CC 2024-05-14_12a Community Survey Priority Results
MEMORANDUM
TO: City Council
FROM: Matthew Downing, City Manager
Bill Robeson, Assistant City Manager/Public Works Director
Nicole Valentine, Administrative Services Director
Shannon Sweeney, City Engineer
SUBJECT: Discussion of Financing Options Related to the Top Three Priorities
from the Community Priorities Survey Results and City Council
Direction on a Potential Sales Tax Measure
DATE: May 14, 2024
RECOMMENDATION:
Review and provide direction on financing options related to the top three priorities from
the Community Priorities Survey Results and consider directing staff to prepare a
resolution and ordinance for City Council consideration at the May 28, 2024 meeting, to
.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
Historically, the City has been able to allocate on average $6.1 million to the Police
Department and approximately $1.25 million annually towards the Pavement
Management Program (PMP) that addresses streets and sidewalks. The recently
Amended and Restated Joint Exercise of Powers Agreement for the Five Cities Fire
Authority (FCFA) the City resulted in an anticipated average payment over the next five
years of $4.2 million annually. A new 1% local sales tax measure increase would generate
approximately $6 million annually.
BACKGROUND:
At the March 2, 2023, Special City Council Meeting, the City Council established four (4)
major City goals for staff to prioritize for the FY 2023-25 Biennial Budget. The goals were
established considering the results of a community survey and input from the public and
staff. The four major goals are:
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 2
Funding
Support a thriving community through fiscal responsibility, economic
development efforts, and additional and alternative revenue streams.
Fire Services
Implement operational and fire and emergency service delivery
improvements through the Five Cities Fire Authority and complete the
transition of services to Oceano due to its exit from the Authority.
Infrastructure
Invest in and complete critical infrastructure projects throughout the City
through the strategic prioritization of projects based on available resources.
General Plan Update
Prioritize and complete major work efforts for the comprehensive General
Plan update to provide a vision and framework for future development within
the City.
On June 13, 2023, the City Council authorized the publishing of a Request for Proposals
(RFP) for Voter Opinion Polling and Public Education and Outreach Services. On August
22, 2023, the City Council approved a professional services agreement with Clifford Moss
and True North Research for these services. Voter Opinion Polling was conducted in
November and December 2023. On January 9, 2024, the City Council reviewed the
polling results summary report from True North Research and directed staff to continue
working with the consultant on a potential future revenue measure.
ities for Arroyo
Grande, a Community Priorities Survey was mailed to all Arroyo Grande households on
February 22, 2024. The mailer included a tear-off response option as well as an online
ion, video and still ads
were developed and placed on various online platforms driving viewers to the online
version of the survey.
On April 23, 2024, the City Council reviewed the Community Priorities Survey Results.
As of April 23, 2024 the City received 1,444 responses to the Community Survey 477
written and 967 online. Over 400 personal comments were also provided with the
responses.
Item 12.a.
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Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 3
On average, the top three priorities, as ranked by Arroyo Grande residents responding to
the
survey, were as follows:
1. Maintain fire protection services;
2. Maintain 911 response and emergency police services; and
3. Repair, pave and M
damaged sidewalks.
The top three priorities were calculated by taking the sum of each selection and dividing
it by the number of responses received for that category. Categories with the lowest
averages reflect the more important issues to the community members who responded.
1. Repair, pave, es of roads; fix potholes and
damaged sidewalks;
2. Maintain 911 response and emergency police services; and
3. Maintain fire protection and paramedic services.
The top priorities were
received.
Maintain Fire Protection Services
The FCFA was formed on July 9, 2010, through a Joint Exercise of Powers Agreement
(JPA) entered into by the City of Arroyo Grande (City), the City of Grover Beach, and the
Oceano Community Services District (OCSD) to provide integrated and efficient fire and
emergency medical services to the three communities. On June 13, 2023, the City
Council approved an Amended and Restated Joint Exercise of Powers Agreement for the
FCFA with a formal execution date of June 22, 2023, by the FCFA Board, and an
agreement between the FCFA and the OCSD regarding short-term fire and emergency
response services for FY 2023-24 while OCSD completes the San Luis Obispo Local
Agency Formation Commission (LAFCO) process following their departure from the
FCFA.
