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HomeMy WebLinkAboutMinutes - Finance and Bond Committee - 4/12/2007MINUTES FINANCE 1 BOND COMMITTEE SPECIAL MEETING HOPI CONFERENCE'11 i r i 1!i N. LA CANADA DRIVE 1 • r VALLEY, ARIZONA THURSDAY, APRIL 12,2007 AT OR sr P.M. PRESENT: Tony Eichorn, Chair Chuck Kill, Vice -Chair Peter Lamm, Member Bob Harris, Member EXCUSED: Aaron Fisher, Member STAFF PRESENT: Stacey Lemos, Finance Director Wendy Gilden, Management & Budget Analyst Danielle Tanner, Senior Office Specialist ALSO PRESENT: Helen Dankwerth, Vice -Mayor Lyra Done, Parks and Recreation Advisory Board Liaison MOTION: Member Harris MOVED to approve the minutes from the March 26, 2007 meeting. Member Lamm SECONDED the motion. Motion carried, 4-0. 1' 1M N Wx" 9 [Wo Z14 KKR'! 1 9 [911MV IL01311 Ms. Lemos stated that the purpose of this meeting is to review the information and discuss the recommendations for Town Council in preparation for the Joint Study Session on April 25''. Ms. Lemos reviewed the following General Fund revenue assumptions: • A I % decline per year is assumed on existing local sales taxes due to cannibalization. • Average sales per square foot of existing businesses were used to determine estimated sales taxes for new commercial development. • Full build out of about 1.7M square feet of commercial retail space over the next 3 years were used to estimate commercial building permits and construction sales tax revenues. • Annual residential building permit forecasts were used per the housing projection study. • No renewal of the 2% utility sales tax after FY 08/09. • State Shared revenue growth was based on per capita growth in population. FAMINUTESTINANCE AND BOND\2007\04 12 07.doc MINUTES, FINANCE AND BOND REGULAR MEETING 2 An inflationary growth factor of 2.45% was assumed as a separate line item. No sales tax audit recovery revenue assumed. Receipt of 50% Pima County reimbursement for the Oro Valley Library for 10 years. Ms. Lemos discussed the General Fund expenditure assumptions: • Expenditures include a ratio of 2.3 officers per 1,000 residents. The current rate is 2.2. • Growth in number of employees of 1% based on projected Town population growth. • Assumes a 10% growth in the cost of benefits each year. • A 5% growth in employee salaries each year for COLA and merit increases. • An annual contribution of $500K per year to a capital asset replacement fund. • Funding debt service payments relating to building the Municipal Operations Center. • No General Fund subsidies to the Stormwater Utility Fund because $1.90 utility fee was programmed in monthly to fund the Stormwater function to make it self-sustaining. • Includes an inflation growth rate of 2.45%. Ms. Lemos reviewed the General Fund 10 Year Financial Sustainability Plan chart. Beginning fund balance for this year is $14AM and it declines to ($8M) in 2018. Inflation is 2.45% applied to all line items to total revenue projections for each year. Inflation was illustrated separately. Further discussion followed regarding: • The basis for the 10% growth in revenue in 2009 relates to the local sales tax. Most of the increase lies in construction sales taxes that would be generated from the Vestar project and new commercial construction that is estimated in that year and some new development retail sales tax from existing shopping centers. • Several economic development agreements will be in effect and sales tax rebates will be increasing. Ms. Lemos stated that we factored in the sales tax rebates to all new commercial that is underway. Member Lamm requested a summary of real revenue growth per capita for the revenues and expenditures. • Ms. Lemos stated that expectation of sales tax revenues is primarily from construction. We are projecting $12M in 2008 and then a rise up to $15M-$16M and it will decrease again gradually. This timefraine shows the effects of the new commercial construction. • Member Lamm stated that if the cannibalization occurs during the 1-2 years after new commercial space is online then it should exhaust itself after, that period. Ms. Lemos discussed taking the decline out in year 2012 and putting in a minor growth factor due to population or a 0% change. • Ms. Lemos stated that this assumes no annexations and we did not take into account the additional housing units being developed in Pinal County. There may be positive impacts from growth in Pinal County until a shopping center is built in that area. • Ms. Lemos explained the drivers of the negative impact of the fund balance. Before the increase in employee costs each year and inflation is factored in, it is pure expenditure increases. Real expenditure growth is driven by the population growth and staffing increases. There is 10% factored in per year for employee costs and inflation of 2.45%. Ms. Lemos reviewed the unfunded needs and the following potential additional revenue sources: • Bed tax allocation of 2.5% of total 6% bed tax amount • Primary property tax rate of $1 per $100 assessed valuation • Retail sales tax increase of .5% • Lease tax on commercial and residential leases of 2% FAMINUTESONANCE AND BOND\2007\04 12 07.doc 2 MINUTES, FINANCE t BOND REGULAR MEETING 3 Member Harris asked about the user charges for Parks and Recreation. Ms. Lemos stated that we did not include any adjustments to those in our forecast. There is room for considerations to increase user charges. Member Harris mentioned full cost recovery for much of Parks and Recreation operations. Ms. Lemos indicated that there is some potential for existing facilities but more so with the Naranja Town Site facilities. Full cost recovery is not feasible in many areas. Vice -Chair Kill discussed charging people for the services they use instead of charging the whole population for these services. Chair Eichorn stated that in the assumptions we presume that the utility tax would go away in 2009. He suggested a continuation of a utility tax as a potential revenue source. Member Lamm asked about the Municipal Operations Center amount of $3.7M. Ms. Lemos explained that the Manager put aside a down payment out of cash reserves for the construction costs in the General Fund of $3M and set aside our first debt service payment of about $700K. We would pay cash for part of the construction of $3M and bond for the $27M remaining in order to lower the financing costs and lower interest and debt service payments. Ms. Lemos explained the following revenue assumptions in the Highway Fund: • Full build out of approximately 1.7 million square feet of commercial retail space over