Discussion Item for Thursday's Budget: Taxpayer Savings Incentive Program

[Shane Saum]

Colleagues,

On Thursday, I will be proposing a new line item be added to each Department. I’d like us to consider a new approach for how the City rewards efficiency. Right now, if a department comes in under budget, the only “reward” is that the money goes back into the General Fund — which unintentionally creates the opposite incentive: spend your full budget so it won’t be cut the next year.


The Taxpayer Savings Incentive Program flips that model. If a department saves money or brings in new outside funding, the City keeps the majority of those savings for taxpayers, but allows a modest portion to flow back to the employees in that department as a year-end bonus pool. This way, staff are motivated to innovate, cut waste, and pursue grants — and taxpayers still win because most of the savings stay in the budget.


For Thursday’s meeting, I’m not asking us to finalize all the details. Instead, I propose we treat this like a budget rider in the state budget:

• Add a “Taxpayer Savings Incentive” line item (budget neutral, $0 placeholder) at the bottom of each departmental budget,
• Record our intent to bring back the full program rules for Council consideration in the coming months,
• Establish this as a pilot program for the FY25–26 budget year.

This is the ideal time to pilot the program because:

• No department heads or the City Manager knew this option was coming, so there’s no way anyone could have padded budgets in anticipation.
• We’ve already trimmed the budget down to 42 cents, so any savings found will be real efficiency, not excess fat.
• Citizens deserve more than “moving numbers around on a spreadsheet.” They expect us to ensure their tax dollars are being spent efficiently, and this is a way to do that without micromanaging every department.

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Why Do This?​

1. Flips incentives. Departments won’t feel pressured to “use it or lose it.”
2. Motivates innovation. Staff are rewarded for saving taxpayer dollars.
3. Supports grant hunting. Departments like Police can earn by securing outside funding.
4. Taxpayer-first. The majority of savings always stay with the City.
5. Transparency. A line item shows citizens that efficiency is a standing Council priority.
6. Best pilot conditions. A lean budget year ensures the test is fair and real.

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Examples Elsewhere​

• Texas Legislature – Budget Riders: Riders set direction without requiring details at the time of adoption.
• City of Phoenix, AZ – Employee Suggestion Program: Employees receive up to 10% of verified first-year savings.
• Dallas, TX – Gainsharing: Dallas tested programs where city employees shared in cost reductions.
• Private Sector – Profit Sharing: Southwest Airlines and Costco tie employee rewards to efficiency and savings.

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First Draft – Program Concept​

Two Ways to Earn a Taxpayer Savings Bonus:

1. Budget Savings Path
   
   • Departments that end the year under budget qualify for a share of verified savings.
   • Example scale (to be finalized later):
     • 5–9.9% under budget → 10% of savings to staff bonus pool
     • 10–14.9% → 15%
     • 15%+ → 20% (capped at 5% of payroll per department)
   • Remaining savings roll back to General Fund.
2. Grant & Revenue Path
   
   • Departments that secure new external funds (grants, donations, reimbursements) that reduce General Fund costs may also qualify.
   • Example: Police secures a $100,000 DOJ grant → 10–20% of that taxpayer savings goes to staff bonus pool, capped.

Safeguards:

• Must maintain service levels — no cutting corners to qualify.
• Finance & HR certify eligibility.
• Council retains authority to review exceptions.

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Possible Counterarguments & Responses​

1. “Some departments can’t save as easily — it’s unfair.”
→ That’s why we built in the grant path. Departments that can’t underspend can compete by bringing in outside dollars.


2. “Departments will cut corners or pad budgets just to qualify.”
→ This year’s budget is already lean, and nobody knew this was coming. Future years will have safeguards in place against budget padding.


3. “This adds complexity for Finance and HR.”
→ Finance already tracks budget-to-actual. This adds one calculation at year-end.


4. “Savings should all go back to taxpayers, not employees.”
→ The City keeps 80–90% of every dollar saved. Employees only share in a modest portion, which creates the motivation to save in the first place.


5. “This could divide departments.”
→ Healthy competition encourages innovation and best practices across departments.

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Closing Thought​

All we need Thursday is agreement to add a line item placeholder in the budget and commit to finalizing details later. This is a no-cost, taxpayer-first pilot program that rewards innovation, motivates staff, and signals that Lago Vista is serious about efficiency and protecting tax dollars. I welcome your input.

 

[Adam Benefield]

Overall, I like this type of incentive approach. I would support a measure like this.

 

[Kevin Sullivan]

Interesting idea. I wish the new council well in trying to determine how to appropriate implement.

I submitted the suggestion and our city charter to ChatGPT and it did suggest that certain criteria will need to be followed closely to remain legal. You hit the nail on the head that you will have to adopt it in advance. It will have to be funded through a specific appropriation and not retroactively from savings. You cannot bonus people on work retroactively. You will need to have appropriate controls in place to measure that the goals set out were accomplished. There may need to be more there than just did you save money. It likely needs to be set out in ordinance (it would be natural to do so as part of the budget ordinance) and it would likely need to be spelled out in the Personnel Policies.

The trick of introducing this idea after the budget was set only works in the first year. For each subsequent year, the program will be known and documented so you still have the issue of padding budgets in the second year and beyond.