Over the last ten years, the City has allocated the following funds towards the FCFA to
maintain lifesaving fire protection service:
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 4
Chart 1: Fire Service Funding
Table 1:Fire ServiceFunding
Measure O
Fiscal YearGeneral Fund2006 Sales Tax Total
2014-15 1,457,448 125,000 1,582,448
2015-16 1,708,434 137,700 1,846,134
2016-17 1,840,717 140,500 1,981,217
2017-18 1,893,047 169,300 2,062,347
2018-19 2,523,661 - 2,523,661
2019-20 2,052,061 528,894 2,580,955
2020-21 2,052,061 528,894 2,580,955
2021-22 2,052,061 528,894 2,580,955
2022-23 2,052,061 528,894 2,580,955
2023-24 2,847,000 949,000 3,796,000
As indicated in Chart 1and Table 1 above, FY 2019-20 through FY 2022-23 does not
show a change in funding. Thelarge increase in FY 2023-24 was due to the change in
JPA member structure and continued investment needed in FCFA.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 5
Over the last ten years, FCFA calls for service continue to increase as shown in Table 2
below:
Table 2: FCFA Calls for Service
Calendar Calls for Percentage
YearServiceChange
2013 3,3661.63%
2014 3,5756.21%
2015 3,7625.23%
2016 3,714-1.28%
2017 3,9436.17%
2018 3,694-6.31%
2019 3,413-7.61%
2020 4,00017.20%
2021 4,1543.85%
2022 4,4928.14%
2023 4,261-5.14%
This data is not available specifically for Arroyo Grande calls for service, although each
service area has seen a steady increase.
Maintain 911 Response and Emergency Police Services
The purpose of the Arroyo Grande Police Department is to maintain public peace,
safeguard lives and property, and provide for a quality of life whereby those persons within
the City of Arroyo Grande have a sense of security and freedom in their daily activities.
To achieve these ends, the Arroyo Grande Police Department maintains the capability to
provide a superior level of law enforcement and related services that are appropriate and
timely. Specifically, the Arroyo Grande Police Department maintains a viable proac ti ve
organization that recognizes and effectively responds to current and future community
needs and maximizes the available resources, personnel, and technology.
Over the last ten years, the City has allocated the following funds to maintain 911
response and emergency police services:
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 6
Chart 2: Police Department Funding
Table 3:Police DepartmentFunding
Measure O
Fiscal YearGeneral Fund2006 Sales Tax Total
2014-15 5,498,126 193,000 5,691,126
2015-16 6,140,688 261,600 6,402,288
2016-17 5,950,291 71,300 6,021,591
2017-18 6,409,150 343,896 6,753,046
2018-19 6,303,739 216,804 6,520,543
2019-20 5,831,906 222,600 6,054,506
2020-21 5,089,736 292,008 5,381,744
2021-22 5,598,698 205,604 5,804,302
2022-23 5,797,299 263,100 6,060,399
2023-24 6,903,199 268,300 7,171,499
As indicated in Chart 2and Table 3above, the funding for the Police Department has
been at a steady rate of growth for the last four years.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 7
Over the last eight years, the Police Department calls for service continue to increase as
shown in Table 4 below:
Table 4: Police Department Calls for Service
Calendar Calls for Incident Parking Percentage
YearServiceReportsCitationsCitationsTotalChange
2015 15,986 1,858 901 134 18,879
2016 17,137 1,844 776 214 19,9717.20%
2017 17,295 2,024 654 298 20,2710.92%
2018 17,507 1,903 655 771 20,8361.23%
2019 19,292 1,850 583 152 21,87710.20%
2020 17,997 1,660 1,022 194 20,873-6.71%
2021 18,582 2,012 1,645 404 22,6433.25%
2022 17,960 1,834 431 171 20,396-3.35%
2023 17,957 1,417 2,681 36 22,091-0.02%
As shown below, Fire and Police Services make up 41% of the FY 2023-24 budgeted
Consolidated General Fund Expenditures, Police with 26% and Fire with 15%:
Pie Chart 1: FY 2023-24 Consolidated General Fund Expenditures
Repair, Pave, and Maintain Miles of Roads; Fix Potholes and
Damaged Sidewalks
On February 14, 2017, the City Council adopted the 2016 Update to the Pavement
Management Plan (Plan
Pavement Management Program (PMP). The Critical Point Strategy approach
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 8
deterioration. The critical point is a point located on the pavement deterioration graph
which indicates the Pavement Condition Index (PCI) value is about to drop to a level
which would trigger a more expensive maintenance or rehabilitation approach. The
Critical Point Strategy is a long-range methodology that maintains and improves
roadways before they slip into a PCI range that reflects costlier repairs. The PMPwill
annually evaluate and provide recommendations for repair and resurfacing based on this
critical point approach, using the Plan as a starting point.This method, along with field
evaluationsis currently being used each fiscal year when considering the Street Repairs
Projects.
