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NOTICE OF THE
SPECIAL SESSION OF
THE FOUNTAIN HILLS TOWN COUNCIL
TIME: 6:00 P.M.
WHEN: TUESDAY, JANUARY 8, 2008
WHERE: FOUNTAIN HILLS COUNCIL CHAMBERS
16705 EAST AVENUE OF THE FOUNTAINS, FOUNTAIN HILLS, AZ
PROCEDURE FOR ADDRESSING THE COUNCIL
Anyone wishing to speak before the Council must fill out a speaker’s card and submit it to the Town
Clerk prior to Council discussion of that Agenda item. Speaker Cards are located in the
Council Chamber Lobby and near the Clerk’s position on the dais. If there is a Public
Hearing, please submit the speaker card for that issue prior to the beginning of the Public
Hearing and the Consideration of said issue.
Speakers will be called in the order in which the speaker cards were received either by the Clerk or
the Mayor. At that time, speakers should stand and approach the podium. Speakers are asked to
state their name prior to commenting and to direct their comments to the Presiding Officer and
not to individual Council Members. Speakers’ statements should not be repetitive. In order to
conduct an orderly business meeting, the Presiding Officer shall keep control of the meeting and
shall require the speakers and audience to refrain from abusive or profane remarks, disruptive
outbursts, applause, protests or other conduct that disrupts or interferes with the orderly conduct
of the business of the meeting. Personal attacks on Council members, Town staff or members of
the public are not allowed. Please be respectful when making your comments. If you do not
comply with these rules, you will be asked to leave.
Individual speakers will be allowed three contiguous minutes to address the Council. Time limits
may be waived by (i) discretion of the Town Manager upon request by the speaker not less than
24 hours prior to a Meeting, (ii) consensus of the Council at Meeting or (iii) the Mayor either
prior to or during a Meeting.
If a speaker chooses not to speak when called, the speaker will be deemed to have waived his or her
opportunity to speak on the matter. Speakers may not (i) reserve a portion of their time for a
later time or (ii) transfer any portion of their time to another speaker.
Mayor Wally Nichols
Councilmember Mike Archambault Councilmember Henry Leger
Vice Mayor Ginny Dickey Councilmember Keith McMahan
Councilmember Ed Kehe Councilmember Jay Schlum
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CALL TO ORDER – Mayor Nichols
ROLL CALL – Mayor Nichols
SPECIAL SESSION AGENDA
1. DISCUSSION of the Strategic Planning Advisory Commission’s proposed revenue
shortfall solutions WITH POSSIBLE DIRECTION TO STAFF.
2. ADJOURNMENT.
DATED this 28th day of December, 2007.
Bevelyn J. Bender, Town Clerk
The Town of Fountain Hills endeavors to make all public meetings accessible to persons with disabilities. Please call 480-816-5100
(voice) or 1-800-367-8939 (TDD) 48 hours prior to the meeting to request a reasonable accommodation to participate in this meeting
or to obtain agenda information in large print format. Supporting documentation and staff reports furnished the Council with this
agenda are available for review in the Clerk’s office.
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Strategic Planning Advisory Commission Revenue Solutions
January 8, 2008
The Strategic Planning Advisory Commission (SPAC) has recommended to the Town Council
several proposals for improving the Town’s financial future with the goal of decreasing
dependence upon revenue sources that are subject to economic downturns. The
recommendations can provide the Town with an opportunity to analyze the Town’s current fiscal
structure and develop policies that will guide the Town during times of economic and financial
evolutions. The following recommendations were presented to the public and the Town Council
on December 20, 2007 as possible resolutions for the projected shortfall in operating revenue.
