It's a New Conversation: Reframing the Effective Tax Rate Discussion
Dr. Stephen R. Covey identifies Habit 2 as “Begin with the end in mind” in his best-selling book The 7 Habits of Highly Effective People. When looking back at Colleyville’s journey in adopting an effective tax rate, it is apparent that intentional goal setting well in advance was a key element of our success.
Following the election of a new Mayor and several new Councilmembers, Mayor Richard Newton called for a Priority Setting Workshop in June 2016 (for short-term goals) and a Visioning Workshop in January 2017 (for long-term vision, mission, and goals). It was evident that the desire for new community priorities had reached a tipping point and this change in direction needed to be articulated in a way that brought the community together and provided clear objectives for staff. These efforts led to adoption of a new Strategic Plan, which included a commitment to hold annual priority setting sessions with the City Council and City Management. Holding an annual priority setting session has provided an opportunity for the City Council to hone in on the key areas that should be the focus for the next 12 month period.
At the first Priority Setting Workshop held in June 2016, providing property tax relief was one of the eight priorities identified. This set the tone—and a few months later the FY 2017 budget was approved in conjunction with the first tax rate reduction in over two decades. This rate reduction served to provide some relief to property owners receiving substantially higher appraisal values. Many cities throughout the state took similar action.
At the 2017 Priority Setting Workshop, the next set of priorities included justify tax revenues in excess of the legal effective tax rate. This was understood to mean that we would endeavor to adopt an effective tax rate every year, unless a specific need was deemed significant enough to justify bringing in additional revenue from property taxes to fund it. The City Council approved lowering the tax rate yet again for FY 2018, but did not lower all the way down to the effective rate in order to provide additional revenue needed (4.6% above the effective rate) to fund the recommendations from a comprehensive Compensation & Classification Study.
The timing of how our journey unfolded is key. When the goal was set to strive for an effective tax rate whenever possible, it was September 2017. With the FY 2018 budget and tax rate decisions put to bed that same month, staff had a full year to plan for how we could try to adopt an effective tax rate for FY 2019. Given the anticipated double-digit increase in health insurance rates and the desire to include additional funding to continue merit increases for employees, we knew accomplishing this goal would require a reduction in current expenditure levels.
For the next year, City staff focused on efficiency and sustainability, saving nearly $1,000,000 in General Fund operating costs. This effort to reduce expenditures was about more than just limiting labor costs and saving dollars. It was an effort to bring corporate-like efficiency to the organization.
One of the largest expenses of any City is personnel needed to carry out the community’s desired programs and services. As such, we knew that a good portion of the expenditure reductions needed to achieve our goals would have to come from personnel. This can be a culture-killer once the rumor mill gets going, so city management spoke directly about the need to reduce expenditures at employee meetings, and asked for their ideas. By coupling the goal of expenditure reduction with the goal of absorbing health insurance cost increases for employees and continuing to fund merit increases, we were able to secure employee buy-in and motivate participation.
Starting this discussion a year in advance allowed the City to consolidate over time. This was largely possible by eliminating layers of management within the organization and developing a flatter organizational chart. These staffing efficiencies were all accomplished without any layoffs, but rather through organic opportunities through vacancies. More importantly, this restructuring was not a reflection of being in “austerity” mode—quite the opposite is true. It has provided growth opportunities for staff and has allowed for a more dynamic environment that is the antithesis of traditional bureaucracy. Ultimately, this has produced a greater level of responsiveness to citizens and a “can-do” organizational mentality that is focused on results.
Employees may have individually taken on a bit more responsibility, but they recognize that this additional effort is what is allowing them to continue receiving merit raises and no increases to employee contributions for health insurance. They have also been empowered to reexamine the work they are doing to eliminate tasks where no added value could be identified. It’s been a complete culture shift, where new endeavors are seen as exciting growth opportunities by staff, rather than an additional “to do” that gets complained about. As with anything (and as Jim Collins rightly points out in Good to Great), it’s about having the right people on the bus, in the right seats.
