HomeMy WebLinkAbout2008.0108.TCSM.Minutes TOWN OF FOUNTAIN HILLS
MINUTES OF THE SPECIAL SESSION OF THE
FOUNTAIN HILLS TOWN COUNCIL
January 8,2008
• CALL TO ORDER AND PLEDGE OF ALLEGIANCE
Mayor Nichols called the meeting to order at 6:02 p.m.
• ROLL CALL
Present for roll call were the following members of the Fountain Hills Town Council: Mayor Nichols,
Councilmember Kehe, Councilmember Leger, Councilmember McMahan, Councilmember Schlum,
Councilmember Archambault and Vice Mayor Dickey. Interim Town Manager Kate Zanon, Finance Director
Julie Ghetti, Special Legal Counsel Keith Hoskins and Town Clerk Bev Bender were also present.
Mayor Nichols stated that tonight there was a need to identify whether there was going to be a revenue shortfall,
how much was it and how were they going to solve it in a manner that would be equitable to all residents. The
Mayor added that at the end of this Session, the Council needed to gave direction to staff on how to proceed on
ten to twelve different items. The Session was also open to the general public for comment. He encouraged the
members of the audience to submit a comment card if they would like to speak on this issue. He noted that this
Session was originally supposed to be a Work Study Session but they had decided to change it to a Special
Session and stated that it would take place between 6:00 p.m. and 9:00 p.m. He indicated his intention was to
complete all of the business before 9:00 p.m.
AGENDA ITEM#1 -DISCUSSION OF THE STRATEGIC PLANNING ADVISORY COMMISSION'S
PROPOSED REVENUE SHORTFALL SOLUTIONS WITH POSSIBLE DIRECTION TO STAFF.
Interim Town Manager Kate Zanon introduced Special Legal Counsel Keith Hoskins to the Council and
audience. She explained that Town Attorney Andrew McGuire could not be present this evening due to
circumstances outside of his control.
Mr. Hoskins addressed the Council and said that he was one of Mr. McGuire's partners at Gust Rosenfeld. His
specialty was municipal finance and elections and he had been working with Mr.McGuire on some of the issues
dealing with the issues to be discussed this evening.
Mayor Nichols welcomed Mr. Hoskins to the meeting and said that after talking with Mr. McGuire today, it was
his understanding that Mr.Hoskins might be more qualified to answer some of the questions the Council had.
Ms. Zanon stated that on December 20th, the Strategic Planning Advisory Commission presented a package of
recommendations to the Council related to revenue solutions for the Town. At the conclusion of that meeting,
the Council asked staff to bring the matter back to a Special Session to further look at this issue in isolation and
to give staff some additional time to review the recommendations and present some information. This evening,
Finance Director Julie Ghetti would handle a majority of the presentation with assistance from other staff
members. Staff had looked at each of the SPAC's recommendations and provided information as well as some
potential policy direction relative to the recommendations. Staff had received various questions and presented
with various scenarios over the last couple of weeks and they had tried to address many of them as well in order
to present the most comprehensive package possible. She advised that the presentation would be followed by a
review of each of the SPAC's recommendations along with the information staff had been able to gather and the
various scenarios and would "wrap up" with the various areas in which staff would need direction from the
Low Council. The Session would then up open for Council questions and discussion.
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Finance Director Julie Ghetti addressed the Council and said that the presentation they were about to see was
based on the SPAC's recommendations relative to fiscal restructuring for the Town. She acknowledged all of
the hard work that the members of the SPAC had put into this issue and also thanked everyone who worked so
hard together to create this blueprint for the Town's financial future. She added a special thanks to the SPAC
for their foresight in developing recommendations for the Town's financial future as they grow from infancy
into adulthood. She also thanked staff for putting together all of the information within a short period of time.
Ms. Ghetti highlighted a PowerPoint presentation (a complete copy of the presentation is on file in the office of
the Town Clerk) and stated that there were several assumptions that she wanted to let everyone know about
before they started this process:
• Revenue projections did not include projects that had not been submitted for pemits;
• Revenue projections assume no change in legislative distribution of shared revenues;
• State Trust Land(STL)property valuations were added to assessed valuation beginning in 2010;
• Building permits for ST: did not start until 2010;
• 85% of construction sales tax remain in capital projects fund except where indicated on chart;
• Staff attrition was included in future years.
Ms. Ghetti noted that one of the first recommendations was to Immediately develop a detailed 3-year financial
forecast. She referred to charts depicting a forecast of the Fountain Hills sales tax and said that it did include
construction sales tax, which was in the General Fund, but for illustrative purposes it showed all the categories
of sales tax that the Town collected. She also discussed charts relative to State Shared Revenues and trends,
reserve accounts and trends, General Fund operating costs and trends; building permit activity; General Fund
operating costs and sources of funds available for key infrastructure.
In response to a question from Councilmember Leger, Ms. Ghetti advised that for the expenditures, staff
generally used a 5% inflation factor over a 20-year period of time.
Responding to a question from Councilmember Schlum, Ms. Ghetti stated that when staff originally began
working on the Strategic Planning process, they projected out what their operating revenue was as well as their
operating expenditures. They had sufficient revenue out to the year 2015-16 but at that time they had all of the
local sales tax in the General Fund, including construction sales taxes. The Council passed a policy this past
year that removed the construction sales tax out of the General Fund and puts it over into the Capital Fund
because it was a one-time revenue source and they could not really be depended upon for operating costs; they
should be used for one time costs (capital costs). Once that policy changed, that took that source of revenue
away from the General Fund and so in 2008-09, they were seeing that expenditures and revenues would be the
same (approximately a$2 million change).
Discussion ensued relative to building activity and the fact that it was the indicator for construction sales tax and
building permits; the fact that single-family permits were down and permit revenue was down; construction
sales tax was also down; the biggest indicator was the residential Certificates of Occupancy (the Town received
revenue when building permits were pulled) and construction sales tax as the construction was going on; once
they began issuing Certificates of Occupancy, the construction sales tax stopped; staff's belief that due to the
decline in Certificates of Occupancy, there would be a decline in construction sales tax; staff would not receive
the latest information from the State Department of Revenue on construction sales tax until the end of January(a
three-month lag) and staff's projection that it would be slightly less than budgeted;the fact that public safety, for
reporting purposes, was categorized to include building safety and the fact that there were several opportunities
for cities and towns to pay for capital projects (General Obligation Bonds, Revenue Bonds, Lease Purchase
Financing, Special District Bonds, Community Facilities District and from the Greater Arizona Development
Authority (GADA). Vice Mayor Dickey cautioned that GADA had recently been mentioned as being on the
table by the Legislature and expressed these funds may be in question.
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Ms. Ghetti further stated that the SPAC's second recommendation was to 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. Staff supported the SPAC's recommendation for a fiscal
restructuring plan that should not only look at increasing revenues, but also look at containing/reducing costs.
When economic downturns occur, the Town should have a plan or be prepared to make adjustments for the
downturns. She stated that they need to look at expenditures first, before they look at how to raise revenue and
where they could make budget cuts. She said that they would need to define:
• What were the triggers that warn of economic downturn
• Were they going to do a hiring freeze and/or reduction in force
• Deferred projects
• Program cuts
• Use of reserves, other financing
• Revenue adjustments
All of these items would have to be included in the plan to provide a roadmap to be followed.
