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2017.0418.TCSM.MinutesTOWN OF FOUNTAIN HILLS MINUTES OF THE SPECIAL SESSION OF THE FOUNTAIN HILLS TOWN COUNCIL APRIL 18, 2017 * CALL TO ORDER AND ROLL CALL Mayor Kavanagh called the meeting to order at 5:34 p.m. in the Fountain Hills Town Council Chambers. Present for roll call were the following members of the Town Council: Mayor Linda Kavanagh, Vice Mayor Alan Magazine, Councilmember Nick DePorter, Councilmember Dennis Brown, Councilmember Art Tolis, and Councilmember Henry Leger. Town Manager Grady Miller, Town Attorney Andrew McGuire, and Town Clerk Bevelyn Bender were also present. Councilmember Cecil Yates attended the meeting by conference call. AGENDA ITEM #1 - DISCUSSION WITH POSSIBLE DIRECTION TO STAFF REGARDING THE TEN — YEAR BUDGET OVERVIEW INCLUDING REVENUE OPTIONS. Town Manager Miller provided background information on the Town's projected revenues and expenditures for the next five -years, which he stated showed a short -fall. Mr. Miller stated that during the Council's Retreat staff was directed to provide Council with items identified as deferred, not funded at all, or not funded completely due to the Town's inability to fund. Mr. Miller stated that he and Finance Director Craig Rudolphy would present information with a PowerPoint presentation (available on line and in the office of the Town Clerk) that covered a ten-year projection for the Town's revenues and expenditures and would also show a wider gap from the five-year projection. Mr. Rudolphy discussed the information contained in the PowerPoint regarding the financial challenges and expenditure limitations; he explained the state -imposed "Expenditure Limitation Law". Mr. Rudolphy added that the Town could permanently adjust the limitation base through a required election process, if necessary. Mr. Miller expressed the need for Council to understand their options when determining additional revenue sources and noted the Town must stay under the expenditure limitation per state law. He stressed that this should not be a problem in the immediately future. Vice Mayor Magazine questioned the change presented in the 2017-18 draft budget report involving the $450K shortfall. Mr. Rudolphy explained that he had held a meeting with the auditors to rework the calculations, which changed the amount of estimated shortfall. Councilmember Yates left the meeting at 5:43 p.m. since his phone connection dropped. Mr. Rudolphy listed the items not considered in the expenditure limitation involving any money received and non - Town generated funds such as bonds, grants recipients monies, donations or sponsorships and continued to explain the Town's position on the next year's expenditure limit as shown on the Expenditure Limitation slide. Mr. Miller added that the Council would be required to go to the voters to increase the Town's expenditure limitation, but added that he felt that action would not be necessary for at least six to eight years. Mr. Rudolphy referred to an excel sheet listing the previous five-year projected revenue shortfall noting that the numbers were used as a starting point for the 10 -year revenues and expenditures projections provided. Mr. Rudolphy continued to the next slide that listed the major drivers along with the Town's largest expenditure items. Vice Mayor Magazine asked if pavement replacement, shown as a Capital Improvement Project (CIP), were counted in the expenditure limitation; Mr. Rudolphy answered that if the CIP was funded with debt it would not count, but if paid out of current revenue the program, it would count in the expenditure limitation. Mr. Miller and Mr. Rudolphy discussed the exceptions for Highway User Revenue Fund (HURF) expenditures. z:\council packets\2017\r170504\170418m.docx Page 1 of 5 Mr. Rudolphy stated he added a 3% increase to this year's Public Safety budget and its anticipated a 10% increase each year after that due to the Maricopa County Sherriff s catch-up on their Public Safety Retirement System (PSRS) in addition to the 3% increase for the Rural Metro contract. Mr. Miller explained that one of the major drivers was the MCSO contract cost shown as cumulative over the 10 -years was based on their current contract of $3.7M with increases. Mr. Rudolphy stated he recommended $960K be budgeted annually to build up the fund to cover anticipated replacement items such as the lake liner. Mr. Rudolphy explained that the Shea and Fountain Hills Boulevards road projects would be one-time costs and could be combined in a bond packet, which was excluded from the expenditure limitation calculation. Mr. Rudolphy mentioned that currently development fees were being collected in the attempt to fund Fire Station #3, which still would not adequately cover the construction costs, staffing and operating costs. Mr. Rudolphy discussed the 10 -year projected graph that showed a big spike due to the street widening projects and explained if these two projects were bonded, the graph would probably level out but then would continue climb upwards. Mr. Rudolphy discussed the operating expenditures that were deemed necessary to maintain the Town using the five- year projection and then going forward for 10-yearsas well as the necessary deferred items. Discussion ensued regarding the effect on the budget if the MCSO contract increase held at 3%; Councilmember Leger pointed out that even if MCSO's contract did not increase by the projected 10% as shown, the Town would still have a significant shortfall. Councilmember Leger