Staff was asked to prepare a report for the upcoming January public meeting that provides
specific information requested in the SPAC report and possible recommendations and/or
proposals for implementation of the plan. The following is a summary of the recommendations
and responses to the requests:
1) Immediately develop a detailed 3-year financial forecast that shows the following:
i. Sales tax revenues and trends
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ii. State-shared revenues and trends
iii. Reserve accounts and trends
The Town financial policies establish a level of reserves (fund balance) that provide future
financial stability for the Town General Fund. The current policy requires that the Town set
aside the following:
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undesignated unreserved in an amount that is equal to 30 days of the next fiscal
year operating expenditures
designated unreserved funds of a minimum 10% of average revenues for the past
five years
reserved funds of 20% of average five year revenues; these funds are not available
for appropriation
The estimated fund balance in the General Fund as of December 31, 2007 is:
Per Policy Dec 31, 2007
Undesignated Unreserved (30 days) $1.4M $2.1M
Designated Unreserved (10%) $1.5M $1.5M
Reserved (20%) $3.0M $3.0M
Total $5.8M $6.6M
The estimated fund balance in the restricted funds as of December 31, 2007 are:
HURF $1.1M
Development Fees $3.3M
Excise Tax (downtown) $0.7M
Debt Service $2.3M
Capital Projects $9.6M
Based on the current fiscal structure and proposed trend in General Fund expenditures the
revenues are projected to be less than the projected expenses; subsequently expenditures will
have to be reduced to match available resources. Therefore, it is not anticipated that there will be
any surplus funds to contribute to the General Fund balance.
iv. General Fund operating costs and trends
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2) Immediately develop and implement a series of actions designed to show that all efforts
have been made to reduce the amount of revenue needed to be raised through a
primary property tax:
i. Implement cost saving areas and establish spending guidelines that reflect the
deteriorating financial situation.
Staff is proposing that a fiscal restructuring program be adopted that provides guidelines
and courses of action that will be implemented when indications are present that the
Town’s financial condition is heading for a decline. The policy would address what
“triggering events” signal that steps need to be taken as a way to manage future budget
deficits and prevent drastic measures. The policy would be a roadmap for crisis
management that would identify what steps will be taken to reduce the economic impact
(i.e., hiring freeze, budget cuts, etc.).
Staff recommendation: Amend financial policies to include:
– Fiscal restructuring strategic plan that outlines policies and procedures to respond
to economic fluctuations (expenditures and revenues)
ii. Implement an Economic Development Program (with input from the Business
Vitality Team).
The Town’s current Economic Development Plan includes the following major components:
1. Business Attraction
This is done in a variety of ways. We hold membership in the Greater Phoenix Economic
Council. A component of this membership is a chance to put together proposals for
businesses looking to locate in the region. We support businesses looking to come to
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Fountain Hills by providing community information, assistance with space location, and
support through the permitting process.
2. Business Retention
This is a new component of the Town ED program. In this program businesses are
interviewed to learn about their needs. The Town will then offer assistance as
appropriate.
3. Business Education
This component of Economic development provides local businesses with opportunities
to develop their business through a variety of training classes. The Town partners with
the Chamber in providing the Business Excellence workshops. We are also affiliated
with the Scottsdale Community College Small Business Development program that will
also offer businesses assistance.
4. Business Expansion
If a business is looking to expand we assist with locating new space within the Town and
permitting.
5. Business Partnerships
The Town is a member of many local and regional agencies. Town groups that we work
in partnership with this are the Business Vitality group, the Chamber of Commerce and
the Fountain Hills/Fort McDowell Tourism Bureau.
Staff Recommendation: Continue the economic development program
iii. Put on hold all major investments outlined in the Strategic Plan 3-5 Year priorities.
The list of projects that were included in the Strategic Plan 3-5 year priorities and the
current status of those projects is listed below. Some of the projects can be deferred,
others are completed or in progress.
Strategic Priorities Projects Cost Status
Add recreation amenities Hiking trails $4.0M Defer to FY11-15
Pedestrian friendly
walking paths
Defer to FY11-15
Expand bike lanes Not started
Additional concerts
and movies in the
park
On going
Enhance pedestrian safety Crosswalks, signals $0.6M In design
Build more
sidewalks
$0.3M In design
Maintain smooth streets Increase frequency
of street resurfacing
$8.0M Not started
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Preservation of
Environment
Increase frequency
of wash
maintenance
Not started
Park improvements Fountain Park $2.8M Completed
Desert Vista Park $2.3M Negotiating price
Four Peaks Park $2.0M Defer to FY11-15
Staff recommendation:
• Amend financial policies to include:
– Fiscal restructuring strategic plan that outlines policies and procedures to respond
to economic fluctuations (expenditures and revenues)
– Dedicate construction sales tax to capital projects
– Establishment of a rainy day fund
3) Enhance revenues to reduce the volatility of existing sources:
i. Acquire resources to assure maximum collection of retail sales taxes,
residential rental sales taxes, and business licenses.