Ms. Ghetti referred to a chart relating to the Economic Development Program and stated that Ms. Zanon would
address this particular issue.
Ms. Zanon said that she broke this down into five different components, the first being business attraction, the
second business retention (new component), the third business education, the fourth business expansion and the
fifth business partnerships (Business Vitality Group, Chamber of Commerce, Fountain Hills/Fort McDowell
Tourism Bureau) and expanded upon the various components.
In response to a request from Councilmember Leger relative to economic development projects that were
currently "in process,"Ms. Zanon stated that during the summer they did the entitlements for the Fountain Hills
Conference and Resort Center and staff had been routinely communicating with them and it looks like they
would be coming in this spring to continue to the process (Planning & Zoning Commission approvals and
building permit). For the last eight months, staff had been working with a developer in escrow on the south side
of the Avenue, a process that was still in place. There were two properties down in the industrial district that
staff had been talking to people about (specifics not available at this time) and there was basic "project watch"
where staff worked with developers that have vacant property (existing buildings such as Bashas' property) and
the piece near Trevino and Saguaro so see if they needed any assistance marketing the properties or providing
information from the Town.
In response to a question from Councilmember Kehe, Ms. Zanon stated that she had learned during a
conversation this week that the Conference & Resort Center was nearing the end of negotiations with a partner
that would be the funding package to allow them to move forward. They had not confirmed that this was in
place as yet.
Councilmember Kehe asked Ms. Zanon what she would estimate (giving the most optimistic viewpoint on the
completion of the projects) the revenue that the Town would realize each year. Ms. Zanon replied that it would
be difficult to answer without having plans submitted and added that when the projects have been developed the
Town would feel the impact. She indicated her willingness to conduct additional research into this matter based
on current submittals.
Councilmember Kehe cautioned against "putting all of their eggs in one basket" and added that economic
development was a part of the solution but not the entire solution. Ms. Zanon agreed with Councilmember
Kehe's comments. She added that she viewed economic development as "the icing on the cake," bonus money
but not long-term revenue.
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Councilmember McMahan asked how much money was currently being budgeted for economic development
and Ms. Zanon stated just under$200,000.
In response to a question from Vice Mayor Dickey relative to an article she recently read relative to the option to
rezone land to commercial on Shea Boulevard and Saguaro. Ms. Zanon stated that some discussion had taken
place relative to looking around the community to see if there was any way the Town could take back some of
the land that had been zoned residential in order to obtain more commercial land in Town. There were pockets
of land that were not developed and they could pursue a process to rezone the land to commercial if that was the
desire of the Council and the community. However, in most cases where those pockets existed, the larger
pockets had properties with development already on it so conversations would have to take place with property
owners. She added that staff could pursue such a process but it would be very detailed and require legal
counsel.
Mr. Turner addressed the Council and said that those types of opportunities needed to be studied thoroughly
because there were a lot of issues involved in those types of things. He stated that expert input would be
necessary should they decide to move in that direction(in terms of zoning,planning,etc.).
Councilmember Schlum commented that of the remaining vacant land in Town, 1% was commercial, but added
that there was a lot of developed commercial land that was not fully optimized yet; "for lease" land that was
available. He stated the opinion that the Town probably had more of that than other surrounding cities or at
least an equal amount. They were also at a point that they were growing to some extent but they would not
triple in size. He said that he was not confident that additional commercial space was necessarily needed
although it looked good on paper because commercial establishments raised sales taxes and could bring money
into the community. He would rather focus on the new component they were talking about — fostering the
businesses that they had today and encouraging them to do better so that the community also benefited from the
revenues they were generating. He did not see developers "knocking down doors today" to find more land in
the community to build their next project. He believed that as far as more commercial space, they should focus
on the businesses that were here and the businesses that would be coming to utilize the space that they had
today.
Ms. Ghetti advised that another recommendation of the SPAC was to Defer major investments in the 3-5 Year
Strategic Plan Priorities and referred to a chart that outlined the priorities, the projects and their status. The
projects were not in the operating budget; they were in the Capital Plan, which was what they were working on.
The Capital Project's Plan had not been finalized and the purpose of the chart was to provide an update; it did
not represent recommendations. She added that staff had recommended only that they defer those projects that
were not considered essential for maintaining the infrastructure with the exception of one that the Town had
grant funding for.
Councilmember Archambault asked whether Ms. Ghetti had taken into consideration any revenue the Town
would receive from development fees that might have to be paid back if they defer projects. Ms. Ghetti replied
that staff was working through the Capital Project's Plan and so her focus for the past eight days had been on the
operating budget based on the SPAC's recommendations and the limited timeframe. There was a chart at the
end of the presentation that talks about the capital projects.
In response to a question from Councilmember Kehe, Ms. Ghetti clarified that the chart she referred to
contained information only and did not represent staff recommendations. Staff merely took the SPAC's
recommendations and showed what would happen if they followed them(when they would be deferred to).
Councilmember Kehe stated the opinion that they must be careful because when they defer projects as that
impacts the quality of life and that must be factored in. He stressed the importance of not negatively impacting
the Town's quality of life.
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Mayor Nichols commented that back during the beginning of the presentation they had talked about Item #4 —
The General Fund Operating Costs and Tends and one line showed revenues and other for expenses over the
period out to 2025. He said if he was correct,the numbers reflect the shortfall in 2025 for that one year between
operating revenues and expenses, approximately$13 million.
Ms. Ghetti confirmed the Mayor's statement.
Mayor Nichols added that the information contained on the current chart, which talked about major deferred
investments, had nothing to do with the shortfall and again Ms. Ghetti concurred and said it referred only to the
operating budget. Mayor Nichols commented that if they take a lot at the shortfall during the specified amount
of time, it would total out to around$87 to $90 million dollars and Ms. Ghetti agreed.
Ms. Ghetti continued on with the presentation and stated that the next recommendation from the SPAC was to
Enhance re venues to reduce the volatility of existing resources. She said to do that they must acquire
resources to assure maximum collection of sales taxes and license fees. Staff fully supported this
recommendation. The Town currently contracts with an outside sales tax auditor who focused on the real big
ticket items,usually contracting, and that was where the big dollars were. She said that a full-time staff position
could focus on activities that were higher volume but less revenue, i.e. residential rentals, especial events,
businesses, business licensing, etc. The position would also work with economic development to work with and
educate the business community. The position would be value added to recover two times the cost. She stated
that staff supported this position.
Ms. Ghetti said that another recommendation was to Increase development and permit fees and noted that right
now the Town was conducting a development fee study based on the updated Capital Improvement Plan
(increase current development fees for inflation in next year's budget). The development fees currently in place
were based on the Capital Improvement Plan from 2005. Next year staff was proposing that they have a "full
blown" development fee study again, which might adjust the development fees based on the capital projects at
that time. She noted that the Hocking Report recommended that the Town look at all of the fee schedules to
determine where they could achieve full cost recovery or at least make up the costs of the services through fees.
Staff also recommends that a study be done of all the fees including Planning & Zoning fees, licensing fees,
trash hauler fees, etc. and come up with a fee schedule. She said that it could also include a franchise fee on
water.