questioned if all major projects and their anticipated revenue were included in the financial analysis, such as Park Place and all phases of the Copperwynd expansion. Development Services Director Bob Rodgers answered that those projects were added and staff had also included the State Trust Land. Councilmember Leger commented that if the State Trust Land did not develop then revenues shown as collected by the Town would be lower. Mr. Miller explained that to normalize the Town that the revenue needed would be approximately $6M a year and at this time the revenue would not be available. Councilmember Tolis asked if the future projected revenue only included construction fees and Mr. Rudolphy answered that the projections consisted of permit revenue and the Copperwynd bed tax and incremental sales tax projections acquired from Copperwynd representatives. Councilmember Tolis asked if the Park Place bed tax was included and Mr. Rudolphy answered that it was not. Councilmember Tolis asked how the future increase in population would affect revenues and Mr. Miller pointed out additional population would require a new fire station with operating expenses, an increase in public services, wear and tear on streets and park uses. He added that construction tax was a one-time revenue source with the state shared revenue increasing somewhat, but not at the same pace as other larger cities share, which creates a smaller amount of revenue for the Town. Councilmember Brown pointed out that if the State changed the Transaction Privilege Tax (TPT) regulations for contractors, the only source of construction sales tax revenue for the Town would be from Ace Hardware and Tractor Supply, which would be far less. Councilmember Tolis requested staff put all facts into the model and include year round population of 20K going upwards to 25K with an average of $8M in sales tax revenue, which should increase and stressed he wanted to be clear to the citizens on any recommendation made for future taxation. Discussion ensued regarding the possible increase in sales tax revenue with an increase in population. Mr. Rudolphy stated that the Greater Phoenix Economic Council (GPEC) did an impact study on the Copperwynd expansion and the projected revenues. GPEC estimated in ten years the total projection of the impact direct and indirect for Fountain Hills would be $3.5M. He also mentioned that the Town's Economic Development Director Scott Cooper prepared a TPT projection and found in 2017 there were 11,349 households generating $9.96M in TPT z:\council packets\2017\r170504\170418m.docx Page 2 of 5 collection, which was in line with staff's $8M prediction. Mr. Cooper had also projected that in 2027 there could be 13,000 households and that the TPT would increase to $11.1M for an additional TPT of $ L IM. Mr. Rudolphy discussed the possible revenue options to address financial challenges, which were also presented at the Council's Retreat in February 2017. He commented on how each option would be implemented. Sales Tax — It would take a lot of sales to generate a significant impact in collections for the Town with every .1% generating $340K and noted the Town was now at 3.9%. (Council approval) Public Safety Fee — Calculated at 11,349 households with a $100.00 fee (or agreed to amount) that everyone would pay the same fee generating $1.2M in revenue. (Council approval) Special District — The Town currently had one Community Service District in Eagle Mountain and the existing laws did not support. Town Attorney McGuire explained that there were issues on a reformation of the Town's Fire District that included a separately elected governing body formerly included in statue. He also explained that what was not in the current statue was a process for a City or Town to create a Fire District over its boundaries and he gave an example of a similar formation in a county island in Gilbert that could be used as a model to implement that on the Town level. (Requires Legislative change and voter approval) Franchise Fee — Generating revenue of approximately 200K annually. Mr. McGuire explained that two Town users of the rights-of-way were to have franchises, but did not. Mr. McGuire added the publically regulated utility, such as the water company, would have the authority to charge a fee to offset the Town's franchise fee and recoup the fee through their utility billing. Mr. McGuire added a franchise fee must be approved by the Town's electors. (Requires an election) Mr. Rudolphy stated that the Town currently had an outside auditor who pursues residential rental tax and Mayor Kavanagh asked if the auditor was able to collected as much as expected and Mr. Rudolphy answered not as well as anticipated due to the changes in the Department of Revenue's (DOR) policy that all audit reports were to be provided to DOR and they assumed responsibility for collection. Mr. Rudolphy pointed out that DOR had reduced their staff in the collection department where staff looked at the total tax due to the state and would pursue collection on the million dollar accounts. Mr. Rudolphy also explained that it was difficult to make contact with a person renting out their home and if the owner was Canadian where social security numbers were not issued, the owner would not be tracked by DOR. Mayor Kavanagh asked about the signed contract between the DOR and Air BNB rentals and Mr. Rudolphy answered that Air BNB now collects rental tax for any listing they were involved in and Air BNB paid DOR a lump sum, not identifying the