Over the last ten years, the City has allocated the following funds towards the PMP:
Chart 3: Pavement Management Program Funding
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
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Table 5: PMP Funding
Construction &
Fiscal Expense General Transportation Measure O 2006
YearUrban SHARecoveryFundStreets FundFundSales TaxTotal
2014-15 68,829 60 - - 200,507 476,532 745,928
2015-16 68,828 - 17,159 - 203,267 785,164 1,074,418
2016-17 69,172 - 12,620 - 100,000 649,341 831,134
2017-18 70,000 - 14,665 - 100,000 672,920 857,584
2018-19 70,000 - 4,313 328,474 - 298,305 701,092
2019-20 70,000 - - 309,610 - 625,089 1,004,699
2020-21 - - - 146,328 - - 146,328
2021-22 131,000 - 982,315 540,280 - 361,165 2,014,760
2022-23 - - 192,263 409,192 - 192,263 793,718
2023-24 413,400 - 610,872 432,848 - 5,368,033 6,825,153
Urban SHA refers to
. General Fund refers to the general revenue, including
Reserve Fund Balance. Streets Fund refers to the SB 1 funds. Construction and
Transportation Fund refers to Local Transportation Fund (LTF) provided by the SLOCOG.
Local Sales Tax refers to Measure O 2006 revenue.
Sales Tax
California has a State-mandated minimum sales tax of 7.25 percent. The Local
Government Guide to California Sales, Use and Transaction Tax
consultant provides a detailed overview of the allocation of sales tax and how use tax is
imposed in California. Counties, municipalities, and districts are allowed to increase the
sales tax in their jurisdictions up to a total of 2 percent.
additional
sales tax of 1.25% is called the Bradley-Burns tax, of which 1% is allocated to counties
or incorporated cities to use at their discretion and the remainder 0.25% is distributed to
county local transportation funds (LTFs) to support transportation programs. The following
graphic provides a general breakdown of the standard 7.25% sales tax charged
throughout the State and its general distribution:
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 10
In most areas of California, local jurisdictions have added local taxes that increase the
tax owed by a seller. Sellers are required to report and pay the applicable local taxes for
their taxable sales and purchases. Arroyo Grande currently has a ½ cent (0.5%) sales
tax measure, Measure O-06, that was approved by the voters in 2006.This brings the total
tax charged to customers purchasing items in the City of Arroyo Grande to 7.75%.
Measure O-06 passed by 50.11%, which met the majority voter approval required for
establishing a local transactions and use tax. The operative date of the transactions and
use tax commenced on April 1, 2007. The City publishes and distributes an annual report
to each household showing the revenues and expenditures from the Measure O-06 sales
tax proceeds. Additionally, the City Council is required to conduct a public hearing every
five years to determine whether it is necessary for the sales tax to remain in effect.
Table 6 displays the current Sales & Use Tax Rates for the Region:
Table 6: Regional Sales & Use Tax Rates
CitySales Tax Rate
Atascadero8.75%
Grover Beach8.75%
Morro Bay8.75%
Paso Robles8.75%
San Luis Obispo8.75%
Santa Maria8.75%
Pismo Beach7.75%
Arroyo Grande7.75%
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 11
ANALYSIS OF ISSUES:
Maintain Fire Protection Services
, and tools to respond to a variety
of situations including medical emergencies, traffic collisions, technical rescues, structure
and vegetation fires, and hazardous materials.
