2024-2025 budget results

[Paul Prince]

Council recently received a preliminary view of the final UNAUDITED results for last Fiscal Year which ended in September. Staff reported they had some small issues to resolve before it would be posted for the public. I have spent quite a bit of time reviewing the file and here are some observations and comments. Please note that this is my personal interpretation of the data, not reviewed by or approved by city staff or other council members.

SUMMARY: Across the major funds in the city, the net result for the year was approximately equal revenue and spending. The net positive in the General fund was driven by the transfer from the Utility Fund, which had an almost equal negative bottom line. This was done with no monies being taken from reserves. This is in contrast to the budget plan, which had been to draw heavily from reserves to cover spending that was projected to be much higher than revenues.

Revenue in total was fairly close to expected values. Transfers between funds, or from reserves makes the analysis complicated so I try to break those out below in my comments. Development Services revenue was way down (slow development) but revenue was higher than expected across most every other area. Property tax and sales tax and interest on reserves all came in above plan. And, we received an unplanned grant from CapMetro. In Utilities, revenue from water and sewer services was up, while revenue from tap and extension fees was down (again due to slow development). The Golf Fund did about what I had been predicting for the past 9 months, with revenue exceeding plan by almost $300K.

Expenses across the city were far below the approved spending level in the budget. It's notable that spending on personnel costs was a major driver.
Personnel costs;
1. General Fund: Under by $1.6M (21% below the budget)
2. Utility Fund: Under by $1.6M (26% below the budget)
3. Golf Fund: Under by $173K (18% below the budget)
Some positions were open for extended periods of time to be sure, but I think we need to do a better job of projecting the actual personnel costs for next years budget. I made this point numerous times about the Golf Fund last year, but it's equally true across almost all departments of the city. Of 27 departments in the city with personnel expenses, 7 were within 10% of their budget, while 13 underspent their budget by more than 20%. Of those underspending, 7 departments underspent by more than 40%. Only 2 departments exceeded their personnel spending budget with the big one being in city administration due to the separation package for the previous City manager. This deserves a dedicated discussion in the next budget planning cycle.

General Fund:
Revenue (before Xfers) was above plan by $68K.
Rev (with Xfers) below plan $354K, but this was only because the planned $422K transfer from reserve was not done.

Expense was ~$3,019 below plan... YES more than $3M below the planned spend!
GF Net: +3,904K
… - $30K Aviation Fund net loss (vs $92K loss planned)
… - $345K Golf Fund net loss (vs $971K loss planned)
Effective GF Net: +3,529K

Utility Fund:
Revenue (before Xfers) was above plan $475K
Rev (with Xfers from Rsv) below plan $2,170K

• $2,646K transfer not done
  • 30-450-9100 Transfer from reserve to gen’l ops not done [-$1,654K]
  • 30-460-9101 “Transfers In” to Water Services not done [-$401K]
  • 30-470-9900 “Interfund Transfer” to Sewer Services not done [-$591K]

Expense ~$2,626 below plan, (including $1,629K below plan on Personnel costs as noted above)
Expenses in the Utility Fund are much more complicated since this includes some very large spending on fixed assets (~$3.9M), and it includes a transfer to the general fund of $3.644M. There were very large maintenance and repair costs in excess of the plan, but significant planned asset spending was not done. Presumably the majority of these asset spends will need to be done in the next fiscal year.
UF Net: -$3,536M

 

[Norma Owen]

Thank you, Councilor Prince, for the time spent reviewing the preliminary year-end results and for providing your analysis. As we consider these amendments, I think it is important to look not only at how they close out FY 2024–25, but also how the underlying trends impact the FY 2025–26 budget that we have already adopted.

These adjustments do not authorize new spending, they simply reconcile the prior year’s budget with expenditures that have already occurred, including emergency water and wastewater repairs, interim staffing, separation agreements, legal expenses, and increased operational costs. However, the underlying drivers of these amendments give us important insight into how we will need to manage the current fiscal year.

Two themes stand out to me:

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1. Personnel budgeting across every fund needs to be recalibrated, and I agree with you, Councilor Prince, on this point.

Vacancies in FY 2024–25 created millions of dollars in unspent personnel appropriations across the General Fund, Utility Fund, and Golf Fund. This resulted in a year-end position that appears stronger than it truly is.

The concern now is that FY 2025–26 was built on the assumption that those same vacancies would not persist. If departments fill these positions, as we expect, actual personnel costs will rise substantially compared to last year. So while year over year variances will be unfavorable, the monies are budgeted.

In short, FY 2024–25 benefited from vacancy savings that will not repeat. However, to your point, we seem to constantly over budget P&B. Most corporations compensate for that by budgeting a turnover (vacancy) offset to salaries with a contra expense line.

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2. Deferred capital and escalating emergency maintenance in Utilities create pressure on the FY 2025–26 budget.

During FY 2024–25, several major Utility capital projects were not completed, and emergency plant repairs consumed a significant portion of operating resources. While the amendments allow us to formally recognize those expenses, the consequence is that the Utility Fund enters FY 2025–26 with both deferred capital needs and higher-than-expected ongoing maintenance demands.