The proposed budget for FY2008-09 will include a new position in
finance that will be responsible for licensing and analysis/examination of
sales tax collections, developing a business community education
program, work with local business groups and the Chamber of Commerce
as well as monitoring rentals, retail sales (including the art fairs), and all
other categories of sales tax except construction (this will continue with an
outside contract auditor). The new position will be monitored and
expected annually to produce twice the administrative costs.
Staff recommendation: Add one full time staff position to monitor collection of local sales taxes
with an objective of recovering twice the cost of the program
ii. Increase development and permit fees.
The process to increase the current development fees with an index for
inflation has been initiated; the new fees will go into effect in May 2008.
A new development fee study will be proposed with the FY2008-09
budget which may adjust the fees again.
The Hocking report recommends that the Town implement a “Full Cost
Recovery Program” for user fees and charges. During the upcoming fiscal
year staff proposes that a study of Town wide fees be conducted and a
comprehensive fee schedule report be created. The report will include
recommended fee schedules including an inflation adjustment factor.
Staff recommendation: Conduct a comprehensive study of all Town fees for equitable and fair
revenue burdens and recovery of costs associated with service delivery.
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iii. Increase “bed tax” on hotels/resorts.
Surrounding city/town bed Tax Rates:
Scottsdale, Tempe, Carefree, Fountain Hills 3%
Mesa 2.5%
Cave Creek 4%
Increasing Fountain Hills’ bed tax rate by ½% would provide an estimated
$20,000 to $30,000 additional revenue annually.
iv. Increase the coverage allowance for R1-43 lots from 15% to 20%.
The average increase in permit revenue by increasing the lot coverage on a
R1-43 lot from 15 to 20 percent would be approximately $3,335 per lot.
This assumes that all future R1-43 lots would take full advantage of the
increased lot coverage. The total new average fee for the larger homes
would be $10,004 or $3,335 more than the permit fee on lots with the
smaller lot coverage. There are 439 platted and unplatted lots zoned R1-
43 in the Town, only 12 such permits were reviewed last year. Any
additional revenue collected would be a one-time collection.
The sales tax received on the construction may also be affected with a 5%
increase in lot coverage on R1-43 Zoned lots; however, this tax is a one
time revenue received based on the contract with the builder. Estimating
what the incremental difference is would be difficult to determine.
v. Establish a stormwater environmental utility (including a comprehensive
public involvement component).
Schedule that was presented to the Council:
Stormwater Program Funding Study- 3-months $20,000 to $30,000
(this FY)
Stormwater Utility Feasibility Study- 9-months $120,000 to $130,000
(FY 08-09)
Implement Stormwater Utility 12-months
Begin invoicing and revenue collection July 2010
Rate methodologies:
Impervious Area
Impervious area + Gross area
Gross area with Intensity of Development or Runoff Factor
Other- such as number of rooms, water use, flat fee, sector-specific fee.
Staff Recommendation: Establish a stormwater utility fund that will include all maintenance and
capital costs for the stormwater mandates. If a stormwater environment utility fund is approved
and implemented the annual operating costs for stormwater maintenance would be removed from
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the General Fund (estimated annual costs of $600K). The new fund would also include any
Capital Improvement Projects (approximately $1M).
vi. Levy a property tax at the rate of $1 per $100 of assessed value, and
eliminate the sales tax on groceries when revenue from the property tax
begins generating revenue for the Town.
The rate is established by Maricopa County and is based on the levy
amount approved by the voters and submitted to the County. A $1 per
$100 of assessed value rate would equal a levy of approximately $4.5M;
the downward arrow indicates the point that expenditures exceed
revenues.
The table below is an estimate of the net effect of the above proposal; due to confidentiality
statutes this information is aggregated into five year segments.
The effect on the average property in Fountain Hills ($342,750) would be approximately
$342 per year or $28 per month.
Staff Recommendation: A property tax levy would diversify the long-term financial future of the
Town.
FY08-FY13 FY14-FY19 FY20-FY25
Total Total Total
Property Tax Revenue $24.$32.$37.
Loss of tax on food ($8.)($12.)($16.)
Net Revenue $16.$20.$20.
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4) Adjust current reserve management policies. Put all construction sales tax revenues and
revenues in excess of operating expenses in the General Fund Reserve rather than the
Capital Fund Reserve to begin building a Rainy Day Fund.