Ms. Ghetti stated that another recommendation was to Increase the "bed tax"on hotels/resorts"and noted that
compared to surrounding municipalities the Town was at 3% as was Scottsdale,Tempe and Carefree. Mesa was
at 2.5% and Cave Creek was at 4%. An increase of one half of one percent would provide an estimated$20,000
to $30,000 additional revenue annually. She noted that this would affect tourism.
Mr. Turner addressed the Council and stated that the next recommendation was to Increase the coverage
allowance for R1-43 lots from 15%to 20%. The idea was that with increased lot coverage the homes would be
bigger and result in increased fees from reviewing and permitting larger homes. Staff calculated that the
average increase in one time permit revenue would be approximately $3,335 per lot and said that construction
sales tax could not be calculated. 12 R1-43 permits had been reviewed over the past year and in terms of the
inventory of vacant and unplatted lots zoned R1-43, there were 439 in Town. This would be a legitimate source
of revenue but it was not the "silver bullet" for this problem; it was just one of many alternatives. There might
be other reasons why the Council might want to increase the coverage on these lots.
Tom Ward addressed the Council relative to Establishing a stormwater environmental utility fund and said that
if this was created, all stormwater management costs would be removed from the General Fund operating
budget (estimated at $600,000 on the conservative side). The timeframe to implement was approximately two
years and the stormwater management fund would include operating and capital costs (estimated at $1 million).
During that time period they would do various things such as study the program funding and this fiscal year, if
approved,there was $30,000 budgeted to start that process. During the next nine months they would also have a
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consultant on board to look at the feasibility study where they would look at public outreach to the community,
meet with various groups and other processes. It was not a short-term process because if they want to obtain
good "buy in" from the public, they must take the time to do the homework. They would also look at invoicing
and revenue collection somewhere around July 2010. Costs could range anywhere from $1 million to $1.5
million for capital improvement projects that would be directly related to stormwater utilities but those monies
could also be pulled out of the General Fund.
Mayor Nichols asked whether the costs were mandated by the Federal government and Mr. Ward responded that
the costs were related to a stormwater utility and stormwater utilities (one in Marana and one in Flagstaff) have
implemented a stormwater utility fee and they were allowed to perform in that fashion. Mr. Ward said he could
not at this time respond to questions relative to Federal government requirements associated with stormwater
utilities.
Councilmember Archambault asked if a stormwater utility was implemented, would it be shared equally by all
of the property owners in the Town or be pro-rated depending on how the lots relate to runoff. Mr. Ward
advised that there were various rate methodologies that were used and discussions had taken place with the
consultant regarding this issue and it was complicated depending upon the type of rate usage. He said the rates
would be equal in that the rule that would be applied would be equal (each lot would be looked at individually).
He added that they could also use a flat rate,depending upon how they wanted to manage the process.
Vice Mayor Dickey commented that these were things that the Town had to comply with and asked whether
there would be a "lag" when they had to start doing these things (between when they had to actually start doing
this and when they would potentially be able to collect the money from the utility). Mr. Ward explained that
there was a 2-year lag. The Vice Mayor clarified by asking whether the $1 million capital costs would have to
be collected before they would ever realize anything from the utility and Mr. Ward responded that he was not
sure how to answer that question since he was not familiar with stormwater utilities.
Ms. Zanon stated that there were some real costs that did exist now that could be considered stormwater costs
(i.e. Saguaro drainage project) and said that this project was related to stormwater mandates and so they were
spending money now related to stormwater without having a utility in place. They were paying these costs out
of the General Fund and out of the Capital Projects Fund. She advised that there were both Federal and State
mandates relative to stormwater with penalties in place for non-compliance. She confirmed that they were
unfunded mandates.
Vice Mayor Dickey commented that it could appear on the surface that they were just saying "this was
something that was going to happen and this was how we were going to pay for it" but what she was trying to
get at was that this would help the budget; it was not just a"wash."
Discussion ensued relative to the fact that costs would be spread across all of the property owners because all of
them had drainage that would come from their lots; the fact that costs would not be based upon the assessed
value of the properties but rather the area of run off would be looked at and fees based upon that; the fact that
looking at every lot would be a big undertaking and staff's comment that they had a lot of information already in
their files related to the Town's GIS system and the fact that the consultant would help with this process; the fact
that every resident would pay into this depending upon their lot and that was why they needed so much lead
time; the fact that commercial properties would be included (all properties) and the fact that if a stormwater
utility fee was created, the expenses related to the stormwater would be removed from the General Fund and
paid for out of a separate fund so the General Fund would not get the revenue but the expenses would go away.
In response to a question from Councilmember Archambault, Ms. Ghetti advised that she was not sure about the
methodology of the rates but added that she would assume that the rate would include infrastructure over time so
they would amortize it and have funds to build the infrastructure or the utility fund could have the ability to sell
bonds or borrow money. It would depend upon how the rate was structured.
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Mr. Hoskins expressed the opinion that the Town would set a flat rate and then adjust it if needed as they did for
the water utility.
Low
Councilmember Leger asked whether a stormwater utility would require a public vote and Mr. Hoskins said he
was not sure whether Mr. McGuire had looked into this issue as yet and said this matter would have to be
pursued.
The Vice Mayor said that she believed one municipality was able to do it with a vote because they were a
Charter city but added that it was still a question that needed to be answered.
Ms. Ghetti advised that the next recommendation was to Levy a property tax of$1 per$100 of assessed value
and eliminate the sales tax on food. Staff supported the recommendation on levying the property tax. The
SPAC recommended a rate but it was not the rate that the Council or Town would set, it was actually the levy
amount and Maricopa County sets the rate. If they were to go forward with that, they would need to establish
what the amount was and not what the rate is. A property tax would help diversify the Town's fiscal structure
and would help in long-term planning (fairly stable revenue source) and they would then be able to take a look
at where they needed to make up other deficits. It would affect all property owners who were currently
receiving Town services (some people were not paying for services at all) and so it would be a fair distribution.
Once established, the levy was limited every year to a 2% increase plus there would be room for some new
construction and assessed valuation that came in but the 2% was forever; they had "one shot" to set the levy
limit and then they would be restricted to the 2%. It was a misconception to think that once you get a property
tax because values go up property taxes would also go up; that was not the case. It was the levy that's limited
by the 2% and if property value went up, they were still only limited to 2% but the rate would go down
theoretically.
Ms. Ghetti further stated that eliminating the tax on food would reduce revenue by $36 million over the next 20
years.
Mayor Nichols said that it had always been his impression that a property tax would be good for the Town
because as you added more homes you would collect additional revenues but said that apparently that was not
the case. If they took the issue to the ballot and ask the citizens for a certain amount of money that was the total
amount they received.
Mr. Hoskins stated that they would in fact be asking the citizens for a specific amount but added that there was
more to it than that but that was correct from the starting position. On the ballot they did not say "let's set a
rate"they"set a base levy limit, which was a dollar amount for the entire Town."
Mayor Nichols commented that as new homes were built they would get the levy rate for one year only on that
house and the next year when the assessments were redone and property values went up, they would then
"spread that levy over a larger base" so property taxes would actually go down for most people.
