HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 10/03/2000 - RESOLUTION 2000-126 EXPRESSING OPPOSITION TO PROPO T IF
AGENDA ITEM SUMMARY ITEM NUMBER: 30
DATE: October 3, 2000
FORT COLLINS CITY COUNCIL STAFF: John Fischbach/
Alan Krcmarik
SUBJECT:
Resolution 2000-126 Expressing Opposition to Proposed Amendment 21.
RECOMMENDATION:
Staff recommends adoption of the Resolution. On August 16, the Finance Committee reviewed
materials relating to the tax cut initiative and requested that the staff prepare a resolution stating the
Council's opposition to the Amendment.
FINANCIAL IMPACT:
If passed,the Amendment 21 would reduce several of the City's revenue sources,including
the property tax, sales tax on utility charges, and franchise fees on natural gas, electric, cable television, and
telephone. There is considerable disagreement as to the magnitude of the reductions. Depending on legal
interpretations that eventually will be determined by the courts,the revenue reductions will vary. For the City of Fort
Collins, the low range estimate of revenue loss is approximately$4.3 million in the first year to a high estimate of
$11.5 million. The major revenue losses are in the City's sales and use taxes on utilities ($4 million), property tax
levy($1.4 million),and the property tax reduction to offset sales and use tax collected on food and drink(also about
$1.4 million). Some major cities in Colorado estimate the first year revenue reduction in their general funds to be
as high as 15%of total revenue. Some smaller districts believe that they will have to terminate operations due to the
loss of revenue in the very first year of implementation of the Amendment if the voters approve it.
EXECUTIVE SUMMARY:
A citizen initiative, which will appear on the November ballot as Amendment 21, proposes an
amendment to the Colorado Constitution that would provide for a high and constantly increasing tax
credit. The tax credit would adversely affect the City of Fort Collins and the services the City
provides to its residents and visitors. If passed the Amendment would also reduce revenues to
Larimer County, the City's Downtown Development Authority and General Improvement District
No. 1, the Northern Colorado Water Conservancy District,the Poudre Health Services District,the
Poudre Valley Fire District and the Larimer County Pest Control District. It is possible that the
Amendment will literally put many smaller local governments and districts out of business in the
first year of the tax cut implementation.
Analysis by the Colorado Municipal League, Colorado Counties, Inc., the Division of Local
Government, and other jurisdictions indicates that this Amendment will have severe effects on the
provision of governmental services. Based on this analysis, the management staff finds the
Amendment to be an inappropriate and misguided approach to tax reduction that would jeopardize
the public health, safety, and welfare of our community and the entire state of Colorado.
DATE: October 3, 2000 2 ITEM NUMBER: 30
BACKGROUND:
Of all the proposed initiatives on the fall ballot,the Colorado Municipal League has identified Tax
Cut 2000 as the most important to municipalities and services they provide to citizens.
The initiative will appear on the November 7, 2000 ballot as Amendment 21. (The wording of the
initiative and the ballot question are shown in Attachment 1.) The Amendment would add a new
section to Article X, Section 20 of the State Constitution. The new section, labeled (8)(d), is only
128 words long, but there has been substantial disagreement about how to interpret the provisions
of the new section. It is likely that the Colorado courts will have to interpret many of the sections
and their implementation over the next several years if the voters adopt the Amendment in
November.
Douglas Bruce of Colorado Springs authored the initiative. Mr. Bruce states that his intent was to
provide a modest tax cut to all families residing in Colorado. He estimates the total tax reduction
for an average family to be$555 in 2002. According to his calculations,the tax cut initiative will
merely slow down the rate of increase of taxes. According to the tax cut initiative proponents,
utilities and automobile ownership are basic needs and should not have heavy tax burdens. They
also state that the tax reduction measure will force elected officials to carefully evaluate tax breaks
and tax loopholes that large corporations receive.
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Analysis of the Amendment
The Colorado Municipal League, Colorado Counties,Inc.,the Division of Local Government, and
the Department of Revenue completed an analysis of the Amendment (see Exhibit 2). According
to the analysis, the Amendment applies to the following revenue sources:
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Occupation tax or franchise charge for telecommunications,electricity,and natural gas utilities
Sales and use tax on utility customer bills (telecommunications, electricity, and natural gas
utilities)
Sales and use tax on motor vehicles
Specific ownership tax on motor vehicles
Income tax
Property tax
Income tax equal to sales and use taxes on food and drink
Property tax equal to sales and use taxes on food and drink
Income tax equal to revenue from estate taxes
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City staff has used the CML analysis to estimate the revenue reduction due to the Amendment. The
estimates vary depending on what assumptions are being made. There are different interpretations
as to how several of the revenue sources are affected by the initiative. The City is now estimating
a range of revenue loss. On the low side, the amount of revenue reduction in the first year will be
about$4.3 million. On the high side,it could exceed$11 million in the first year. Over the next five
years, staff estimates the range of the revenue reduction to be between $62 million and nearly $98
million. Both of these figures will cause service reductions for the City of Fort Collins.
