HomeMy WebLinkAbout2003.1112.TCWSM.Minutes TOWN OF FOUNTAIN HILLS
MINUTES OF THE WORK-STUDY SESSION OF THE
FOUNTAIN HILLS TOWN COUNCIL
NOVEMBER 12,2003
Cikkaw
Mayor Wally Nichols convened the work-study session at 4:36 p.m.
ROLL CALL — Present for the roll call were the following members of the Fountain Hills Town Council:
Mayor Wally Nichols; Vice Mayor Rick Melendez; Councilmembers Michael Archambault, John Kavanagh
(arrived at 4:55 p.m.), Kathleen Nicola (arrived at 4:40 p.m.), Susan Ralphe, and Leesa Stevens. Also present
were Tim Pickering, Town Manager; Andrew McGuire, Town Attorney; Town Accounting Supervisor, Julie
Ghetti;Director of Parks&Recreation,Mark Mayer; and Bev Bender,Town Clerk.
Mayor Nichols introduced Town Manager Pickering who advised the Council that the purpose of the work-
study session was to discuss the 5-Year Financial and Proposed Capital Project Funding Plan. An initial draft of
the plan was given to the Council in September with a revision distributed at a later date. Mr. Pickering
introduced Accounting Supervisor, Julie Ghetti, who proceeded to discuss the PowerPoint presentation (on file
in the Clerk's. office). She indicated that the presentation was the next step in developing the 5-Year Financial
and Proposed Capital Project Funding Plan,commonly referred to as the"CIP".
Goals and Objectives
Ms. Ghetti explained that the goals and objectives of a Capital Improvement Plan (CIP) were a "plan for the
Town's future". Planning began with estimated revenues and operating expenditures for the next five years.
Identified from that plan were current operating and capital funding needs, and the capital funding plan was then
incorporated into the annual/operating budgets. If necessary, revenue enhancements would be adopted if they
assisted in achieving desired funding levels. In planning for the financial future, that would be the initial phase
of a long-term plan, and it would be reviewed annually during the budget process. During the budget process at
the annual retreat, the Council would set goals that would affect services and staffing. Additional staffing,
services, or programs would affect available capital funding.
Staff's analysis showed that additional revenue enhancements were necessary to provide for long-term capital
funding needs, and Ms. Ghetti noted that the Town should strive to recover the cost of additional services
requested per the financial policy adopted in the spring. Replacement of existing infrastructure (depreciation)
also needed to be included in the capital funding program. She advised the Council that prior to the current fiscal
year, cities and towns were not required to record depreciation; however, it needed to be included in the
operating budget.
She noted the need for a comprehensive infrastructure replacement policy that would provide guidance to staff
and Council, a foundation of the formal capital improvement plan and a result of the five-year projection.
General Fund Operating Revenue Assumptions
Regarding the General Fund Current Operating Revenues and Expenditures for the next five years (FY2004
through FY2009), several assumptions were made with the operating revenues:
1. The current local tax rate of 2.6% would remain; growth would be based on one fiscal year due to an
increase in retail activity during FY02-03.
2. General Fund state-shared revenues consisting of auto in-lieu payments, state sales tax, and state
revenue sharing (income tax) would remain the same, with the exception of during times when the
Town's growth rate decreased. When the higher growth rate towns took more of the revenue-sharing
pie, the Town of Fountain Hills would be required to investigate the affect of a possible reduction in
,,,, state-shared revenues.
3. Projections for forecast periods were based on an analysis of historical trends as well as known factors
affecting revenue(building activity).
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General Fund Operating Expenditure Assumptions
Operating Expenditure Assumptions were noted as the same level of service that currently existed and presented
in the September report to the Council. Also assumed was that the five-year lease for Town Hall would not be
renewed, and the Annual Expenditure Growth would eventually exceed the rate of revenue growth as the rate of
r. revenue declined.
The summary of revenue and expenditure growth rate was based on the most-likely scenario presented
previously, and over five years the rate of revenue would decline, but the rate of expenditure would remain at
approximately 5% (due primarily to the reduction of the building permit activity anticipated at the end of the
five-year period).
Fiscal year 2003 was the first year that depreciation recording was required. All assets and their useful life and
annual wear-and-tear were reviewed at a figure of $1.1 million, not including the roads, which were being
evaluated for their current condition and would be included in the FY2003-2004 operating budget. Those
amounts would need to be included in the capital funding policy.
Capital Project Funding
Ms. Ghetti noted three major sources of capital funding available for the Town:
1. The first source of capital funding would be development fees (based on projected number of permits
over the five-year period), with each permit having an associated development fee. Based on that fee,
$990,000 would be expected based on the number of permits.
2. The second source of capital funding would be a land and downtown development excise tax, a
dedicated portion of sales tax restricted by the Council for mountains and downtown development only.
Development fees would also be restricted, but those fees would be restricted by State statute and could
only be used for general government purposes.
3. The third source of capital funding would be surplus general fund/revenue funds, i.e., if revenues
exceeded expenditures, those surplus funds could be used to fund other funds or capital projects. Based
on the five-year projection,there would be a surplus each year until 2009 that would be used for capital
funding.