The projected 5-Year funding for Fire Service through FCFA for FY 2024-25 through FY
2028-29 is shown below:
Chart 4: Future Fire Service Funding
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Table 7: Future Fire Service Funding
Measure O
Fiscal YearGeneral Fund2006 Sales Tax Total
2024-25 2,983,500 994,500 3,978,000
2025-26 3,073,005 1,024,335 4,097,340
2026-27 3,165,195 1,055,065 4,220,260
2027-28 3,260,151 1,086,717 4,346,868
2028-29 3,357,956 1,119,319 4,477,275
Measure O 2006 Sales Tax pays for only 25% of the total Fire Service costs the City
provides.
Maintain 911 Response and Emergency Police Services
When an Arroyo Grande resident dials 9-1-1, they have likely found themselves in a
situation that they can no longer manage on their own. Police Department must
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 12
have the personnel, training and tools to respond to avariety of situations includingtraffic
collisions, calls related to crime such as homicide, larceny, rape, assault, arson, robbery,
burglary, and vehicle theft, and calls relatedto homelessness.
The projected 5-Year funding for the Police Department for FY 2024-25 through FY 2028-
29 is shown below:
Chart5: Future Police Department Funding
Table 8:Future Police DepartmentFunding
Measure O
Fiscal YearGeneral Fund2006 Sales Tax Total
2024-25 7,398,347 284,900 7,683,247
2025-26 7,620,297 291,900 7,912,197
2026-27 7,848,906 299,200 8,148,106
2027-28 8,084,374 306,700 8,391,074
2028-29 8,326,905 314,500 8,641,405
Measure O 2006 Sales Tax pays for approximately 4% to provide support to the Police
Department including the cost of one Senior Police Officer position, the Narcotics Task
Force, and the Animal Services Building Debt Services payment.
Repair, Pave,and Maintain f Roads; Fix Potholes and
Damaged Sidewalks
The City currently maintains approximately 73centerline miles of roads representing
13,501,540square feet of pavement with a replacement value of approximately
$408,088,527as calculated by assessment software. Despite past
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 13
has declined. On a pavement condition scale of
0 to 100, streets now rank an average of 56, down from an average of 69 in 2016. The
pavement assessment, broken down into 10-point PCI
ranges:
Chart 6: Total System by Functional Class by 10-pt PCI Range
generated five (5) scenario projections of future
pavement conditions in the City and the costs to obtain and maintain those conditions
over the course of ten years, which are represented graphically below in Chart 7.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
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Chart 7: 10-Year Projections
A summary of each of the scenario projections are as follows:
Scenario 1: Unconstrained Budget/Funds Needed to obtain Optimum PCI of 85
($91M for Year 1, $4.8M/Yr Avg. for Years 2-10.)
Scenario 2: Amount of funding to increase PCI by 5 (Avg. $8.9M/Yr.)
Scenario 3: Amount of funding to maintain PCI of 56 (Avg. $7.2M/Yr.)
Scenario 4: Impact of the current funding amount ($1.25M/Yr.), showing that the
current PCI would decline from 56 to 36, a 20 point overall drop in 10 years.
Scenario 5: Represents the impact to the PCI if Zero dollars are spent.
Optimum PCI refers to the highest PCI level that the overall network can achieve within
reet
repairs that get delayed or rescheduled into the future due to budget limitations), based
on the scenario projections.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 15
At the current funding level of $1.25 million per year, it is predicted the PCI of the entire
system will continue to deteriorate from 56 to 36 (Fair condition to Poor), a 20 PCI point
drop over the next 10 years. Additionally, the backlog of deferred maintenance will grow
from $89.7 million to $204 million, an increase of 127%. A PCI of 36 falls within the Poor
Condition category. An example of a 36 PCI is Linda Drive, between Brisco Road and
Oceanview School. Streets that have fallen into the Poor Condition Category require more
expensive repair treatments such as light to heavy rehabilitation as opposed to lower cost
light to heavy maintenance treatments. In addition, when repairs are deferred, they fall
into a deferred maintenance backlog that creates a vicious cycle. As necessary repairs
are postponed, streets start to deteriorate requiring more expensive repair treatments.