Because we have already adopted the FY 2025–26 budget, these realities mean:

• Some planned projects for this year may need reprioritization or rephasing.
• Emergency repairs may continue to strain the operating budget necessitating further unavoidable budget amendments.
• Long-term capital planning pressures will increase.

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Moving Forward

Although these amendments are procedural, the information behind them is highly relevant. To manage FY 2025–26 effectively, we will need to:

• Monitor personnel hiring and justification for any vacancies that persist as that suggest nonessential positions.
• Review Utility Fund capital and maintenance needs in real time rather than waiting for next year’s budget cycle.
• Reevaluate transfer practices and fund-balance strategies as updated data becomes available.
• Ensure timely financial reporting so Council can see trends early enough to act.

These perfunctory amendments reconcile and properly close FY 2024–25 as required by Texas Local Government Code §102.010. They are required bookkeeping entries to account for expenditures to pass our annual audit. Council discussion and action on the amendments are required so it is transparent that structural issues that may impact the success of FY 2025–26 are acknowledged by Council. I look forward to hearing from staff on how we adjust our approach during the year to ensure we remain aligned with our financial goals and obligations.

 

[Shane Saum]

Thank you, Councilor Prince and Mayor Pro Tem Owen, for your detailed analysis. I agree with both of you that while these amendments are procedural and simply reconcile what has already occurred, the underlying trends deserve our full attention as we move into FY 2025–26.

This weekend’s events with the water main failure at WTP 3, the wastewater press being down again, and the ongoing clarifier issues at WTP 1 highlight how quickly emergencies can develop and how essential it is that our budget reflects the real condition of our infrastructure. I would like us to get a full accounting of the costs associated with these recent failures so Council can make informed decisions as we prioritize spending.

During our discussions with staff over the weekend, I also learned that the CIP is already being reassessed to reflect the reality that our most pressing needs are not only future expansion but the growing frequency of maintenance failures across the system. To me, one of the clearest takeaways from this weekend is that maintaining WTP 1 as a permanent, reliable backup to WTP 3 is not optional. TWDB made the same point during their tour, recommending that we consider submitting WTP 1 rehabilitation as a Drinking Water SRF project. I strongly support that direction.

With that in mind, a few things stand out to me, that are more forward looking than this specific amendment, but these budget amendments highlight some needed changes going forward:


1. Personnel forecasting needs to be prioritized
I agree with you both about the vacancies. I support Prince's long standing recommendation of adopting a more realistic personnel forecasting approach. I think we also need to assess all positions, we new leadership maybe there are better ways to structure departments.


2. Capital planning must reflect our true operational needs, not idealized project lists. All small towns must do long-horizon budgeting.
Given the frequency of plant failures, we need a CIP built around what is realistically achievable and directly tied to reliability, redundancy, and regulatory compliance. A quarterly CIP update to Council will help ensure we catch shifting priorities early and prevent year end surprises. Some capital projects get deferred because they were not realistic to begin with.

3. Preventative maintenance must become a core budgeting focus.
We need better tracking of ongoing and historical maintenance issues so that we can move from a reactive posture to a proactive one. A formal preventative maintenance plan — with clear reporting to Council — should be incorporated into the operational and capital budgets. Does that mean using Beehive? Or a new software program, I do not know. But Council cannot make the best budgeting decisions when we are not certain how our current infrastructure is being maintained. Staff may have a good idea, but Council does not have a clear picture. This also again makes me bring up the benefits of the public-private partnership model. A private partner would prioritize standardization of operations and preventative maintenance schedules.

4. Essential services must remain our highest priority.
To avoid raising taxes, we need a hard look at whether we are funding services that are not required or statutorily mandated while critical water and wastewater infrastructure struggles to keep up. Safe drinking water and functioning wastewater treatment are the foundational services cities are expected to provide and should always be funded first.

 

[Paul Prince]

Thank you, Councilor Prince and Mayor Pro Tem Owen, for your detailed analysis. I agree with both of you that while these amendments are procedural and simply reconcile what has already occurred, the underlying trends deserve our full attention as we move into FY 2025–26.

This weekend’s events with the water main failure at WTP 3, the wastewater press being down again, and the ongoing clarifier issues at WTP 1 highlight how quickly emergencies can develop and how essential it is that our budget reflects the real condition of our infrastructure. I would like us to get a full accounting of the costs associated with these recent failures so Council can make informed decisions as we prioritize spending.

During our discussions with staff over the weekend, I also learned that the CIP is already being reassessed to reflect the reality that our most pressing needs are not only future expansion but the growing frequency of maintenance failures across the system. To me, one of the clearest takeaways from this weekend is that maintaining WTP 1 as a permanent, reliable backup to WTP 3 is not optional. TWDB made the same point during their tour, recommending that we consider submitting WTP 1 rehabilitation as a Drinking Water SRF project. I strongly support that direction.