Projected Capital Resources Vs.Projected Capital Projects
Ms. Ghetti indicated that the Projected Capital Resources Vs. Projected Capital Projects charts showed deficits
and surpluses, and the slide showed projects and resources (general fund surplus, development fees, and excise
taxes). The five-year CIP budget prepared at budget time showed projects at $28 million, of which$8.1 million
were not funded. There was also a$7.6 million surplus that could not be used to fund the capital projects.
The next chart showed resources and projects, with the pieces of the pie representing the capital project funding.
The resources for streets showed 6%, and the projects chart showed 35%,a disconnect between the resources for
capital progress for streets and the projects themselves. Surplus capital funding, however, was shown in the
excise tax account and in the open space development fees. Unfunded projects (streets) were $8.1 million after
general fund surplus was transferred to pay for some of the capital projects in the streets fund.
Councilwoman Stevens asked if the new Town Hall was covered under General Government/Capital Projects.
Ms. Ghetti responded in the affirmative, as it had been covered in the CIP plan. She further noted that any
excess general fund revenues would be transferred. Projects were included in the general government fund, but
depreciation had not been included, decreasing some general fund resources available.
Options to Provide Capital Funding
Ms. Ghetti continued her presentation with options to provide capital funding. There were three staff-
recommended capital funding sources:
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1. Eliminate sales tax exemptions. Ms. Ghetti noted that there were three exemptions in the sales tax code
that staff believed could provide additional funding for capital projects (advertising, residential rentals,
and health spa/fitness center membership fees).
2. Recover costs for additional requested services. Additional services requested included business lists,
duplicate licenses,notary services, liquor license permits,and additional field preparation requests.
3. Realign development fees.
Eliminate sales tax exemptions.
Regarding the elimination of sales tax exemptions,the Town of Fountain Hills tax code includes advertising at a
0% rate. She suggested that if the rate were changed to 2.6%, an additional $406,350 could be raised per year.
She noted that out of 87 incorporated cities in Arizona, 77 currently taxed advertising. The revenue would be
derived from mostly non-local businesses. Advertisements in publications such as The Arizona Republic were
now being taxed and distributed only to cities that had a tax rate on advertising. Ms. Ghetti advised that
Fountain Hills had been missing out on a portion of that by taxing advertising at 0%.
Councilman Archambault asked the sales tax rate that The Arizona Republic charged. Ms. Ghetti responded that
The Arizona Republic charged one rate to cover all cities - up to 8.9%. The number of Fountain Hills'
subscriptions (circulation) would dictate the amount of tax income Fountain Hills would receive. Councilman
Archambault asked for an estimate, and Ms. Ghetti responded that $406,350 could be collected from all
advertising sources including Auto Trader, For Rent Magazine, and The Fountain Hills Times.
Vice Mayor Melendez asked for clarification that 90% of the advertising income would come from non-local
funds.Ms. Ghetti estimated that only 10% would be from local businesses that sell advertising in Fountain Hills.
She also noted that the exemption was also being considered by the State and noted The Arizona Republic series
on State revenue options citing the same issues, questions, and exemptions that the Town of Fountain Hills had
been currently exploring.
460, Ms. Ghetti noted the second exemption as residential rentals. Of the 87 incorporated cities in Arizona, 65
currently tax residential rentals. She noted the additional revenue at approximately $121,875 annuaIIy. She
clarified that the exemption elimination would not apply to casual investors who purchased a rental home for
retirement purposes. The exemption would primarily be for individuals who have three or more business rental
units.Fountain Hills currently exempts all residential rentals.
The third exemption would be memberships to health spas and fitness centers. Out of the 87 incorporated cities,
32 tax this revenue. The tax would not be a service tax; it would be a membership tax. The resulting estimated
revenue would be$32,500.
Recover costs for additional requested services.
The second recommendation would be to recover the cost of miscellaneous municipal services. Currently the
Town provides additional services at no charge, and staff proposed that they charge for additional requests from
businesses/individuals who request duplicate licenses or business lists to be used for marketing databases as
these services benefit only the individual/business and not the community. It would a nominal revenue amount-
only$3,500 anticipated for an entire year.
The second cost that staff suggested recovering would be the cost of issuing liquor licenses. Currently the Town
of Fountain Hills did not charge for issuing liquor license permits, but a considerable amount of staff time had
been spent preparing packets and coordinating staff reports. Ms. Ghetti noted that most cities in the area charge
a fee for liquor license permits, and the fees proposed by staff were competitive with the surrounding
communities. Staff recommended that the Town of Fountain Hills propose an annual fee of$1,200; Phoenix
charges the highest rate at $1,400. She noted that application fees ranged from $200 to $2,600, and staff
suggested an application fee of$600 for Fountain Hills. Estimated annual revenue would be$35,000.
