When the Mexico City Council and city department heads gathered Aug. 5 to talk about the city budget, Fairgrounds Pool wasn’t the only item on the discussion agenda. The city has to prepare for all planned expenses by the beginning of the fiscal year, especially in light of changes to assessed valuations.

The city follows generally accepted accounting principles, according to a budget letter prepared by city staff. Each fund operates like a separate business within the overarching city budget, the letter stated.

“Like most budgets, core and essential services certainly receive the highest priority first as we are committing funds,” City Manager Bruce Slagle said.

Assessed valuation changes

Property values have decreased in Audrain County and in Mexico, which will be reflected in the 2019-20 budget. Assessed valuations for properties in Mexico have reduced by .41% compared to the previous year, so property tax levies will be increased according to a state formula, Slagle said.

Assessed property values in 2018 were around $159.1 million, while in 2019, it was around $158.4 million, which is a decrease of $653,459. Property values are determined using a percentage of market value. A $100,000 home will be assessed at $19,000 since the county uses a 19% of market value formula for residential properties. Commercial and personal property are assessed at 32% and 33.3%, respectively, with agricultural property at 12%.

“After the board of equalization, the county has sent us some new numbers,” Slagle said.

The city’s property tax levy initially was not going to change for 2019-20. While the tax levy is increasing, it is not a dramatic increase. The total tax levy last year was $0.7190 per $100. The new tax levy is $0.7272 per $100 assessed valuation.

Missouri is proposing a general fund levy of $0.431, a parks and rec levy of $0.0987 and a public health levy of $0.1975, reaching the $.7272 total for the city. For a home valued at $19,000, the owner’s real estate property tax would be $138.17. It would have been $136.61 under the previous levy, so it is an increase of $1.56 on that person’s tax bill.

2018-19 budget notes

The three-hour meeting began with a review of the 2018-19 fiscal year and how it is shaping up as it nears its end. The city’s fiscal year runs from October through September. Assistant City Manager Roger Haynes talked about the main funds for city operations, such as the general fund, wastewater and parks and recreations, among others.

The general fund started 2018 with $3.95 million. It covers city administration, public safety, emergency management, community development, engineering, stormwater, economic development, the cemetery, streets and more. The fund is expected to end the year with $3.9 million for its cash balance.

“One of the main reasons we were able to hold that out throughout the year is because we had some staff shortages in public safety. As council is aware, those are difficult positions to fill,” Haynes said.

City staff members were able to increase the original estimated 2018-19 general fund budget from $5.6 million to $5.7 million. They city is estimated to have brought in more this year in property tax, building and permit revenue, interest income and insurance reimbursements. The reimbursements were a revenue anomaly this year due to receiving payments in city claims against other entities, Haynes said.

Areas which did not meet budget estimates were gross receipts tax and gross receipts from telecommunications services. The loss of revenue from telecommunications services is a regular trend for the city due to residents switching from landlines to mobile phones, Haynes said. Gross receipts on electric from Ameren Missouri also were reduced. This was due to rate changes allowed by the Missouri Public Service Commission to Ameren.

Expenses are estimated to be reduced to $5.8 million from $6.09 million for the year. A majority of the savings came from employment vacancies in the public safety and community development departments, along with insurance renewals coming in better than original estimates. The city also spent less on supplies and services. Money set aside for vehicle and equipment purchases came in under budget, while some projects were moved to the 2019-20 fiscal year.

The wastewater operating fund is estimated to have increased its revenue budget to $3.2 million for the year, up from around $3.1 million. User fees and interest income account for this increase. The fund did see an estimated increase in expenses from $3.1 million to $3.3 million. This was due to increased engineering services, sewer line replacements and other one-time capital spending on equipment.

The Parks and Recreation Department fund saw an estimated increase in its budget this year from $1.04 million to $1.06 million due to increased property tax revenue and investment income. Expenditure estimates saw a slight increase from $1.32 million to $1.33 million due to the purchase of a truck bed trash tipper, which was a holdover from the 2017-18 fiscal year.

