It’s usually the first thing most people learn about the place – Stafford is the city without a property tax.
Ever since Leonard Scarcella – the longest-serving mayor in America before his death in June 2020 – eliminated the tax in 1995, the city has generated revenue primarily through sales tax, permits and other fees, contrary to the vast majority of Texas cities.
That fact has become a point of pride for many Staffordians, with the city’s own tagline declaring itself the “city with no city property taxes,” and has helped draw many businesses to town over the years.
But in recent months, a growing number of current and former elected leaders have sounded alarm bells over the state of Stafford’s financial well-being, arguing that if major changes don’t come soon, the council may have no choice but to ask for a property tax to pay for more than $36 million in outstanding capital projects.
“If we don’t plan for the future, eventually we’re going to be in a position where we have to do a property tax to pay for bonds,” said AJ Honore, a former councilman from 2014 to 2019. “We’ve taken on debt the last three or four years. No one wants to admit the condition the city is in.”
Wen Guerra, a longtime city councilmember, took it a step farther than Honore.
“We are at a crossroads,” Guerra said. “If another budget shows up that looks anything like this year’s, I’m going to vote against it. We have got to make some kind of adjustment.”
Not everyone agrees with Honore, however. Mayor Cecil Willis, for instance, said the current city budget is based on sound principles, that the coronavirus pandemic hasn’t hurt the city’s sales tax revenues as much as expected and that those questioning the city’s finances are doing so for political reasons.
“The budget is balanced and our two fund balances are higher than they’ve been in three years,” Willis said. “As long as the foundation of Stafford is there, we’re good to go.”
No new taxes
Most cities in Texas fund their operations through a variety of different measures, including property and sales taxes, permits, charges and other fees. Stafford in 1995 under the leadership of then-Mayor Scarcella became one of the largest cities in the country to do away with a city property tax, though residents still pay school, state and county taxes.
The majority of Texas cities opt to charge residents and businesses property taxes because they are more stable than sales tax revenues, which fluctuate up and down based on the financial markets.
Alka Shah, who has served as Stafford’s director of finance since June, declined to say whether the city should have a property tax, but acknowledged they’re less volatile than sales taxes.
“Honestly, it’s not my decision to have or not have a property tax,” she said. “But property taxes are a reliable way to pay bills.”
Because most business construction continued even after the coronavirus pandemic began in March 2020, Stafford didn’t see much of a drop in sales taxes, she said. The city of some 20,000 residents wasn’t really impacted financially, she said.
But other Texas cities without a property tax haven’t fared so well in recent months. Kemah, a tourist destination nestled on the western side of the Bay of Galveston, is largely dependent on sales and beverage taxes to fund its operations, with more than 85 percent of its annual revenues coming through those funds, according to a Galveston County Daily News article.
In response to dire projections early in the pandemic after bars, shops and other businesses closed shop, the Kemah city council made significant cuts to their budget, furloughing several employees and leaving other staff positions vacant, according to the article.
A growing concern
“I still don’t know how it works,” a Stafford resident was quoted as saying in a June 2009 Houston Chronicle article about Stafford’s lack of a property tax. “I just reap the benefits. I don’t have to understand it.”
While the fact that Stafford has gone so long without a city property tax might be a mystery to many, it ultimately rests in very conservative principles, according to council member Don Jones, another Stafford elected official who has raised concern about the state of the city’s finances.
Essentially, the city depended on conservative spending, which meant a lack of services for residents that many similar cities enjoy, such as parks and more-regular capital projects, Honore said. For the most part, residents were OK with the tradeoff, because they could still access nice parks in Missouri City, Houston and Sugar Land – all short drives away, said Honore, who has worked in banking and financing for most of his career.
The whole time, costs continued to tick up while revenues did not, Honore said.
Jones, however, questions whether that was the greatest tradeoff, he said.
“That theory, I worry about, because for lack of a better word, we’re a one-trick pony,” Jones said. “Everyone loves the idea of zero property taxes. I love the idea of it. But are we potentially compromising on important city services?”
A drive through the Sugar Creek subdivision, for instance, shows the stark difference between Stafford and nearby Sugar Land, Jones argues. About 250 households in the neighborhood fall in Stafford’s jurisdiction, a majority in Sugar Land, and driving through the city limits, someone can visibly see the difference in the street quality and the maintenance of green areas, Jones said.
