Independent audit finds unassigned general‑fund deficit; council advances budget and tax-rate first readings

An independent audit of the City of La Marque’s FY2023–24 financial statements found the books required numerous adjustments and showed the city ended the year with a deficit in its unassigned general fund, and the city council moved forward on the first readings of both the annual budget and a proposed tax‑rate increase.

Mike Brooks of Brooks Watson & Company told the council that the firm issued an unmodified (clean) opinion on the audited financial statements and that ‘‘total assets exceeded total liabilities by 31,600,000.0’’ and governmental funds reported a combined ending fund balance of $6,264,000. He also said the city’s ‘‘unassigned fund balance ended the year in a deficit position of 273,098’’ and that auditors proposed a substantial number of journal adjustments to bring the records into GAAP presentation. "I am happy to say that we did issue a clean, unmodified audit opinion," Brooks said during his presentation.

Brooks identified the biggest driver of the year‑to‑year fund‑balance decline as public‑safety overspending: the audit showed approximately $1.8 million of overages in police spending and other significant variances in public safety and related departments. The auditor also flagged issues with accounts‑payable reconciliation, pooled cash accounting, and delayed transfers of bond and grant proceeds.

City staff said they have begun steps to tighten controls and improve reporting. City Manager Holly described a new accounting system scheduled to go live in October and told council members the city will implement stricter purchase‑order and check‑approval workflows and segregate fund bank accounts where feasible. Finance Director Ferguson said the system will provide read‑only dashboards for council and monthly budget‑to‑actual reporting "as early as the next meeting."

To address immediate cash pressures, staff presented a package of short‑term measures including a $1.5 million loan from the Economic Development Corporation (EDC) with a five‑year, 1% structure and the option to prepay part of the loan in April 2026, planned sale of city property, fee adjustments, and deeper controls on overtime and purchasing. Manager Holly said the proposed FY2025–26 budget balances at the current 39¢ tax rate but would not allow the city to repay emergency cash advances or rebuild legally restricted funds; she asked the council to leave a proposed 45¢ rate on the table at first reading to preserve flexibility while staff pursues cuts and additional revenue.

After extended public and council discussion, the council voted 3–2 to move the FY2025–26 budget ordinance (O‑2025‑0018) forward on its first reading and similarly advanced the tax‑rate ordinance (O‑2025‑0019) on a 3–2 voice vote. Mayor Keith Bell and one council member voted no on the first readings; three council members voted yes. Councilmembers instructed staff to return at a special meeting (Thursday) with a more detailed set of proposed savings and a tightened package for the second reading. "If you add in the additional tax rate, it would balance with that money going to repay the loan funds," the city manager said, but she added the council could lower the rate on second reading if feasible.

Other formal steps taken by the council to stabilize operations included approving a $1.5 million loan from the EDC (terms above), resolutions authorizing the finance director to sign bank transactions, and amending the hiring freeze to permit recruitment of a funded financial accountant (EDC‑funded). Council also approved collective bargaining agreements for the fire and police departments that include delayed pay increases (effective Jan. 1, 2026) and provisions intended to reduce overtime costs.

What happens next: staff will implement immediate internal controls, continue to reconcile accounts and unpaid invoices identified in audit work, pursue the EDC loan and other short‑term financing, and return for the tax‑rate second reading and any required budget amendments. The council and manager committed to provide more frequent, concise financial reports to the council and public in coming weeks.

Votes and recorded actions at a glance: the council accepted the audit (voice vote recorded as 4–1), moved the FY2025–26 budget past first reading (3–2), advanced the tax‑rate ordinance past first reading (3–2), approved the EDC loan agreement (motion carried), amended the hiring freeze for a funded finance position (motion carried), and approved both fire and police collective bargaining term sheets (motions carried). The city manager and finance director said they will present an updated, itemized savings plan to council prior to the second readings.