Mr. Hoskins expressed the opinion that if they set a specific amount, say $4.5 million for example, they would
then look at assessed value and do a calculation and determine what the tax rate was going to be. Once done, he
believed that to the extent they had new construction that did increase the dollar amount in future years. He said
he did not believe it only worked for that first year but this was something that he would have to research further
to be certain but he believed they receive a benefit from new construction.
Mayor Nichols stated that this was a key question that must be answered because under one methodology
growth in a Town did not generate any additional revenues and discussed the State Trust Land. Mr. Hoskins
reiterated that he would conduct research on this issue and report his findings.
ikhre Ms. Ghetti commented on the fact that the issue was complicated and said that the Town did benefit from new
construction but the Town did not set the rate, it sets the levy every year(the dollar amount) and the County then
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sets the rate. As new properties came on line and once the rate and the levy were set, the Town would receive
the benefit of that rate on the new properties that were not there before. The next year the levy would be set
again and it would be limited to the 2% plus there was a calculation where the Town could add in the new
properties but they still had the 2% restriction on almost every other property but they had new properties that
came into the calculation that might give them more than 2% but that was a new rate. They then go to the
County and say this was our levy and they would give us a new rate so every time new properties came on just
for that short period of time the Town would receive the benefit of that rate on properties that were not
calculated in when the rate was set. With the State Trust Land they had some parcels coming on and staff had
calculated them into the property valuations assuming they all came in but there were statutory requirements on
that as well. In summary, they basically had 2% and yes, they might benefit from new properties if they were
not on the tax rolls when they set the levy in August but the County sets those properties when they start platting
them and constructing them (they were placed on the tax rolls early; they did not wait until a house was
completed).
Councilmember Kehe said that over the long haul the tax levy was divided by the assessed valuation and if the
assessed valuation went up faster than the levy, people could have a lower tax rate this year than they had the
previous year. Ms. Ghetti concurred. Councilmember Kehe said that a tax levy of 2% did not apply to an
individual house; it applied to the total amount of money that the Town needed to operate. Ms. Ghetti added
that there was a restriction on property valuations; a homeowner's primary property value (not secondary) could
only increase 10%per year(according to the Constitution).
Additional discussion ensued relative to the complexities associated with this issue.
Ms. Ghetti reviewed a chart that showed the effect of the voters approving a $1.00 per $100 of assessed value,
which would generate approximately $4.5 million and said that if the Town chose to levy the $4.5 million and
eliminated the sales tax on food, the chart showed where the "break even" point would be (additional revenue
would come in) and the point where they would had expenditures that exceeded revenues assuming that ,41)
everything stayed the same(Page 12 of the presentation). She noted that this would take them out to Fiscal Year
2013-14. She added that the chart was all revenues and some were based on a trend analysis and some on sales
tax activity. The revenues were not inflated based on a percent, each one was looked at individually and
analyzed/done based on a trend analysis. The expenditures were really just given a 5% inflationary factor
overall. (Based on a home with a value of$342,750,it would be$342 a year or$28.00 per month.)
Vice Mayor Dickey asked if staff knew what amount of money a full-time resident spent on food for a family
per year and Ms. Ghetti stated the opinion that it was approximately$2,500 per year.
Ms. Ghetti confirmed that the figures reflected on the chart reflect results based on a property tax being passed
this year. If it was approved in May, the tax would not be collected until November of 2008.
Councilmember Leger said that he was surprised when he looked at the graph because it showed that they still
had a revenue shortfall within a relatively short timeframe despite the fact they would be taxing$1.00 per$100
of assessed value. They still had a rather significant revenue shortfall projected for 2025 although it was lower
than if they did not enact a property tax. He added that obviously this would just be part of the solution and he
thought they would get a lot more "bang for their buck" at $1.00 and they would still have an approximate $50
to $60 million shortfall in 2025 versus doing nothing and having a$75 million shortfall.
Ms. Ghetti noted that this scenario also took into account reducing the sales tax on food so they would not
benefit from$4.5 million because the net effect would be less.
Ms. Ghetti referred to the next chart, which reflected what the Town's legal debt limit was (how much money
the Town could legally borrow). Because the Town had a lot of borrowing capacity, the issue was how to repay ,440)
it. She added that although they had already talked about establishing the property tax rate. She reiterated that
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cities and towns did not establish the rate; they establish the levy and outlined the scenario shown on the chart
(Page 13).
Councilmember Leger commented that the example showed that, as Councilmember Kehe stated, all being
equal if the assessed valuation of the Town went up, it was possible that the individual tax rate per$100 would
go down because the overall assessed value of the Town had gone up. He added that if the assessed value of
homes subsequently went up at the same time, it was possible that the rate would not decrease. Ms. Ghetti said
that the rate would go down but because of the higher assessed valuation, they might pay the same amount. She
confirmed that once the levy was established, that was in perpetuity, and from that point on the levy limit had
been set and the Town could not go back to the voters if in 25 years or more the amount was not enough.
Mayor Nichols asked whether a property tax placed on the ballot could be dedicated to be used only for certain
expenses such as public safety. Mr. Hoskins responded that the statute did not address dedicating the funds for a
particular purpose; it just talks about the dollar amount. Therefore the ballot question and what they would be
asking the citizens to authorize was simply the dollar amount. If they want to commit the Council to using the
monies for a particular purpose he believes they could do that but he was not sure about the legal effect of that
beyond the current Council. He discussed issues associated with binding future Councils.
In response to a question from Vice Mayor Dickey relative to placing a contingency on sales tax on a ballot,Mr.
Hoskins stated that the Council could not abandon its right of tax authority and could not go to the citizens to
approve a sales tax by election. He said he believed they always had the right to levy a property tax and the
authority to impose excise taxes. He added that through pamphlets and resolutions they could state their
position on their current plan and future intention but it was probably not appropriate to bind future Councils to
what could and could not be done in the future based on this one election.
Councilmember Leger stated that the original question was could a primary property tax be dedicated to a
specific element (i.e. in the General Fund they had the largest portion of their budget, approximately 38%,
t dedicated to public safety). If this whole discussion was about needs and shortfalls, he thought that was a good
err place to look because if they were looking at sustainability for the future and paying for it now, then it was
important to look at things that might be vulnerable and things that might be most important such as public
safety. He said that it was his understanding that the Town of Queen Creek recently passed a primary property
tax and dedicated it specifically to public safety.
Ms. Ghetti responded that her understanding from talking with staff in the Queen Creek Finance Department
and with the League of Cities and Town was that they did put a primary property tax before the voters that was
dedicated to police and fire and it did pass and was binding in that they committed to the people that the money
would be used for police and fire. She said Mr. Hoskins would have to speak to the legality of that action.
Mr. Hoskins advised that the statute did not speak to giving cities and towns the authority to put a limit on it.
