Brittany Kelley
KYLE — Interim City Manager Perwez Moheet painted a stark picture of Kyle’s finances during a special city council meeting Saturday, May 16, revealing a projected deficit exceeding $14 million, driven by rising costs and lower-than-expected revenues.
“It’s a very important discussion that we need to have,” began Moheet.
Before he can bring a proposed budget later in the summer, he stated that the city’s current approved budget must be discussed to learn how it got to its current financial position.
The fiscal year (FY) 2025-26 budget is $603,883,180, including $460,359,255 or 76.2% for capital improvement projects (CIP): “CIP translates into debt; we have to borrow to pay for this stuff,” Moheet said.
This CIP funding is part of a five-year $1.27 billion spending plan, which includes 125 proposed projects. The plan is separated into $490.1 million of tax supported projects and $781 million of non-tax supported CIPs. The latter includes initiatives, such as the wastewater plant expansion and tax incremental reinvestment zones (TIRZ), paid through utility rates and incremental tax revenue.
“As we speak, the city of Kyle owes $385.3 million. This is after the February payment we made,” said Moheet, noting that $163 million — the largest portion — is for water utility infrastructure, including the city’s agreement with Alliance Regional Water Authority to bring water in from the Carrizo-Wilcox Aquifer.
Items, such as road improvements, take up the property tax portion, with $156 million, followed by TIRZ one and two — $8 million and 17 million, respectively — and wastewater rates at $40 million.
Moheet explained that the contributing factors for the debt are:
• The number of CIP projects (125) — “There are some that are musts; there are some that are ‘nice to haves.’”
• Funding requirements for the $1.27 billion CIP spending plan
• Expedited timing of CIP project phasing — “We’ve been going 100-miles an hour trying to build everything at one time. We’re going to have to slow down … We can’t afford all of these.”
• Changes in project scope
• Increases in project cost estimates
“One of the things I’d like to emphasize is that the bonds for the city are like you buying your house. I took out a loan to buy my house; I could not have afforded it [otherwise],” explained council member Lauralee Harris. “It’s very similar to the debt that the city incurs. We’ve got to have the water; we have a 17-year-old agreement to do that … In order for us to supply the water that the city is now needing, due to its growth and its new development … it’s what we have to do. It’s like our house payment.”
Transitioning into how these debts are paid, the interim city manager noted the $0.1264, or 26.9%, tax rate increase from 2025 to 2026, stating that council member Michael Tobias was the only one on the dais at that time to vote against this “huge bump.”
A conversation then began between Harris and Moheet. She asked whether this tax rate increase was due to not only bonds approved by voters, but also by council, such as water and road work. He confirmed that, yes, these have impacted the tax rate, but that council also voted to add $4.7 million to pay future debt — a debt defeasance — increasing the tax rate.
“And [that] also allowed us to pay less interest, ultimately, if we’re paying it off early,” added Harris.
Moheet rebutted, “You did save some interest money, but the question is: Was it necessary? Did it have enough economic value to offset the tax burden we increased?”
Harris defended the former council, stating that they saw the numbers and decided that the burden was, in fact, worth it.
Regarding sales tax, the presentation stated that the current 8.25% sales tax is distributed into: 6.25% for the state, 1% for the city’s general operations; 0.50% for the city’s property tax reduction; and 0.50% for Hays County.
The projections for sales and property tax — the largest revenue generations for the city — were incorrect, explained Mohett. Projections for the fiscal year totaled $78.6 million, including $21.7 million in property taxes and $22.2 million in sales and beverage taxes. But with revenues now estimated at approximately $74.5 million, the city has begun drawing from reserve funds intended to maintain a financial cushion equal to 25% of annual operating expenses, as required by the city charter.
Also included in the budget are the four major operating funds:
• $75.4 million for general fund
• $28.1 million for water utility
• $11.1 million for wastewater utility
• $2.8 million storm damage utility
After reviewing the decreasing fund balance over the last few years, Tobias expressed concern about where the money went.
