HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 02/01/2005 - RESOLUTION 2005-009 EXPRESSING THE CITY COUNCILS O ITEM NUMBER: 30
AGENDA ITEM SUMMARY DATE: February 1, 2005
FORT COLLINS CITY COUNCIL STAFF: Darin Atteberry
Alan Krcmarik
SUBJECT
Resolution 2005-009 Expressing the City Council's Opposition to the Citizen Initiated Ballot
Measure Which Would Repeal the City's Sales Tax on Grocery Food.
RECOMMENDATION
The Council Finance Committee and the City Manager recommend adoption of the Resolution.
FINANCIAL IMPACT
The proposed Ballot Measure No. 1 decreases the sales tax on grocery food in three steps. If
voters approve Ballot Measure No. 1, the City's sales tax for general government uses will
decrease by approximately $1.9 million in 2005, an additional $1.9 million in 2006, and an
additional $2.0 million in 2007. The cumulative effect of the revenue reductions will be
approximately $6 million in 2007. The City will have to find alternative revenue sources or cut
services or a combination of the two. The tax represents 12.7% of the sales tax collected for
general government uses.
EXECUTIVE SUMMARY
A group of citizens submitted a petition with a sufficient number of signatures to have Citizen
Initiated Ordinance No. 2, 2004, Relating to the Elimination of Sales Tax on Grocery Food,
placed on the ballot in the upcoming April 5, 2005, City election. On January 14, 2005, the
Council Finance Committee (Mayor Pro-tem Bertschy, and Council Members Eric Hamrick and
Kurt Kastein) met to review and discuss the Ordinance. By the year 2007, the revenue loss due
to the elimination of the sales tax on grocery food will be approximately $6 million. In
combination with other budget cuts made during the prior three years, the funding reductions to
support City-provided services will exceed $12 million. This level of revenue reduction and
service elimination will have a drastic and continuing effect on the economic health of the City
and its ability to provide services to citizens. Based on the analysis provided by staff, the
Committee recommended that a resolution be developed opposing Ballot Measure No. 1 and
presented to the entire Council for discussion and consideration for adoption on February 1,
2005.
February 1, 2005 -2- Item No. 30
BACKGROUND
Below are a number of questions and answers about the taxation of grocery food. This
information was first provided to Council in the fall of 2004. Figures have been updated where
more up-to-date information is available.
City of Fort Collins voters first approved sales and use taxes effective January, 1968. The tax
rate was 1.0% and grocery food for home consumption was included as a taxable item. The
sales tax base was intended to be broad in order to maintain an overall low tax rate. Since 1968,
the base sales tax rate has risen to 2.25% - still lower than the average Colorado municipal sales
tax rate of 2.82%.
Citizen's Tax Committee formed in the late 1970's first recommended a rebate of sales tax on
food for low income families. An October 4, 1979 Citizen's Tax Committee report to the Fort
Collins City Council recommended that the City discontinue taxing grocery food — but instead
raise the sales tax from 2.0% to 2.5% to make up for the lost revenue. The recommendation was
made to coincide with the State of Colorado's exemption for grocery food that became effective
in 1979. The City did not choose to follow this recommendation.
In 1984, City Council adopted Ordinance No. 174, 1984 to provide a sales tax rebate on food for
low income residents. Also in 1984, voters approved two new quarter-cent sales taxes for which
grocery food was exempt. Grocery food has continued to be exempt from each new quarter-cent
sales tax that has been approved since 1984 — leaving grocery food to be taxed at the base rate of
2.25%.
What is the proposed initiative? If passed by voters, the initiative will repeal the sales tax that
the City currently collects on food purchased for domestic home consumption. The 2.25% tax
would sunset over a three-year period. In 2004, the City collected $5,645,169 in sales tax from
grocery food.
What is the projected impact on the City's budget? The sales tax from grocery food was
12.7% of the sales taxes collected for the general fund in 2004.
February 1, 2005 -3- Item No. 30
City of Fort Collins
13% Sales Tax Collections
2004
p General Fund Sales Tax =
-.,.� $44.3 million
h.
❑ Sales Tax From Grocery Food
_$5.6 million
87%
What is the tax used for? The sales tax on food is used for general fund services. Those
services include: police services (including uniformed officers); fire prevention and protection,
cultural, library and recreation; community planning and environmental services;
communication and technology; administrative services; and other programs that meet special
needs.
