CC 2022-04-26_11a Discussion of Infrastructure Financing Options and Consideration of Sales Tax Measure_PP Presentation
Discussion of Infrastructure Financing and Consideration of a Sales Tax Measure
04/26/2022
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Background
City Council established goals and priorities for incorporation into the Fiscal Year (FY) 2021-23 Biennial Operating Budget with 3 Categories:
Investing in the Future
Investing in City Infrastructure and Facilities
Investing in People
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Background - Streets
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Background - Sidewalks
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Background - Stormwater
Stormwater Repairs are not paid for through the City’s Water and Wastewater Enterprise Funds
Funded through the CIP Budget using local sales tax revenue
The FY 2021-23 Biennial budget included $1,871,690 in Stormwater Projects
ARPA allocation for Stormwater Projects $1,806,500
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Background – Sales Tax
This graphic provides a general breakdown of the standard 7.25% sales tax charged throughout the State and its general distribution:
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Background – Sales Tax
Arroyo Grande currently has a ½ percent (0.5%) sales tax measure – Measure O-06
Total tax charged to customers purchasing items in the City of Arroyo Grande to 7.75%
4 Advisory measures:
Transportation improvements
Infrastructure improvements
Public Safety equipment, staffing, facilities
Improving City facilities/ADA compliance
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Sales & Use Tax Rates for the Region:
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Pavement Deterioration Curve
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The Impact of Heavy Loads
Pavement Deterioration
Oxidizing Effects of Sun and Water
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Common Pavement Distresses
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Evaluating Pavement
The Pavement Condition Index
100 – 91 = Excellent
90 – 71 = Good
70 – 51 = Fair
50 – 31 = Poor
30 – 0 = Failed
Developed by the U. S. Army Corp of Engineers during World War II and standardized by ASTM, the PCI is an objective and rational basis for determining pavement condition and establishing
maintenance priorities.
Current PCI = 56
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Excellent Condition
Current PCI: 93
Cherry Avenue East
Traffic Way to End
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Good Condition
Current PCI: 74
James Way
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Fair Condition
Current PCI: 65
East Grand Avenue
Elm Street to Halcyon Road
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Fair Condition
Current PCI: 56
Aspen St.
Ash St. to Poplar St.
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Poor Condition
Current PCI: 49
Valley Road
Tiger Tail to City Limit at Bridge
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Equestrian Way
Current PCI: 33
Poor Condition
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Failed Condition
Current PCI: 16
Via Berros
Valley Road to End of Street
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Good Pavement Management
Best-First Management
Worst-First Management
Critical-Point Management
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Good Pavement Management
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2022 Pavement Management Program Update:
Assessment Findings
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Maintained Road System
Roadway Replacement Cost = $313,566,000
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Maintained Road System
~26% of Network is in Good Condition
~70% of Network is in Fair to Poor Condition
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PCI Comparison
*
*
Upcoming PCI updates and actual street improvements will likely raise PCI significantly
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Budget Consequences
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Sidewalk Repairs
Sidewalks degrade and displace over time
A total 2016 cost of $1,346,250 to repair all currently defects
With this current annual budget allocation – the Construction Cost Index for repairs to all current defects has risen to $1,567,931
Average annual budget over past 7 years = $120,000
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Stormwater Repairs
ARPA funded
A proactive approach to deteriorating Corrugated Metal Pipe (CMP)
In-place lining treatment can be approximately 80 percent less in cost versus addressing a partial or full failure of a CMP.
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Financing Options – Types of Municipal Debt
General Obligation Bonds (GO) Bonds
Lease Revenue Bonds (LRBs)
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General Obligation Bonds
Pros:
Lowest Cost
Does not rely on existing General Fund resources
Cons:
Long lead time, usually 9-12 months
High voter hurdle, requires 2/3 voter approval
Limited flexibility of use of proceeds
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Lease Revenue Bonds
Pros:
City Council approval of bond issuance, although voter approval is needed for the funding source (Sales Tax Measure)
Quick implementation
Very flexible/widely available
Cons:
General Fund obligation
Encumbrance of facility
Requires a new funding source, such as a voter approved sales tax measure
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Lease Revenue Bonds
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Funding Scenarios – 15 year Projections
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Sales Tax Measure Advantages
Sales taxes are paid by a greater distribution of the population;
Sales taxes are not paid on many basic necessities;
Sales taxes are paid based on consumption;
Because the tax is established by a vote of the local electorate, it cannot be taken by the State;
Generates additional revenue to maintain infrastructure;
There is no competitive advantage shown for having a lower sales tax rate;
Comparative sales tax with other local jurisdictions.
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Sales Tax Measure Disadvantages
Additional taxes reduce the discretionary income;
Tax increases are not generally perceived positively by citizens;
Use of the additional revenue from a general tax is not legally restricted to certain uses.
The City has followed the Measure O-06 Advisory Measures in allocating O-06 revenue (Infrastructure improvements, including the street, drainage and creek systems; Transportation projects;
Public safety expenses).
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Sales Tax Options
Amount of Increase
Advisory Measures
Special Tax v. General Tax
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Sales Tax Options
Special Tax unlikely to pass due to 2/3rds vote (66.66%)
2020 local sales tax measures in California
14 City Special Tax Measures – 6 passed (42.8% passage rate)
132 City General Tax Measures – 108 passed (82.8% passage rate)
Measure O-06 passed with 50.11% approval
Significant assistance from the public would be needed to advocate for passage of the special tax – City precluded from advocacy
General Tax requires 50% +1 voter approval
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Sales Tax Options
Recommended components of the general sales tax measure:
Annual Local Sales Tax Allocation Report
Public hearing to determine ongoing necessity for tax every 5 years
Identification of intended uses for revenue – streets, sidewalks, and stormwater infrastructure
Either imbedded into the sales tax measure itself or through an advisory measure
Measure would also need to reference “other” or “general” City services as well in order to abide by special tax limitations
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Next Steps
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Next step
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Recommendation
Receive and file the 2022 Pavement Management Program Update report and direct staff to prepare a ballot measure for the November 8, 2022 consolidated election seeking a 1% local sales
tax increase.
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