The City of Pearland finds itself in an uncertain position after it was discovered that the taxable value of the city, used to calculate revenues and tax rates, was overstated by roughly $1.3 billion because of a “worksheet error.”
Pearland’s Mayor and Council Members used these numbers to craft and approve their $110 million budget, the largest in the city’s history, and are now forced to reduce their revenue projections by $8 million, according to a letter by City Manager Clay Pearson.
Pearson’s letter says the error was discovered when the city began preparing a statement of valuation for a new Tax Increment Reinvestment Zone (TIRZ) to make sure it adhered to state law which states that no more than 25% of a city’s taxable value can be within the boundaries of a TIRZ.
The statement of valuation led to the city questioning the Brazoria County Appraisal District which revealed that “between Harris County and Brazoria County an error occurred” in the budget worksheets that the Mayor and Council used to craft and ultimately pass the city’s budget.
Pearland falls primarily in Brazoria County, but portions are also included in Fort Bend County and Harris County. As the primary county, Brazoria receives taxable value information from Fort Bend and Harris and prepares the information for Pearland.
“The value in the State mandated worksheet prepared and given to us by Brazoria County used a number between Harris County and Brazoria County that overstates the 2022 value of properties…by ~$1.3 billion,” reads the letter sent to the Council.
It goes on to say that in real terms, anticipated General Fund and Debt Service revenue will be roughly $8 million less than projected.
Oddly, though, the significant year-to-year increase in taxable value was acknowledged by the City Manager, but he reassured the Mayor and Council that the information was correct.
In the budget report he wrote, “The property tax base for tax year 2022 that will fund our FY23 budget grew extraordinarily…the result is that tax base is now $14.4 billion, up 28% from the prior tax year of $11.3 billion.”
It goes on to say that property tax revenue also increased 16.5% and “is attributable to a $3.1 billion increase in net taxable value. The amount is large and been re-verified by the Brazoria County Tax Office from reports on the three County Appraisal Districts.”
Pearson said they are seeking an updated and correct Tax Calculation Worksheet from Brazoria County to find out what the No-New Revenue Rate and Voter-Approved tax rates should have been, but the deadline to set tax rates has passed so the city will not be able to adjust the rate.
The letter goes on to say “there is no recourse to the counties as they are completing their work with government immunity.”
Pearson outlined the immediate priorities which are to ensure the city can meet its debt obligations by drawing down on reserve funds below their targeted amount for emergencies and review the general fund and expenditures to see what can be pulled to meet obligations and services.
But one Council Member wants to see more done.
In a response letter posted on his Facebook page, Council Member Alex Kamkar wrote, “The taxable value calculations are the foundation for the formation of the City budget and tax rate. It is of the utmost importance to understand how and why those processes and procedure failed in the FY 23 budget, and how we can avoid this issue in the future.”
Kamkar said he will be pushing for an independent third-party forensic audit and investigation into the 2023 budget at the city’s Monday meeting. He also asked that the City Manager preserve all documents related to the 2023 budget in preparation for the audit.
Pearson asked the Mayor and Council to allow for 36 hours for him to prepare background information and he intends on bringing an agenda item at the city’s Monday city council meeting to address the issue.
If the city had not attempted to create a TIRZ, this wouldn’t have been brought to light until the city found itself short on revenue for fiscal year 2023 expenditures.
Pearland isn’t the only city that is spread across three counties and given its size, it’s finances shouldn’t be overly complicated which makes such an oversight shocking. There was clearly no internal quality control measure by the city’s Finance Department or Council Audit Committee to verify information they received from the primary county and City Manager.
For his part, Kamkar did push back against the size of the budget and authored an amendment during the budget cycle to cut $4 million. The amendment failed for a lack of a second, but had it passed, the city wouldn’t be facing as steep of cuts as it now is.
Charles Blain is the President of Urban Reform institute, a think tank that focuses on free market solutions to urban issues and creating opportunity for all in America’s metropolitan areas. Charles has been published in the Wall Street Journal, Forbes, the Houston Chronicle, the Hill, Wired, and other publications. He is a Fox 26 Houston (KRIV) regular political commentator and weekly panelist on Sunday talk show, What’s Your Point. He is also a regular guest speaking about local issues on I Heart Radio’s Pursuit of Happiness, The Michael Berry Show, and Houston’s Morning News w/ Jimmy Barrett & Shara Fryer.