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DATE: cto er 3, 2000 3 ITEM NUMBER: 30
The impacts on the Poudre Valley Fire District,the City's partner in the Poudre Fire Authority, will
be more severe that those felt by the City. The District relies on property tax for nearly all of its
. revenue. The District's estimated loss in the first full year of implementation will amount to 12%
of its total revenue, rising to nearly 42% of total revenue in the fifth year.
Examples of Service Impacts
City management has begun to evaluate strategies to respond if the voters approve the amendment.
A list of examples of the types of services that are funded through transfers from the General Fund
to other funds is provided below. These are presented as examples for illustrative purposes only,
certainly not as recommendations.
Transfort. In 2001, the City's General Fund is scheduled to transfer $3.8 million to the Transit
Services Fund. These revenues help cover the costs of operating Transfort, the City's bus system.
Recreation. The General Fund transfer to the Recreation Fund is expected to be about$3.3 million
in 2001. To maintain and enhance the quality of life in Fort Collins, the City operates many
recreation programs. Some of the programs receive support from the General Fund.
Library. The City has made some important service improvements in the Library services it provides
over the past few years. The Library budget is planned to be about$3.6 million in 2001.
Traffic Signal System. The City has plans to upgrade the traffic signal system. The estimated cost
of this project is about$5 million.
• Police. The City is improving the Police staffing ratios. The City's police officer staff ratios are
lower than many other comparable cities. In the ten-year planning budget, the City has planned to
add officers each year to raise this level of service. To do so requires additional funding of$600,000
to $800,000 per year.
These are just a few examples of the services that the City of Fort Collins provides. These services
are supported primarily by sales and property tax revenue. It is unrealistic to think that a$4 to$11
million dollar loss in annual revenue will not reduce service. Simply put,it will. If Amendment 21
passes, the City Council and the voters will have many decisions to make.
Key Provision Interpretations
Will the State replace lost revenue?
As mentioned previously,there are several interpretations of sections of the proposed Amendment.
The most significant source of disagreement about the Amendment's wording is whether the State
will have to provide replacement revenue to local governments and districts. Mr. Bruce has
strenuously maintained that the second sentence requires that the State use portions of its revenue
to replace local and district revenue. Legal analysts that have reviewed the Amendment suggest that
the wording of the second sentence does not adequately describe the State's responsibilities
regarding replacement revenue. Representatives of the State have pointed out that in order to make
• replacement revenue available to city and district entities,the General Assembly would have to make
drastic budget reductions in State services and programs.
October , 2 4
DATE: ITEM NUMBER: 30
Are sales and use taxes on utilities subject to cuts?
Another second important source of disagreement about the wording of the Amendment is whether
sales and use taxes on utilities should be subject to the tax cuts. Mr.Bruce has indicated that it was
clearly his intention to include sales and use taxes on utilities in the revenues subject to tax cuts.
However,the first sentence does not explicitly list sales and use taxes on utilities. In fact,the term
"utility"is not explicitly defined. This is crucial to the City of Fort Collins because about$4 million
of sales and use tax revenue comes from various utilities. This issue will most likely be subject to
interpretation by the courts.
Revenue Reduction Due to the Amendment
The estimated effects of the Amendment vary because of the lack of consensus about the meaning
of the terms. Under the worst case scenario,the reduction of revenue in the first year is about$11.5
million. This level of revenue reduction assumes that property tax will be lost in the first year and
that the sales taxes on utilities are to be included in the tax cuts. Under the lowest revenue loss
assumptions, the level of reduction is $4.3 million. This scenario delays the impact of the property
tax reduction to the second year of implementation and does not include sales and use taxes on
utilities. The middle scenario assumes that property tax impacts will be felt in the second year and
that sales and use taxes on utilities are to be included in the tax cuts.