Another service requiring additional staff time was "field preparation". Currently, the Town allowed groups to
use the parks and the ball fields at no charge. Some groups request additional services from the Town, i.e.,
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chalk- or paint-lined ball fields, and staff requested that the cost of the chalk, paint, and staff time be charged
back to the group requesting the service. The charges would act as an incentive not to request special services
for possible "no shows". Director of Parks and Recreation Mark Mayer clarified that staff was not suggesting
that lighting and normal field usage be services for which a charge would be levied.
err The third recommendation by staff was that the Town consider adjusting the development fees to match the
capital needs. Currently there was a "disconnect" between resources and projects, i.e., "streets" resource was
$1.2 million with "capital projects" of$9.7 million. State statute has specific guidelines regarding revision of
development fees or implementation of new development fees that would require the services of an outside
consultant. The Town ordinance on development fees requires that existing development fees be reviewed every
five years, but staff suggested a review those fees at the current time due to the "disconnect".
Councilman Kavanagh understood that, with respect to the "projects", development fees could only assess
money for the additional expenses caused by the new development. Ms. Ghetti responded in the affirmative.
Councilman Kavanagh then asked if the expenses on the previous slide were those additional expenses caused
by the new development, or if they were the total expenses of which only a fraction which development fees
could be levied against. Ms. Ghetti responded that the previous slide indicated total capital projects, a good
portion of which would be related to growth, i.e., streets. She then indicated her assumption that a portion of the
street development fees could be increased, and the new development fees had to be related to a growth.
Councilman Kavanagh pointed out that one substantial development fee, a fire development fee, was not
included. Ms. Ghetti indicated that he was accurate, and that issue would need to be addressed by an outside
consultant hired to research realignment of development fees. Councilman Kavanagh asked if it was staff s
recommendation to hire the consultant. Mr. Pickering and Ms. Ghetti responded affirmatively.
Vice Mayor Melendez noted that on the chart there were $22 million in "projects" versus $9.5 million in
"resources" and asked Ms. Ghetti to proceed with the discussion of those projections. Ms. Ghetti clarified that
the purpose of her presentation was to consider resources, but capital projects versus expenditures had not been
researched. The budget process at the Council retreat in January would be the appropriate forum for that
discussion. They would then research available resources and identify capital projects, fitting them into the
available resources.
Realign development fees.
Ms. Ghetti then displayed a comparison of municipal development fees published in The Arizona Republic
showing Fountain Hills as one of the lowest, with the highest being Peoria. She advised that an adjustment could
be made with Fountain Hills' development fees.
Town Manager Pickering reiterated that the discussion of a fire development fee was a valid discussion,as many
communities have such fees for libraries, fire service, or any service that they have for which they know capital
will be needed. An outside consultant would be asked to research those possibilities.
A bar graph showed the surplus and deficits of capital funding if the three recommended revenue enhancements
were adopted. The only deficit remaining would be the street fund at approximately $3 million. If the
exemptions were eliminated, approximately $600,000 annually could be expected, and realigning the
development fees to exactly meet the projects would provide an additional funding for streets.
Additional revenue-producing options were provided for the Council, but not recommended. Revenue
enhancements such as a mountain excise tax (.3% of the local sales tax) would be sufficient to pay the annual
debt service on the mountain preserve with a surplus of$500,000 per year. That$500,000 could be accumulated
in the capital projects fund and identified to purchase additional open space if the Council wished to do so.
Councilman Kavanagh asked if Ms. Ghetti was discussing revenue from the approved property tax to the
mountains, and Ms. Ghetti noted that she was not discussing the revenue from the approved property tax to the
mountains; she was discussing the dedicated portion of the local sales tax. She reiterated that it was not a
recommendation, only additional information for the Council. Councilman Kavanagh then asked if it was
accurate that the Town of Fountain Hills could not spend the money that was put aside by the property tax on
non-open space, as it would be in violation of the law. Ms. Ghetti responded in the affirmative. Councilman
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Kavanagh then asked if there was any legal impediment against redirectingthe excess
Ms. Ghetti indicated that the money could be redirected with Council action. Council
land in downtown, and it could be Council action to restrict it to capitalproject ess money to other needs.
asked if the money could be used for operating expenses, and Ms. G action restricted it from
P t funding.res Councilman Kavanagh
Councilman Kavanagh indicated that preservationists recentlyGhetti respondd in the affirmative.
r mountain preservation. Ms. Ghetti reiterated that staff was no recommendingthat the money be divnrthd from
revenue enhancements previously discussed. Ms. Ghetti then noted that a utility franchise fee could nthree
additional$350,000 but would require a vote of the people.
provide an
Councilman Kavanagh asked Town Manager Pickering for the progress on a comparison of the
commercial refuse collection rates in areas that have the franchise, compared to areas such as Fountain
who allow open competition without the franchise. Mr. Pickering indicated that the refuselicensing
discussion d
would be held at the December meeting and that a listing, Hills
would be provided prior to that meeting. Mr. Pickering noted that the licensing
plus information from Councilman Archambault,
percent charge dependent upon the amount of electricity or water used. utility franchise fee was an additional
Ms. Ghetti advised the Council that several cities charge a different rate for restaurants/bars
telecommunications activity up to an average fee of 4%. She indicated that if the Town of Fountain Hills
the tax on restaurants/bars and telecommunications to 1%, an estimated yearly increase 0 could and
targeted for capital project funding or programs such as tourism. Another method of raising raised
added, was to hire a grant writer to seek and monitor funds from corporations of$100,00 be
She reiterated that this option would only be used if the costs were justified.rP ns and other government agencies.
