09.a. Local Sales Tax ReviewMEMORANDUM
TO: CITYCOUNCIL
FROM: STEVEN ADAMS, CITY MANAGER
SUBJECT: CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX
DATE: APRIL 10,2012
RECOMMENDATION:
It is recommended the City Council: 1) approve continuation of the local sales
tax; and 2) approve proposed modifications to the Local Sales Tax 5-Year Plan.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
Revenue from the local sales tax in FY 201 1-1 2 is projected to be approximately
$1,750,000. This is based on a conservative projected increase of 1.5% to the
actual FY 201 0-1 1 revenue.
The beginning fund balance is $2,176,104. A total of $3,507,188 in FY 201 1-12
expenditures are budgeted, which will result in a projected ending year fund
balance of approximately $428,016. 'This amount represents an unappropriated
fund balance of approximately 24% of the annual revenue.
BACKGROUND:
In November 2006, the voters of Arroyo Grande approved Measure 0-06, which
established a half-cent local sales tax to meet City needs identified in the City's
long-range financial plan. 'The following four categories of needs were projected:
Transportation projects, including upgrade of the Brisco/Halcyon interchange;
Infrastructure improvements, including the street, drainage and creek
systems;
Public safety needs, including Police and Fire Department facilities,
equipment and staffing; and
Facility upgrades to meet Americans with Disabilities Act (ADA) requirements.
To ensure accountability, the measure required: 1) the City to publish and
distribute an annual report to each household on the revenues and expenditures
from the sales tax proceeds; and 2) a review and public hearing by the City
Agenda Item 9.a.
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CITY COUNCIL
CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX
APRIL 10,2012
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Council every five years to determine whether the sales tax is necessary to
remain in effect.
The local sales tax took effect in April 2007. Therefore, the first 5-year review is
now scheduled.
ANALYSIS OF ISSUES:
Local Sales Tax History
Attachment 1 presents a revenue and expenditure history of all local sales tax
funds received thus far. As you can see, approximately $8.5 million has been
spent or is currently budgeted. Of this amount, approximately 58% has been
expended or budgeted for street and sidewalk improvements or repairs. Nearly
11% was comrnitted to transportation projects, 7% for drainage improvements,
16% for public safety, and 8% for public facility and ADA improvements.
Therefore, the funds have been utilized for the purposes intended and
expenditures reflect the priorities identified by the community.
Local Sales Tax Proiections
Attachment 2 is the proposed updated 5-Year Plan for expenditure of local sales
tax funds. The proposed 5-Year Plan continues to maintain adequate funding for
the City's highest priorities as outlined when the Local Sales Tax Measure was
proposed and in the Critical Needs Action Plan. The recommendations will also
maintain a reserve of 15% of revenues throughout the five-year period. Some of
the most significant issues are outlined in the following sections.
Street improvements
The 5-Year Plan maintains $500,000 - $600,000 per year for the Pavement
Management Program, which has established a goal of applying a resurfacing
treatment at least every seven years to each street. Another $500,000 is
programmed for street reconstruction projects over the five-year period and
$1 10,000 annually for staff to perform ongoing street repairs.
The only other ongoing funding source has been an annual estimated allocation
of approximately $70,000 from the Urban State Highway Account. Since the City
now falls within an "urbanized area" as defined by the Federal government, the
City will be eligible for additional transportation funds. Staff hopes this will
increase funding for street improvements by about $1 00,000 annually. This will
bring ongoing funding close to what is necessary to fully fund the Pavement
Management Program.
However, since the majority of funding for street improvements is derived from
the local sales tax, any reduction or elimination of local sales tax funds would
result in a serious inability to maintain the City's street system. This issue will
continue to escalate as State and Federal funding is decreased.
Agenda Item 9.a.
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CITY COUNCIL
CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX
APRIL 10,2012
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Brisco Interchange Proiect
One of the priority needs in establishing the local sales tax was to fund
improvements to the Brisco Interchange. Minimal funds have been utilized for
this project thus far due to delays in obtaining approval from Caltrans for a
project proposal, and engineering and environmental review costs have been
paid for from development impact fee revenue. However, since State funding is
now programmed and Caltrans approval is anticipated in the near future, local
sales tax revenues will be a critical component of the project's proposed funding
plan. Funding is included in the 5-Year Plan to finance roughly $3 million over a
thirty year period to pay for a portion of the project costs. Without this funding
source, the project carmot proceed.
