Revenue streams continue to be better than anticipated even with a slowdown in visitor traffic caused by the pandemic, City Manager Erik Walsh told the San Antonio City Council Thursday as he presented the largest proposed budget in the city’s history.
Walsh also told council members to expect another record: a $1.2 billion municipal bond in 2022.
The total proposed fiscal year 2022 budget is $3.1 billion. That’s an increase from the fiscal year 2021 budget of $2.9 billion, thanks to more robust than expected sales revenue growth and a small bump in airport revenue.
Unsurprisingly, hotel occupancy tax revenue has dipped, coming in about 24% lower than in 2019.
“We’ve known that segment of our industry and our business was going to take longer to recover,” Walsh said. “It will be interesting to see how that impacts us going forward into the early part of the fall.”
The city is prepared to address any changes that may come as coronavirus cases continue to increase, Walsh said.
“We’ve learned over the last 18 months [that] things could go awry, and we have to react quickly,” he said. “That could of course happen, and we’re prepared for it. Secondly, we do have other funding — COVID grant funding — to help beef up that. We have health implementation dollars for the recovery and resiliency [plan] that we could put into production. And the backstop, frankly, is ARPA.”
ARPA, or the American Rescue Plan Act, allocated $326 million to San Antonio for “fiscal recovery.” The city has already received half of that money and expects to receive the second half in 2022. In the proposed budget, $97.5 million of those federal dollars will be spent through 2023, Walsh said, to supplement the general fund and the hotel occupancy tax fund.
But if the city finds itself in dire straits due to the changing landscape of the pandemic, it can potentially draw more from the ARPA funding.
“The speed at which everything has happened over the last three weeks, who knows what the next three weeks are? It could be a hell of a lot worse than January,” Walsh said. “But I’m confident that with those resources and the ability to turn the knobs and [as] Council makes changes to the adopted budget, then we will be prepared. I’m not concerned about not having resources.”
The rosier-than-expected financial forecast, Walsh said, allowed for the city’s first billion-dollar-plus bond program. Last summer, city officials estimated it would be closer to $675 million
“Pre-pandemic, we were estimating $980 million,” Walsh said. “Last summer, we weren’t sure what was going to happen. When we redid our debt management plan, we frankly were projecting that property values were going to decrease and we were going to have a much longer impact.”
Instead, San Antonio, like much of the nation, finds itself in the midst of a white hot real estate market, with out-of-towners and investment firms paying in cash and often over the asking price, pushing property values up.
Though the city does not plan to raise the existing property tax rate, staff estimates that San Antonio will collect an additional $20 million in property tax revenue compared to the previous year, $11.3 million of which is from new properties added to the tax rolls. That increase prompted Councilman Clayton Perry (D10) to again advocate for raising the city’s existing homestead exemption.
Perry and Councilman John Courage (D9) tried during the council’s June budget goal-setting session to drum up support to increase the current exemption from 0.01% to 5%, but their colleagues were mostly unmoved, pointing out that the change would provide no meaningful relief for property owners.
Perry and Councilman Jalen McKee-Rodriguez (D2) asked Chief Financial Officer Ben Gorzell to return with an analysis of how a reduction in the property tax rate would impact the city and property owners. The last time the city reduced its tax rate was in fiscal year 2015.
“When we’re showing those kind of [tax revenue] increases year after year, I just don’t understand why the staff didn’t come up with a recommendation, ‘Hey, yeah, it’s time to lower our tax rate,'” Perry said.
The stronger than expected fiscal recovery also allows the city to restore all budget cuts originally made to street maintenance, economic development incentive programs, and housing, Walsh said.
And all city employees will receive a 5% raise in the next budget cycle. While 4% of that will be instituted as a permanent pay raise, the remaining 1% will be a lump-sum payout. The 4% raise also applies to new hires, meaning that entry-level workers will be paid $15.60 instead of $15 per hour.
“As people evaluate where they apply, we want to be competitive,” Walsh said.
The proposed budget also has more money allocated toward infrastructure — specifically, $16 million more for street maintenance and $21 million for sidewalks in fiscal year 2022. The budget also includes $5.8 million for new street lights, the most San Antonio has ever put forward at once for new lights, Walsh said. That priority came from the city’s meetings with the community over police service feedback.
“I was not prepared for the number of times street lights came up, so we want to make a big investment in that next year,” Walsh said.
Public health also will get a boost, as outlined in the San Antonio Metropolitan Health District’s five-year strategic plan. A large portion of the increased investment will be spent on increasing access to mental health care.
That increase dovetails with one of the city’s policing goals, which is to respond more effectively to mental health calls. The San Antonio Police Department will pilot sending multidisciplinary teams out on mental health calls that will include a paramedic and a mental health clinician along with a police officer, as recommended by the Meadows Mental Health Policy Institute.
This new approach will also be taken with domestic violence calls and calls related to individuals that may be homeless or may have substance abuse issues, Deputy City Manager María Villagómez said.
Other calls that traditionally have gone to police will also be diverted to other departments — for example, noise complaints will go to code enforcement officers, while barking dog complaints will go to Animal Care Services.
“We’re adding resources for them to be able to handle those goals, especially at night,” Villagómez said.
The proposed budget also increases the police budget by 3%, which will fund 12 community police officers for $1.6 million and three bike patrol officers for $192,000.
“What we heard from the community is a desire for our police officers to develop stronger relationships with our community,” Villagómez said. “What we heard is, ‘We want to see the police officer in our community meetings; we want to get to know our officer like we know our mail person, for example.”
San Antonio’s community policing program is known as SAFFE, for San Antonio Fear Free Environment.
Several council members applauded the addition of SAFFE officers. But McKee-Rodriguez and Councilwoman Teri Castillo (D5) both questioned the proposal to add police officers at a time when some calls will be diverted to other departments.
“If we want to see a decrease in crime, we should start strategically addressing crime,” McKee-Rodriguez said. “I think it is a waste to continue to add more and more officers to police problems that are not going away.”
The proposed budget also includes the creation of a Diversity, Equity, and Inclusion Office, which will be staffed by redirecting 17 existing positions within the city, consolidating the existing diversity and inclusion work now being down in the city’s human resources department; Public Works, which handles disability access; and Government and Public Affairs, which deals with language access issues.
“I think it’ll be important from an organizational standpoint … to know we have one touchpoint that is consolidated and working on all these issues,” Walsh said.
Though the delta variant of the coronavirus continues to spread, Walsh said he believes the city is “well prepared” to continue to deal with the pandemic and still provide services to city residents.
“I think we’ve got the financial latitude to turn on and off expenses,” he said.
City Council is scheduled to vote on the fiscal year 2022 budget on Sept. 16. The council will host budget work sessions starting on Tuesday; the full schedule of work sessions can be found here. Council members will hold town hall meetings on the proposed budget from Aug. 16 to Sept. 1. Find the full schedule here.