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HomeMy WebLinkAboutMinutes - November 8, 2005 SSCITY OF LODI INFORMAL INFORMATIONAL MEETING "SHIRTSLEEVE" SESSION CARNEGIE FORUM, 305 WEST PINE STREET TUESDAY, NOVEMBER 8, 2005 An Informal Informational Meeting ("Shirtsleeve" Session) of the Lodi City Council was held Tuesday, November 8, 2005, commencing at 7:01 a.m. A. ROLL CALL Present: Council Members — Hansen, Hitchcock, Johnson, Mounce, and Mayor Beckman Absent: Council Members — None Also Present: City Manager King, City Attorney Schwabauer, and City Clerk Blackston B. TOPIC(S) B-1 "Review of citizens' Fire and Facilities Sales Tax Initiative fiscal impact study" City Manager King stated that the Fire and Facilities Sales Tax Initiative has qualified for the November 7, 2006 ballot. It will ask voters to increase the sales tax in Lodi by one quarter cent for a ten-year period (i.e. from 7.75% to 8%). The initiative designates specific purposes for the proceeds, so it will require a two-thirds vote to pass. With the aid of an overhead presentation (filed), Finance Director Krueger reported that the measure would garner $28.6 million in revenue over a ten-year period. He mentioned that last year's sales tax growth rate was 8%; however, the average over the last several years was 5.7%. The initiative has $22 million worth of capital costs and $6.6 million in operating costs. In the first year, $2.3 million in revenue would be received and $700,000 is earmarked for paramedics, leaving a balance of $1.6 million. In the second year, $2.3 million would be received, with $700,000 spent toward paramedics, leaving a balance of $3.2 million. In year three, $2.5 million in revenue will be generated, with $700,000 spent on paramedics, and $2 million expended toward Fire Station 5. Mr. Krueger estimated the operations cost of Fire Station 5 to be $1,453,000, which is not included as costs to be covered in the initiative. In year four, $2.6 million would be received, with $700,000 spent toward paramedics, and $4 million expended toward the aquatics center. By year five, the cost of the aquatics center will be two-thirds funded, with $700,000 again devoted to paramedics. Year six is the last year that paramedics are to be funded within the initiative, and in that year the remaining $3 million toward the $9 million aquatics center will be expended. M-. Krueger pointed out that at the end of year six, another funding source would have to pick up the $5.8 million in anticipated operations costs. In year seven, Fire Station 2 would be rehabilitated for an estimated $2 million, and there would be $1 million available to begin work on the indoor sports facility. Mr. Krueger reported that by year seven there would be a cumulative unfunded amount of nearly $8 million. In year eight and nine, more of the indoor sports center could be constructed and completion would occur in year ten. If the estimates were accurate, there would be $2.4 million remaining in year ten that could be used toward operations costs, still leaving an estimated $12 million in unfunded costs. Mr. Krueger stated that a quarter cent sales tax increase would result in a per capita increase of $40 per year. In answer to Council Member Hansen, Fire Chief Pretz stated that 18 paramedics would be needed to fully staff the fire stations. Mr. Krueger reported that currently public safety expenditures total $23 million and revenues are just under $19 million. Public safety expenses consume 125% of property and sales tax. He suggested that a long-term financial goal from a stability standpoint would be to set it no higher than 130%. Council Member Mounce pointed out that, as the community grows, Fire Station 5 would be needed with or without the initiative. She felt that if a fifth Fire Station could not be sustained then no more new homes should be built. Continued November 8, 2005 Mayor Beckman recalled that he had initially welcomed the concept of a sales tax initiative that could pay for building recreational facilities that would be self sufficient; however, the Fire and Facilities Sales Tax Initiative locks the City into long-term costs that the initiative cannot fund, which he believed to be very detrimental. He noted that there is no ongoing funding source for the cost cf paramedics and the initiative discontinues its funding after year six. PUBLIC COMMENTS: oo John Johnson, representing Lodi Citizens for Public Facilities, distributed and reviewed three documents (all filed). He commented that Mr. Krueger's