income, Ms. Ghetti
Comparison of Resources Versus Projects
Before and After Recommended Revenue Enhancements
Ms. Ghetti reviewed the two charts with and without revenue enhancements, noting the deficit in the
Department after revenue enhancements. Street
Summary
1. In summary, Ms. Ghetti noted that the first priority was to pass an ordinance to eliminate specific
exemptions and adjust the municipal fees to recover the direct costs of providing additionally requested
services, an increase in revenue of approximately$600,000 per year.
2. Hiring the services of a qualified consultant to review the existing development fee ordina
nce would
align resources with needs.
3. Specific revenue could be dedicated for capital projects to be approved by Council at the annual retreat.
4. One result of the five-year financial projection would be a Comprehensive Infrastructure Re lacement
Policy in order to guide staff and Council for identifying future capital needs and funding. p
Mr. Pickering reiterated the three recommendations:
1. Eliminate tax exemptions currently on books.
2. Recover service fees currently being provided at no charge.
3. Contract with consultant to review current development fee structure. (Not all development fees are
currently being charged, as some services were not offered at the time of development.)
Mayor Nichols asked if staff had prepared a forecast for development fees. Mr. Pickering indicated that the first
recommendation of staff was to reallocate funds, but it had been discovered that Fountain Hills' fees were lower
than other communities. On Slide #10, the grand total of development fees was approximately $3,500. Mr.
Pickering reiterated that development fees, however, must be tied to the projects that are a result of growth
through an outside consultant's detail and outline. Mayor Nichols clarified that the projected figures did not
include additional money for development fees. Ms. Ghetti responded in the affirmative; the figures did n
include additional money for development fees. Mayor Nichols suggested that an increase in development of
could easily wipe out the deficit of$3 million in recommended enhancements. Mr. Pickering indicated that he
could not verify such information, as he would need to obtain a level of increase from the outsidec nt fees
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Those figures would be dependent upon the town's growth. If the assumption were made that the Town could
triple their development fees,Mayor Nichols' figures would be accurate.
Vice Mayor Melendez asked how the recent Rural Metro letter received by Council would affect forecasting for
Caw the next two years. Mr. Pickering indicated that he did not anticipate a large change for the next two years, as
Rural Metro would continue to be in Scottsdale until 2005. After that time, the impact would need to be
researched for Fountain Hills in terms of additional ambulances, etc. He reiterated that it was premature for
them to state that it would cause Fountain Hills a charge of a certain amount. However, all assumptions had
been based on current levels of service,which could easily change,and the flexibility to make changes over time
must be maintained. He reiterated that the flexibility of the revenue system must include changes to services.
Mr. Pickering pointed out that service levels had been reduced in Fountain Hills, and staff had been cut by
approximately one third in order to balance the budget.
Councilman Archambault noted that revenue enhancers and projects would be discussed at the retreat. Mr.
Pickering clarified that the research should be completed prior to the retreat. He continued that it would most
likely be discussed at the December Council meeting after ordinances had been prepared and reviewed by the
attorney.
Regarding a surplus mountain excise tax, Councilwoman Ralphe requested that staff provide computations
showing the financial ramifications of paying off the mountain bonds. She suggested that citizen taxes could
then be reduced. Mr. Pickering advised the Council that the bonds were not callable for approximately ten
years, but an analysis of the amount of sales tax for ten years could be compared to the payoff amount by their
financial advisors. Mr. Pickering noted that such an enhancement would be very long-term and that the,figures
should be analyzed to assure the action would be feasible.
Councilman Kavanagh asked staff to explain the Land Excise Tax Resources Available line on Page 10 of the
presentation. Ms. Ghetti indicated that the figures represented projections of the .4% of the 2.6% sales tax over
five years based on the current projection of where staff believed the local sales tax would go. Councilman
Kavanagh asked if that was revenue per year, and Ms. Ghetti responded in the affirmative -if revenues came in
titior as projected. Councilman Kavanagh clarified that over five years, $7.4 million would be accumulated. Mr.
Pickering noted that the figure would be extrapolated over a ten-year period and compared to the cost of paying
the bonds off. It was Councilman Kavanagh's opinion that the surplus of $500,000 should be used not to
eliminate a current tax but to prevent the imposition of additional new taxes. He continued with his opinion that
it appeared that there was no need for any of the revenue enhancements (taxes) if the Town simply took excess
collected monies not needed for the mountain purchases or trailhead and put that money toward other expenses.
Councilwoman Ralphe suggested that Councilman Kavanagh's suggestion was called "Bait & Switch", or
telling someone that you would do one thing and then you would do something else. Councilman Kavanagh
clarified that he was suggesting that the Council only move to redirect that money where it was needed and
indicated his preference of redirecting excess funds in one area before imposing new taxes on sports groups.