What does the exemption mean? By exempting grocery food from the sales tax base, the City
would narrow its existing base. Possible ways to offset the narrower base could include
increasing the tax rate or decreasing services. Based on a recent survey from the Colorado
Municipal League (CML), self-collected cities that do not tax food have a much higher rate of
tax than the cities and towns that include grocery food in their sales tax base. The difference is
significant. With food in the base, the average rate is about 3.15%; with food exempted, the
average rate is 3.95%.
By including grocery food in the revenue base, economists note that "governments are more
assured that their revenue base can finance a floor of governmental services in difficult
economic times." (Mikesell: 1996)
Who pays the tax on grocery food? Both residents and non-residents of Fort Collins, including
students and tourists pay the 2.25% tax on grocery food. Recent studies indicate that about 35%
of the sales tax paid in Fort Collins comes from non-residents who shop here. The only group of
people who do not pay a sales tax on food are low-income families who purchases their groceries
with food stamps.
Wouldn't most of the tax savings from this exemption go to the poor? No. The bulk of the
tax savings would go to the most affluent households, and those savings would not benefit low
income households that participate in the City's sales tax on grocery food rebate program.
Under the program, an average household (2.5 persons) currently is eligible for$100 of sales tax
rebate. According to recent studies, the grocery tax burden on these households is about $75, so
the low income residents of the City are eligible for full reimbursement of the taxes they pay on
grocery food. Moreover, the Council is, on this same agenda, considering an amendment to that
program that would greatly expand the group of persons eligible for the rebate.
February 1, 2005 -5- Item No. 30
3. Reduction of the City's sales tax revenues will have a profound effect on services for all
citizens.
4. Sales tax is sensitive to economic cycles and keeps pace with inflationary periods.
Are there other legal or financial concerns with the proposed ballot measure? Yes. In
2003, the City issued sales and use tax refunding bonds which mature in 2009. In the ordinance
issuing those bonds, the City pledged not to amend the provisions of the Sales Tax Code in such
fashion as to diminish the City's sales tax revenues, since those revenues are pledged to the
payment of the bonds. The City Attorney is of the opinion that, if the City amends the Code as
to reduce sales tax revenue prior to December 1, 2009, as would be required by passage of this
ballot measure, the City would violate the foregoing bond covenant and such action would likely
constitute an impairment of contracts that is prohibited by the Colorado Constitution.
Additionally, the Financial Officer projects that such action could have a very substantial
negative impact on the City's outstanding bond ratings.
The Council Finance Committee has reviewed four possible scenarios for budget reductions that
may be implemented if the ballot measure is approved by the voters. Summaries of the scenarios
are attached for information purposes.
For these reasons, both the Finance Committee and the City Manager strongly recommend that
Council adopt this Resolution opposing the repeal of the City sales tax on grocery food.
ATTACHMENTS
1. Potential Budget Reduction Scenarios Working Document (Scenarios 1-4)
POTENTIAL BUDGET REDUCTION SCENARIOS WORKING DOCUMENT
Grocery Tax Repeal
December 16, 2004
Scenario 1 Scenario 2
Element Amount Element Amount
I Don't hire 8 approved police positions 799,763 1 Don't hire 8 approved police positions 799,763
*2 Don't hire PFA Emergency Medical 95,000 2 Don't hire additional staffing for PFA 245,000
Services Coordinator South Ladder Truck
3 Don't hire new Code Enforcement Officer 64,049 3 Don't.hire new Code Enforcement Officer 250,000
and eliminate one field inspector
4 Reduce Dial-A-Ride service for elderly 750,000 4 Reduce Dial-A-Ride service for elderly 750,000
and disabled by 40 percent and disabled by 40 percent
5 Reduce 100%of General fund support for 736,000 5 Reduce 100%of General fund support for 736,000
Affordable Housing Program Affordable Housing Program.
