HomeMy WebLinkAbout2006.0613.TCWSM.MinutesTOWN OF FOUNTAIN HILLS
MINUTES OF THE WORK STUDY SESSION
OF THE
FOUNTAIN HILLS TOWN COUNCIL
JUNE 13, 2006
AGENDA ITEM #1— CALL TO ORDER AND ROLL CALL
Mayor Nichols called the meeting to order at 5:00 p.m.
Present for roll call were the following members of the Fountain Hills Town Council: Councilmember
Archambault, Mayor Nichols, Vice Mayor Kehe, Councilmember Leger, Councilmember Schlum,* and
Councilmember McMahan. Town Manager Tim Pickering, Town Clerk Bev Bender, Town Attorney Andrew
McGuire and Finance Director Julie Ghetti were also present.
(*Councilmember Schlum participated in the entire meeting through the.use of teleconferencing equipment).
Councilmember Dickey arrived at 5:03 p.m.
AGENDA ITEM #2 — DISCUSSION OF THE TOWN OF FOUNTAIN HILLS' 2025 FINANCIAL PLAN
AND PROJECTED LONG-TERM REVENUE SHORTFALL AS IDENTIFIED AS A PRIORITY IN
THE CITIZEN DRIVEN STRATEGIC PLAN.
Mayor Nichols advised that tonight's meeting was to talk about the Town's 20-year financial plan. He said that
one of the main objectives of Town/City Councils was to ensure the long-term viability of the communities they
kwserve. He added that it was up to the Councils to make sure that the towns/cities would be here 30, 40 or 50
years from now and were financially stable. A key part of that was to perform financial planning. Fountain Hills
does a one-year operating budget, a five-year financial plan, and a 20-year financial plan, which they were here
this evening to review.
Town Manager Tim Pickering stated that he and Finance Director Julie Ghetti had been working on the plan for
approximately three months and explained that the plan could not be finalized until the budget was finalized.
He noted that the plan goes out to the year 2025, a little less than 20 years, and provides an indication of where
the Town was going to stand in the year 2025. He said that the plan was in written form for the Council but the
presentation this evening that Julie would give would hopefully help the Council as well as the public
understand the impact of what staff foresees in the future. He stated that some things were very good and some
things were not so good and stressed the importance of looking into the future despite the fact that it might be a
"crystal ball process" at times in order to obtain an indication of where the Town would stand financially in the
coming years.
Mr. Pickering prefaced the presentation by stating that the strategic look at the Town's finances was definitely
an art, not a science, and the results were estimates/projections based on the best assumptions that they could go
on. He added, however, that this would give the Council and the public a definite indication of where the Town
was headed.
Finance Director Julie Ghetti addressed the Council relative to this agenda item and provided a brief overview
of the Town of Fountain Hill's 2025 Financial and Capital Improvement Plan. (A complete copy of the
presentation is available in the office of the Town Clerk.)
Ms. Ghetti began the presentation by stating that each year, following the budget process, staff goes back to the
Financial Plan and updates it based on the most current information available. She discussed the assumptions
that were made during the preparation of the report, which included:
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• Local sales tax remains at 2.6%
• No legislative changes in revenue sharing
• Revenue forecasts are conservative with moderate 4% annual growth
• Revenues based on "most likely" scenario
• Construction related revenues include State trust land
• One-time revenues transferred to capital
• Projects identified as a priority during the Strategic Planning Process are included in the five-year
period FY07-FY10
• CIP costs were updated to current year costs and then adjusted with an inflation factor of 3% per year.
Ms. Ghetti referred to the General Fund Operating Budget and said that in looking beyond the next few years,
the problem staff sees is that the one-time revenues from construction were subsidizing the general operating
budget and as those construction revenues began to decline, a deficit occurs. The cumulative deficit between
now and 2025 was approximately $27 million, an average of about $1.5 million a year if they take it from 2008
to 2025. As the Town approaches build -out, that means that the one-time revenues would be gone.
