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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. Page 1 CITY COUNCIL CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX APRIL 10,2012 PAGE 2 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. Page 2 CITY COUNCIL CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX APRIL 10,2012 PAGE 3 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. Page 3 CITY COUNCIL CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX APRIL 10,2012 PAGE 4 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. Page 4 CITY COUNCIL CONSIDERATION OF 5-YEAR REVIEW OF LOCAL SALES TAX APRIL 10,2012 PAGE 5 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. Page 5 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 Ag e n d a I t e m 9 . a . Pa g e 6 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 Ag e n d a I t e m 9 . a . Pa g e 7 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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