This type of culture where employees are hungry for growth, new opportunities, and want to take full ownership of their jobs may look different from organization to organization. In Colleyville, it means that we set the tone at the top and our two Assistant City Managers perform ACM functions while continuing to fulfill most of the duties of their prior departmental roles. It means having a single Parks & Recreation Director rather than two manager level positions. It means converting full-time positions into part-time positions wherever possible or eliminating them entirely. It means supplementing the workforce with graduate-level interns, with the added benefit of growing the next generation of local government employees. For Colleyville, reducing the staffing level by 5.5 FTEs had a significant tax rate impact.
We also absorb costs whenever possible, reallocating dollars to where the need exists rather than assuming that “the way we’ve always done it” is the best way to prioritize resources. This means that when possible, we perform work in-house and are willing to have some risk-tolerance as our teams develop new skill sets that will benefit the organization in the long run. Examples include saving the City by handling a drainage improvement project in-house ($75,000 savings), building a dumpster enclosure instead of contracting the work ($20,000 savings), conducting employment searches in-house for department heads ($100,000 savings), and doing a complete review and update of the Land Development Code without hiring a consultant ($75,000 savings). To further reduce the burden on the property tax-supported General Fund, we have also more aggressively utilized the City’s special revenue funds, allowing more than $300,000 of recurring expenditures to be moved out of the General Fund. And while these efficiency and savings efforts were underway, we also began using available capital funding to further beautification efforts community-wide. It can’t just be about subtracting dollars—we are simultaneously focused on growing quality of life. With that in mind, staff began pursuing grant funds that for years had seemed out of reach. By the end of 2018 we had secured $1.2 Million in grant funds for projects that were already funded with the City’s capital dollars, thereby freeing up those resources for other priorities.
This year-long efficiency effort bore fruit this summer when health insurance costs went up seven percent. The City was able to absorb those cost increases within the existing budget, along with all other typical cost increases and funding for merit increases, while setting an effective tax rate for FY 2019.
It’s a New Conversation
In a state-wide environment that has increasingly become an “us vs. them” conversation, we are doing our best in Colleyville to reframe the discussion. So often only two sides (and their associated platforms) are identified—staff vs. City Council, cities vs. state, liberal vs. conservative, conservative vs. more conservative. There has to be a better way, and it requires more action and less commiserating amongst ourselves (within whichever group that may be). Moving our cities and state forward in a way that reflects the desires of citizens is something we can all get behind. And often, there is more to agree on than we stop to recognize. And the necessary introspection to reach these conclusions can be uncomfortable when we realize that we can be more efficient and make tough choices, we just don’t always want to.
In Colleyville, we recognized a need to shift our culture to unite staff, City Council, and community goals. The staff want to provide exceptional programs and services to the community. The City Council and community want to recruit and retain the No. 1 asset in the City-- the employees that are responsible for delivering those programs and services. To achieve those goals together, we have to be willing to approach the process with energy, enthusiasm, and care for one another. The idea of “doing more with less” is tired and puts employees into an immediate defensive mindset. But owning and transforming your work in a way that sheds layers of red tape and bureaucracy builds employee engagement AND creates a more efficient organization.
When the City Council established the priority justify tax revenues in excess of the legal effective tax rate, it changed the conversation. It’s not an All or Nothing decision. Some years we will be able to pursue an effective tax rate, and others we will not. But any effort to minimize the property tax burden on citizens should be applauded! The effective tax rate can be a useful measuring stick to help us stay intentional about what we are willing to pay more for, but it is not a one-size fits fall permanent solution. If we are to find common ground across stakeholder groups, we need to remove the dirty connotation that often gets associated with an effective tax rate and learn to view it as an opportunity and conversation starter.
Lothery, Adrienne. "It’s a New Conversation: Reframing the Effective Tax Rate Discussion." Texas Town & City, March 2019, 24-26.