Five Cities Fire Authority
Local sales tax funds have been instrumental in paying for enhancements to Fire
operations prior to and following formation of the Five Cities Fire Authority. Over
$100,000 is programmed for this purpose on an ongoing basis. Given the
already minimal staffing of the Fire Department, any reduction or elimination of
local sales tax funds would significantly impact the City's ability to provide critical
public safety services. In addition, funds continue to be committed for the next
four years for the City's share of matching funds for purchase of the ladder truck.
New Police Station
If the bond measure is approved by the voters in June, roughly half of the debt
service is proposed to be paid for from the property tax assessment and half is
proposed to be paid for from local sales tax funds. This is critical in order to
implement the City's proposal to pay for the bonds without any increase in the
annual tax rate by retiring the 2003 Fire Station bonds.
Citv Hall Upqrade
The City financed the costs to acquire and upgrade the former Farm Credit
building to house City Hall operations from a USDA low-interest loan. Debt
service is approximately $85,000 annually. The City has programmed $60,000
annually to pay the majority of the costs. The remaining amount is paid from
Water and Sewer funds.
Operational Costs
The current approved plan to address the City's projected budget shortfall
includes transfer of $250,000, primarily to address revenues diverted by the
State and particularly costs due to the loss of the Redevelopment Agency. To
accomplish this and maintain the appropriate fund balance, the following initial
changes to the 5-Year Plan are recommended:
Agenda Item 9.a.
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CITY COUNCIL
CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX
APRIL 10,2012
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Tree Trimming - Elimination of $40,000 annually
Digital Signal - Elimination of $10,000
TraFfic Model - Elimination of $25,000
Sidewalks - Reduction of $1 0,000 annually .
Creek Enhancement - Reduction of $40,000 for one year and $50,000
annually thereafter
East Branch StreetIPaulding School Wall - Two year delay in funding
Police Building - Initial reduction of $50,000 and $100,000 annually
thereafter
Corporation Yard Improvements - Reduction of $40,000 for two years and
$1 5,000 annually thereafter
These recommendations are designed to maintain funding for critical priority
projects.
Additional recommended changes include the following:
Increase of $100,000 in FY 2012-13 for Greenwood Tract street resurfacing
in order to complete the improvements on schedule in summer 2012
One-year delay in improvements to Pecan Place
New recommendation of $150,000 for costs anticipated to construct utility
undergrounding improvements on East Grand Avenue
Ongoing funding programmed for the Le Point Street parking lot property
lease and future purchase
ALTERNATIVES:
The following alternatives are provided for consideration:
1. Approve staffs recommendation and maintain the Local Sales Tax
Measure;
2. If the City Council would like to pursue a reduction or elimination of the local
sales tax, it would be necessary to direct staff to prepare a measure for the
November 201 2 ballot; or
3. Provide other direction to staff.
ADVANTAGES:
Maintaining the local sales tax funds is critical to meet the City's future
infrastructure maintenance, public safety and operating funding needs.
DISADVANTAGES:
The only disadvantage identified is the inability to reduce the tax burden on
residents and visitors. However, the City has worked hard to address extremely
Agenda Item 9.a.
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CITY COUNCIL
CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX
APRIL 10,2012
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difficult.financial challenges over the last few years without any additional tax
increases.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item. Environmental review is
performed individually for the projects identified within the 5-Year Plan.
PUBLIC NOTIFICATION AND COMMENTS:
A public hearing notice was published in the The Tribune on Friday, March 30,
2012. The Agenda was posted in front of City Hall on Thursday, April 5, 2012.
The Agenda and report were posted on the City's website on Friday, April 6. The
meeting was also announced in the Stagecoach Express. No comments were
received.
Attachments:
1. Local Sales Tax History
2. Local Sales Tax 5-year Revenue and Expenditure Projections
Agenda Item 9.a.