He added that although the statute did not appear to provide for that happening, if they did it and it passed, they
would be held to it and the money would have to be used for those purposes. The risk could be, and perhaps a
future Council would decide to do this, that a challenge on the ballot language could come forward claiming no
legal authority and this issue would have to be decided in court. He expressed concern that putting a provision
in that was not authorized by statute could raise questions. You were promising the citizens that you were going
to abide by this restriction but what if that restriction was not really binding on you and ten years from now
another Council decided it was not binding, the statute did not allow that. He questioned whether that was being
honest with the voters now and said that that was a tough issue. He stated the opinion that Queen Creek looked
at that and said they were committed to that specific purpose and politically it was acceptable and the voters
probably liked it. He added that he had concerns whenever anyone went beyond what the statute really talks
about. He said if they really wanted to do that, knowing that there were some risks involved down the road, the
restriction on how you were going to use the money worries him a lot less than adding "and we would give up
L. the sales tax." He suggested that they not do that. He further stated that his concerns were strictly from a legal
standpoint and not from a political view.
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•
Councilmember Leger commented that it appeared to him that it was something that could be done but there
were some risks associated; it could possibly be challenged. He added, however, that whoever challenged it
would be going against the will of the electorate, which in itself would have some implications, and asked how
that would work. He asked if they would actually take, for example, public safety and then pull that out of the
General Fund and fund it from this specific money reducing the burden on revenues for the General Fund.
Ms. Ghetti replied that administratively all property tax revenue would come into a separate segregated fund
(not into the General Fund) and that fund would then hold all of the expenditures for police, fire, etc. Again,
that fund would be limited to the 2% and the expenditures would not be limited to the 2% and acknowledged
that the cost of police and fire services would increase more than that. Obviously it would have to be subsidized
by the General Fund over time because of the limit on it.
Councilmember Archambault noted that if they talk about a primary property tax and a specific levy of $4.5
million, assessed valuation might go up and the levy might go down but they were going to pay the same rate.
Based on that assumption, if one homeowner paid $387 a year in additional property taxes to the Town for the
levy and five years down the road he was still paying that amount or slightly higher, the homeowner was paying
for it in fewer dollar values.
Ms. Ghetti stated that the next recommendation from the SPAC was to Adjust current reserve management
policies. Staff supported this recommendation up to a point. The recommendation was to 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. Staff believed that a Rainy Day Fund would
probably be a good idea and Town policies could be amended to allow for that. She emphasized that Rainy Day
Funds would be utilized for temporary, short-term budget shortfalls and could be appropriated. The Town's
current fund balance policy ($6 million) could not be appropriated; that was for an emergency that was
unplanned that would result in a disaster to the community. In contrast, Rainy Day Funds would be for a
planned economic short term downturn. They would have to appropriate those funds and add them to the
current fund balance policy and used according to the Town's fiscal restructuring policy — to get the Town
through a short term economic downturn. It was not a long-term solution but it would buy a couple of years if
they needed to. Staff believed this was a good idea but would not recommend that the construction sales tax (a
one-time tax) be transferred back to the General Fund and be used for any sort of operating funds. Being a one-
time tax,they should really be used for one-time expenditures and that would be staff's recommendation.
Vice Mayor Dickey stated that the Town's General Fund Reserve could not be appropriated and Ms. Ghetti
concurred and stated that the only exception was a small piece of it that was intended to be used for depreciation
and buying/paying for things that were depreciated(the 10% portion). The other 20% cannot be appropriate and
must stay in place in case an emergency occurred. Ms. Ghetti advised that the formula was based on the past
year's revenues and the flaw in it, if one did existed, was that if revenues went down then theoretically the Fund
Balance needs should go down. They had informally decided to keep the amount at $6.5 million even if the
revenues went down. The history of the Fund Balance Policy was when they were going into a deficit situation,
Moody's went to the Town and said "we're taking a look at your bond ratings and we might downgrade them if
you did not do something." The most important thing they said was to have a formal Fund Balance Policy in
place because they had been "dipping into"that Policy over the last couple of years.
Discussion ensued relative to the fact that the Hocking Report recommended that 20% be placed in the Rainy
Day Fund and the General Fund should be at 50%; Ms. Ghetti's opinion that the Rainy Day Fund was a good
concept but required additional research to determine the percentage or amount; the fact that the Town's Fiscal
Policy could define what Rainy Day Funds could be used for; currently, surplus funds at the end of the year, by
resolution, were placed into the Capital Fund account; the fact that the Rainy Day Fund must be driven by some
type of surplus and a revenue scenario must be created whereby they actually have surplus to develop such a
fund; and the fact that the Hocking Report suggested they consider funding the Rainy Day Fund with
construction sales tax.
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Ms. Ghetti further stated that the SPAC's final recommendation was To include in future Town budgets a brief
citizen understandable overview. Ms. Ghetti advised that staff totally agreed with this recommendation and
noted that the budget document was extremely cumbersome and staff had already begun formulating two pieces
— one was an introduction section in the new budget and they were discussing putting together a brochure or
something that summarized the important pieces of the budget in an easy to read format for citizens that would
be available at Town Hall and on the Town's website.
Ms. Ghetti referred to Page 16 of the presentation, Alternate Scenarios, and advised that none of these
represented recommendations from staff or the SPAC. They were responses to requests that staff had received
over the past eight-day period. Ms. Ghetti briefly reviewed the various proposed scenarios and impacts as
follows:
• Scenario #1 — Showed the effect of the construction sales tax currently dedicated to capital projects
reverting back to the General Fund and explained that the downward arrow indicated the fiscal year
that expenditures exceed resources;
• Scenario #2 — Showed projections if a primary property tax levy of$4.5 million was approved for the
General Fund and construction sales tax remained in the Capital Projects Fund. She explained that the
downward arrow indicated the fiscal year that expenditures exceed resources;
• Scenario #3 — Assumed a property tax levy of $4.5 million was approved for General Fund and local
sales tax rate was reduced to 1.6% and construction sales tax remained in Capital Projects Fund. She
explained that the downward arrow indicates the fiscal year that expenditures exceed resources.
• Scenario #4 — Assumed that a primary property tax levy of $4.5 million was approved for General
Fund, local sales tax rate was reduced to 1.6%, construction sales tax remained in Capital Projects Fund
and stormwater utility fee was approved (expenses for stormwater were removed from the General
Fund). She explained that the downward arrow indicates the fiscal year that expenditures exceed
resources.
„ • Scenario #5 — Assumed that a primary property tax levy of $4.5 million (75% of the costs) was
approved for police and fire services and construction sales tax remained in Capital Projects. She
explained that the downward arrow indicates the fiscal year that expenditures exceed resources.
Discussion ensued among the members relative to the various scenarios with Ms. Ghetti responding to a series
of questions and requests for clarifications from the Council; Vice Mayor Dickey's comment that property tax
was fair but she expressed she was unsure of the timing; Councilmember Schlum's comment that they were
reacting to an economic slowdown that was cyclical and they were trying to address it with a long term
approach (a property tax); the difficulties associated with one issue and trying to "patch" it with a piece of a
wrong solution; the fact that the Town must adjust to an economic slowdown and maintain a balanced budget;
Councilmember Schlum's opinion that the equitable solution or the restructuring of how the Town was funded
and the consideration of a property tax was one where they look at the equity across the community and it
becomes somewhat cloudy when they were looking at an economic downturn as well; Councilmember Leger's
comment that they were dealing with two issues and perhaps they need to look at two different solutions —
should they be managing their way through this economic downturn by not losing sight of what the future looks
like, not only this Council but future Councils; the fact that in 2008-09 the Town was going to face serious
problems unless a policy change was made, which based on projection was perhaps not the right thing to do but
during a crisis perhaps it was the right thing to do (take the 85% of one time construction revenue or whatever it
was an pushing it back into the General Fund); Ms. Ghetti's comment that the goal, to have a fiscal
restructuring, would be a challenge if they did not know where they were going; and Councilmember Kehe's
comment that the SPAC indicated that there was no one solution but rather a combination of things to be done to
solve the problems.