“Five years ago, our total operating expense was $34 million and then, if you move … to actual [spent] in 2024-25, it went to $68 million. Then, when you look at the budget that we approved for this year, it went up to $77 million,” said Moheet. “We doubled it in five years, that’s almost 127% [increase]. So, that explains some of that question you had: 'What happened to the fund balance? Where did it go?' It got eaten up by expenditures that kept going up. The revenues didn’t go up that fast.”
Harris, again, explained the decisions made previously, stating that council knew the spending was increasing, but that there were definite reasons “that we were behind on things that we should have been paying attention to and weren’t. So, we’re now paying attention to them.” The spending may appear over-the-top, she continued, but it may not have been.
“Well, it’s always over the top when you don’t have enough revenue to pay those bills,” said Mayor Yvonne Flores-Cale.
One of the areas that has tripled in cost is staffing, said interim deputy Finance director Andy Alejandro. In 2021, the city had 282 approved full-time employees, while, currently, there are 471. When it comes to removing some of these positions, Moheet stated that he will be looking for redundancies.
Another line item he will be reviewing closely is overtime spending.
“Overtime has increased by nearly $1 million, or 145.84% over [the past five years],” said Alejandro. “Overtime is a significant and growing cost pressure across multiple departments and will be a focus, as we work to manage operating costs going forward.”
According to the interim city manager, $1.3 million — of the $1.6 million estimated costs of overtime — exceeds what was budgeted for. Council had previously approved $300,000 for overtime costs, a number that has not been suitable for more than five years, as the lowest amount spent was in 2020, with $684,000, according to agenda documents.
The greatest portion comes from the police department, which is estimated to have $1,093,042 in overtime. This, Moheet stated, is due to having police presence at events, council meetings and more.
Tobias stated that council will need to decide how to proceed with city events, if they want to continue, to amend these costs, whether that is outsourcing companies to be there or changing what constitutes overtime.
In a slide presenting debt service, it was revealed that in 2026, the city will pay $26 million in debt service strictly for the general fund. This does not include debt service for other funds.
“The message here, council, is that we cannot sustain a $1.3 billion CIP program, period,” stressed Moheet. “We have to reevaluate, reexamine how we do our CIP planning … We’re going to separate the must haves from wants.”
After presenting the current factors for the city's predicament, Holly Holt-Torres, assistant director of financial services, shared the total amount needed in order to re-balance the general fund budget. Based on estimates determined through collaboration with city departments, there is a $14,173,372 deficit, which is the result of a $4.6 million shortfall in FY 2025-26 revenues, combined with the amount needed to maintain the minimum reserve fund balance.
The city charter requires the minimum fund balance to be at 25% of the operating expenses, which is $19.8 million. The expected FY 2025-26 beginning fund balance was $19.2 million. However, after reviewing audited results from FY 2024-25, the city is now “projecting a beginning fund balance of $14.98 million,” said Holt-Torres. Due to remedying the revenue short fall, the ending balance is now estimated to be $10.3 million. Therefore, $9.5 million needs to be recovered to meet the minimum reserve fund balance.
“This information was shared with prior leadership and then, there was a request made to remove [the $14,173,372] line to show [the gap to instead be] $9.5 million level,” disclosed Holt-Torres, after Flores-Cale noted that earlier in the year, council was told there was only a $9.5 million shortfall.
Tobias shared that he feels frustrated, as he has always trusted city leadership to provide accurate information, which seems to not have been the case, according to accounts by Moheet and Holt-Torres.
Although there are some shortfalls in the other core funds, they are not as extreme as the general fund.
“I just want to say that this is not the end all,” said Flores-Cale. “We are going to move forward; the road bond is going to move forward. How we move forward is going to depend on our priorities as a council and our residents. This is not the end all. We are going to be fine. I have no doubt that our leadership is going to take us into a productive, successful direction.”
Moheet and his team will bring back options for reorganizing the CIP projects, staffing and more at a budget meeting Saturday, June 13.
“This is a net result of those [financial] decisions over the years. You can’t get around it. We have to own it and when we own it, we need to move forward. We have to take this organization in a different direction over the next 12 to 24 months,” said Moheet. “When I bring the proposed budget [in a few months] … it’ll be a balanced budget.”
To listen to the discussion, visit bit.ly/4v1RmmJ.