The Town’s financial policies currently direct 85% of the Town’s construction related local
sales tax into the Capital Project Fund. Depending on the local building economy the annual
amount ranges from $3.5M (during state trust land development) to less than $1M (FY2025).
Rainy day funds are an important tool for dealing with cyclical deficits; rainy day funds
should only be used to reduce the impact of budget shortfalls that arise from cyclical
economic downturns – not to cope with long-term structural problems. The Hocking Report
recommends establishing an additional reserve fund to meet the possibility of declining
revenues, such as construction sales tax and building permits. By amending the Town’s
financial policies to include a rainy day component to the fund balance policy the Town can
address fiscal restructuring options that will help during difficult fiscal times and assess
options for improving the adequacy of these funds. The Rainy Day Fund would supplement
the current General Fund balance policy with a goal of increasing the total reserves to 40% or
50% (approximately $1.6M additional). If the Council wishes to amend the fund balance
policy to create a Rainy Day Fund (RDF) the funds could be appropriated over time.
There are several factors to consider when creating rainy day funds:
Rules for deposits
Size limits
Rules for withdrawals
Rules for replenishing funds
Staff recommendation: Amend financial policies to create a Rainy Day Fund.
5) Include in future Town budgets a brief citizen understandable overview.
Staff recommendation: The Fiscal Year 2008-09 budget will include an introductory section that
will summarize the budget in a easy to understand format. A summary budget (brochure format)
will also be developed for the public that would be available at Town Hall, included with the
Compass newsletter, placed on the Town web page, etc.
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ADDENDUM
Assumptions:
Resort property was not included in projected revenues - no concept plan has been
submitted
Downtown development was not included in projected revenues until property is
sold
State trust land property added to assessed valuation beginning in 2010
Community Center bond payments transferred from General Fund, expire in 2020
85% of construction revenues transferred to Capital Projects Fund (except where
indicated on chart)
FY09 expenditures based on preliminary budget requests
Highway User Revenue (HURF) bonds expire in FY09-10 (decreasing HURF
expenditures by approximately $133,000 per year)
2 Bulding/Engineering Inspectors added in FY09 for state trust land
1 Bulding/Engineering Inspector added in FY10 for state trust land
1 Bulding/Engineering Inspector added in FY11 for state trust land
1 Bulding/Engineering Inspector deleted in FY15 and FY16
2 Bulding/Engineering Inspectors deleted in FY17
1 Bulding/Engineering Inspector deleted in FY19
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The following scenarios and information are provided based on requests from Councilmembers
to be included in the analysis.
Alternate Scenario 1
This scenario assumes that the Council amends the financial policies to revert 85% of
construction sales tax back to the General Fund rather than transferred to the Capital Projects
Fund. The downward arrow indicates the fiscal year that expenditures exceed resources.
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Alternate Scenario #2
This scenario assumes that a property tax levy of $4.5M is approved for the General Fund and
the 85% construction sales tax remains in the Capital Projects Fund. The downward arrow
indicates the fiscal year that expenditures exceed resources.
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Alternate Scenario #3
This scenario assumes that a property tax levy of $4.5M is approved for the General Fund, the
local sales tax rate is reduced to 1.6% and the 85% construction sales tax remains in the Capital
Projects Fund. The downward arrow indicates the fiscal year that expenditures exceed resources.
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Alternate Scenario #4
This scenario assumes that a property tax levy of $4.5M is approved for the General Fund, the
local sales tax rate is reduced to 1.6% and the 85% construction sales tax remains in the Capital
Projects Fund. Additionally, if a stormwater utility fee is approved the stormwater expenditures
would be allocated to the new fund not the General Fund. The fee would be sufficient to recover
the costs of the stormwater management operating and capital programs. The downward arrow
indicates the fiscal year that expenditures exceed resources.
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Alternate Scenario #5
This scenario assumes that a property tax levy of $4.5M is approved to pay for police and fire
and the 85% construction sales tax remains in the Capital Projects Fund. The $4.5M levy would
cover 75% of the costs for public safety; the remainder would come from the General Fund. A
levy of $6.1M would cover 100% of the costs for FY09. The chart below assumes a levy of
$4.5M. The downward arrow indicates the fiscal year that General Fund expenditures exceed
resources.