Ms. Ghetti referred to a chart depicting Restricted Funds and reiterated that these funds could not be used for
L . General Fund operating and highlighted a Highway User Revenue Fund (HURF) chart(Page 19). She said they
could see that based on the work that the Street Department had to do with the slurry seal they were already at a
deficit. The reason that they were able to operate that way was because in past years they had deferred some
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maintenance and so some fund balance had been carried forward and they should be able (in Fiscal Year 2008-
09) to make up that difference. Typically in prior years the HURF fund had required a subsidy from the General
Fund in the amount of $500,000 or $1 million. She noted that the chart did not include the Pavement
Maintenance Program that they reviewed with the consultant a few weeks ago.
Ms. Ghetti referred to a chart that depicted the Capital Projects Fund and said that currently funding sources for
capital projects were development fees and construction sales taxes. She added that the chart assumed "pay as
you go"and was a summary of the Town's capital projects and revenue sources. The total of the capital projects
was $142 million and the total revenues with those two revenue sources was currently$65 million.
Ms. Ghetti stated that she would now turn the discussion over to Ms. Zanon but indicated her willingness to
respond to questions from the Council.
Mayor Nichols advised that at this time he would like to hear from the public and asked Town Clerk Bev Bender
if she had received any requests to speak. Ms. Bender advised that six citizens had requested the opportunity to
address the Council.
Lina Bellenir addressed the Council and stated that sadly periods of revenue shortfall were not new to Fountain
Hills and during those periods the only change had been the people entrusted with making the financial
decisions and not the economic environments producing such shortfalls. She questioned why a crisis plan and
Rainy Day Fund had not been put in place prior to this. She added that concerns about the Town's Economic
Development plan (current one) consisting of business attraction, retention, education, expansion and
partnerships were as follows: The under-utilization of the membership of the Greater Phoenix Economic
Council and the delay in including business retention as a plank. She asked why business education did not
focus on teaming with major players such as Arizona State University and other business colleges that specialize
in business education. She also questioned whether locating new space the only effort they could list under
business expansion. She added that they must think "outside of the box" and offer much more to the business
community. Ms. Bellenir asked why the Town was not reaching out to partner with prominent valley
developers willing to embrace their small Town's challenges with neighboring cities and towns, affiliates and
additional Indian communities to brainstorm economic development. She also questioned adding personnel
during a period of uncertainty wherein that person's major intention would be to recover the maximum retail
sales tax. She asked what message the Town was trying to send to the business owners and why they were once
again isolating the retail community as if they were the enemy. She added that an increase in the bed tax for
hotels and resorts would diminish their occupancy rates. She asked whether anyone in Town government had
met with hoteliers regarding any proposed change and the burden the tax might cause. She further stated that
she agreed with conducting an annual review of the Town's fees and charges but emphasized that they must
remember that the fees and charges were one of the highest in the Valley and any increase that did not correlate
with the rate of inflation would not serve to attract people or businesses.
Ms. Bellenir expressed the opinion that government must learn that increases of any kind were taxes and taxes
did nothing to stimulate and create growth; they only serve to inhibit. She added that their future must be about
efficiency in government and it was imperative for local government, the business community and residents to
recognize opportunities and they had been previously missed.
Don Doty addressed the Council and stated that he served on the recent focus group headed by Dick Bauer and
he fully endorsed the recommendations of the SPAC. There were three independent studies including the
Hocking Report conducted over the last six months and they all independently arrived at the same conclusion,
namely that there was a revenue shortfall to support project costs. They unanimously concluded that there were
no major areas on the cost side(no significant cost reduction could make up for the deficit). He commended the
Town for their efforts in the cost cutting area and said that the problem was evidenced last year by a $3 million
deficit that had to be covered by reserves. He added that 2008 would likely have an even greater deficit and
urged the Council to abide by the recommendations and implement a stable property tax. He noted that the
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solution would not be a popular one but it was something that must be done in order to maintain the Town's
quality of life.
Lire
Dick Bauer addressed the Council and provided brief background information. He said he was excited about
being a member of the Blue Ribbon Committee as requested by the SPAC. He added that the commitment of
his committee was evident by the fact that two-thirds of the members were present this evening to encourage the
Council to adopt the recommendations that have been made. He strongly urged the Council to take action and
stated the opinion that a property tax was the fair way in which to proceed.
Jerry Butler addressed the Council and stated that he chaired the overall Revenue Solutions Project Team that
included the focus group as well as a group from the Strategic Planning Advisory Commission. He commended
staff on what they had been able to accomplish in eight days. He referred to the 5% inflation figure outlined in
staff's trend lines and noted that the team used 3.5% as an inflationary percentage with an additional allowance
for population growth. One of the things that came out of the Hocking Report showed them that they should
relate things back to a per capital so as the Town grew, the needs continued to increase also. He added that he
had looked into State law as it deals with the property tax and he could not find anyone at the State who would
actually say that a property tax was a one-time deal. He was told that if more property tax was needed in the
future for additional revenues it had to go back to a vote of the people. As far as the construction sales tax, it
might be used to build up the Rainy Day Fund, a one-time deal. He added that in Scenario #1, the operating
costs should also include the capital costs. He commended the Town Council on their foresight and the actions
they were taking.
Phil Gaziano addressed the Council and stated that as a member of the SPAC, he would like to reinforce the
other opinions about taking their recommendations to heart. He said that he would also like to talk about a
property tax because he did not believe it had been explained properly. When you own a lot and build on that
lot, the first year that the house was up you paid the tax on the lot and during the second year there was a
L "blend" of the value of the home and the lot and that was done by an Affidavit of Value that was sent to the
�r Assessor's Office and the treasury person. That affidavit fixed the sales tax. No one had talked about
Goldfield Ranch and there was $130 million in Goldfield Ranch that was going to be valued in some portion
against the school tax, which was the primary tax (70% of the primary tax). If that value went into the primary
tax the rate would go down. The total valuation of Fountain Hills was $661 million and that was 10% of the
valuation of Fountain Hills and you did not pay ten cents for that; it did not cost the Town or the schools
anything for that. However, that valuation was going into the school tax and therefore the school tax would
decrease and that means everyone's home in Fountain Hills decreases. He said they need to do something and
the "blend"had to happen.
Vince Marsello addressed the Council and said that a lot of what went on behind the scenes the public did not
know about, nor should they, but the citizens voted for the Council and they need to do their homework and do
the right thing. He added that everyone had input into what went on. He said that the Town must be run as a
business and he urged the Council to place the property tax on the ballot and said it was a "no brainer" because
the Town could not afford not to. He stressed the importance of educating the public on this issue and show that
everyone would pay a fair share. He stated the opinion that this Council should not"handcuff' future Councils
and to leave the tax as it was being proposed.