In response to a question from Councilmember Leger, Ms. Ghetti responded that the analysis was very similar to
the analysis performed last year — the expenditures have a 5% inflation factor (average). The only other change
was that as the State Trust Land comes on, there would be additional building inspectors included for the years
in which they would be needed and they drop off when they were no longer needed.
Mr. Pickering advised that the main difference between the current and last year's plan was the State Trust Land
and said that staff s previous assumptions did not include State Trust Land because they did not want to depend
on that at that point in time. When they started adding a number of inspectors over that time, the total added up
very quickly.
Ms. Ghetti noted that when staff prepared last year's analysis, it was based on the prior year's budget and this
analysis had been updated and was based on the operating budget for 06-07, which was just approved.
Ms. Ghetti further stated that last year's report reflected an operating deficit that began in 2014-15 and reported
that with the State Trust Land that deficit had been delayed until 2017. She said that the operating budget,
which was typically the General Fund, consists of general operations, i.e. public safety, parks and recreation,
and includes items such as salaries and benefits, contractual services, repairs and maintenance and supplies and
services. No capital was included in this projection; it was taken out of the 2006-07 budget and calculated
forward.
Ms. Ghetti referred to charts that depicted expenditures (on a typical upward trend) and noted that it "flattens"
out somewhat when they get to the debt payment for the Community Center that was in the General Fund and
would be eliminated in 2019 and noted that it then began to rise again (5% increase across). She also discussed
the Town's operating revenues (State -shared revenues and local sales tax that were on -going and not considered
one-time revenues) and pointed out that the one-time revenues were subsidizing the expenditures because there
was not sufficient general operating revenue to fund the expenditures. She added that as the one-time revenues
depleted, the deficit would increase.
Discussion ensued relative to the fact that the problem with the Capital Improvement Project's budget was that
the capital project costs exceeded available resources and there was an approximate $46 million deficit, which
included the General Fund transfers; the fact that surplus revenues begin to decline in the General Fund in
FY2017 and although there were some dedicated revenue sources for capital projects (advertising and rental
sales taxes), they were not sufficient to meet all of the capital needs; capital projects broken down by category
(both revenues and expenditures); a General Fund operating projection; capital project resources (including
excise {sales} taxes {downtown project); General Fund operating transfers when available; Highway User
Revenues (HURF); Development fees (can only be used for growth -related projects) and private contributions;
capital expenditures; projected development fees; park and downtown projects; street and open space projects;
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major municipal projects including new/relocate fire station, a public aquatic and fitness facility, a public safety
building, and a parking garage and a Senior Center.
- Ms. Ghetti informed the Council that staff had developed the following preliminary options for resolving the
operating and capital deficit:
• Financial seminars sponsored by the Strategic Plan Advisory Commission (SPAC). Residents can
learn and ask questions about the Towns' long-term financial plan;
• Propose a primary property tax to eliminate operating deficit. Requires a vote of the citizens. Levy is
limited to a 2% increase over the previous year maximum allowable.
• Increase local sales tax rate. Does not require a vote of the citizens. Revenue is cyclical depending
upon the economy. Total local sales tax rate in Fountain Hills would be 9.2%, the second highest in
Arizona
• Research additional sources of revenue such as utility franchise fees, charges for municipal services,
licensing fees. Potential revenue would help but not resolve the long-term shortfall
• Eliminate or delay major capital projects. This could create a substantial negative impact on Town
infrastructure in the long run. The future costs for the delayed projects would be higher. Citizens will
continue to demand amenities and programs from present and future Councils.
• A semi-annual review of the development fee schedule. Potential revenue can only be used for
projects that are growth related.
Ms. Ghetti referred to charts displayed in the Chambers and stated that a tax rate of $0.65 would eliminate the
deficit if implemented in FY2008. If a property tax were not implemented until FY2017, the rate would be
approximately $1.15. The current tax levy to repay bonds would be eliminated by FY2019. Ms. Ghetti also
provided the Council with a comparison of surrounding city's property tax rates for 2005-06 as well as
Maricopa County and City/Town sales tax rates.
