McAllen facing budget woes

McALLEN — The city will have to scrap some new programs and put some construction projects on hold as it braces for a lean fiscal year.

McAllen’s top leaders are working to determine how to craft a balanced budget for the fiscal year beginning Oct. 1 as they face financial hardships the municipality hasn’t experienced in years.

The city has to figure out how to fix a $4.6 million shortfall in its general fund budget — which includes the public safety departments, the parks and recreation department, the municipal court and City Hall offices –– said City Manager Mike Perez.

Perez and McAllen’s finance director, Jerry Dale, will continue to spend the coming weeks determining how exactly to whittle down the city’s expenses.

The multi-million dollar question, Perez said, is this: “How do we provide an equal level of services with less people and less money?”

The city’s general fund is projected to end the year with $42.3 million in sales tax revenue, its largest funding source, though that figure could wind up being lower.

Last year, the fund took in $44 million in sales tax revenue.

Meanwhile, bridge revenue is down as well. The city received $12.2 million from its international bridge last year. That figure is expected to drop to $10.5 million this year.

McAllen’s leaders will face a difficult challenge, as Perez and his team try to close the $4.6 million gap without scaling back city services, laying off employees or making pay cuts.

Perez said the city has scrapped plans for some new programs it hoped to implement next year, such as more frequent street sweeping, an expansion of brush recycling and extra police officers beyond what’s called for in the collective bargaining agreement.

The city has also put some projects on hiatus, such as a new fire station near the intersection of 36th Street and Vine Avenue, an extension of Dove Avenue and a detention pond at the intersection of Oxford Avenue and 29th Street.

A new fire training facility will be scaled back, and a proposed annex to City Hall will also be put on hold.

The Bicentennial Boulevard extension and Bentsen Road widening both remain on track, as does a new community police center on the city’s northwest side.

“We’re trimming a lot of things,” Perez said. “Would we like them? Yes. Do we really need them? No.”

But the city is far from broke as it sits on $45.8 million rainy-day reserves.

Perez said dipping into those funds is a last resort, since they are typically used to help the city recover from a one-time catastrophe such as a hurricane.

Using those funds to cover the city’s operating expenses is dangerous, because they eventually dry up.

“It’s mortgaging your future,” said Dale, the city finance director.

The biggest expense of the city’s general fund — which is causing the bulk of the budgetary headache — is personnel.

That fund is set up to support 1,200 full-time employees, but currently there are about 125 vacancies. Many of those positions could be permanently eliminated, Perez said. Some clerks and secretaries have already been laid off.

And while city employees typically get an annual 3.5 percent salary increase, they’ll get 1 percent next year, Perez said.

The city manager added that he is confident his office will be able to submit a balanced budget to the City Commission as the law requires.

The commission will likely receive the budget by the end of the month and vote on it in September.

“We’re going to get there,” Perez said. “It’s just going to be a much more painful process that what we would have liked to have had.”

For City Hall, this type of budgetary stress has been unheard of in recent years. McAllen has enjoyed a wave of financial success for more than a decade, thanks largely to steadily increasing sales tax revenue. The city’s budget grew by 8-10 percent annually during that time.

But sales tax revenue, the city’s largest funding source, is hurting from a “perfect storm of factors,” Perez said: the devalued peso, the panic surrounding swine flu and concerns over border violence. That combination has resulted in fewer Mexicans spending less money on this side of the border.

Meanwhile, slowdowns at Reynosa manufacturing plants are hurting people who may have been inclined to shop here. And U.S. workers concerned about the sluggish economy are not spending money here the way they once did.

Perez said the city knew the financial boom time was bound to come to an end and the city’s business plan, adopted in October, had identified an over-reliance on sales tax revenue as a problem that needed to be addressed.

But McAllen’s leaders did not anticipate finances would start hurting this bad this quick.

Still, despite McAllen’s financial struggle, the city finds itself in better shape than municipalities across the country and state.

For example, Austin is grappling with a projected $30 million budget shortfall, while Dallas faces an astounding $190 million deficit, according to media reports.

McAllen’s leaders discussed the financial crunch in May during a workshop at the Isla Grand Beach Resort on South Padre Island.

There, some elected officials suggested it may be time to raise the city’s property tax for the first time in 10 years.

On Thursday, Perez said that is not an option his office is considering, and the priority would instead be on cutting expenses as opposed to increasing revenue.

“The question’s not if we’re going to recover,” he said, “but when.”

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Ryan Holeywell covers McAllen, PSJA, the Mid-Valley and general assignments for The Monitor. He can be reached at (956) 683-4446.