Mayor Nichols thanked all of the citizens for their comments.
Ms. Zanon readdressed the Council and said that in looking through the direction for this evening, staff had
broken it down into three different categories. The first category was direction on the primary property tax. The
language the Council chooses to put on the ballot could relate to just the property tax. The three questions tying
it to a sales tax reduction or dedicated did not have to be answered tonight. All that needed to be answered this
iitoilw evening was what would the levy amount be. If the Council wanted to pursue this course of action,this was one
pieces of direction staff needed, The second piece of direction relates to fiscal restructuring policies. A variety
of topics were covered at this meeting that fell into this category; one would be a Rainy Day Fund and another
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was the franchise utility, the stormwater utility, the tax auditor on staff, revision on development fees, revision
of all Town fees with a potential inflation factor and a change to the bed tax rate. She noted that the list
provided to the Council did not represent a recommendation from staff; it was simply the comprehensive list of
items discussed tonight that could relate to a restructuring policy and could have an impact. This was not
something staff needed direction on this evening necessarily; it was just information that staff would need
direction on at some point in the future.
Ms. Zanon added that the third piece was direction on policies or plans that were not related directly to fiscal
restructuring, i.e. the lot coverage change on the R1-43 lots and expanding/changing the focus of the current
Economic Development Plan. However, she said that the only item that staff needed direction this evening was
the first one.
In response to a question from Councilmember Schlum, Mayor Nichols advised that the Town could not bond
for operational.
Councilmember Archambault asked if they moved forward tonight and gave direction to staff on preparing a
ballot initiative for a property tax in May whether they had to set the levy amount tonight. Mr. Hoskins said that
they did not have a lot of time but a dollar amount did not have to be set this evening;they could do it at the next
meeting. He added that when they call the election, they needed to do so with a figure.
Discussion ensued relative to deadlines to submit information to the County and the importance of moving
forward as quickly as possible.
Councilmember Archambault said that they had been looking at this issue for two years and this particular
component needs to move forward. He added, however, that Councilmember Leger and Vice Mayor Dickey
brought up a good point —was $4.5 million enough. His concern was that he was hearing two different things;
yes they could go back to the voters and levy another property tax and no, once it was set that was it.
Mr. Hoskins stated that in his general thinking on the matter he believed they could go back to the voters again
but the area in the statutes that specifically addressed this levy did not say "if you want to change it later here
was how you did it." He said there might not be a statutory section on how to do it but he believed that they
would not be "stuck with that number forever and ever." He added that he would have to research this further
and stated that they could also not levy the tax for one year and then have a blank year and start again. That
would probably not be a good way to proceed. He said he believed there had to be a way to address that in the
future.
Councilmember Archambault said that he would rather not go on for another year and procrastinate; he was one
who liked to get things done as soon as possible. He stated that they should move forward at the next meeting
with ballot language and hopefully at that time they could set the dollar amount.
Vice Mayor Dickey thanked everyone for all of the hard work that had been done on the various issues and
commented that she did not want to procrastinate but also did not want to make such a huge decision in a hurry.
She agreed that a change was needed and that a property tax was fair, equitable and logical but her concern was
with the timing. They had a lot of measures before them that would affect the revenue that was collected. She
stated the opinion that if this Council committed to a property tax in May of 2009 knowing that they would have
a lot more information by that time, that they would be able to demonstrate the need and the amount. They
would have a lot of time to educate the public if they proceeded in this way. She reiterated that she did not feel
the rush right now to do it in May of 2008 and felt very comfortable committing to a property tax for the Town
in 2009.
Councilmember Kehe expressed the opinion that if they delayed another year they would go through the same
thing all over again, another committee, another study, and stated the opinion that they should face the issue, the
time was now. He noted that eight of the ten economic indicators in Town were down and sales tax projections
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for 2007-08 reflect a decrease of 16.9%. He stressed the importance of establishing a stable revenue source and
added that he was comfortable with the $4.5 million figure. Councilmember Kehe stated that they were not
voting for a property tax;they were asking the citizens to vote for a property tax and he did not want to deny the
citizens the opportunity to do so.
Councilmember McMahan concurred with Vice Mayor Dickey's comments and said that they needed time to
sell it to the public and stated the opinion that if the issue went on the May 2008 ballot it would be voted down
and he did not want that to happen. He added that they should delay the property issue for another year, keep
the committees in place and expend every possible effort to educate the public on this critical issue.
Mayor Nichols said that everything he had seen and heard testifies to the fact that the Town had a problem and
the role of the Town Council was to look forward and make sure they were financially stable over the next
fifteen to twenty years. Everything he had looked at had said they need to have more money from a stable
source and to him that said they needed a property tax. He added his belief that the only equitable way to
generate the revenue was by implementing a property tax and said they had too many people and too many
companies in Town "getting a free ride." He stated that the permanent residents in Town were paying for public
safety and the businesses and part-time residents did not and he was tired of footing the bill for people who
wanted the services but were not paying for them. He said he did not want to be labeled as a "do nothing
Council" and reiterated that everything that had came before them points in the direction of a property tax and
he did not want to delay action on this important matter any longer. He added that they should allow the citizens
to decide.
Councilmember Leger said he believes everyone would agree that having a property tax in place yesterday
would be like hitting the lottery with the exception of one person. They all feel that a primary property tax in
Fountain Hills made sense. What concerned him went back to the last meeting; the way the SPAC had
structured the primary property tax package. Only 25% of the people supported it and they only had one shot at
this important issue and he thinks they need to do it right the first time. He said if they propose a package of
$1.00 per $100 of assessed value and take out the tax on food and keeping the one time construction sales tax
revenue and moving it into a fund, 25% of the people support that. There had been comments made about not
dedicating it but what the SPAC had told him was that people generally were split and his own survey showed
that they were about 50-50. He said that the issue of trust was paramount and that was why he looked at the
notion of target—if they target something in the primary property tax such as public safety, the people who were
not on board now in terms of voting for it might have a better comfort level because they would know where
their money was going. He said that in looking at all of the data tonight it would be interesting to know what the
impact would be for a$4.5 million property tax that targeted public safety and reduced sales tax to 3/10ths of a
percent to take them down below being the highest in the valley and also looks at restructuring how they use
their one time construction sales tax revenues. He stated that he was not convinced that this particular package
before them was the way to go. He also discussed education and said they did have a short time period but he
did not believe that the Town could be involved in educating the public on this issue.
Mayor Nichols commented that the Town could provide explanations but could not take a position as a Town.
Councilmember Kehe said that other groups could put on informational programs. Councilmember Leger asked
who would do so other than the SPAC. He reiterated that he had a problem with the way the group had
structured their tax package.
Vice Mayor Dickey referred to Scenario #6 (Levy a property tax of $1.00 per $100 of assessed valuation and
eliminate the sales tax on food) and said they would begin to have a deficit in Fiscal Year 2013. She said she
wanted to point that out before anyone made a motion and asked whether$4.5 million was sufficient.