In summary, Ms. Ghetti informed the Council that:
• There is a $76.4 million deficit in operating and capital projections through FY2025.
• $0.65 cents property tax levy ($0.25 cents primary and $0.40 secondary) would eliminate the deficit if
enacted in FY08.
• Current operating revenues are derived from economic and legislative controlled sources.
• The cost of providing public safety, recreation programs and municipal services increases each year.
• Solving one issue does not solve the other.
• Eliminating capital projects now will not eliminate citizens' demand for amenities and programs.
• Development fees can only be used for growth related projects and cannot be used for maintenance.
Ms. Ghetti advised that the property tax would have to be based on two separate values — the operating tax (the
levy for operating funds) would be about $0.25 and would most likely stay at that amount and the tax for the
capital would be about $0.40 and that would likely decrease each year as the assessed valuation
increasesdbecause it would be based on a fixed amount of money borrowed for capital projects. She said that
they could levy the $0.40 but only draw on it as the capital projects come up so they could be timed/scheduled.
Mr. Pickering commented that what they would probably do is get the authorization to levy up to the $0.40 level
for the capital but said that they might not need it. He noted that there were numerous options and added that
the first thing staff was recommending is that they begin to hold some seminars and get people familiar with the
options. He explained that a property tax might not be the way the Council ultimately decided to proceed, they
might decide upon a sales tax or higher franchise fees, but stated that staff was attempting to provide a number
of different scenarios for consideration.
�- Ms. Ghetti discussed where they would go from here and stated that staff recommended the following:
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Financial seminars sponsored by SPAC. The first goal of the Strategic Plan was to identify and
inform residents of the projected long-term revenue gap. Residents want to learn and ask questions
about the long-term financial plan
Provide financial information to the public utilizing Channel 11, the Town's website, news letters,
press releases, etc. with the help of the Town Council and SPAC
Make decisions before December 2006
In response to a question from Vice Mayor Kehe, Ms. Ghetti advised that in order to eliminate the operating
deficit, the sales tax would have to be raised by $0.03 so it would become 2.9%. To eliminate the capital deficit,
it would have to be raised by $0.05 for a total sales tax of 9.7%, the highest amount in Maricopa County.
The Vice Mayor asked whether staff had considered implementing the property tax and diminishing the sales tax
(or vice versa) in order to make it more appealing to the citizens. Ms. Ghetti responded that when staff prepared
the analysis they did not take into consideration reducing the sales tax — they made the assumption that the sales
tax rate would remain the same so if they implemented a property tax and reduced the sales tax, that would just
mean they would have to have a higher property tax to make up the difference. She commented on the fact that
sales tax, because it was so cyclical, would not provide an "even_ trend" and if they had a portion of a stable
property tax and a portion of sales tax, they might need to increase the property tax a little more to take those
fluctuations into account.
Councilmember Dickey requested information on how a Municipal Property Corporation works and Ms. Ghetti
said that an MPC was a separate corporation that a town establishes for the purpose of purchasing major
equipment/buildings. The MPC borrows money that is paid back through the revenues obtained from the
building. If the Community Center was revenue producing, and was purchased with MPC bonds, those
revenues should repay the debt on the bonds and at the end of the 25 years, the MPC would give that building to
the Town. She said that it was a financing vehicle that did not require a vote of the people but noted that it was
not for operating purposes; it was used strictly to purchase capital.
Mr. Pickering added that there must be a dedicated revenue source in place to pay back the debt service on the
bonds.
Mayor Nichols commented on the fact that the 20-year plan says that it was "going to give everyone what they
wanted" and noted that the proposed "wish list" contained everything from a performing arts center to a Senior
Center. He said that in his mind, he had trouble reconciling whether they would ever do that.
