VIDEO: Kerrville Councilman McKinney Accuses City of 'Intentionally Hiding' Deficit as Groundwater Flood Costs Mount

KERRVILLE, Texas — A Kerrville city councilman accused his own city of "intentionally hiding" a growing budget deficit during a tense exchange at the City Council's July 24 budget workshop, drawing an immediate rebuttal from the city manager even as officials acknowledged that Kerrville is spending more than it takes in — and that the July flood has deepened the hole.

The clash, between Councilman Kent McKinney of Place 3 and City Manager Dalton Rice, laid bare a structural gap in the city's finances that has been building beneath two years of disaster recovery, and that now frames the question hanging over Kerrville's next budget: whether the city can keep paying for the services residents expect without cutting them, raising taxes again, or both.

"A pretty darn big problem"

McKinney did not mince words. Kerrville, he told colleagues, is "already underfunded" and "running deficits we're not showing because we're not being sustainable." He put the gap in blunt terms: the city needs roughly $2 million, he said, but has "800,000 or something booked."

"How long are we going to go this way and kind of sweep that little problem under the rug?" he asked. "It's a pretty darn big problem."

He argued the city has little room to grow its way out. Texas caps most cities' property-tax revenue growth at 3.5 percent a year, and McKinney contended that, given the composition of Kerrville's taxable value, the city's effective ceiling is closer to 2.5 percent. State lawmakers, he noted, have floated pushing the cap lower still and curtailing the franchise fees cities collect. "Everything is saying we're going to be choked more and more," he said, "and we can't just go along pretending that's not going to happen."

Then he went further, describing a roughly $30 million flood-related loss with no identified source to cover it and casting it as compounding a problem he said the city had "been intentionally hiding." The current course, he warned, would leave "future councils with a hell of a hole in our pockets."

The pushback

Rice rejected the characterization directly. "I don't think intentionally hiding it is the right way" to describe it, he said. The shortfall, he explained, surfaced only once the city began "putting sustainability back in" the budget — a process that, in his telling, exposed a preexisting gap rather than concealing one. "Definitely not intentional by any stretch of the imagination."

Councilmember Delayne Sigerman, of Place 1, agreed: "No, I wouldn't say that."

But Rice did not dispute McKinney's central point. Asked whether the flood made the problem worse, he answered, "Oh, absolutely." He framed deep service reductions as a looming — though, in his view, not yet arrived — conversation. If the city reaches that point, he cautioned, "that's going to be a huge deal, and it's going to impact every single department within the general fund."

For now, Rice urged the council to "buy some time" rather than make sweeping cuts while the costs of two disasters are still being sorted out.

A smaller fight that shows the strain

The pressure surfaced in miniature over a single line item: the city attorney's office.

Councilmember Crystal Smith, of Place 4, asked how much the city expects to pay outside counsel now that it is contracting out legal work. Finance Director Julie Behrens said that since April — in the absence of an assistant city attorney — the city has paid outside firms about $30,000 for municipal-court prosecution and public-records work, a cost she projected at roughly $100,000 a year. Filling the vacant assistant city attorney position, by comparison, would run about $121,000 to $122,000 including benefits. Either way, she said, "we'll spend it one way or the other."

Behrens attributed a drop in the overall legal budget to turnover: the departure of a longtime city attorney, Mike Hays, who she said had been with the city more than 25 years, and the lower salaries that come with newer hires.

McKinney pressed the council to take a harder look. "We're not outsourcing enough legal work to pay for a full-time attorney," he said, suggesting the city consider a legal assistant or other options it "really hasn't considered." Rice recommended the council give him and City Attorney William Tatsch discretion to decide whether to fill the assistant position now or convert it later, as recovery operations "flesh out."

Why it matters

The exchange matters because of what it sits on top of. Kerrville adopted a disaster property-tax rate after the July 2025 flood, over vocal resident objections, and city leaders have signaled they may need to consider one again after the July 2026 flood. A structural deficit — disputed in origin but acknowledged in size — raises the stakes of that decision, because it suggests the strain on the city's budget is not only a disaster expense the city will recover from, but an ongoing imbalance a temporary tax rate would not fix.

What remains unclear is the precise size of the gap, how the roughly $30 million in the groundwater flood-related losses will be covered, and whether the city will ultimately move to cut services, raise the rate, or draw down reserves. Those questions now move into Kerrville's fiscal year 2027 budget process.

Kerrville Breaking News will continue to report on the city's budget deliberations.