presentation used a sales tax growth percentage of 4.71%; however, this is below Lodi's historical average. He believed the per capita cost of $40 was grossly misleading and countered that the quarter cent sales tax increase would cost the average household only $50 per year. He pointed out that $2.4 million is left over to fund maintenance and operations costs. There is flexibility included in the initiative through an advisory committee who may change the order of priority following a public hearing and concurrence of the City Council. For example, if Fire Station 5 was funded through another source, there would be $4.4 million available for other projects. In response to Mayor Beckman's comment, Mr. Johnson challenged the City to submit an improved measure if the Fire and Facilities Sales Tax Initiative is not acceptable. Council Member Hansen pointed out that estimates do not factor in inevitable increases to construction costs. Mr. Johnson acknowledged that the aquatic center would at best break even and if it followed Parks and Recreation Department pool trends it would likely be a money loser. He noted that there would be indirect revenue sources that would come to the City as a result of having an aquatics center and indoor sports facility. The Lodi Chamber of Commerce has endorsed the initiative because of the indirect revenue sources from which it believes the City will benefit. Mr. Johnson recalled that a conceptual plan had been done some years ago to incorporate the indoor sports center at the Grape Bowl. In summary, Mr. Johnson felt that Mr. Krueger's fiscal impact study of the initiative was incomplete and did not mention the benefits the projects would bring to Lodi such as direct and indirect revenue by having the athletic facilities, or that response times would be reduced if there were a fifth Fire Station. Mayor Pro Tempore Hitchcock expressed concern regarding the long-term maintenance and operation costs the City would be burdened with when the ten-year sales tax increase ends. Council Member Mounce stated that she was excited about the opportunities that the Fire and Facilities Sales Tax Initiative presents. Council Member Johnson recalled that preliminary discussion took place regarding a quarter cent sales tax increase to fund public safety. He asked what the relief would be on other aspects of the general fund if that were done and suggested that presenting such an alternative to citizens should be considered. Council Member Hansen warned against getting into a conflict between Council and the citizens who signed the Fire and Facilities Sales Tax Initiative. He hoped that a compromise or unified approach could be developed. C. COMMENTS BY THE PUBLIC ON NON -AGENDA ITEMS None. D. ADJOURNMENT No action was taken by the City Council. The meeting was adjourned at 8:37 a.m. ATTEST: Susan J. Blackston, City Clerk 2 MEETING DATE: November 8, 2005 PREPARED BY: James R. Krueger, Finance Director The attached memorandum evaluates the fiscal impact of the Fire and Facilities Citizens Sales Tax Initiative to be reviewed . with the Council at the Shirtsleeve Session on November 8, 2005. Staff will present a power point presentation to Council at the meeting. mes R. Krueger, Finance C?irectar APPROVED: ager Blair Ki ft�Van MY 0 0 1 - ity �TaT 0-21 W. Pine Street I �odi, CA 95240 A The City Council requested an evaluation of the Citizens Sales Tax Initiative several months ago. This evaluation focuses on the effects of the increase in revenues to the General Fund of the City of Lodi. It does not identify the broader issues related to the effect that a Sales Tax increase might have on the local economy. The Sales Tax rate would be adjusted by'/4 cent (7.75% to 8.00%) for ten years. The local portion of the sales tax that would go to the City of Lodi General Fund would increase by as much as 25% (1.0®1 current rate would be adjusted to 1.25%). Increases to the local share are capped at 2.0% and increases can be approved in '/4 cent increments. If the initiative passes, then the remaining allowable increases would be 1,25% (2.0% allowable less .5% approved previously, less .25% for this initiative) Estimated revenue to be generated from the 1/4cent increase would be $28,585,000 over the course of ten years. This is based on annual average growth in the sales taxes volume of 5.7% (growth in 2004/05 was approximately 8%), The projected annual amounts would range from $2,300,000 in the first year to $3,486,000 in the tenth year. One measure of the impact on