6 Close Youth Activity Center in 2007 464,000 6 Eliminate City support for community 370,456
social service agencies and needs
7 Reduced trash pick-up in parks,close 692,737 7 Close Harmony Park-n-Ride 108,500
restrooms in neighborhood parks,eliminate
flower gardens and fireworks,substantially
reduce tree,parks and trail maintenance
8 Reduce Library hours and eliminate 476,000 , 8 Close Youth Activity Center in 2007 464,000
or reduce special programs
9 Reduce snow removal and eliminate 204,000 9 Reduce snow removal,eliminate 284,000
striping of residential streetsstriping of residential streets and
reduce frequency of street sweeping
10 Close Human Rights Office 103,205 10 Suspend Electronic Engineering 140,000
Document Management
11 Eliminate City support for community 370,456 11 Close Human Rights Office 103,205
social services agencies and needs
*12 Postpone Replacement of PFA Equipment 660,000 12 Eliminate Neighborhood Resources 392,598
Office;eliminates neighborhood and
workplace mediation programs and all
neighborhood support services
13 Eliminate active designation,rehab and 118,338 13 Close Gateway Mountain Park 124,271
preservation of historic structures
14 Slow implementation of Economic Vitality 100,000 14 Reduce Air Quality,ClimateWise,and 431,000
and Sustainability Action Plan special recycling programs; close
Rivendell recycling center
15 Reduce Cable/Media Services; 306,400 15 Slow implementation of Economic Vitality 100,000
Service delays in Risk Management, and Sustainability Action Plan
Facilities and Real Estate Services;
Eliminate Closed Captioning for Council
Meetings;Eliminate annual video report 16 Reduce Pavement Management Service 300,000
17 Reduce training and departmental 80,167
Geographic Information Systems support
18 Reduce Cable/Media Services;Service 306,400
delays in Risk Management,Facilities
Real Estate Services;Eliminate Closed
Captioning for Council Meetings;Eliminate
Annual video report
Total Budget Reductions 5,939,948 Total Budget Reductions 5,985,360
Total Positions(FTE)Eliminated 44.79 Total Positions(FTE)Eliminated 44.05
*If we proceed with the 2005 budget enhancements to open Fire Station#14,these are potential PFA reductions.
POTENTIAL BUDGET REDUCTION SCENARIOS WORKING DOCUMENT
Grocery Tax Repeal
January 14, 2005
Scenario 3-No Reduction in Any Primary Services Scenario 4-No Reduction in Police or Fire Services
Element Amount Element Amount
I Code Enforcement-don't hire new Code 250,000 1 Code Enforcement-don't hire new Code 250,000
Enforcement Officer and eliminate Enforcement Officer and eliminate
one field inspector one field inspector
2 Planning-reduce long-range planning 400,000 2 Transfort-reduce Dial-A-Ride service 750,000
services&the ability to do special long- for elderly and Af$6b.10d by 40 percent
range planning projects
3 Boards&Commissions-reduce 40,153 3 Affordable;HOWiug-reduce 100%of 736,000
monitoring&support services provided General::fun... on for Affordable
by City Clerk for boards&commissions HousingiPio '"
4 Recreation Programs-Close Mulberry Pool 450,000 4 P16a(}(l(g'-Closd'Hk3(llpny Park-n-Ride 108,500
&eliminate programs at Senior Center& "' ''' '`"'•'•
other recreation facilities
5 Close Youth Activity Center 464,000 Youth Activity Ceiiii i ;,; 464,000
6 Cultural Services-Reduce room 234,600 ::::;:'6 Parks-reduce trash pick-up ni$j Y!p close 692,737
rental support,custodial services& restrooms,ni neighborhood parks;i Hirrmate
administration at Lincoln Center&reduce ':?;.;.;:;; flower gaZns and fireworks,substp£zally
budgetfadmin service at Museum ,, reduceJnw',"parks&trail maintenance
7 Library-reduce hours&eliminate or 476,000 7 Library'=reduce hours&eliminate or 476,000
reduce special programs at Main Library - "'i i iediice special programs at Main Library
8 Library-Close Harmony Library x''39t685 8 {l$ls/TiaffiC-reduce snow removal, 284,000
•••;•••- •••�•••-••••.-••� eliminate striping of residential streets and
••'•'••"• ":•••"'••'•" • reduccifleituency of street sweeping
9 Human Rights-Close Human Rights Office 103;205 5::9.. Human R9gh'ts,-Close Human Rights Office 103,205
(a)10 Engineering-suspend electronic 140r tigineenng-',Wspend electronic 140,000
document management -•••••••r••••- •- 'A tflitftit,management