Mr. Pickering noted that they would not be doing it within the next five years and emphasized that there wee
two components of the proposed financial plan: (1) the operating, which was not separated out in the previous
plan. The residents, through the Strategic Plan, had spoken loudly saying that within the next five years, they
only want "X" and "X" to be done. He said that he would ask the Council to look at the operating deficit and
said it existed even if they had no capital. He noted that they were going to need approximately $1.5 million a
year. (2) Capital. If they decided not to build the arts center or Senior Center, etc. over the next 20 years, the
capital cost (deficit) would decrease but that was something that they would only know over time. He
commented that the Council did have flexibility in this area but stressed that the Town was going to have an
operating deficit.
Mayor Nichols stated that this was all a "new way of thinking" — looking at the future gap in two separate
pieces, operating and capital. He agreed that they would have to work with the residents in order to get them to
think in those terms.
Mr. Pickering said that the Council also had options on timing; they were not going to do all of the capital items
at once. The Mayor commented that the challenge before them was to explain the operating and capital gaps
and talk about how best to address them. He added that this would take some time because they had not been
thinking in these terms.
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Mr. Pickering advised that in order to get the word out to the citizens in an effort to gain their support,
educational forums would need to be held over the next four to five months. He commented on the fact that the
Town had very intelligent residents and emphasized the importance of receiving their input prior to making any
decisions. He reported that they had a six-month timeframe before they would need to place something on the
ballot and expressed the opinion that this was sufficient time to accomplish that goal. He agreed that they had to
"split the problem" and define them both very succinctly (operating and capital).
Vice Mayor Kehe said that citizens might not want to support some of the projects and Mr. Pickering said that
perhaps they should not address the capital problem until they had received input from the citizens as to what
they wanted. He noted that the only direction they had from the citizens (limited capital) covered a five-year
period.
Discussion ensued relative to the fact that staff used a 3% increase in assessed valuation when putting together
their report; if $0.25 was established as the maximum levy amount, (and they did not have to levy that amount),
the levy was limited to a 2% increase every year (on the primary) while expenses might go up 5%; the fact that
there would be two separate issues going before the voters — the primary tax and the secondary $0.40 tax, which
could only go to repay bonds.
Mr. Pickering confirmed that after talking to the residents and obtaining their input if they decided to move
forward there would be two separate issues on the ballot — one for operating and the other for a secondary to
repay bonds for capital.
In response to Councilmember Dickey's statement relative to timing and the fact she felt rushed, Mr. Pickering
said that sales tax increase could be implemented at any time but if the Town decided to proceed with a property
tax, the Council would have to decide by the end of 2006 in order to have the issue placed on the May 2007
ballot. He added that the tax rate would not actually "kick in" and begin to be collected until October 2007. He
also noted that staff had already anticipated that transfers would be added back into operating.
Additional discussion ensued relative to the fact that the citizens did not put forth a specific date regarding
bringing forth proposed increases in sales tax/property tax, etc.; the fact that it was determined that they would
try to solve the deficit by 12/07 (as outlined in the Strategic Plan); the survey showed that the residents wanted
the Town to address the financial issues sooner rather than later; the importance of talking about grants as part
of the process; and whether some of the surplus could go back into operating to try to offset the "drop dead
time" when operating expenses warranted that action.
Mr. Pickering advised that staff was taking the surplus and setting it aside for the capital. He added that the
Council and the Town could do any timing they wished but the problem increased every year that they put it off
and costs would rise. He emphasized that part of the reason the Strategic Planning Advisory Commission
(SPAC) came up with the timing and analysis they did was the citizens showed that they strongly valued a
financially sound local government.
In response to a question from Councilmember Leger relative to the difference between the Town's
expenditures and revenues, Ms. Ghetti advised that staff had estimated a $1.1 million surplus but noted that it
was based on expenditures that weren't made. The revenues were pretty close to what staff projected they
would be (within a couple hundred thousand dollars). The art of projecting the revenues beyond was based on
what they know about historical and assumptions on the future, including building permit activity and State
Shared Revenues, trend analysis type statistics. Ms. Ghetti expressed the opinion that the numbers were
conservative as far as revenues and added that she did not think that they would be far off. She added that the
challenge was the expenditures because new services get added and/or some major unanticipated issues arise in
the Town.