Councilman Archambault clarified that the 3% being discussed was actually three-tenths of one percent. Mr.
Pickering thanked him for this clarification. Councilman Archambault also clarified that at the end of the five
years, the $7.4 million would still not include the annual payment on the bonds. Mr. Pickering agreed with this
clarification. Councilman Archambault then confirmed with Mr. Pickering that the bonds were callable within
ten years without a penalty; however, there would be a diminished penalty further out, i.e., if the bonds were
called in the first three or four years, the penalty would be more substantial, approximately 10%. Mr. Pickering
indicated that his statement would be accurate as long as the money was accumulated to call the bonds.
Councilman Archambault concurred with Councilwoman Ralphe that the voters were told that the revenue
enhancers were to be spent on bonds to purchase the mountains. Councilman Kavanagh clarified that he was not
discussing using the voter-approved property tax of$6 million for open space preservation. He advised that the
people never voted for the three tenths of one percent,as it was a Council vote, and it could be diverted to sports
organizations or seniors since it was no longer needed for the open space preservation.Vice Mayor Archambault
agreed that it was a promise made by Council. He also asked Mr. Pickering if there was anything being done to
inform the public that they were not paying property taxes to support the Town. Mr. Pickering indicated that the
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Town of Fountain Hills had not done a very good job of informing the public, as they had insufficient staff to do
so. He also acknowledged Mayor Nichols' effectiveness in educating a certain amount of people, but that if
additional education was required,resources (staff and newsletters)must be placed toward that end.
{ Regarding recommendations of hiring the services of a qualified consultant, Vice Mayor Melendez asked Mr.
Pickering what budget was available for this service. Mr. Pickering responded that an estimate of$25,000 was
placed into the budget for that purpose,but an actual bidding process had not been prepared. He also advised the
Council that before a consultant was engaged, that information would be provided to them. Town Attorney
McGuire noted that Avondale paid approximately $35,000 two years ago for this type of consulting service.
Vice Mayor Melendez noted his reluctance to hire a consultant to provide information that the Council already
possessed. Attorney McGuire then advised the Council that he would be committing malpractice if the Town
Council were allowed to approve a development fee increase without such a consultant's study. He noted that he
would not allow any type of increase in development fees without the study and continued that development
fees were statutorily created and heavily restricted in the way in which they could be collected and utilized. He
maintained that studies were the only manner in which the Town could prevent having the entire fee structure
attacked, usually successfully, by very organized and well-funded groups such as a homebuilders' association.
He added that there were some fees that a consultant needed to evaluate on the basis of updated services that had
been added. He reiterated that if the Town wished to advance the development fees, it was imperative that the
study be done to support that increase in fees. Vice Mayor Melendez asked if a study had been done prior to the
last review of development fees,and Attorney McGuire responded in the affirmative.
As far as the mountain excise tax was concerned, Councilwoman Nicola suggested that if they were spending
only half of what was collected, Council should investigate reducing the tax rate from three-tenths,of one
percent to perhaps two-tenths of one percent. She also asked for more specific information on recovering direct
costs for the Parks &Recreation fields and what the charges would be on a case-by-case basis. Director of Parks
& Recreation Mark Mayer provided background for budget cuts and increases in revenue for special services
provided. He noted that his intent was not to charge for the use of fields but to recover some of the costs
associated with the preparation of the fields for the general public. His department had been working on a
formal policy whereby groups would commit to using the fields within the terms and conditions of that policy.
Without a charge or a mechanism to eliminate instances of"no shows", there would be no way to recover the
cost of field preparation and lights. Discussions had been held with sports groups on this subject, and the groups
did not feel they should pay any type of fee. He summarized that the intent had been to recover the cost
associated with the higher levels of service provided to the public.
Councilman Archambault asked if Little League had a concession stand available, and Mr. Mayer responded in
the affirmative. Mr. Mayer added that the concession stand was actually built into the structure and that the
Little League organization maintained revenues associated with the use - but that the Town paid all of the
utilities. Councilman Archambault asked if payment for services had been suggested, and Mr. Mayer indicated
that it had not, but soon would be suggested. Councilman Archambault asked how the field lights were set, and
Mr. Mayer responded that they were manually operated. He further indicated that there was a grace period for
"no shows", and after such time the lights were shut off. The current practice was to have the organization that
scheduled the practice forfeit the opportunity to use the fields. The youth organizations had asked for a
mechanism whereby they could control the lights.
Councilman Archambault asked if the Men's League paid for field use. Mr. Mayer advised that they did not pay
for "use"; they paid for the field preparation and lighting associated with their leagues. Councilman
Archambault then asked if the intent of a fee was to bring the youth leagues up to par with other leagues, and
Mr. Mayer replied that it was. He continued that many cities did not provide these services at no charge, and
Scottsdale had levied a nominal fee for field usage. Councilwoman Nicola asked what the anticipated fee would
be for "no shows" or lining fields. Mr. Mayer indicated that no fee structure had been established for "no
shows" or"shorts". Councilwoman Nicola asked what the charge for striping a field would be. Councilwoman
Nicola asked if it was considered a"no show"when a full team less one child showed up. Mr. Mayer responded
no.