Chart 8: PCI Scenario 4
Based on the identified needs and current funding sources available to the City for its
pavement maintenance, staff believes there are no long-term options available that can
overcome the condition and replacement cost of the City's streets without a new and
significant source of income for street repair.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 16
Financing Options - Types of Municipal Debt
General Obligation Bonds
General Obligation Bonds (GO Bonds) are municipal bonds that provide a way for local
governments to raise money for projects (e.g. streets and roads) that may not generate
a revenue stream directly. GO Bonds require voter approval of a new revenue source
(property taxes) to pay debt service. These bonds are secured by the full faith, credit, and
taxing power of the municipality, which typically results in the lowest possible interest
rates for financing a capital project, which is the primary advantage of borrowing money
by issuing GO bonds. These types of bonds are approved by a 2/3rd voter approval and
paid from an additional property tax levied on property owners.
Another advantage of using GO Bonds to finance capital projects is the generally lower
cost of issuance, when compared to most other methods of financing capital projects.
This is because the legal structure for the issuance of GO Bonds is less complex than
most other financing methods. Cities borrow funds to pay for infrastructure with a long
useful life, rather than using current cash. In the case of public assets like a street, paying
Pros:
o Lowest Cost
o Does not rely on existing General Fund resources
Cons:
o Long lead time, usually 9-12 months
o High voter hurdle, requires 2/3 voter approval
o Limited flexibility of use of proceeds
o Property owners are paying for the use of the City instead of users paying
Lease Revenue Bonds
Lease revenue bonds (LRBs) are another form of debt financing public agencies often
use to fund capital projects, including street and road upgrades. To utilize LRBs the City
would establish a separate public financing entity that would issue the bonds and collect
lease payments from the City in an amount sufficient to cover the debt service payments.
LRBs usually finance the construction of facilities, including office buildings, correction
facilities, courthouses, and streets and are secured through an encumbrance on a City
building or facility. However, unlike revenue bonds that use money generated by the
project itself (e.g. a bridge toll or water system project) to make the debt service
payments, facilities funded by LRBs often do not have a dedicated funding source. For
this reason, the issuance of LRBs are often paired with a new funding source (e.g. new
sales tax measure) sufficient to cover the debt service.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
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Pros/Cons of LRBs
Pros:
o City Council approval of bond issuance, although voter approval could be
necessary based on the funding source (Sales Tax Measure)
o Quick implementation
o Very flexible/widely available
Cons:
o General Fund obligation
o Encumbrance of facility
o Requires a new funding source, such as a voter approved sales tax
measure
After reviewing the two Bond options available, the LRBs appear as the logical choice
with a new form of revenue like a sales tax measure to fund the payment of this obligation.
City staff worked with an independent municipal advisor to provide potential terms and
bonding amounts. Below is table 9 comparing a 30-year and 20-year term LRB:
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
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May 14, 2024
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Table 9: 2025 Lease Revenue Bond
To move forward with this option, the City could place a 1% local sales tax measure on
the November 2024 ballot; staff estimates that the proposed sales tax measure would
generate an estimated $6 million annually in additional revenue. The estimated 1% local
sales tax of $6 million is based on doubling the current Measure O-06 0.5% sales tax
totals of approximately $3 million annually.
Use of LRBs for Streets Repair
Based on the information in Table 8 above, staff worked with
consultant to review scenarios that used the 30-year term LRBs of approximately $49
million, with a debt service payment of approximately $3 million, leaving a remaining $3
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 19
million for annual ongoing infrastructure maintenance. Scenarios A through D below
depict costs and PCI projections for the next 15 years.