Below, staff has graphed the middle scenario. For ease of understanding, the benchmark for
comparison is the General Fund projected revenues for 2001 to 2005. According to the budget
projections,General Fund revenue should grow from$77.8 million in 2001 to$95.7 million in 2005.
If the Amendment passes and the City of Fort Collins takes no other action to increase the revenue
base, the graph shows the revenue in 2001 to be $69.4 million and to grow only slightly to $70.0
million in 2005. If these revenue projections are adjusted for population growth and inflation, the
spending capacity of the City will decrease over the period, from$69.4 million to $55.4 million.
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DATE: October 3, 2000 5 ITEM NUMBER: 30
Summary
The initial staff analysis was presented to and reviewed by the Finance Committee in August. The
Committee asked staff to present the attached Resolution to City Council. Staff believes this issue
to be extremely important to the financial well-being and ability to continue services to our citizens.
If the Amendment is approved by the voters, the Council will need to scale back many important
services. Staff recommends that Council adopt the Resolution.
Attachments
1. Wording of the Initiative and Wording of the Ballot Question
2. Colorado Municipal League Text and Features of Amendment 21
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. RESOLUTION 2000-126
OF THE CITY COUNCIL OF THE CITY OF FORT COLLINS
EXPRESSING ITS OPPOSITION TO PROPOSED AMENDMENT 21
WHEREAS, the City Council of the City of Fort Collins, Colorado (the "City"), pursuant
to the authority granted by Section 1-45-117(1)(b)(111)(A), Colorado Revised Statutes, may adopt
a resolution taking a position of advocacy on any state-wide ballot issue; and
WHEREAS,a citizen initiative which,proposes an amendment to the Colorado Constitution
that will institute a substantial and ever-increasing reduction in a wide array of State and local
government taxes and other charges, will be on the ballot as Amendment 21 (the "Amendment"),
for the state-wide election in November; and
WHEREAS, the Amendment contains vague wording and is imprecisely drafted and will
result in extensive litigation if it passes; and
WHEREAS,the Amendment will have an immediate and substantial adverse impact on the
ability of local governments, such as the City, to provide the public facilities and services that their
citizens have come to expect; and
WHEREAS, according to current projections, if passed, the Amendment will reduce the
. City's general governmental budget by $4.3 to $11.5 million in the first year, which amount will
continue to increase in subsequent years; and
WHEREAS, the City Council finds that the Amendment is an inappropriate and misguided
approach to tax reduction that could immediately jeopardize the public health, safety, and welfare
by dramatically reducing and even eliminating the ability of the City to provide many important
facilities and services to its citizens; and
WHEREAS,the City Council finds and determines that the public interest requires it to take
formal action opposing the Amendment.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
FORT COLLINS, that the City Council hereby expresses its opposition to Amendment 21.
Passed and adopted at a regular meeting of the Council of the City of Fort Collins held the
3rd day of October, A.D. 2000.
Mayor
ATTEST:
City Clerk
. Attachment 1
Wording of the Initiative:
Be it Enacted by the People of the State of Colorado: Article X,section 20,The Taxpayer's
Bill of Rights, is amended to add:
(8)(d)Tax cuts. A $25 tax cut, increased$25 yearly(to $50, $75...), shall lower each tax in each
tax bill for each 2001 and later district: utility customer and occupation tax and franchise charge;
vehicle sales,use,and ownership tax;yearly income tax;property tax;income and property tax equal
to yearly revenue from sales and use taxes on food and drink other than tobacco and alcohol; and
income tax equal to yearly revenue from estate taxes. (8)(d)tax cuts and state replacement of local
revenue shall not lower state or local excess revenue, the state may limit local acts increasing
replacement costs,joint income tax returns equal two tax bills,and attorney fees and costs to enforce
(8)(d) shall always be paid to successful plaintiffs only.
Wording of Amendment 21 as it will appear on the November 7, 2000, ballot:
Shall there be an amendment to the Colorado constitution establishing a$25 tax cut to lower each
2001 state and local tax in each tax bill for each utility customer and occupation tax and franchise
charge, vehicle sales, use, and ownership tax, income tax, property tax, income and property tax
equal to yearly revenue from sales and use taxes on food and drink other than tobacco and alcohol,
and income tax equal to yearly revenue from estate taxes, and, in connection therewith, increasing
the tax cut $25 yearly; specifying that the tax cuts and state replacement of local revenue shall not
lower state or local excess revenue; allowing the state to limit local acts increasing replacement
costs; and providing that attorney fees and costs shall always be paid to successful plaintiffs only?
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