Councilman Archambault asked how expensive the field-marking mechanism was. Mr. Mayer was unsure of
the exact cost of marking the field. Councilman Kavanagh asked Mr.Mayer to break down the cost estimates for
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the meeting in which the field charges would be discussed, as well as comparing the elimination of fees for
youth volunteer sports organizations.
Councilman Kavanagh voiced his opinion against charging additional funds for youth leagues (where parents
and other people were working in a volunteer status), as opposed to adult softball leagues. Mr. Mayer estimated
a field preparation cost of approximately$7,500 per year for youth associations, i.e.,Little League, Soccer Club,
and Pop Warner Football. He then added that his department also prepped the fields for adult softball and senior
softball, but those organizations had been charged for the services. He also noted that Little League and the
Soccer Club also paid those fees until such a time as the community found itself in a revenue position to assume
those costs. Councilman Kavanagh asked if the fee initiation would increase the cost of the leagues by
approximately $10,000, and Mr. Mayer noted that it would actually depend upon the mechanism (or rate)
chosen. The Parks and Recreation Department had requested a budget of$4,300 for the upcoming partial fiscal
year. A full-year amount would be between $7,500 and $18,000. The Parks and Recreation Department
estimated that approximately 1,000 children participate in the programs, so it would cost each participant
approximately $4. Councilman Kavanagh suggested that if the additional funds were not charged, the $4,000
cost could be spread out over the 20,000 town residents—or 25 cents apiece.
Mayor Nichols acknowledged two of the major revenue enhancements, advertising exemptions and residential
rentals. The other revenue enhancements, he felt, would be community irritants, and he asked that the Council
focus its attention on the two major enhancements. He asked Mr. Pickering to outline the rates at which other
communities tax advertising, as a 2.6%tax rate would be one of the highest in the state. Mr. Pickering noted that
there would be no change in the rate. The exemptions would longer be available.
Councilman Kavanagh asked how the fees would be collected. Ms. Ghetti responded that those individuals who
sold advertising would be notified by the Department of Revenue 60 days prior to the time that the Town would
change the rate from 0% to 2.6%. Councilman Kavanagh questioned if the revenues would be received from
non-local advertising businesses. Ms. Ghetti responded revenue would be generated by the sales of publication
advertising that were circulated to residences and/or businesses within Fountain Hills. Mr. Pickering stated his
opinion that by not collecting the sales tax, the Town was actually giving away money. Vice Mayor Melendez
noted a movement to repeal these taxes in the legislature and asked what affect it would have on Fountain Hills.
Mr. Pickering clarified that the State had also been attempting to eliminate exemptions; their sales tax rate for
this item was is also 0%.
Vice Mayor Melendez voiced that most states were looking for revenue sources for the next year. He also
assumed that the State of Arizona was looking at the possibility of increasing taxes and noted that Fountain Hills
was 52% - 53% dependent upon sales tax. Vice Mayor Melendez expressed his belief that most major property
owners (businesses) in Fountain Hills from Canada, El Salvador, and Guatemala did not contribute to the sales
tax used for fire services. He then suggested that the Council review exempting condominium owners of 6— 10
condos and assess a percentage charge to the assessed valuation of major taxpayers in Fountain Hills. On Page
83, an assessed valuation was shown of$24 million. Vice Mayor Melendez asked for consideration of imposing
a 1/2% to 1% tax on those property owners (who would then pass that tax onto their tenants), as those businesses
had not been contributing toward fire protection. He noted that most foreign owners did not live in Fountain
Hills, and he felt that they should be paying their share of tax for fire protection. Vice Mayor Melendez then
asked for opinions from Town Attorney Andrew McGuire and Ms. Ghetti. Mr. Pickering summarized his
question as, "Could the Town of Fountain Hills place a property tax on commercial entities?" Vice Mayor
Melendez clarified, indicating "business property owners"—not because they were foreign. Mr. Pickering noted
that he did not say foreign, he indicated "commercial" and continued that the only way to differentiate was
between"commercial"and"residential",not"foreign"or"local". Vice Mayor Melendez then asked if the Town
of Fountain Hills could legally tax the commercial owners of those businesses. Attorney McGuire indicated that
the subject would need to be researched and he had no opinion at this time. A point of clarification was made by
Mayor Nichols, was Vice Mayor Melendez discussing exempting the "resident" commercial owners and taxing
only the "non-resident" commercial owners?Vice Mayor Melendez indicated that he was discussing a group of
business owners who owned buildings that were leased to other people who were not being taxed to assist the
41160, community in covering the fire protection costs. Attorney McGuire indicated that he did not know if a specific
ad-valorem tax was allowed, as that type of tax needed to be approved by the people themselves. Vice Mayor
Melendez indicated his preference for a tax computed on a percentage sales tax on gross receipts or land
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valuation on those owners of business properties. Attorney McGuire indicated that any tax on assessed valuation
was an ad-valorem tax(property tax)and the Town Council would not be able to levy such a tax; however,there
might be the ability to levy a differentiated tax on that specific type of use per the Model City Tax Code.