To create Scenario A, the following funds were included in the first 5 years of projections:
$49 million received from the issuance of LRBs +
$3 million in revenue per year for 5 years from the new 1% local sales tax +
$1.25 million from Measure O 2006 Sales Tax Funds revenue
This would bring the total spent in the first 5 years of streets repairs to $70.25 million ($49
million in LRBs funding + $3 million/year in new 1% local sales tax for 5 years + $1.25
million in Measure O 2006 Sales Tax Funds for 5 years). In the years after the initial 5-
year spending plan, the City would be able to allocate a total of $4.25 million annually to
pavement maintenance ($3 million in new 1% local sales tax + $1.25 million in Measure
O 2006 Sales Tax Funds). This scenario is depicted as Scenario A in Chart 9 below.
Scenario B depicted in Chart 9 below uses the same first 5-year projections as Scenario
A, but includes an estimated $5 million in annual maintenance after the first five years.
This scenario is provided for information purposes to depict the anticipated PCI level with
an additional $1.25 million for annual maintenance. The City does not currently have an
anticipated revenue source for a full $5 million in annual maintenance.
Scenario C depicted in Chart 9 below used the 30-year term LRBs of approximately $49
million spent on street repairs over the course of 10 years rather than 5, along with debt
service payments of approximately $3 million per year, leaving a remaining $3 million for
annual ongoing infrastructure maintenance for the last 5 years of the projection. Under
this scenario, the total spent in the first 10 years of streets repairs would be $91.5 million
($49 million in LRBs funding + $3 million/year in new 1% local sales tax for 10 years +
$1.25 million in Measure O 2006 Sales Tax Funds for 10 years). In the years after the
initial 10-year spending plan, the City would be able to allocate a total of $4.25 million
annually to pavement maintenance ($3 million in new 1% local sales tax plus $1.25 million
in Measure O 2006 Sales Tax Funds).
Scenario D depicted in Chart 9 below projects PCI levels that would result from the use
of $6 million from a new 1% sales tax measure plus $1.25 million in revenue from Measure
O 2006 Sales Tax Funds. This scenario would not include revenue from LRBs or any
other long term debt solution.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 20
Chart 9: 15 Year PCI Projections
Funding Scenarios -15 Year Projections (Parking Lots
70
Excluded)
69
Scenario A:
$70.25M/5Yrs
($14.05M/Yr)
then $4.25M for
65
10 Years
65
Scenario B:
63$70.25M/5Yrs
64
($14.05M/Yr)
62
then $6.25M for
60
61
10 Years
60
Scenario C:
$91.5M/10Yrs
($9.15M/Yr)
56
then $4.25M for
5 Years
55
Scenario D:
$7.25M/Yr
50
Year
A summary of each of the scenario projections are as follows:
Scenario A: $70.25 million ramp up over 5 years, with $4.25 million annual
maintenance after that overall cost over the 15-year period of $153,750,000
Scenario B: $70.25 million ramp up over 5 years, with $6.25 million annual
maintenance after that overall cost over the 15-year period $173,750,000
Scenario C: $91.5 million ramp up over 10 years, with $4.25 million annual
maintenance after that overall cost over the 15-year period $111,250,000
Scenario D: $7.25 million over 15 years overall cost over the 15-year period
$108,750,000
Based on this analysis, it does not appear to staff that LRBs are the best option for the
City. While the influx of revenue from LRBs would allow the City to increase the average
PCI from 56 to 66by FY 2028-29, it is estimated that the City would need to invest
significantlymore money than would beavailable even with a new 1% sales tax measure.
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Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 21
year projection while at the same time requiring the City to make ongoing debt service
payments for at least an additional 15 years. At this time, staff would recommend the City
Council move forward with placing a 1% local sales tax measure on the November 2024
ballot for voter consideration. if approved by the voters, the City Council would then have
the opportunity to consider using a significant portion of the increased annual revenue of
approximately $6 million dollars directly towards Fire Service, the Police Department, and
Streets Infrastructure Maintenance consistent with State law. This could enable the City
to maintain road conditions using the Critical Point Strategy approach.
Sales Tax Measure
The City has the authority to raise revenues by the adoption and imposition of taxes.
