Town Provides Many Happy Returns

by Sean Tuffnell

While the politicians in Washington continue to bicker about the surplus, one small town in Texas has met the challenge head-on. The result is a shining example of the ingenuity that can occur in government at the local level.

As with most communities in the North Texas region, Farmers Branch, the small community north of Dallas, has experienced significant economic growth in the last several years. As people and businesses flock to Dallas-Fort Worth, communities like Farmers Branch have seen a sudden upswing in property tax revenues, along with an unexpected increase in sales tax revenue. Combined, these windfalls have created a surplus in the city's coffers.

As with any government that takes in more than they budgeted, Farmers Branch officials were faced with a choice between cutting taxes, or coming up with a new project to spend the money on. Neither option looked attractive.

City officials understood calls for tax relief. But they were concerned that cutting taxes after running a one-time surplus that was based, at least in part, to a surge in sales tax revenues, might put their long-range planning and commitments at risk. This is because sales taxes are elastic in nature and very hard to predict from year-to-year. Yet just creating a pork project to spend the money on was out of the question. With either option, a need to raise taxes in the future could arise, if the extra money stopped coming in.

Stuck between a rock and a hard place, they instead invented a program that is now a model for other cities across the nation. Following the recommendation of city manager Richard Escalante, the Farmers Branch city council approved an ordinance to treat the city's businesses and homeowners as shareholders in a great financial enterprise. As a result, all property taxpayers will receive an end-of-year dividend check representing their share of the property taxes paid.

The dividend program works like this. First, a year-end audit for the fiscal year is completed. If the audit determines there is a surplus, and certain other budgetary requirements are met, a dividend is declared to be paid out of the general fund.

The dividend is then distributed to all taxpayers in proportion to the taxes each paid that year. Properties with delinquent property taxes would have the dividend applied to the delinquent bill. And to keep administrative costs to a minimum, dividend checks are not distributed for less than $1.00.

The dividend concept was first adopted by the City of Farmers Branch in 1997, and in 1998 they issued their second dividend. In the two years the city has returned more than $1.25 million in surplus funds. Every citizen and business of Farmers Branch has received a check, accompanied by a message of that explained that they were receiving money because their government was exercising financial discipline and responsibility. Based on the dividend program's success in Farmers Branch, the nearby community of Plano adopted a similar program in 1998.

A funny thing has happened in Farmers Branch since the program was adopted. A new sense of community spirit has been energized, as each citizen feels like he or she is truly a shareholder in the community. Many citizens and businesses, as a sign of good will and approval, donated their dividend checks back to the city for programs and agencies that they supported and believed needed extra funding, and to local charities who were contributing to the public good in ways that government could not. Calls for tax cuts have disappeared because people know that the government won't "keep the change." The local chamber of commerce president has even made the dividend program a part of the chamber's recruiting program, using the slogan: "It pays to do business in Farmers Branch."

Most importantly, city officials can respond to short term gains and their constituents desire to take part in that success, without risking their community's long-term financial footing.

While the Farmers Branch way may not work in every community, much less on a national scale, it is a perfect example of what can happen when local officials are given the power to think outside the box.