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City manager recommends using de minimis tax rate to stabilize five-year budget; council hears alternatives
Summary
Staff recommended that council set the proposed budget at the de minimis tax rate (0.1760) to generate roughly $500,000 in new revenue and protect reserves over a five-year forecast; council discussed trade-offs including service cuts, hiring freezes, and use of capital reserves.
City Manager (S2) told the Lakeway City Council that staff will propose a budget built at the de minimis tax rate for FY 20262727 and explained the technical options: the no-new-revenue (NNR) rate for maintenance and operations (M&O) is about 0.1670, the voter-approval rate is about 0.1732, and the de minimis rate for this city is 0.1760. Staff said the de minimis rate is the number that "generates $500,000 of new revenue to the city," and recommended setting the proposed tax rate at that maximum so the council and public have room to reduce it later rather than face worse fiscal outcomes if revenues fall short.
Staff presented a five-year projection showing expenditures outpacing revenues under a no-new-revenue scenario and warned that, absent corrective action, the city27s reserves could decline materially by FY2031. To address the structural gap, staff proposed a suite of measures: modest tax increases (set at the de minimis rate for the proposed budget), a hiring freeze replacing only essential positions, a $1,000,000 annual capital-reinvestment target (less than the GFOA-recommended 75% of depreciation), and a policy to transfer incremental sales-tax growth above a 3% baseline into capital reserves. Council members stressed the need for careful year-by-year choices and asked staff to supply the budget workbook so members and residents can review assumptions before the Aug. 17 proposed-budget posting and the public hearings in August and September.
