Budget workshop outlines possible 7.5–8¢ tax increase to cover bond debt, staff urges targeted raises

City staff presented a preliminary FY2024–25 budget framework during a July 9 Nacogdoches City Council workshop that would fund capital projects approved by voters and modest employee pay increases but would likely require a material uptick in property-tax revenue to cover new debt service.

Interim Finance Director Todd Simo told council the city is estimating current-year revenue of about $30.8 million compared with a $29.9 million budget and said sales tax is tracking slightly above budget ($8.5 million estimated vs. $8.3 million budgeted). He warned that property-tax receipts may come in lower than the city budgeted because the appraisal district is seeing an increase in protests.

The city manager explained that the voter-approved $43 million bond is being issued in phased tranches and that roughly $15 million of the first tranche has already been issued. He estimated bond-related debt service will add about $990,000 in annual obligations and said the I&S (interest and sinking) rate may need to rise “anywhere between 4 and a half cents to 5 cents just to service the debt.” The manager added that, to preserve general-fund services and the proposed employee pay package, the M&O (maintenance and operations) portion of the rate could require about another 3 cents — a combined ballpark increase of roughly 7.5 to 8 cents, depending on final taxable values.

Staff provided an illustrative calculation for context: each one-cent change in the tax rate would generate about $233,000–$235,000 based on current taxable values, and certified rolls were not expected until July 25. Todd Simo cautioned that these figures are preliminary and contingent on the certified tax roll and outstanding appeals.

Council members expressed concern about the cumulative tax impact if bond tranches overlap and about prioritizing projects amid clear deferred-maintenance needs. Staff said some CIP line items were removed after department-level review and that the city has been using ARPA and other one-time federal funds for capital needs — a practice that staff warned is not sustainable as ongoing operating revenues decline. Staff noted roughly $2.1 million of excess operating cash above reserve requirements is available to fund one-time capital and equipment purchases in the near term.

The workshop also included a discussion about employee pay. Staff noted that employees have seen about a 2% increase in salary since October 2021 (one-time bonuses were not built into base pay) and proposed a tiered increase to address retention and critical shortages in some roles. Council members repeatedly emphasized the need to support first responders and hard-to-recruit trades and urged staff to target increases for areas experiencing the most turnover.

A council member raised the long-running one-cent sales tax dedicated to the local hospital district, noting the city has remitted the allocation since 1992 and suggesting that returning or reallocating that revenue would materially change the city’s tax needs. Council asked for more transparency and encouraged dialogue with the hospital district, but no formal action was taken during the workshop.

Staff set a timeline for next steps: certified appraisal rolls were expected July 25, a follow-up workshop scheduled for Aug. 13 (with tax-rate hearings to follow), and a proposed maximum tax rate would be filed for required public notice and hearings. The workshop concluded with no formal vote on the budget or any tax rate; staff will return with refined numbers for council consideration.