DALLAS — The highly rated North Dallas suburbs of Frisco and Plano are mulling increases to their property-tax rates to plug budget shortfalls.
While the proposed increases in the tax rates may upset some of the populace, more tax revenue would bolster the already high credit ratings for the cities.
"The tax rate flexibility and the ability to increase the tax on an already wealthy tax base continues to support the high ratings these cities already enjoy," Standard & Poor's credit analyst James Breeding said.
Ahead of a general obligation bond sale last July, both Standard & Poor's and Moody's Investors Service upgraded their ratings on Frisco's credit. Moody's raised its rating to Aa2 from Aa3, while Standard & Poor's bumped its rating to AA from AA-minus. Analysts said the upgrades reflect the city's continued property-tax base expansion and strong financial reserves.
Frisco ended fiscal 2008 with a general fund balance around $21.3 million, or a "very strong 38% of operating expenditures," according to analysts.
Plano carries underlying ratings of AAA from Standard & Poor's and Aaa from Moody's. Analysts said the gilt-edged ratings reflect the city's deep and diverse economic and employment bases, "very strong wealth and income levels, and conservative and sophisticated financial and debt management policies."
Earlier this month, the Frisco City Council outlined a fiscal 2010 budget that didn't have a tax increase, but did include cost-cutting measures and tapping the city's general fund balance.
The city likes to keep the fund balance at 25% of operating expenses and this week the council considered depleting the fund balance to a lesser extent than previously discussed and increasing the tax rate to balance the budget. The possible rate hike would be 1.5 cents, raising the city's property-tax levy to 46.5 cents per $100 of assessed value.
Officials anticipate a dip in sales tax receipts, which are lagging by 3.5% so far this year. Fewer new homes and businesses also could affect tax revenues next year. The city will hold a public hearing on the proposed budget September 1.
Frisco's population has almost tripled since the 2000 Census figure of 33,714, and now stands at about 97,600. The city estimates the population will top 150,000 by 2014 and reach 250,000 in 2023.
The city's taxable assessed valuation has risen in tandem with the population adding more than $1 billion annually since 2001 to $12.4 billion for fiscal 2008, and projections show another 11% gain this year.
Plano is mulling a property-tax rate increase of about 1.51 cents to 48.86 cents per $100 of assessed value. Following a day-long workshop over the weekend, the city council concluded that a balanced budget needs more cost savings or a tax hike, which would be the city's first since 1990.
Officials expect budget shortfalls through 2012 due, in part, to declining commercial real estate development.
The City Council meets again Monday to further outline possible cuts and discuss the proposed tax increase.