The city of Hutto’s financial problems that led to the layoff of 44 employees last week started before the coronavirus pandemic hit Central Texas, officials said at council meeting Monday night.
They said the city was short $2.8 million in its reserve fund when the fiscal year began in October, a shortfall some council members said the council did not know about.
The layoffs saved the city $1 million, city finance manager Misti Hancock said at the Monday meeting. The council approved a motion Monday to save the city $50,000 more by suspending their pay for six months. The vote was 5-2.
City officials also told council members they were searching for answers on whether the city could change the status of the laid off employees to furloughed. A government program provides up to four months of pay for furloughed employees but the city would still have to pay health benefits.
The council also discussed the need to save the city another $1 million that it is expected to lose in sales tax revenues because of the coronavirus pandemic.
The discussion about the city’s finances began Monday with accountant Lupe Garcia giving council members the results of an audit that began in December that showed the city was in financial trouble in September. The city was supposed to have $4 million in reserves in its general fund that month when the budget was passed, said Garcia, who works for the audit firm Whitley Penn that was hired by the city.
There was only $1.2 million in reserve funds on Sept. 30, which left the city with 25 days of operating funds in case of emergency, said Garcia. The city is supposed to have 10% of its operating funds in reserves, according to the city charter.
Garcia said the $1.2 million in reserves that the city had left was about 6.5% to 7% of its operating funds.
Council Member Tanner Rose asked repeatedly Monday night who was responsible for overseeing the city’s reserve funds but did not get an answer from officials.
“How did the money get touched and who grants access?” he asked.
Part of the reason for the shortfall, city officials said Monday, was that finance personnel did not know about a $1 million property tax rebate payment the city made in 2019 as part of a renegotiated agreement with the Carmel Creek development.
Hutto Chief Financial Officer Michel Sorrell said she was not working for the city when the tax rebate agreement was renegotiated in 2018. Carmel Creek is a mixed-use development that includes apartments and single-family homes on the southwest corner of U.S. 79 and FM 685.
There also was overspending on hiring new employees, Hancock said Monday. It was not clear how much the city overspent and the city did not respond Tuesday to questions about that or the budget shortfall.
“We are trying to find out whether they hired without our (City Council) permission, if they needed to get our specific permission and if personnel were hired after the budget passed,” Council Member Peter Gordon said Tuesday.
“I think all of us were in shock last night as to how bad the finances were,” he said.
The projected sales tax revenues this spring also fell about $1 million below what was projected, Hancock told the council.
“In my opinion, COVID was the last straw. … We couldn’t count on revenues that we thought were coming in,” she said.
She said she had projected sales tax to be $5.5 million but it turned out to be $4.6 million before the coronavirus pandemic hit.
Mayor Doug Gaul asked that residents upset about the employee layoffs stop threatening the City Council on social media.
“I’ve seen posts on Facebook of people threatening to go after and kill City Council members,” Gaul said. “This is not acceptable.”
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