Lodi citizens from the sales tax increase is the per capita amount that citizens would pay. A '/4 cent sale tax rate increase would result in a per capita increase of approximately $40 per year. Since a good portion of the sales taxes paid in Lodi result from point of sale transactions, revenues would also be generated from those that reside outside of Lodi. Conversely, transaction taxes (the amounts paid by those who purchase an automobile) would be paid by Lodi citizens regardless of where the purchase occurs. Total estimated resources to be garnered from this initiative are $28.5 million. As stipulated in the initiative language, these resources would be directed as follows: 1) Capital costs of approximately $22,000,000 and 2) operating costs of $6,585,000. The ongoing cost of personnel added to fully staff and equip the now Fire Station and for paramedics as stipulated in the initiative, would add annual operating costs of $2,153,000 ($700,000 for paramedics and $1,453,000 for Station 5). The sales tax initiative would fund $4.2 million of these costs ($700,000 for paramedics in the first six years). The initiative would not fund any of the additional operating costs after Fire Station 5 is built and not fund the cost of paramedics after year six. The City Council directs (through the annual budget process) how services will be delivered and the priorities for these services. Since the ultimate decision on how the additional sales taxes would be spent rests with the City Council, the stipulations on how the proceeds from the additional sales taxes are not necessarily binding on the City Council. Therefore, the decisions related to when and how many paramedics to hired and utilized rest with the City. The general fund is currently funding about 67% of Public Safety expenditures with property taxes and sales taxes. This percentage improves with the sales tax initiative to 93% by the end of the ten years. However, the percentage drops off again at the end of the ten year period. One problem that could arise relates to the possibility that sales taxes and other funding sources used to fund public safety might decrease during ar economic downturn. Therefore, the additional sales taxes generated from the rate increase, could be needed to help fund the shortfall that would be created in an economic downturn, In conclusion, the revenues that would be generated from the initiative are not sufficient to pay for the additional expenditures that are stipulated in the initiative. At the end of the 10 years, the General Fund will be faced with funding the additional expenditures stipulated in the initiative and no source for revenue for continued funding. There may be a negative economic impact from a sales tax increase. Although sales taxes are considered to be a progressive tax (those with higher i . ncomes would most likely bear the burden of the increase), the net effect on consumer spending may be negative and there may be less revenues generated from the initiative as a result, Other revenue options would be a parcel tax and higher development fees. Revenues traditionally used for General Government purposes are restricted as stipulated by the initiative. There may be other funding sources that could be used to fund the Capital Facilities, for which almost 78% of the 1/4cent special tax revenues are designated. The initiative stipulates that the current General Fund service delivery model be ad' sted to include paramedics and operating costs for new sports facilities. This question rests with the City staff and City Council Stipulations on how many and when paramedics should be hired is an issue that needs to be discussed in the City's budget process. Although it does not appear to be the intention that the City's decision process be subverted by the advisory board stipulated in the initiative, there are issues that will arise related to have to fund costs that are not included in the current city revenue stream. These costs are estimated to be as high as $2.1 million per year when the initiative sunsets, The current General Fund budget is $43.8 million. There will be continuing stress points in this budget over the course of the 10 years of the initiative. Costs for Public Safety (other areas too) will continue to increase and there will be a need to find other sources of funding for these costs. It may be necessary to ask citizens to support a general sales tax levy in order to support the increase in costs for the continued delivery of current services. There may be less support for the passage of a general tax levy while a special tax levy is in force, a sm Evaluation of C itizens Sales Tax I n vit me a tim v: e November 7, 2006 General Election "J81, . . . . . . . . . . . . . . . . C'ty d Sh'rtsleeve . . . . . . . . . . . . Meeting . . . . . . . . . . . November 8, 2005 The Sales Tax Iii i will b laced the r ll for corp i "bion � a ?