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Attachment 1
LOCAL SALES TAX REVENUE AND EXPENDITURE HISTORY
Item FY 06-07 FY 07-08 FY 08-09 FY 09-10 FY 10-11 (Budget) Total
BriscolHalcyon Interchange
Castillo Del Mar Extension
East Branch Streetscape
Fair OakslHalcyon Road Traffic Signal Update
Valley Road City Entrance Sign
Digital Speed Signs
Traffic Model Update
Subtotal Transportation
Brisco Road Resurfacing
East Grand Avenue Resurfacing - El Camino Real to Halcyon
Farroll Avenue Resurfacing
Poole Street Sidewalks
ADA Ramps
GIs Aerial Photography and Benchmark Survey
Project Studies and Planning
Concrete Replacement
West Branch Street Resurfacing
Pavement Management
Sidewalks and Cross Gutters
Street Maintenance
El Camino Real
Crown Hill Crosswalks and Ramps
Tally Ho Sidewalk Project
Pearwood Street Resurfacing
Orchard Street Neighborhood Resurfacing
Myrtle Street
Short Street
East Branch Paulding Wall .
Paulding Middle School Sidewalks
Alpine Street
Tree Inventory and Trimming
Traffic Way Streetscape
Traffic Way Extension
Greenwood Tract
Larchmont Street lmprovements
Pecan Place $0 $0 $0 $0 $0 $0 $0
Subtotal Street and Sidewalk Improvements $3,145 $71 7.51 3 $348,272 $629,950 $967,695 $2,227,976 $4,894,551
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Item
Waterline installation - Chilton & El Camino
Attachment 1
LOCAL SALES TAX REVENUE AND EXPENDITURE HISTORY
Creek Ivy Removal
Newsom Springs Drainage Project
Tally Ho Drainage Projects
Poplar Street Retention Basin lmprovements
DrainagelCreek Protection Projects
Retention Basin Maintenance
City Hall Parking Lot Bioswale
Colina & Via La Barrance Drainage
Larchmont Drainage
Subtotal Drainage lmprovements
Wildland Fire Protective Equipment and Radios
Police Station Expansion
Fire Battalion Chief Position
Emergency Operations Center
Radio Equipment
Police Sergeant Position
Fire Station lmprovements
Fire JPA
Police Firing Range
Fire Apparatus
Narcotics Task Force
Subtotal Public Safety
City Hall Upgrade
City Hall Document Imaging
USDA loan payment
City Hall Lease
Corporation Yard Repairs
Elm Street Community Center Roof
Subtotal City Facilities
CA State Board of Equalization
HDL and Annual Report
Total
Revenue
Annual Change to Fund Balance
FY 11-12
FY 10-11 (Budget) Total
$2,400
Balance $86,802 $1,024.586 $1,260,037 $1,765,542 $2,176,104 $528,016
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LOCAL SALES TAX REVENUE AND EXPENDITURE PROJECTIONS Attachment 2
Item
Digital Speed Signs
Castillo Del Mar
Traffic Model Update
BriscolHalcyon Interchange
Subtotal Transportation
Pavement Management
Sidwalks and Cross Gutters
Concrete Replacement
Street Maintenance
ADA Ramps
Crown Hill Crosswalks and Ramps
Project Studies and Planning
El Camino Real
East Branch Paulding Wall
Short Street
Alpine Street
Tree Inventory and Trimming
Traffic Way Extension
Greenwood Tract
Larchmont Street lmprovements
Underground Utilities
Pecan Place
Le Point Street Parking Lot
Subtotal Street lmprovements
DrainagelCreek Protection Projects
Retention Basin Maintenance
Newsom Springs
Colina & Via La Barrance Drainage
Larchmont Drainage
Platino Lane & Oro Drive Inlet
Miller Way Underground System
Other Drainage Projects
Subtotal Drainage lmprovements
Fire JPA
Emergency Operations Center
Fire Apparatus
Police Station Expansion
Narcotics Task Force
Police Firing Range
Subtotal Public Safety
City Hall Relocation
Corporation Yard Repairs
Elm Street Community Center Roof
Other Facility lmprovements
Subtotal City Facilities
Transfer to Address State Takeaways
Sales Tax Consultant & Annual Report
Subtotal Other
Total
Projected Revenue
Annual Change to Fund Balance
Balance
Percentage of Projected Revenues
Assumes: 1.5% annual sales tax gro Agenda Item 9.a.
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