Councilman Archambault asked Ms. Ghetti if the Fountain Hills currently had a business rental sales tax paid to
the State and also to the Town of Fountain Hills. Ms. Ghetti indicated that there was currently no State
commercial rental tax, but the Town of Fountain Hills did charge a commercial rental tax. She continued that if
commercial property was leased out, the Town of Fountain Hills should be collecting 2.6% of the rent, as the
Town was collecting a commercial rental tax. Councilman Archambault also asked if residential rentals paid tax.
Mr. Pickering and Ms. Ghetti confirmed they did not. Councilman Archambault reiterated that businesses
renting properties did pay a rental tax to the Town of Fountain Hills. Vice Mayor Melendez noted that since the
Council would be making major decisions in the next fiscal year, he felt that the foreign segment of business
was not doing their fair share of assisting with the cost of fire protection. Mr. Pickering advised the Council that
staff would research this issue.
Councilwoman Stevens acknowledged staff for compiling the information presented at the work-study session.
She asked what plan staff had for other "Potential Capital Funding Opportunities", Page 14 of the presentation.
Mr. Pickering advised that staff would present the three recommendations mentioned earlier, i.e., development
fees, eliminate exemptions, and charges for special services at ball fields. The next step would be up to the
Council. Councilwoman Stevens asked if staff was recommending the other potential capital funding
opportunities listed. Mr. Pickering asked that the capital funding problem should be addressed first, as $8
million was needed over the next five years. The three staff recommendations would bring the Town close to
eliminating that deficit, but it would not be a complete solution. He asked that the Council then review long-
term priorities that come through the strategic plan. Once the strategic plan had been determined,there would be
more clarity in the financial planning process. He indicated that the Council was limited in options such as the
failed property tax or an increase in sales tax (high at this time). There would be no additional larger revenue
sources available. There could be a food and beverage tax or bed tax, but those would be nominal.
Councilwoman Stevens asked if it was staff's recommendation that the Council not consider the other sources of
smaller sources of revenue until the strategic plan and capital improvements were known. Mr. Pickering noted
that staff's recommendations were: development fees, eliminate exemptions, and charges for special services at
ball fields. The only capital funding opportunity that staff did not recommend was the increase in hotel/motel,
bar/restaurant, as well as tourism, as tourism would be addressed in January with the Chamber's participation.
Other than that, staff recommended all of the potential capital-funding opportunities listed. Garbage hauling
would be discussed separately at the December meeting. The only ones available and not recommended would
be the shift in the mountain sales tax and development fees. The first step in researching an increase in
development fees must begin with the hiring of an outside consultant to do that analysis.
Councilwoman Stevens advised the Council that individuals had contacted her with other ideas such as
shortening the hours of library operation, a real estate transfer fee, additional planning & zoning fees (waivers
and preliminary plats), and raising business license fees. Mr. Pickering noted that a real estate transfer fee was
not allowed by the State at the current time and that building permit fees had recently been raised. He agreed to
research the other fees for Council. Mr. Pickering then noted the maximum fee for a business license was
$5,000. Councilwoman Stevens asked if the Town had a sliding scale, and Mr. Pickering advised that $50 was
the maximum currently charged. He continued that some communities tie business licenses to the percentage of
revenue. Councilwoman Stevens noted that if both small and large businesses were charged $50, raising the
license fee for larger business would be a potential source of revenue. Mr. Pickering indicated that an increase
could be based on the "type" of business, i.e., financial institutions, dry cleaners, etc. He pointed out that these
amounts would not be large revenue sources; charging for refuse hauling would be a much larger source of
revenue.
Councilman Kavanagh asked that the Council include consideration of the impact any action would have on
Fountain Hills'residents(in terms of paying more taxes) as opposed to the advertising tax, which would be 90%
outside Fountain Hills. He asked which options actually would affect the residents' pockets, and Mr. Pickering
agreed that any franchise fee, such as cable companies, would be passed onto the customers and the options
would be easy to analyze.
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Mayor Nichols asked that if the fire district were approved, would the Town automatically have to reduce the
sales tax rate from 2.6%to 1.6%?Attorney McGuire responded that the repeal would be automatic, and it would
take a separate Council action to raise it again.
Ler Regarding the recommended $1,200 annual fee for liquor licenses, Councilwoman Nicola asked what annual
costs occurred throughout the year necessitating this annual fee. Mr. Pickering advised those businesses could
be high maintenance with police calls, an increased DUI rate, enforcement, and resulting jail time. Many
communities limit the number of liquor licenses, and they then become a commodity; however, there was no
limit in Fountain Hills. Councilwoman Nicola suggested a more structured business license approach be utilized
instead,as this liquor license fee might hurt businesses.
Councilwoman Ralphe brought up the subject of recovering costs for duplicate licenses, notary services, etc.
