Page 272 - Southlake FY20 Budget

Strategic Initiative Fund

allocation. Adjustments are made throughout the year, but when year-end numbers show excess revenues and
unspent appropriation, this operating surplus “rolls” into the fund balance for the subsequent fiscal year.

Assuming that the fund balance is maintained at its optimal level, this creates options for the use of the excess reserve
funds above the optimum level.

One option is to put these funds to work as one-time revenue to fund needed projects that are non-recurring expenses.
In this way, the City uses the one-time funding for one-time costs, and can avoid borrowing money for these projects.
This is the basic idea of the Strategic Initiative Fund.

Another option the City Council has exercised has been the granting of a homestead exemption. The City implemented
a one-time general homestead exemption in FY 2009 and again in FY 2013 to complement the ongoing over-65
exemption ($75,000), disabled exemption ($75,000), and the over-65 tax freeze. This reduced the taxes levied against
Southlake taxpayers for tax years 2008 and 2012, years that the City could afford the reduced revenue, and the City
applied the exemption to its revenue projections for the budget year. For FY 2014, a 3% exemption was adopted on
a permanent basis, and for FY 2015, a 10% exemption was adopted. For FY 2016, a 12% exemption was included, for
FY 2017, the exemption was increased to 16%, and in FY 2018, City Council approved increasing the exemption to 20%
which is the maximum allowed by State law. For FY 2019, City Council approved the 20% homestead exemption and
reduced the tax rate by $0.015. For FY 2020, we are proposing to continue the 20% homestead exemption and reduce
the tax rate by $0.037, bring the proposed tax rate below the effective tax rate.

Capital Improvement Program (CIP). In 2006, the City had identified over $22 million in General Fund capital projects
that needed to be addressed, but were unfunded for the five-year planning period. Given that the City’s annual
General Fund bond program was $3 million, it was difficult to see how the City would be able address the critical
infrastructure projects in a timely manner. The SIF presented a way for the City to infuse cash into its CIP. For FY
2006, almost $750,000 was transferred from the SIF to the CIP, allowing the City to address more projects than initially
thought possible.

Since that time, the City has been able to increase its cash funding for the CIP, lessening the debt the City has to take
on to make appropriate investments into needed street, sidewalk, drainage, facility, and other improvements. About
sixty-five percent of the SIF allocations since 2006 have been used as cash funding for CIP projects, which ultimately
means the City avoids borrowing costs for addressing those projects.

The City has also used the SIF to purchase expensive, but necessary equipment, such as fire apparatus and ambulances,
make improvements to City facilities such as the Senior Activity Center, improve the City’s technology infrastructure,
and establish a much needed facility maintenance reserve fund.

The chart on the following page details SIF projects funded since 2006.

Like many other municipalities, the City was impacted by the recent economic recession and had to make decisions
during those years to freeze pay, leave certain positions unfilled, and defer the purchase of needed equipment in order
to achieve structural balance with its budget. But the impact of the recession was minimized by the SIF. The SIF has
been an important tool for the City of Southlake to use to weather economic events like the recession by allowing the
City to move forward with capital projects without compromising the City’s fund balance, raising taxes, or increasing
the City’s debt load.

The City’s budget is sustainable and healthy, and able to withstand the impact of unforeseeable economic impacts.
This is due, in part, to the City’s use of innovative financial practices, such as the SIF.

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