“We have hurricanes that come and go and create a lot of havoc and issues on the ground. This is a financial hurricane. It’s here and we have to deal with it.”
– Pearland Mayor Kevin Cole
Pearland City Council on Monday heard proposals to band-aid a recently uncovered $10 million budget shortfall and agreed to appoint a third-party firm to review the events that led to it.
“We have hurricanes that come and go and create a lot of havoc and issues on the ground,” Mayor Kevin Cole said, describing the last two weeks. “This is a financial hurricane. It’s here and we have to deal with it.”
Pearland council members discovered just last month that values from Harris County properties used to build the city’s budget were overstated by $1.3 billion.
“Should we have caught it? Yes. How could we have caught it? I don’t know,” Cole said. “What did we hear all summer long: Exploding values. Everything is skyrocketing. And our staff did question how did our values go up that much? Questions were being asked.”
The goal of the third-party review is to verify how the mistake happened and recommend best practices.
“We’re really asking somebody to review the flow of information, how that gets used from one agency to the next, how it’s delivered to us,” Cole said.
A firm to take on the review is expected to be selected next month.
Monday’s five-hour meeting ended with a closed executive session, after which the council voted unanimously to terminate the contract of City Manager Clay Pearson and appoint Deputy City Manager Trent Epperson as interim city manager effective immediately. Terms or reasons for the separation with Pearson, who has served as city manager for eight years, were not discussed in open forum.
Earlier in the meeting, city staff brought forward a proposal that uses both fund balance, American Rescue Plan Act dollars and higher-than-projected interest to shore up the fiscal year budget.
“We did have a very good meeting with the Harris County Appraisal District last week and the Brazoria County Tax Office was in that meeting,” Cole said. “During the middle of that meeting is when we discovered what happened. HCAD delivered correct values; it’s how you get them applied into the worksheet that ultimately created the flashpoint that led to this.”
The error resulted in a revenue shortfall of roughly $10 million shared between the City of Pearland’s general fund, which covers most city day to day services, and debt service fund.
“The tax rate that we did adopt is below the no-new-revenue rate as provided on the corrected tax calculation worksheets,” Deputy City Manager Epperson told the council Monday. “The proposed plan does maintain core services, and it does meet creditors’ expectations.”
The proposed budget amendments do not take the city’s fund balance below the required policy of maintaining a minimum of 90 days of expenditures, which had been a concern.
Proposals to balance the city’s general fund include delaying vehicle and equipment lease payments for one year, as well as delaying a planned, $300,000 update to the city’s Unified Development Code, a land use guide regularly amended to adapt to growing communities.
“Nobody wants to be here, and some of this is on us,” Councilman Tony Carbone said, regarding the city not catching the error. “All these slides we’re throwing up we all sat here and saw — 20/20 hindsight.”
The proposed budget amendments will be considered for approval next month, with a first reading Dec. 5 and second reading Dec. 12.
“Beyond that we still have to define the impacts on FY 24 and the solutions that we’re working on with elected officials to address the mistake that was made in the tax rate calculation sheet,” Epperson said.
A website has been set up to answer residents’ questions about this issue and can be accessed on the city’s site at pearlandtx.gov.