Guerra served as the acting mayor after the death of Scarcella, and quickly learned he’d need to find about $3.8 million if he hoped to present a balanced budget before council, he said.
“The indicators are that we’re making more money in economic development than we have before,” Guerra said. “But we’re still spending, necessarily, bigger than our income. We have to face that.”
Enter budget transfers
Moving away from the past, Honore took his concerns about the city’s financial health public in recent weeks when he penned a letter to the council, telling them he had concerns about transfers in the budget he saw and that he worried about a lack of focus on much-needed capital projects and street improvements.
“The last two budget years, they’ve taken $10 million out of a fund designed to help fund capital projects, including repairing streets and sidewalks, investing in firetrucks and other things,” Honore said. “The money had to be transferred over to the general fund to take care of everyday expenses. Meanwhile, the streets deteriorate.”
The city also transferred about $3.2 million from the Stafford Economic Development Corp. to pay for projects in the city, according to city leaders.
In the most recent budget, the city effectively took out a loan to pay for some of the costs, Guerra said.
“I didn’t agree with it, and I voted against it,” Guerra said. “It didn’t even include any money for streets or flooding and drainage. And we really need 15 additional police officers, but they’re only going to hire four.”
Willis bristled at characterizations about fund transfers, however, telling the Star that the fund Honore referenced was part of the general fund, and that Stafford has always transferred money between the two.
“The fact is, they’re both part of the general fund, period,” Willis said.
James Thurmond, the director of the master of public administration program in the college of liberal arts and social sciences at the University of Houston, told the Star that transfers are somewhat common, and the context is what ultimately matters.
“It just depends on what they’re used for, and how they’re justified,” he said.
When Shah first arrived in Fort Bend County back in June, she almost immediately got to work preparing for the 2021-22 budget season, she said. But now that the council passed a budget, she plans to turn her attention to longer-range planning.
“How are we going to fund and maintain the city’s aging infrastructure?” she asked. “I plan to meet with the finance committee and talk about it, getting some long-range planning in place.”
Across the ideological divide, those interviewed seemed confident in Shah’s abilities.
But it’s that very lack of planning that has brought Stafford to the point it’s at today, those who’ve expressed concern argue.
Stafford, for instance, has budgeted $0 for street repairs in the latest budget, Honore said. In 2019, however, the city spent about $800,000 on repairs, Honore wrote.
And the council commissioned an infrastructure study about four years ago that determined Stafford had about $36 million in needed public works projects, Honore wrote.
With the city pulling from capital improvement money to fund general operations, how will Stafford pay for that, Honore asked.
Clint Mendonca, a five-year resident of Stafford, said he felt OK with Stafford’s financial picture this year, but that he wanted to see a long-term plan to address infrastructure needs around the city.
“I’m fortunate to live in a neighborhood where drainage has not been as much of an issue,” he said. “But I’ve seen significant need for infrastructure improvements, from roads to trenches and ditches.”
The city’s most recent financial audit described it in stark terms, telling councilmembers that Stafford’s net financial position had declined by a negative balance of $5.3 million between 2019 and 2020, a 20 percent decline.
Jones acknowledged it might be a steep uphill battle to institute property taxes in a community that has fallen in love with not having to pay them, he said. Doing so would require a vote of the majority of council to place it on a ballot, and then a resident vote on the matter, Jones said.
But the city has reached the point where it might be worth at least having that conversation, he said.
“I know that trying to depend on zero property taxes to pay the bills, I’ve found in my experience, it’s seemed to get more challenging,” he said.
Mendonca said he didn’t like the idea of instituting a property tax, because once it comes back, it likely wouldn’t go away again.
But given the need to fund projects, he’s open to hearing any and all suggestions, he said.
“I’ve heard suggestions ranging from implementing a property tax to keeping it the same,” he said. “One idea I’ve heard is introducing a property tax, but offering the equivalent of a 100 percent homestead exemption. That way, it’s shouldered by businesses and landlords.”
If city leaders were to propose a property tax, Mendonca would want to see a hard sunset provision on it, he said.