(Gov. Code §§ 50075.) To make a change to any general tax rate, the change must be
approved by the voters. Proposition 218, approved in 1996, requires that all City tax
election measures be placed on the same election when City Council Members are
selected unless a financial emergency is declared. The next City Council election is
scheduled for November 5, 2024. Subsequent City Council elections are held every two
years. To place a tax measure on the November 5, 2024, ballot, 2/3 of the City Council
(at least four members) must approve a Resolution ordering the submission to the
qualified electors of the City a measure relating to the establishment of a local
transactions and use tax and an Ordinance adding Chapter 3.23 to Title 3 of the AGMC
regarding a transactions and use tax. Additional Resolutions are also required regarding
the filing of written arguments. Once placed on the ballot, the measure must be approved
by 50% +1 votes of voting residents of the City. If passed by the City Council and the
electorate, the tax would be effective no sooner than the first day of the first calendar
quarter, commencing more than 110 days after the adoption of the ordinance. Therefore,
the tax would be effective no sooner than April 1, 2025.
Advantages and Disadvantages of Sales Tax Measure
As with most policy actions, enacting an increase to the sales tax has advantages and
disadvantages.
Some arguments in favor include:
Unlike property taxes, sales taxes are paid by a greater distribution of the
population, including travelers, tourists, homeowners, renters, employees, and
businesses in the City;
Sales taxes are not paid on many basic necessities such as rent, groceries, sales
of items paid for with food stamps, prescription medicine and certain medical
devices, and services;
Sales taxes are paid based on consumption (those who can afford to spend more
pay more), and they are paid incrementally instead of in a lump sum;
Because the tax is established by a vote of the local electorate, it cannot be taken
by the State;
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 22
The sales tax would gePolice
Services, Fire Services, and Roads Infrastructure, which staff believes are a critical
component of a functioning community;
All other jurisdictions in the Region, excluding Pismo Beach and the
unincorporated County, have an additional 1% sales tax in their City; therefore staff
believes:
o There is no competitive advantage shown for having a lower sales tax rate;
o Arroyo Grande citizens make many purchases outside of the City and may
be paying a higher rate already, while none of that tax supports services in
Arroyo Grande.
Some arguments against include:
Additional taxes reduce the discretionary income of those shopping in Arroyo
Grande;
Tax increases are not generally perceived positively by the citizenry and may
erode trust in local government;
This is a general tax and there is no guarantee on how the additional revenue will
be spent.
Potential Impact on Local Sales
The actual amount of proposed increase in the sales tax appears minimal when compared
to the actual cost of a product sold. For example, for every $100 spent on taxable goods,
the increase would result in an additional $1.00 paid by the consumer. Sales tax data
trends show that an increase in the sales tax rate of one cent has no noticeable effect on
the amount of taxable goods consumers buy. In other words, in other jurisdictions where
the sales tax has been increased, the businesses did not see a decline in sales because
the sales tax rate had been increased. sales tax consultant does not believe
that an increase of one cent in the sales tax rate in Arroyo Grande will affect local business
sales volumes.
It is estimated that a 1% sales tax would generate approximately $6 million annually for
Arroyo Grande that cannot be taken by the State.
Sales Tax Options
If the City Council decides to move forward with a sales tax measure, it will require
decisions on the following key issues in order to draft the measure:
Amount of Increase Staff recommends that 1% be proposed as the local sales
tax amount as the City could utilize that 1% to address deteriorating infrastructure
needs. The City has statutory authority to impose a sales tax at a rate of 0.125 or
a multiple thereof. (Rev. & Tax. Code § 7285.9.)
Local Sales Tax Allocation Report It is important that the public be able to see
where the funds are being spent to give assurance that they are being spent
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 23
properly. To ensure accountability, Measure O 2006 included a provision requiring
the City to publish and distribute an annual report to each household on the
revenues and expenditures from the sales tax proceeds. Staff recommends
providing a Local Sales Tax Allocation Report.
