Let’s cut the tax rate again

1. Today’s post builds on my post last week, which can be read below.

That post outlined the reasons that it is difficult to reduce a surplus in a fast-growth economy. Today, we have enough cash in surplus to operate the county for more than 300 days.

Our county financial position is extremely strong. I believe that we should cut our tax rate further. Like I wrote during the Great Recession, “If you don’t cut taxes when the economy is bad and taxpayers are hurting, and you don’t cut taxes when the economy is good and tax dollars are plentiful, when do you cut taxes?”

A quote from a Standard & Poor’s ratings report on Collin County, June, 2015:

“Collin County is rated above the sovereign because we believe the county can maintain better credit characteristics than the U.S. can in a stress scenario, based on its predominantly locally derived revenue base and our view that pledged revenue supporting debt service on the bonds is at limited risk of negative sovereign intervention. In 2014, 82% of the city’s revenue was derived from local property taxes, followed by local fees and charges for services at 11%, demonstrating a lack of dependence on central government revenues.”

That is an amazing statement! Remember that the federal government controls all the levers of economic policy. On the other hand, Texas counties rely only on the strength of the local economy.

If we reduce the tax rate to 22.5 cents from 23.5 cents per $100 in value this year, we will still end the next two fiscal years (the one that we are planning and the fiscal year after that) with 282 days surplus.*

The reason I include two fiscal years is because the year after the one we are considering now funds several one-time capital projects to the tune of $25 million. And we still end that year with 282 days surplus, counting all “unrestricted” surplus.

For perspective, ratings agencies want a surplus between 90 and 120 days in order to maintain our AAA rating. The county goal is a 120 to 180 day surplus. 282 days certainly meets these criteria.

The only mechanism that the Commissioners Court has to slow the growth of the surplus is to cut the tax rate. Remember, there is very little short of an actual emergency on which we can actually spend the emergency fund, primarily due to truth-in-taxation rules and federal debt refinancing rules.

The bottom line: Collin County can cut its FY2016 tax rate further with very little impact on the surplus, absent an emergency.

* Reference: fiveyearplanfy16 Court Recommended 2 Pct 4 v3 08-20-2015

2. With new information on state law and local policy, we will also readdress the reserve committed to fund special prosecutors next year.