Councilmember Schlum noted that the charts did not include any revenues that would be coming in from
projects that were not on the books already so hopefully ten years from now or sooner they would have a
dynamic downtown that generated a lot of revenue. He stressed the importance of arriving at an equitable
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solution that was stable and one that addressed the Town's long-term revenue shortfall and the sustainability of
a funding mechanism that would take them in the future. He added that they must also keep in mind that they
were going through an economic downturn and the volatility of the budget today was extreme because they were
relying on sales tax and State shared revenues and these items were dramatically affected when the economy
went down. He stated that most of the people he had spoken with wanted to have fire and emergency services
paid for with a stable funding mechanism.
Councilmember Kehe said he would like to respond to Councilmember Leger's comments and noted that only
25% of the people supported a property tax. He said that the survey that was conducted showed that an average
of 47% of the respondents said they would not support a property tax. To him that means that 53% either
strongly support it, support it or did not know. He said that the "did not know" group would benefit one way or
another by a strong informational campaign.
Councilmember Kehe MOVED to place the question of a primary property tax of 1% on the May 2008 ballot.
Mayor Nichols commented that the Council could not move on the levy rate; they had to set a dollar amount.
Mr. Hoskins concurred and Councilmember Kehe restated his motion as follows:
Councilmember Kehe MOVED to place the question of a primary property tax on the May 2008 ballot with a
$4.5 million tax levy and Councilmember Archambault SECONDED the motion.
Mayor Nichols MOVED to amend the motion to state that the tax levy would be dedicated to public safety and
Vice Mayor Dickey SECONDED the motion.
Mr. Hoskins asked whether the Mayor wanted that language on the ballot or in the publicity pamphlet. The
Mayor said he would like to have that language placed on the ballot and explained that he would like people to „08)
feel comfortable with the fact that the monies would be used for the Town's#1 priority—public safety.
Councilmember McMahan spoke in support of a dedicated property tax for public safety but added that he still
had timing concerns with regard to educating the public.
Councilmember Leger said that the amendment to the main motion was to pursue a primary property tax in the
amount of$4.5 million and they were looking at dedicated and not looking at reducing sales tax. He asked if
there was any flexibility that if they went in this direction to have staff look at variations on themes. He said he
was concerned about getting "set in concrete" if they went in that direction. He stated, for example, that the
numbers could come out favorably at$4.5 million if they looked at a reduction in sales tax in the amount of.3%
and then look at sales tax on construction.
Mayor Nichols advised that those would be separate motions.
Mr. Hoskins clarified that the matter on the agenda before the Council was to discuss the committee's report and
action with possible direction to staff so there was not a motion to call the election, there was a motion to direct
staff to work to come back on the 17th with the documents to call an election. He added that whatever they did
tonight,they could vote on the 17th not to call the election.
Mayor Nichols added that what they were voting on was to have staff develop ballot language; they were not
voting to go to a ballot at this time. That would happen at the next meeting.
Councilmember Leger said that that was what he was trying to clarify.
Councilmember Schlum said that he was comfortable with tying the property tax to a dedicated emergency
services fund. He added that they had to realize that some of the people who lived in Town year round and
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benefited from the services were of limited means and were going to be assessed whatever they might put on the
Le. ballot and if there was not a tie to a reduction in sales tax on food,the people would be paying more.
Mayor Nichols reiterated that this was just "one piece" and as they move forward he was also looking at a
reduction of at least 1% in the sales tax to go along with it.
Councilmember Leger said that if they were looking at the $4.5 million and primary property tax and reducing
the sales tax by a percentage point, they were almost going to get into a revenue neutral situation and not really
addressing the problem.
Councilmember Kehe stated that the only concern he would have relative to dedicating it was if that would tie
the hands of future Councils. Mr. Hoskins replied that that would be the intent of putting it there but there was
some question about whether this could actually be done. It was a political matter and future Councils would be
hard pressed to go against it from that perspective.
Vice Mayor Dickey commented that public safety was not going to go away and she did not feel as though they
were binding anyone into anything because this was General Fund money. They were just taking money that
would have gone into the General Fund and using it for police, fire and building safety. She added that if it
made it more acceptable, then she thought the language should be on the ballot.
Councilmember Archambault stated that they were trying to make it more palatable by placing the dedication
language on the ballot and said that they need to be straight forward with the voters. He expressed the opinion
that they were"sugar coating"it and said he cannot support the amendment.
Mayor Nichols called for a vote on the amended motion and a roll call vote was taken with the following results:
Councilmember McMahan Nay
Councilmember Kehe Aye
Vice Mayor Dickey Aye
Councilmember Leger Aye
Councilmember Archambault Nay
Councilmember Schlum Aye
Mayor Nichols Aye
The motion CARRIED by majority vote(5-2).
Councilmember Leger requested that the main motion be repeated.
Councilmember Kehe MOVED to direct staff to draw up a ballot statement that placed the question of a
primary property tax on the May 2008 ballot with a$4.5 million levy (as amended above).
Vice Mayor Dickey stated that in the interest of showing support and the fact that they would be bringing this
back and discussing it further(she agreed with the idea of a property tax) she would support the Mayor.
Councilmember Leger said he had to look at the way this was structured and added that timing was still an issue.
He stated that he would reserve his judgment until the next meeting.
Mayor Nichols added that Ms. Ghetti and Ms. Zanon should be directed to take a look at what options were
available for sales tax reductions so they could be discussed at the next meeting.
Councilmember Schlum said that since they would be looking at all of the components at the next meeting he
too would support discussing this at the next meeting.
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The Mayor called for a vote on the main motion(as amended) and the motion CARRIED by majority vote (6-1)
with Councilmember McMahan voting Nay.
Mayor Nichols stated that Councilmember Leger raised a good point when he talked about whether they should
(for a period of two, three or four years) change their financial policy for the construction sales tax (put it back
in the General Fund for a period of time). He said he would like Ms. Ghetti to look at this option as well.
Mayor Nichols thanked the members of the SPAC, the Blue Ribbon Committee and staff for the hard work they
had put into this project. Mayor Nichols added that the Council took their responsibilities very seriously and
they were there to look at the long-term financial security of the Town and some decisions were not always
popular but extensive research and study had gone into looking at this important issue.
Councilmember Leger asked whether staff should be directed to look at several other revenue solution
suggestions and perhaps they needed to schedule a time to discuss them; perhaps at the next meeting.
Ms. Zanon said that staff could place the remaining two items on a future Council agenda for action.
Councilmember Leger requested that they be placed on the agenda of the next Council meeting and other
members agreed.
AGENDA ITEM#17—ADJOURNMENT.
Councilmember Schlum MOVED that the Council adjourn the Special Session and Councilmember Leger
SECONDED the motion, which CARRIED UNANIMOUSLY(7-0). The meeting adjourned at 9:19 p.m.
TOWN OF FOUNTAIN HILLS
B li 0) 4)/1%441/)
Y
Wally ichols, ayor
ATTEST AND
PREPARED BY:
Bevelyn J en ,Town Clerk
CERTIFICATION
I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the Special Session held
by the Town Council of Fountain Hills on the 8th day of January 2008. I further certify that the meeting was
duly called and that a quorum was present.
DATED this 7th day of February, 2008.
Bevelyn J. nd ,Town Clerk
,44)
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