With that in mind, a few things stand out to me, that are more forward looking than this specific amendment, but these budget amendments highlight some needed changes going forward:


1. Personnel forecasting needs to be prioritized
I agree with you both about the vacancies. I support Prince's long standing recommendation of adopting a more realistic personnel forecasting approach. I think we also need to assess all positions, we new leadership maybe there are better ways to structure departments.


2. Capital planning must reflect our true operational needs, not idealized project lists. All small towns must do long-horizon budgeting.
Given the frequency of plant failures, we need a CIP built around what is realistically achievable and directly tied to reliability, redundancy, and regulatory compliance. A quarterly CIP update to Council will help ensure we catch shifting priorities early and prevent year end surprises. Some capital projects get deferred because they were not realistic to begin with.

3. Preventative maintenance must become a core budgeting focus.
We need better tracking of ongoing and historical maintenance issues so that we can move from a reactive posture to a proactive one. A formal preventative maintenance plan — with clear reporting to Council — should be incorporated into the operational and capital budgets. Does that mean using Beehive? Or a new software program, I do not know. But Council cannot make the best budgeting decisions when we are not certain how our current infrastructure is being maintained. Staff may have a good idea, but Council does not have a clear picture. This also again makes me bring up the benefits of the public-private partnership model. A private partner would prioritize standardization of operations and preventative maintenance schedules.

4. Essential services must remain our highest priority.
To avoid raising taxes, we need a hard look at whether we are funding services that are not required or statutorily mandated while critical water and wastewater infrastructure struggles to keep up. Safe drinking water and functioning wastewater treatment are the foundational services cities are expected to provide and should always be funded first.

Mayor,
I strongly support your emphasis on maintenance. Another observation that is obvious from studying the final financial report, but which I did not include in my short summary notes above, was the significant spending over plan in Maintenance/Repairs. For the record:
In Utilities...
On our 3 "Plants" we spent $1.113M against a plan of $230K.
> actual: WTP1 $796K, WTP3 $108K, Sewer $209K
> plan: WTP1 $55K, WTP3 $55K, Sewer $120K

Maintenance & Repairs in other Utility departments were on plan, with one exception
> In "Lift Stations" only half the planned expense was actually spent. $75K actual, $150K planned

In PD one item jumped out on this subject...
(10-520-6540 Maintenance Agreements) had a budget of $137,252 but only $3,257 was spent
> I hope that was due to a change in plan, not a failure to execute agreements

Macro comments:
0. More accurate & realistic Personnel expense planning

1. Better Maintenance planning and budgeting
2. Fixed Asset planning needs to be viewed separately from (or in addition to) department operating budgets.
I advocated in last years budget cycle within the finance sub-committee for separating Fixed Assets out from the department budgets. For logistical reasons (that I agreed with last year) we did not do this. But we need to do it going forward. In Utilities these F.A. expenses are so large that it makes understanding the operating budget difficult to have them included. Some (but not all) of these Fixed Assets would be more appropriately tracked in out Capital Improvement Plans. Certainly the Effluent Pond should have been pulled out to CIP. A simple distinction such as "only Vehicles and Equipment go into the Department Fixed Assets, others go into the CIP" seems appropriate.
Here's what is actually in the '24-'25 Fixed Assets for the Utility Fund:
> Lift Stations had a plan for $999,999 but spent $43,252
> Booster pumps had a plan for $80,000 but spent $0
> WTP3 had a plan for $254,000 but spent $0
> Effluent Pond had a plan for $3,475,0000 and spent $2,963,624 and encumbered $677,819
> Others were essentially on Plan
>> WTP1 had a plan for $30,000 and spent $28,060
>> Sewer Plant had a plan for $652,000 and spent $630,757
>> Sewer Services had a plan for $120,676 and spent $87,652
>> Water Services had a plan for $143,500 and spent $126,933

3. I advocate for a discussion (post-mortem) going over the '24-'25 financial results soon, with the goals of
a. determining if we need to do any budget amendments to the '25-'26 approved budget to more accurately reflect our current reality
b. Take learnings into the '26-'27 budget plan process

 

[Shane Saum]

Thank you Councilman Prince, I like the request for a post-mortem, I would be happy to have the finance sub-committee meet the week of the 15th if that works for y'all?

 

[Norma Owen]

Thank you, Mayor and Councilman Prince. Mayor, I have openings for the week of the 15th. I look forward to the discussion.

 

[Charles West]

Thank you, Councilors Prince, Owen, and Mayor Saum. I agree a post-mortem is warranted and timely, especially since FY 25–26 is already adopted and these FY 24–25 drivers will carry forward.

If everyone is available for a meeting on the week of the 15th, I will send out some dates to get one scheduled. I’d like the focus to be: (1) operating results before transfers/reserves, (2) why personnel budgets were overstated across multiple funds and what forecasting method we will adopt going forward, and (3) Utilities, specifically the maintenance overruns at the plants and the capital items that were deferred or encumbered, and what that means for FY 25–26.