CMr. Pickering concurred with Ms. Ghetti's remarks and said it was not typically the revenues that they were off
on, it was that they didn't complete a project or the Town Hall was not built yet so $2.5 million dollars was in
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the next fiscal year instead of this one because they were paying them a month later. The surplus was more in
the expenses and the sales tax was a little bit lower than they anticipated for this year.
Councilmember Dickey said that she would prefer to be lower when projecting revenues and stated that they
should take a real conservative look at the revenues. J
Discussion ensued relative to residential redevelopment and the fact that staff took this into account and
forecasted/projected based on the past couple of year's trend; the fact that taxpayer information was protected by
State Statute and therefore revenues generated by commercial projects could not be divulged; the fact that if the
Target Center had not come into the Town, the situation would be worse than it currently was; the fact that the
Target Center was approximately 30 acres in size and there was no other similar type of land mass in Town and
therefore they could not anticipate another development of that size at least within the next 30 years; the fact
that the proposed $0.65 property tax was to cover both the operating and capital deficit; the challenge of getting
the citizens to support the $0.65 tax because they did not really know whether they wanted to do those type of
projects and the challenge of getting input from residents on 20-year capital projects.
Mr. Pickering reiterated that the seminars must be held and people must be informed about the capital items. He
stated the opinion that there were two distinct issues — operating and capital. He added that the citizens might
say they did not want the Town to address the capital items, they would address them, do a survey or wait until
the next Strategic Plan.
Mayor Nichols commented that this was the first time he had seen a plan that addressed what the Town would
be like when it was fully built out. He said that he wished the State Legislature would do this type of planning
since it impacts what the Town was doing.
Councilmember Archambault asked whether staff had estimated the impact on the Town as a result of the
Legislature's actions and Ms. Ghetti responded that staff was waiting until the matters were resolved before
delving into this issue. She reiterated that staff s projections were very conservative from a revenue point of
view. She said if they decided to cut the Town's share of revenues- there would be a significant impact but staff 1J
did take into account that they would lose a little bit of share as other cities/towns grew.
Mr. Pickering noted that State Shared Revenues account for approximately one-third of the Town's general
fund.
Councilmember Dickey provided a brief explanation of the history of State Shared Revenues and what was
occurring on that issue at this time.
Vice Mayor Kehe commented that if they looked at the proposed capital projects, most of the questions arose
under municipal facilities (Senior Center, police station, swimming pool, performing arts center, etc.) and the
other capital projects were really infrastructure related and only municipal facilities, with an exception or two, is
what they really had to "tap" into the citizens' thinking. He said that this narrowed the problem.
Mr. Pickering concurred and stated that many of the capital items they were talking about were not "wish list"
items. He added that he was trying to draw a distinct difference between the capital and the operating because
for the short term, the residents had said they did not want all of these capital projects.
Mayor Nichols and members of the Council thanked Ms. Ghetti, Mr. Pickering and staff for their hard work on
the proposal. Councilmember Leger also thanked Ms. Ghetti and her staff for their efforts regarding the budget.
AGENDA ITEM #3 - ADJOURNMENT
Councilmember McMahan MOVED that the Council adjourn and Councilmember Leger SECONDED the
motion, which CARRIED UNANIMOUSLY (7-0). The meeting adjourned at 6:25 p.m.
TOWN OF FOUNTAIN HILLS
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ATTEST AND
PREPARED BY:
�q Bev cl7.t §.Bei er, Town Clerk
CERTIFICATION
I hereby certify that the foregoing minutes are a true and correct copy of the minutes of the Work Study Session
held by the Town Council of Fountain Hills on the 13th day of June 2006. I further certify that the meeting was
duly called and that a quorum was present.
DATED this 3`d day of August 2006.
Town Clerk
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