2019-20 budget notes

The city’s total estimated revenue for 2019-20 is $17.2 million, with estimated expenditures at $19.09 million — a difference of $1.8 million. Despite the appearance of the city working with a deficit budget, it is actually balanced, due to planned projects, carryover funds from 2018-19 projects and other fund transfer carryovers. A majority of the city’s total budget comes from service charges and fees, and sales tax — $4.3 million and $3.4 million, respectively. The majority of the city’s expenses go to personnel income and benefits — $6 million. The other substantial chunk is for capital projects — $5.8 million.

Sales tax collections are down when compared to the previous year despite an increase in sales, Slagle said. The city still is estimating retail sales tax collections as flat for the year, he said.

“Retail sales are up and have been up in general terms, but you’re also seeing a lot of retail sales done [on the] internet, more so than brick and mortar. That’s what you’re seeing the difference in,” Slagle said.

The difference between sales numbers and actual tax collections is caused by increased online purchases for which the city is not able to collect a tax.

“It’s becoming harder from a main street fairness point-of-view as far as what retail stores can keep. That’s where we’re seeing that reduction from actuals in our sales tax,” Slagle said.

The city may consider putting a use tax ballot question for the April 2020 election. It will allow them to collect a tax on out-of-state purchases.

“As you know, the state has made sure they took their portion of [a use tax], so they’re collecting theirs, and we had hoped this last legislative session they would make some adjustments for municipalities as well, but they did not,” Slagle said.

If Mexico voters were to approve a use tax on online sales, it has the potential of increasing tax revenues by $152,000.

Referencing an analysis from Internet Retailer in its budget letter, the city noted that online sales were $517 billion in the U.S., which was a 15% increase from 2017. Online sales account for 14.3% of total retail sales in the U.S., according to the letter.

City employees currently making minimum wage received an increase this year due to the passage of Proposition B in November which raised minimum wage to $8.60. Minimum wage will continue to increase yearly by 85 cents until it reaches $12 per hour in 2023. This will affect discussions as the city plans future budgets.

A capital improvement sales tax will continue to be collected after voters approved the tax continuation in April.

The trade war and tariffs continue to affect the agricultural industry. “We are still an agricultural community,” Slagle said. “Products have been hit hard with this. Soybeans have hit a new 10-year low [for prices], so that means farm income is down.”

Since farm incomes are down it has a direct negative impact on the Mexico economy, the city is taking those changes into consideration as it forecasts future budgets.

Planned increases, contributions, purchases

The city is estimating its property and liability insurance rates will increase by 5% when compared to last year. Employee health insurance premiums are estimated to increase by 10% starting in January. The budget includes costs associated with the city continuing to help fund the high-deductible health plan, along with the use of a health savings account. Dental insurance is expected to increase by 8% starting in January.

The city budget also includes an adjustment to staff salaries. General hourly employees will not receive a step increase, but will receive an across-the-board 2% increase to the salary schedule as a cost of living adjustment. Public safety officers will receive a 3% increase, while other department staff will receive the 2% increase. Salaried employees will not have a pay scale change, but also will receive the 2% cost-of-living adjustment.

The city will continue its contributions to charitable and contract agencies. These include Mexico Senior Center, Audrain County Historical Society, Miss Missouri Scholarship Pageant, The Help Center, Optimist Youth Sports, Handi-Shop, Mexico Area Chamber of Commerce and Presser Performing Arts Center. Organization contributions generally match requests, with a total budgeted contribution of $85,900 to the organizations.

Significant purchases planned for the next year through the general fund include new ballistic vests and patrol vehicles for public safety; a network server and computer replacements for city administration; sidewalk replacement program fund and a mid-size truck for community development; stormwater annual improvements and the Lakeview pipe replacement at Fairgrounds; a concrete pad expansion for the forestry-brush department; a spreader/sprayer attachment unit and snow blower attachment at the cemetery; a dump truck, dump truck spreader, brush hog mower and open-front shed for the streets department; replacement windows on the maintenance building and a new presentation system in the council chambers; and a grant match for the airport fund.

Wastewater operations is seeking $796,000 for equipment and upgrades at the wastewater treatment plant, along with cleaning equipment for sewer lines and other equipment.

Money from the capital improvement sales tax will be used to continue street repairs and replacements through asphalt overlays, sidewalk improvements, pavement and curb replacement, engineering designs for the Smiley Lane and Mars Street extensions and keeping some funds in reserve.