the next 3 fiscal years for construction sales tax revenues • Assumes the same residential building permit totals from the housing projection study • State shared highway user revenue growth is based on per capita growth of the Town. • Includes an inflation growth rate of 2.45%. Ms. Lemos explained the following expenditure assumptions in the Highway Fund: • Growth in number of Town employees is projected. • Growth in the cost of benefits of 10% • Growth of 5% in COLA and merit increases • Apply $2M annually to keep the condition of the roadways at an OCI rating of 70 once the pavement preservation backlog is complete. • Annual debt service payments relating to the Municipal Operations Center beginning in FY 07/08 with O&M starting in 09/10. • A $14M bond to fund the pavement preservation program • A $25M bond to fund electrical undergrounding needs along rights of way. We also apply a utility franchise fee of 5% on the electric and gas utility as a repayment source. • Includes an inflation growth rate of 2.45%. Member Harris asked what is saved or improved by building the Municipal Operations Center (MOC). Ms. Lemos explained that we would save in leasing a modular building, leasing offsite space and on remodeling costs. Reports presented to the Council found that we are already deficient in space by 66%. A 51,000 square foot building does not cost much more to build than a 35,000 square foot building. The Council is expecting to see forecasts of what it costs to build and operate the 51,000 square foot building. The MOC space needs study included Phase I of building the initial 51,000 square feet but in later years it included costs to renovate existing buildings and we may not need to renovate existing buildings to that extent if employee growth is low. Member Lamm stated that there are efficiency issues related to space issues. F:\Iv MTES\FINANCE AND BOND\2007\04 12 07.doc Member Harris suggested that we may only need 30,000 square feet. Ms. Lemos agreed and added that there is potential for annexation to the north which is not included in the assumptions. Ms. Lemos stated the Highway Fund's main revenue sources are the Construction Sales Tax which is declining towards the 10 years and the Highway User Revenue Fees which are slowly increasing based on population growth. The Public Works staff would also occupy the MOC and have debt service and operating costs relating to occupying those buildings. They would see some savings by returning a modular building to the lessor. They have a fund transfer to our debt service fund to help pay off a portion of the MOC land site when that land was purchased. Ms. Lemos stated that the unfunded needs for the Highway Fund include the pavement preservation and the debt service on electrical undergrounding. The potential revenue source that would be generated by a 5% Franchise Tax on gas and electrical utility services would cover the costs for the debt service on the undergrounding and provide an incremental increase each year to fund Highway Fund operations. The code requires undergrounding for new developments and roads. A franchise tax does not have to relate to the dedicated revenues. The Committee discussed the OCI rating of 70 for the roads. Ms. Lemos stated that she will get the Town Engineer's professional opinion on the preferred OCI rating. Ms. Lemos reviewed the separate analysis on the Stormwater Utility Fund: • Public Works proposed different fee amounts based EPA requirement levels. • A utility fee of $1.90 per month was proposed in the Town Manager's Recommended Budget for FY 07/08 in order to fund an additional position for Stormwater Utility compliance and to expand programs and relieve the subsidy from the General Fund. • The $1.90 per month would generate about $500K per year. • The General Fund subsidy was about $85K per year in FY 06/07. • The fee would expand service, relieve the General Fund and allow for a contingency to be generated so that it will be able to sustain the same level for a while. Ms. Lemos explained the separate analysis on the Naranja Town Site: • It is the proposal to build the entire site costing $150M. • Bonding for this requires voter authorization for all $150M in one election and phasing the bond issues over 3 years so that a tax rate could be maintained at a steady level. • Assuming that we get the expected bond issues, an annual debt service on $150M would have debt service payable each year from $7M to close to $11.8M going out 25 years. It would require a secondary property tax rate of about $1.02 in the beginning years and over a 25 year period it averages out to approximately 820 per $100. • O&M would be funded by bed tax revenues and a primary property tax. The General Fund includes a primary property tax of $1.00 per $100 that could be split between funding the General Fund and part being allocated to O&M of the Naranja Town Site. • Consultants presented to Town Council the various outdoor elements, O&M costs rated for these items and how they ranked as potential revenue generators. Ms. Lemos reviewed the separate analysis on roadway electrical undergrounding: • It illustrates several roadway areas, miles of roadway, the projected year of when those lines would be undergrounded and estimated costs. Some roads have RTA funding for widening and improvements. FA\MINUTES\FINANCE AND BOND\2007\04 12 07.doc 4 W • The benchmark is about $ 1 M per mile for undergrounding the lines. • The total cost is about $24M. Total debt service on a $24M bond to upfront those costs and get them done sooner would be about $2M per year to pay it off over 20 years. • The potential revenue funding source would be a 5% franchise tax on gas and electricity which would generate $2.3M-$2.5M annually. • Typically franchise agreements are 25 year agreements so we could potentially pay off the undergrounding in 20 years and have an additional 5 years at the end of pure revenue. • Vice -Chair Kill asked about the total amount of additional funding requested and how much it would be per household. Ms. Lemos stated that she will research this item. • Member Harris requested a comparison of taxes per capita with other jurisdictions. • Vice -Chair Kill asked about revenue options other than real estate taxes. The Committee discussed increasing the tax deductible taxes and eliminating others. ill lip liplillp Elurflf'1k "� MOTION: Member Harris MOVED to ADJOURN the meeting. Being that there were no objections, the meeting adjourned at 8:14 p.m. mffl� ltel"IeTan�ner���� Senior Office Specialist RMNUTESTWANCE AND BOND1 OOM4 12 07.doc 5