She, however, considered requests for council packets as a somewhat more basic service, a public information
service. She questioned whether or not the Council should encourage citizens to attend Council meetings and
obtain Council packets. Ms. Ghetti indicated that staff had researched the subject, and other cities also charged
for packets; however, newspapers and those who regularly received the packets would not be charged. The fee
would be for individuals who temporarily needed packets for particular issues of interest. She indicated that staff
would not discourage residents to attend meetings, but a charge for the additional photocopying or delivery of
packets could be an option. Councilwoman Ralphe suggested that all individuals/businesses be charged for
packets; however, Mr. Pickering noted that media would be specifically exempt, as they disseminate Council
information more economically than the Town of Fountain Hills could do. Vice Mayor Melendez suggested that
low cost public education could be accomplished through utilizing Channel 11.
Mayor Nichols asked Mr.Pickering if staff would provide estimates on development fees.Mr. Pickering advised
the Council that such estimates were possible, but the consultant could disagree with staff's estimates. Staff
could, however, provide dollar amounts of what the estimate would be if specific rates were "assumed". Mayor
Nichols asked that estimates be supplied on more than a one-rate scenario. He continued that development fees
and projects could be significant in raising revenue, but he did not want to tax residents for small items if other
larger revenues were utilized. Mr. Pickering noted that projects would occur over the years (street projects), and
,, those projects needed to be addressed during budget processes and strategic planning. He acknowledged that
providing services for which the community had previously not been charged would cause some smaller
"irritants". He expressed concern that he did not want to commit to provide a lot of services and then discover
that the Town did not have sufficient staff to provide those services.
Councilman Archambault asked Mr. Pickering if there was a time projection on "build out"excluding state trust
land. Mr.Pickering responded that it was approximately 10 to 15 years: Currently population is at 22,000,and in
2005 it should be approximately 23,500. At these figures,Mr. Pickering continued, only 6,000 residences would
be used to provide development fee funding for particular projects. Mr. Pickering displayed the slide of
"General Fund Five-Year Estimate of Revenues and Expenditures". He noted that in the earlier years it appeared
that revenues outpaced expenses,but in looking at the last two years, 5 % and 4.8% were low estimates on rising
expenditures, but revenues would begin to drop as building began to drop. This means that over time the
$700,000 to $800,000 in building permits would be gone and would not be recovered. At that time a permanent
funding source must be obtained such as a property tax as a long-term solution for a revenue source.
Councilman Archambault acknowledged that the Town was approaching build out and that the Council should
not rely too heavily on development fees.
Councilwoman Stevens voiced her opinion that government could never have too much money. All fees could
be raised, and it would never be enough to do everything the community wished to have done. She suggested
doing it all at one time and moving forward to fund things for which people had been waiting. Councilwoman
Stevens then asked Mr. Pickering if staff could provide a timeline for development fee process. Mr. Pickering
advised the Council that in December ordinances would be prepared for exemptions, and minor fees would be
placed before the Council. But there would not be new development fee rates, as a consultant would do that,and
a specific consultant would not be recommended for hire by that time period. Councilwoman Stevens clarified
that she was asking for a timeframe for an RFP for the consultant regarding development fees, a timeframe for
Council approval,and public notices.
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Councilman Archambault noted that the affects of these decisions would not be seen prior to July or later. Mr.
Pickering indicated that development fees would be realized at a later time, but some fees could go into effect
and be implemented within three or four months. Attorney McGuire indicated that development fees would be
implemented approximately 120 days after passage, so most changes would not go into effect until late summer
or early fall of 2004 or 2005. Councilman Archambault indicated that there would also be a lag time where
contractors had to adjust their fees, and Attorney McGuire explained that the delay was statutory and affected
the bulk land sale prices. Homebuilders would be more often affected as opposed to property owners.
On behalf of the Council, Mayor Nichols thanked staff for preparing the presentation that gave the Council
concrete information to work and focus on prior to making decisions.
Councilman Kavanagh asked that a reassessment be taken into consideration periodically, as development fees
could also be readjusted down. Mr. Pickering noted that in certain areas that could be possible, as it would be
dependent upon building planning due to growth. If there were no growth, no development fees could be
charged. Councilman Kavanagh added that it was also based upon projected expenses, so paying off items
prematurely might reduce long-term costs and reduce development fees.
Councilwoman Stevens proposed that the categories of development fees be researched as to which ones would
be raised, lowered, or added. Mr. Pickering advised that staff would ask the proposed consultant to consider a
fire development fee, as a capital funding source would be needed for future stations unless the fire district was
created.
Councilman Stevens MOVED to adjourn the meeting. The motion was SECONDED by Councilwoman Nicola
and PASSED unanimously.The meeting was adjourned at 6:30 p.m.
TOWN OF FOUNTA HILLS
By:ftow
W.J. Ni ols,Mayor
ATTEST AND
PREPARED BY: A ' ' '-1 ` J.L
Bevelyn J.Bender,Town Clerk
CERTIFICATION:
I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the Work-Study Meeting
held by the Town Council of Fountain Hills on the 12th day of November 2003. I further certify that the meeting
was duly called and that a quorum was present.
DATED this 4th day of December 2003.
By: _ , ,�. i I/,Ll f
Bevelyn J. Bender,Town Clerk
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