/ cz increase in the Sales Tax rate for the City of Lodi, Staff has been asked to providears evaluation of the fiimpacts to the City of Lodi of this initiative, They .r follows, If approved the Sales Tax rate would ince '/4percent andresult in a sales tax rate of current rate it i ), Out of the.75 currentrad the city share i currently � with i approval would increased to 1 , %,r State Lam allows the local sales tax rate to be it a result of a r3 cial by incremts Lip to a maxinIUM of 2 cents in total, With the passager (local share i .50%), the remaining local share could be increased by as much as 1.50%, � used ars current trends, it is estimated that the total amount of revenues to be garnered from the initiative would be approximately $28,6 Total esti"mated resources to be garnered from th'i2s i"nfti"atoive are $28.6 mi'111"on. As st'I"pulated min 000 -Z000 -$ 3.242 1015M7 oW , -1 A53 -1 A53 -1 Year 6 Year 7 Year 8 Year 9 Year 10 Totals Estimated Revenues a3.475 3,46 :28-585 Paramedics -0-700 -4100 Construction Firs -2,000 Aquatics enter -1000 -9MO Fire Station 2 Rehablittation -2.000 Indoor Sports Arena -1- -3-000 - - -9-000 Operations -. Cumulative. eve x 169 0.218 O424 0.399 01 000 -28.585 AdditionalCostsnot _ _ _ n Paramedics - A - � -2,800 Operations Fir m -a -R -n -- -p Tota� not funded by Initiative �;966 53 05-0udge# compared to Revenues * Police Department 13 million • Fire Department 8 million Total 21 M generated from those that reside outside of Lodi. 125% of Property Taxes What happens witb an economic downturn? VETO; Ils �� �, ��ro �� ,•� Government purposes are restricted as stipulated by the initiative. ItIMAIM-Na"Ll "I' PROJECTED ADDED REVENUE 4.71% 5.21% 5.71% 2006 $ 2,303,619 $ 2,314,619 $ 2,325,619 2007 $ 2,412,118 $ 2,435,209 $ 2,458,41.1 2008 $ 2,525,728 $ 2,562,083 $ 2,598,785 2009 $ 2,644,688 $ 2,695,566 $ 2,747,174 2010 $ 2,769,252 $ 2,836,003 $ 2,904,036 2011 $ 2,899,682 $ 2,983,758 $ 3,069,855 2012 $ 3,036,256 $ 3,139,210 $ 3,245,142 2013 $ 3,179,262 $ 3,302,761 $ 3,430,438 2014 $ 3,329,003 $ 3,474,833 $ 3,626,314 2015 $ 3,485,798 $ 3,655,870 $ 3,833,375 `1`OTAL, $ 28,585,404 $ 29,399,912 $ 30,239,148 114E ESTIMATED PROJECT COSTS PARAMEDICS $ 4,200,000 STATION #5 $ 2,000,000 AQUATICS CENTER $ 9,000,000 REMODEL #2 $ 2,000,000 INDOOR CENTER $ 9,000,000 M. &O $ 1,500,000 $ 27,700,000 LOD HIISTORICA.L SALES TAXES ANNUALIZED GROWTH. 5.71% 5,71% 531% TAXABLE CURRENT ADDED I;ISf'-AL YEAR SALES 1.0% 0.250% 1993 $ 451,952,000 $ 4,519,520 $ 1,129,880 1994 $ 459,316,000 $ 4,593,160 $ 1,148,290 1995 $ 486,843,000 $ 4,868,430 $ 1,217,108 1996. $ 517,867,000 $ 5,178,670 $ 1,294,668 1997 $ 540,751,000 $ 5,407,514 $ 1,351,878 1998 $ 562,229,000 $ 5,622,290 $ 1,405,573 1999 $ 624,871,00.0 $ 6,248,710 $ 1,562,178 2000 $ 709,546,000 $ 7,095,460 $ 1,773,865 2001 $ 802,826,600 $ 8,028,266 $ 2,007,067 2002 $ 828,463,100 $ 8,284,631. $ 2,071,158 2003 $ 863,958,200 $ 8,639,582 $ 2,159,896 2004 $ 875,500,000 $ 8,755,000 $ 2,188,750 2005 $ 80,000,000 $ 8,800,000 $ 2,200,000 ANNUALIZED GROWTH. 5.71% 5,71% 531% 1.0000 0.3500 ,0.9000 0.8500 0.8000 0.7500 0.7000 0.6500 p*. 0. 000 0.5500 0.5000 0.4500 0.4000 0.3500 0.3000 0,2500 % of Public Safety Covered by Sales & Prop. Taxes Initiative Passes 1.6000 0.950£ 0,9000 0.8500 0.8400 0.7500 0.7400 0.6500 OMOO 0.5500 0.5000 0,4500 0.4000 0.3540 0.3400 0.2500 % of Public Safety ».., ed by Sales & Prop. Taxes Initiative failsh station built YEAR BEGINNING ESTIMATED 1,315,737 $ BALANCE $ REVENUE 1 $ - $ 2,303,619 2 $ 1,603,619 $ 2,412,118 3 $ 1,315,737 $ 2,525,728 4 $ 3,141,465 $ 2,644,688 5 $ 5,086,153 $ 2,769,252 6 $ 7,155,405 $ 2,899,682 7 $ 355,087 $ 3,036,256 8 $ 1,391,343 $ 3,179,262 9 $ 4,570,605 $ 3,329,003 10 $ 7,899,608 $ 3,485,798 TOTAL $ 28,585,406 POSSIBLE TIMING OF EXPENDITURES PARAMEDICS (700,000) (700,000) (700,000) (700,000) (700,000) (700,000) T=7 �6N, STATION AQUATICS STATION INDOOR #5 CENTER #2 CENTER BALANCE (2,000,000) $ 1,603,619 $ 1,315,737 $ 3,141,465 $ 5,086,153 $ 7,155,405 (91000,000) $ 355,087 (2,000,000) $ 1,391,343 $ 4,570,605 $ 7,899,608 9,000,000 $ 2,385,406 $ (4,200,000) $ 2,000,000 $ 9,000,000 $ 2,000,000) $ 9,000,000