individual tax payers, which made it impossible for the Town to determine if a rental owed back taxes. Continue to engage TPT auditor to purse residential rental taxes from rental properties (Council approval) Raise Town Fees — (Council approval) Primary Property Tax — Calculations presented on the impact of various imposed primary property tax amounts and proposed revenue generated annually. (Requires voter approval) Mr. Rudolphy continued the presentation and reviewed the slide containing the various options to reduce Town expenditures. Councilmember Brown expressed that options to reduce expenditures and other suggestions to create revenue were temporary solutions to the $6M revenue shortfall and felt it was impossible to look into the future ten -years and determine what would be needed. Councilmember Brown noted that Councilmember Yates had asked him to bring up the possibility of a creating a Facilities Maintenance District, which would allow the residents to be informed on exactly where their tax money would be spent, as opposed to property tax funds placed in the General Fund. Mr. McGuire was unsure on exactly what Councilmember Yates was interested in presenting since this type district was untested, as the Town had only formed fairly small ones. Mr. McGuire explained that a Community Facility District (CFD) would expand over the entire Town overlapping the Eagle Mountain Community Facilities District; he stated he z:\council packets\2017\r170504\170418m.docx Page 3 of 5 was unaware if such an overlapping district had been formed in Arizona and that the option had not been pursued noting that the research may be expensive. Councilmember Brown stated he did not believe all options had been presented and expressed his support of a primary property tax and suggested presenting this option to the residents as soon as possible due to the Town's financial position. Vice Mayor Magazine expressed that deciding on a revenue source was an emergency and getting worse and requested Council set a time -line on making a decision with all options presented. Councilmember Brown asked what the time -line would be to place a property tax on the ballot and Mr. Miller answered the next election would be May 2018 with other required ballot deadlines. Mr. McGuire added that a Primary Property Tax election had the stricter time -line and only could be held on the May consolidated date requiring a decision by January of the year of the election and noted that other revenue options requiring voter approval were more flexible. Councilmember Brown suggested Council make a decision before December 2017 and have a well proposed plan. Mayor Kavanagh stated she wanted the total picture presented and that Mr. McGuire could research the CFD option presented by Councilmember Yates and for staff to bring back other possibilities that would be feasible for generating revenue. She requested consideration of Councilmember Tolis' suggestions for the most accurate overall finance picture available. Vice Mayor Magazine requested to enough time be included for citizens outreach and suggested moving Council's decision time -line back a couple of months. Mayor Kavanagh expressed displaying that by the Council researching all possible avenues and every option; citizens would respect Council's decision. Councilmember Leger asked if the CFD option needed State Legislative approval since this type district had not been done before in Arizona. Mr. McGuire explained that the Eagle Mountain CFD was for developer improvements and the suggested CFD model would have specific designated uses for the collected funds and would be collected by a property tax. Mayor Kavanagh expressed she was in support of this type CFD since the residents liked to know where their money would be spent and offered the opinion the Council would receive a more positive result to an election. Councilmember Tolis stated that the Council's Retreat minutes would show a lot of this meeting's discussions had already been addressed and that he would like to see the minutes provided to the Council. Councilmember Tolis also stated with additional developments and financial positives made since the retreat should be shown in the financials and if a revenue source option was not feasible they should not waste time on it. Councilmember Tolis stated that if a Primary Property Tax were proposed, he would request a complete analysis and recommendation regarding addressing MCSO's future contract costs for their discussion. Mayor Kavanagh asked Mr. Miller to provide meeting minutes from the Council's Retreat in February 2017. Mayor Kavanagh asked if there were any speak cards were submitted and Town Clerk Bender stated none were received. The Mayor asked if there was further Council discussion and if not, she requested a motion to adjourn. AGENDA ITEM #2 - ADJOURNMENT Councilmember Brown made a MOTION to adjourn the meeting and Vice Mayor Magazine SECONDED the motion, which CARRIED UNANIMOUSLY (6-0), by those present. The Special Session adjourned at 6:51 p.m. z:\council packets\2017\r170504\170418m.docx Page 4 of 5 TOWN OF FOUNTAIN HILLS LM ATTEST AND PREPARED BY: Bevelyn Bender, Town Clerk CA011411a[KTIy[Q1zI Linda M. Kavanagh, Mayor 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 in the Town Hall Council Chambers on the 18th day of April, 2017. 1 further certify that the meeting was duly called and that a quorum was present. DATED this 4th day of May, 2017. Bevelyn Bender, Town Clerk z:\council packets\2017\r170504\170418m.docx Page 5 of 5