This page is the central location for information related to an error in taxable values impacting the FY23 budget. As additional information becomes available it will be added here to guarantee transparency and ease of access to information.
~Last Updated - 5/24/23 12:14 pm~ 

Background Documentation

BCTO 2021 Tax Rate Calculation Worksheet for FY 22 (for reference) signed 2 August 2021
BCTO 2022 Tax Rate Calculation Worksheet for FY 23 (now known incorrect) signed 7 July 2022
BCTO 2022 CORRECTED Tax Rate Calculation Worksheet for FY 23 (unsigned) received 3 November 2022
Monday, November 7th Council input and discussion agenda item materials
Tuesday, November 15th - Moody's Issuer Comment on the City of Pearland Taxable Value Change
SGR - Pearland, TX_Tax Calculation Process Audit Final Report 5.18.23-1
SGR Tax Calculation Audit Scope 2-2023
SGR Tax Calculation Audit_Presentation_05_22_23_Final
Notice of Public Hearing on Proposed Fiscal Year 2023-2024 Budget
Notice of Public Hearing on Tax Increase

Discussions

Facts

• The taxable value worksheet provided by the Brazoria County Tax Assessor and Collector for the FY23 budget overstated the City’s taxable value by $1.3 Billion by essentially counting twice the Harris County portion of the City of Pearland
• The worksheet and information provided by the Brazoria County Tax Assessor and Collector is the required source used to determine a tax rate that supports the Pearland budget
• City staff questioned primarily the resulting property tax rates produced by the worksheet and were reassured the worksheet was done correctly. The context background of the time was historic increasing assessed and taxable valuations.
• The error was discovered when City staff, asking for most current valuation information, requested updated values as part of the potential Tax Increment Reinvestment Zone (TIRZ) #3
• The error in taxable value means that the revenue collected (City budget) will be an estimated $10 million lower than originally anticipated which is split roughly evenly between two funds, the General Fund and the Debt Service Fund. Cash balance reserves in those funds are roughly ~$29.1 million in the General Fund, and $5.4 million in the Debt Service fund.
• Based on state law, the local property tax rate set in September cannot be adjusted to remedy this error
• Budget adjustments will be necessary to accommodate this unexpected revenue reduction. The City will meet all its obligations and continue high level of variety of City services 

What Happened

To build the annual City budget the City receives the state-mandated "Tax Rate Calculation Worksheet”, from the Brazoria County Tax Assessor and Collector. The worksheet is populated with data collected from County Appraisal Districts and historical budget numbers from the City. The worksheet calculates the “No New Revenue Rate” which would not provide additional tax dollars to the city, and the “Voter Approved Rate” which would trigger a special election if exceeded by the rate adopted by the City. The worksheet provides the data supporting the annual City tax rate that is voted on by City Council preceding the beginning of each fiscal year. The worksheet provided to support the FY23 budget included taxable value that was overstated by $1.3 Billion meaning that the “No New Revenue Rate” and the “Voter Approved Rate” on the worksheet were substantially lower than if the calculation were based on correct values. The result was an adopted tax rate lower than the corrected “No New revenue Rate” which will provide less revenue than needed for the FY23 budget.

City staff discovered this error on November 1^st while collecting data for a potential new Tax Increment Reinvestment Zone. After confirming the overstated amount with the Brazoria County Tax Assessor and Collector, staff made Council aware on November 2^nd and requested 1.5 days to prepare background information and scheduled an agenda item for the regular meeting on Monday, November 7^th to begin the process of understanding the current situation and discussing how to move forward.

How did this happen?

The Brazoria County Tax Assessor and Collector received data from Harris County Appraisal District that included certified and not yet certified values. Harris County instructed Brazoria County to use both values in the worksheet, but most of the amount in the not yet certified values were already included in the certified values, creating an over valuation of $1.3 Billion.

It is not uncommon for Harris County to provide not yet certified values to meet deadline requirements for the budget and tax rate process, and in the most recent worksheet Harris County changed the way data is provided to the Brazoria County Tax Assessor and Collector, adding to the possibility of this exact situation.

When staff received the tax worksheet for FY23 from the Brazoria County Tax Assessor and Collector, they questioned the substantial year-over-year increase. The Brazoria County Tax Assessor and Collector assured City staff that the values provided were triple-checked, accurate, and not surprising compared to neighboring jurisdictions. 

How will the problem be solved?

The impact of this error was a recommended (and adopted) tax rate that is lower than needed to collect revenue that adequately supports the adopted FY23 budget. The adopted tax rate cannot be amended despite an error outside of the City’s control, so the City’s Budget division has been working diligently to find solutions that will allow the City to operate through this fiscal year with a ~10% reduction in revenue with the least impact on planned City services now and future. There are a variety of options available and the City has available fund balances, including some over policy targets, plus flexibility with other expenditures; but the scale of this revenue gap will test the resilience of all potential options.

Staff presented the current situation in the regular Council meeting on Monday, November 7^th and will add a discussion item to the regular meeting on Monday, November 21^st to explore budget amendment options that will be brought back to Council for approval in the December meetings.

Updates following the November 21st Regular Meeting

City staff made a presentation to City Council on FY 23 Budget Amendment #1. This presentation laid out the adjustments necessary in order to resolve the revenue gap. You can view the presentation on the regular meeting's agenda item. This first reading for Budget Amendment #1 will be held at the upcoming City Council meeting on December 5th & the second reading will be held on December 12th. 

Additionally, City Council voted to move forward with an independent third party audit with respect to the role of the parties and processes involved with the City’s Fiscal Year 2023 budget process. You can view the planned scope of the audit on the associated agenda item.

Updates following the December 5th Regular Meeting

City Staff presented the First Reading of FY23 Budget Amendment #1. You can view the presentation on the regular meeting's agenda item. The first reading was approved by City Council and the second reading for Budget Amendment #1 will be held at the upcoming City Council regular meeting on December 12th. 

 Additionally City Council voted in favor for the hiring of legal counsel for potential litigations as discussed during the December 5th's meeting executive session. 

Updates following the December 12th Regular Meeting

City Staff presented the second reading of FY23 Budget Amendment #1. You can view the presentation on the regular meeting's agenda item. The second reading was approved by City Council.

 Additionally City Council took no action regarding potential litigation and audit associated with Fiscal Year 2023 Tax Calculations coming out of December 12th's meeting executive session. 

Updates following the January 10th, 2023 Regular Meeting

City Staff presented an update to the FY23 Budget and potential long-term impacts created by the tax valuation corrections. You can view the presentation on the regular meeting's agenda item. This was a discussion item, so no action was taken.

 Additionally City Council took no action regarding potential litigation and audit associated with Fiscal Year 2023 Tax Calculations coming out of the January 10th executive session. 

Updates following the February 13th, 2023 Regular Meeting

City Council authorized a consultant services contract with Strategic Government Resources, in the estimated amount of $36,750.00, to audit the City’s tax calculation process and make best practices recommendations.

Updates following the May 22nd, 2023 Regular Meeting

Strategic Government Resources presented to Council the results of their independent audit of the City's tax calculation process and best practices recommendations for future calculations.