Facing nearly $2 million in loans, the Palmview City Council unanimously approved a 2.5 cent property tax rate increase Sept. 15.
The loans, many of which have been taken out since 2008, also played a role in the council’s decision during their latest meeting to fire the city’s secretary, who had been with the city for 17 years.
The 2.5 cent increase, which will raise taxes to 0.5001 cents per $100 of assessed property valuation, takes effect with the 2017 tax statements. Despite the increase, Olivares told the council the city’s property taxes remain amongst the lowest in the Valley.
The increase is expected to generate approximately $100,000 that will go toward making installment payments on a $1.5 million road project, a new ambulance for the fire department and a police cruiser, said interim City Manager Leo Olivares in a previous council meeting. However, City Finance Director Rachel Chapa explained in the latest meeting held Sept. 15 that the city cannot afford these improvements without a tax increase because it is already saddled with two loans it is paying, much of which is for back taxes that were not paid when due and associated IRS penalties.
During the meeting, Chapa went over two loans the city had taken out in 2008 and 2014 for which the city is still paying. The first loan was for $1.3 million to pay IRS payroll taxes and fees – items Chapa said should have already been included in the city’s budget – and to pay vendors for which invoices could not be found.
From the loan, the city has repaid the IRS $668,750 for payroll taxes which are supposed to be done periodically but were instead paid months late in a lump sum from that loan.
“What I found was astonishing to me because no one in their right mind would operate their business like this,” Chapa said.
According to financial records Chapa presented to the board and Progress Times, the IRS penalized the city twice in 2006 and 2007 for a total of nearly $94,000 for failure to file their IRS Form 941 for those two years. Form 941 filing is required of employers to report income taxes, Social Security tax and Medicare tax withheld from employee’s paychecks. And employers are required to pay those payroll taxes to the IRS either monthly or every payday, depending on IRS requirements.
“That, I call malpractice,” Chapa said to the board of the failure to file the form.
City Secretary Bertha Garza acknowledged that she was responsible for payroll at that time but when questioned by Councilwoman Linda Sarabia, Garza said she was directed not to file the payroll taxes by former City Manager Johnn Alaniz, who served in that position from 2004 through 2013.
When reached for comment, Alaniz, a current school board trustee for the La Joya Independent School District, said he had no recollection of the instruction or the details of the loans Chapa brought up during the meeting and declined to comment further.
Toward the end of the meeting, the council agreed to terminate Garza as the city secretary, though Olivares and several council members stressed that Garza’s firing was not a disciplinary action.
“We need to go to a different direction and get people who are aligned with our vision and can take us to the next level,” Councilmember Javier Ramirez said. “She’s been here 17 years, she’s had several opportunities to prove herself.”
At the end of the meeting, Garza, visibly holding back tears, thanked the council members for her years of service before leaving the city hall.
Chapa said reviewing the city’s finances was difficult because she cannot find several invoices explaining how loan funds were spent. She said the city’s former accountant, Frank Rodriguez, has not been able to meet with her. Chapa said she found more than $61,000 was paid to Robinson Law Group for a lawsuit filed against the city by Reliant Energy Retail Services. Reliant, an electric company, sued Palmview for nonpayment of a $35,000 electric bill for the city hall.
The lawsuit was served to Alaniz and Aida Rivas, the city secretary at the time, but was never answered so the city was ordered to pay the $35,000 plus interest and attorney’s fees, Chapa said.
“So this $1.3 million that was borrowed, you have nothing to show for it. You don’t have a building, you don’t have assets, you don’t have vehicles, you don’t have equipment, anything” Chapa said. “It’s just money that was used to pay ordinary expenses that should have already been accounted for in the budget.”
The city is paying $64,756 a year for the first loan and $65,000 a year for the second, Chapa said. She explained that because of the loans, the city needs to raise taxes if they want to also invest in the city’s growth.
“Because of this burden we can’t move forward,” she said. “We really can’t do anything new for the City of Palmview.”
The council members agreed that a raise in taxes was necessary to finish paying the loans but voiced displeasure in raising the taxes. However, once Chapa informed them the city council could lower the tax rate once the city had enough funds, councilmembers were less reluctant to vote for the increase.
“If you’re going to lead, you’re going to have to make tough choices,” Ramirez said after the meeting. “It seems very unfair that we have to burden our citizens with someone’s negligence in these loans but it is what it is.”
“There’s so much mixed emotions in what we had to do today but I think the community will thank us once they start seeing results,” she said. “The city having to carry this liability from the loans is hindering us from any progress and growth that citizens are expecting. It’s upsetting to know so much money was thrown away like that. It is negligence.”