Faced with a projected $1.1 million budget shortfall in Fiscal Year 2021, the city of Starkville may have to raise the property tax rate by 2 mills and delay its debt payment for a year to help offset the financial impact, Ward 2 Alderman and Budget Committee Chair Sandra Sistrunk said during a work session Friday morning.
The estimated budget impact next year is largely due to a projected sales tax revenue downturn caused by the COVID-19 pandemic as well as increased spending compared to FY 2020, according to Sistrunk’s presentation.
The city’s sales tax revenue in FY 2021 may see a 12-percent drop, marking an $880,000 decrease from this fiscal year, Sistrunk said. The potential decrease comes as the pandemic negatively affected many local retail businesses, restaurants and bars, some of which have closed, she said.
“It’s less impacted when you are talking about big stores — Kroger, Walmart,” Sistrunk said. “Mom and Pop shops are suffering more. So when our retail sales tax diversions may not be dropping much, it’s dropping in the people that make us who we are as a community.”
The projection also took into consideration the potential cancellation of the college football season in the fall, Sistrunk told The Dispatch. The Southeast Conference has yet to cancel or confirm the season, but even if it goes on, fan attendance at Davis Wade Stadium may be restricted to at least half capacity.
“We’ve got to have people in the stands to watch those games be played to have an impact on our sales tax,” Sistrunk said. “There’s just so much uncertainty. So many things we just don’t know.”
Although the city will likely see revenue increases in other aspects — including $250,000 in use tax revenue, federal reimbursement of $350,000 for COVID-19-related expenses, $100,000 in revenue from the fire protection agreement with MSU and an expected $143,000 uptick in property tax collections, they are still not enough to offset the sales tax revenue downturn.
In addition to the revenue loss, the city may also have to spend more money in FY 2021, Sistrunk said. For example, it may have to restore parts of the budget cut it implemented in April, which could add roughly $550,000 to the city’s expenditure next year, she said. The city implemented a budget cut of $786,500 that month, along with furloughs and pay cuts, as cost-saving measures to brace for the pandemic-induced financial impact.
Meanwhile, the city may have to further pay out $300,000 as its first-year match for a $12.66 million federal grant it received in 2019 to improve the conditions of the stretch of road between North Long Street and Old West Point Road, Sistrunk said. The grant, dubbed “Better Utilizing Investments to Leverage Development (BUILD),” is an 80/20 match, meaning the city will bear a total cost of $3.5 million. It was issued by the U.S. Department of Transportation to improve infrastructure, increase broadband access and make the area more wheel-chair accessible.
The city could also spend $200,000 in FY 2021 as the first-year payment on a lease/purchase agreement for its police department’s body cameras, according to Sistrunk’s projections.
One way to ease the financial impact, Sistrunk said, is to raise the city’s millage rate by 2 mills — from 28.13 to 30.13. Mills are used to calculate property taxes.
For a $100,000 home with no homestead exemption, the mill hike would increase the owner’s taxes by $20. For commercial properties, it would increase taxes by $30 per $100,000 in assessed value.
The 2-mill increase would generate $540,000 of city revenue, Sistrunk said, while still allowing Starkville to remain below the average millage rate among contiguous cities. Columbus, for example, has a millage rate of 51.24.
To cover the rest of the estimated shortfall, the city could further adjust its debt structure in December or January by delaying its debt payment for a year, which would save the city $575,000, Sistrunk said. The delay would not affect the current interest rate, she said, but could harm the city’s credit rate for borrowing money in the long run.
“It’s a hard year,” Sistrunk said. “(The plan) is reasonable, conservative. It gives us flexibility going into the year.”
The spending, especially on BUILD grant and the body cameras, is necessary, Mayor Lynn Spruill said Friday. The millage rate increase, she said, is the most “reasonable” decision to make.
“Body cams are non-negotiable, in my opinion. … We don’t want to find ourselves having something happen, and then we go, ‘Oh, I’m sorry my body cam didn’t operate,'” Spruill said. “I (also) don’t want to see us turn a BUILD grant back because we are unwilling to raise the mills.”
Ward 5 Alderman Hamp Beatty said he is in favor of raising the millage rate.
“We are a college town. People come in here and throw money at Starkville and we can operate at an artificially low ad valorem tax rate until … and that ‘until’ has happened,” he said.
A public hearing on the millage rate increase will be set for Tuesday, and the board will vote on the increase Sept. 1.
Multiple board members agree with water, sewer rates increase
In other business, Starkville Utilities General Manager Terry Kemp presented aldermen with a water/sewer rate increase plan Friday morning, a measure he said would help fund more planned infrastructure upgrades in Pleasant Acres, Green Oaks, Rolling Hills, Oktibbeha Gardens and other city areas.
The proposed increase would raise the water/sewer base rate from $4 to $4.5 for usage after Oct. 1, with a variable rate of $4.15 per 1,000 gallons, Kemp said. The current variable rate, which represents the amount charged for every 1,000 gallons of both water and sewer use, is $3.25.
Most customers would see their water and sewer bills increase by $2 to $5, according to Kemp, and the city would see an annual revenue of $7.5 million.
Ward 3 Alderman David Little, in support of the proposed rate increase, said the 50- to 70-year-old infrastructure needs to be brought “up to par.” The city increased the rates in 2018 but failed to generate the anticipated $7.2 million it needed to finish the projects, Kemp said Friday.
“We just missed the mark (two years ago),” Little said. “We are going to have to tweak what we already committed to if we are going to continue to move forward in that direction. Otherwise, we are going to fall short and not continue to put band-aids on that situation.”
Beatty agreed that the infrastructure improvements are long overdue.
“The city went a long time without addressing this, without paying attention to the aging water sewer structure,” he said. “We are in a situation where … this is a necessity.”
The board will further consider the rate options at its Tuesday meeting. The members will also hold a public hearing on the annual budget that day and consider removing the city’s hiring freeze implemented in April as a cost-saving measure.
Yue Stella Yu was previously a reporter for The Dispatch.
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