecasts are calculated at a 3% increase annually to reflect growth stabilizing in future years.

A Water Rate Study was conducted in 2020 with consideration of major infrastructure projects planned in the 5-Year CIP. The cost of service is assessed annually in order to maintain and develop a system that meets the needs of a growing community. The study revealed the need for incremental utility rate increases to be implemented accordingly. We are currently in our third year of the utility rate study.

Finally, growing the reserve fund is a top priority that has proven to be essential in recovering from disasters with little impact on municipal services and accomplishing strategic goals.

Within the next seven years, 72% of the City's debt is scheduled to be retired. Coordinating new obligations with planned improvements will allow an opportunity to further implement large projects that are needed to maintain service and quality of life amenities for our residents.

Dependable projections, establishing a solid reserve fund, and managing obligations are imperative to achieving long-term financial and strategic planning goals.

The Fiscal Year 2022-2023 Adopted Annual Budget is representative of a continued effort to ensure a positive financial future for the City of Marble Falls while providing the highest quality city services possible.

We have overcome unforeseen challenges in recent years and maintain our commitment to the community to always budget conservatively and strive to operate at a surplus to ensure a strong budgetary performance year after year while accomplishing our strategic and financial goals.