FY08-09 FY09-10 FY10-11 FY11-12 FY12-13
Levy Estimate Estimate Estimate Estimate
Police/Fire budget $6,142,737 $6,449,874 $6,772,368 $7,110,986 $7,466,536
Maximum levy allowed $6,142,737 $6,265,592 $6,390,904 $6,518,722 $6,649,096
Difference ($0)($184,282)($381,464)($592,264)($817,439)
Maximum rate allowed $1.46 $1.49 $1.29 $1.15 $1.03
Estimated annual tax
on $347,250 residence $506 $516 $449 $398 $357
adjusted each year for max
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Highway User Revenue Fund (HURF)
Highway User revenues (gasoline tax) are restricted for street and transportation purposes only.
The chart below is the projected revenues and expenditures through FY2025. The expenditures
do not include the recommended $1M in annual pavement management costs (they are included
in the revised Capital Improvement Plan) but does include the annual slurry seal, microsurfacing
and other maintenance costs. Deferred major road maintenance has resulted in unspent HURF
funds in prior years; therefore, the deficit in FY08 is made up with reserves. However, in past
years the General Fund has supplemented the HURF fund for major maintenance projects.
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Capital Project Funding
The Capital Improvement Plan (CIP) is in the process of being revised in anticipation of
updating the development (impact) fees. The chart below is a summary of the current fiscal plan
of available resources for capital projects (that is, construction sales tax and development fees)
and the capital projects that may be included in the updated CIP. The chart is for informational
purposes only but shows how the current policy for CIP funding is dependent upon construction
related revenues.
Other methods of financing capital projects are:
Type Security Election Required
General Obligation Ad Valorem Property Taxes Yes
Revenue Bonds HURF or Excise Tax Yes (HURF) and No (Excise)
Lease Purchase Financing Lease Payments (General
Fund)
No
Special District Bonds Assessment on Property No
Community Facility District Ad Valorem Property Taxes Yes
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Greater Arizona Development
Authority (GADA)
Ad Valorem Property Taxes Yes
Legal Debt Limit
The Arizona Constitution states that for general municipal purposes a municipality cannot incur
a debt exceeding six percent of the assessed valuation of taxable property in the city or town.
Additional bonds amounting to twenty percent of the assessed valuation of taxable property can
be issued for supplying such specific city and town services as water, artificial light, sewers, and
for the acquisition and development of land for open space preserves, parks, playgrounds and
recreational facilities. In November 2006, the voters elected to allow projects concerning
public safety, law enforcement, fire and emergency service facilities and streets and
transportation facilities to be included in this twenty percent category. In other words, a
total of twenty-six percent of the assessed valuation can be bonded for these latter projects.
Because the full taxing power of a municipality is pledged, general obligation bonds are
considered more secure than other bonds. This tends to give them lower interest rates in
comparison to other bonds. The issuance of general obligation bonds must be submitted to the
voters for approval.
The following table is a summary of the Town’s available debt margin (amount that can be
borrowed) for the past three years.
Fiscal Year
2005 2006 2007
Secondary Assessed Value $349,398,334 $375,183,181 $610,738,122
Legal 6% GO Debt Margin $20,963,900 $22,510,991 $36,644,287
6% GO Debt Outstanding 3,595,000 3,410,000 1,660,000
Available Legal 6% GO Debt Margin $17,368,900 $19,100,991 $34,984,287
Total net debt applicable to the limit
as a percentage of debt limit. 17.15% 15.15% 4.53%
Legal 20% GO Debt Margin $69,879,667 $75,036,636 $122,147,624
20% GO Debt Outstanding 7,515,000 7,265,000 6,960,000
Available Legal 20% GO Debt Margin $62,364,667 $67,771,636 $115,187,624
Total net debt applicable to the limit
as a percentage of debt limit. 10.75% 9.68% 5.70%
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Building Permit Activity
For the six months ending December 31, 2006 and 2007:
July – December
FY2006-2007
July – December
FY2007-2008
Property Tax and how it works:
FY09 Town establishes primary levy $4.5M
County sets rate based on levy and AV $1.00/$100 AV
FY10 Next year levy limited to 2% increase $4.6M
County sets rate based on levy $1.02/$100 AV
FY11 Added AV for STL increases Town AV $4.7M
County sets rate based on levy and AV $0.89/$100 AV
*AV = Assessed Valuation
STL = State Trust Land
Note: The levy amount is restricted to 2% increase each year; changes in the AV affect the rate
property owners are charged but not the levy collected.
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