Sunset Clause
a certain period of time. Sunset clauses can be perceived as beneficial because
the tax is temporary and voters retain control over the tax. They are particularly
popular when the tax will be used for a project of limited duration or to fund one-
time expenditures. In this case,
roads and infrastructure in ongoing, staff recommends that a sunset clause be
added to the measure. A sunset clause was included in the polling and as part of
the public outreach that staff has done , it
has become clear that a sunset clause would help build public trust. The City would
collect the sales tax for a period of time, spending the funds as directed and then
would need to place it back on the ballot in order to continue collection of the funds.
Next steps
In order to place the local sales tax measure on the November 5, 2024, ballot, the City
Council will need to adopt a Resolution placing a measure on the ballot prior to the
Registrar of Voters (ROV) deadline of June 18, 2024. In order to provide staff enough
time to submit the proper paperwork and related resolutions and ordinances to the ROV,
a decision should be made by the May 28, 2024, City Council meeting. Below is a timeline
of events associated with a potential sales tax measure.
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 24
AdoptResolutionCallingandgivingnoticeoftheNovember5,2024
1)
General Municipal Election
AdoptResolutionRequestingthattheSLOCountyBoardof
2)SupervisorsconsolidatetheGeneralMunicipalElectionwith
the Statewide General Election (EC 10403);
AdoptaResolutionadoptingregulationsforcandidatespertainingto
3)
candidate statements
AdoptResolutionorderingthesubmissiontothequalifiedelectorsof
May 28, 2024
thecityofacertainmeasurerelatingtoTransactionandUseTaxat
4)
theGeneralMunicipalElectiontobeheldonTuesday,November5,
2024, as called by Resolution No. ___
5)
AdoptResolutionsettingprioritiesforfilingwrittenarguments
6)regardingmeasureanddirectingtheCityAttorneytopreparean
impartial analysis
7)Adopt Resolution providing for the filing of rebuttal arguments
June 25, 2024
Tax & Administration, but subject to voter approval)
Last Day for Filing Arguments
July 19, 2024
Impartial Analysis for measure due from City Attorney
10-day Public Examination Period for Arguments and Impartial Analysis
July 30, 2024Last Day to File Rebuttal Arguments
10-day Public Examination Period for Rebuttal Arguments
Last day to file final ballot measure documents (Arguments, Impartial
By August 9, 2024
Analysis, with County Clerk/ROV for inclusion voter information guide
ALTERNATIVES:
1. Receive a presentation regarding Financing Options related to the top three
priorities from the Community Survey Results and direct staff to prepare a ballot
measure for the November 5, 2024, consolidated election seeking a 1% Local
increase, to be provided at the May 28,
2024, City Council meeting;
2. Receive a presentation regarding Financing Options related to the top three
priorities from the Community Survey Results and do not direct staff to prepare a
ballot measure for the November 5, 2024, consolidated election seeking a 1%
increase; or
3. Provide other direction to staff.
ADVANTAGES:
Seeking an additional 1% sales tax will enable the City to significantly increase its
investment in existing programs and infrastructure needs. A new 1% sales tax will bring
the City on par with the other cities in the County and allow the City to reinvest the
Item 12.a.
City Council
Discussion of Financing Options Related to the Top Three Priorities from the
Community Priorities Survey Results and City Council Direction on a Potential
Sales Tax Measure
May 14, 2024
Page 25
increased revenue in existing programs and critical infrastructure necessary to safely
move goods and services throughout the City. Sales taxes are paid by visitors to the City
and not just residents, ensuring that costs are distributed to those who u
facilities and services. Increased sales taxes paid by customers within the City will be
retained and reinvested within the City, providing a greater benefit to residents and
businesses.
DISADVANTAGES:
If the voters approve a new 1% sales tax measure, costs for certain goods will increase
average PCI is anticipated to remain at current levels or increase only slightly over the
course of 15 years. Additional fun
deferred and ongoing maintenance of existing streets infrastructure.
ENVIRONMENTAL REVIEW:
The discussion and direction sought by the City Council as part of this item is not a project
subject to the Ca
to result in either a direct, or reasonably foreseeable indirect, physical change in the
environment. (State CEQA Guidelines, §§ 15060, subd. (c)(2)-(3), 15378.)
PUBLIC NOTIFICATION AND COMMENTS:
Government Code Section 54954.2.
Item 12.a.