11 Social Services-eliminate City . . .... li •':- 37Q4G..•_• 1 I Soctal.Sseivices-eliminate City support 370,456
for community social services agencies ,;,._, " ='" for community social services agencies
&needs(Larimer County contract} &needs(Larimer County contract)
12 Neighborhood Resources close the 392,598 12 Neighborhood Resources -close the 392,598
Neighborhood Resources office`.. Neighborhood Resources office
13 Historic Preservation-eliminate.:F;le£ive .:.mi ..•.... ':a 8,338 13 Historic Preservation-eliminate active 118,338
designation,rehab and preservafiorx,,•••.. „• „•;; ,•,.; •,•,••,•,•_.;..,,, designation,rehab and preservation
of historic strpp(ylr{t .ii•i
of historic structures
14 Council Policy eliminate policy suppt5} 88,601 14 Natural Resources-reduce Air Quality, 431,000
program,$f0),, pCcial projects pttd pphcy ClimateWise,and special recycling
research ai it :"• =:., programs; close Rivendell recycling center
15 Economic..-slow implementation'ofEcnnomic" �,;;•. 100,000 15 Economic-slow implementation of Economic 100,000
Vitalityaia;Sustainability Action Plan::'::• -•••-••••••- Vitality and Sustainability Action Plan
16 InfonnatiosiTechnology-combine&iiicir?. "" 200,000 16 Engineering-reduce Pavement 300,000
consolidate ing(()ji functions within certglRj;; Management Service
city departments'
17 GIS-reduce trainingiiand.support servu;cas i 809167 17 GIS-reduce training and support services 80,167
to departments/communiyY;,, ""'-""':" to departments/community
(b)18 Parks-Close Gateway 124,271 18 Parks-Close Gateway Mountain Park 124,271
......:.....................
19 Parks-Reduction of Parks services not 195,745 19 Reduce Cable/Media Services;Svc delays 306,400
related to Parks maintenance&.'CLRS in Risk Mgmt,Facilities&Real Estate Svc's;
administration eliminate Closed Captioning for Council
Meetings;Eliminate Annual video report
20 Legislative-eliminate legislative support 77,959
&lobbying
21 Administrative&Support Services 1,142,241
Total Budget Reductions 5,988,019 Total Budget Reductions 6,227,672
Total FTE's Eliminated 68.23 Total FTE's Eliminated 53.14
(a) Engineering is a Primary service;however electronic document management is not mandatory to continue Engineering services and it was suggested
that this be considered for reduction.
(b) While technically,the operation and maintenance is a Primary,service,because of it's location it was suggested that closure be considered.
RESOLUTION 2005-009
OF THE COUNCIL OF THE CITY OF FORT COLLINS
EXPRESSING THE CITY COUNCIL'S OPPOSITION TO THE
CITIZEN INITIATED BALLOT MEASURE WHICH WOULD REPEAL
THE CITY'S SALES TAX ON GROCERY FOOD
WHEREAS, as a home rule city, the City of Fort Collins is authorized by law to generate
revenue through taxes, fees, special assessments and other funding mechanisms; and
WHEREAS,the City,like other home rule municipalities in Colorado,depends heavily upon
the revenue generated by its sales and use taxes in order to provide a wide variety of governmental
services and facilities that are essential to the health, safety and welfare of its citizenry; and
WHEREAS,historically,the City has used its revenue sources judiciously and has developed
infrastructure and services that have provided the residents of the City of Fort Collins with a safe,
vibrant, economically viable, and attractive community in which to live, work and raise their
families, as well as a quality of life that has been nationally recognized for its excellence; and
WHEREAS, the City's current "base" sales tax of 2.25% is the cornerstone of the City's
revenue stream; and
WHEREAS, this base sales tax is imposed on all taxable items sold in the City, including
grocery food; and
WHEREAS,a citizen initiated measure(the"Ballot Measure")has been proposed and placed
on the ballot at the next regular City election on April 5, 2005 which, if approved by the voters
would, over time, entirely repeal the City's sales tax on grocery food; and
WHEREAS, once fully implemented, the repeal of the sales tax on grocery food would
reduce City revenues by approximately six million dollars per year which represents 12.6% of the
City's General Fund budget; and
WHEREAS, this reduction in revenue would compound recent revenue shortfalls
experienced by the City as a result of a downturn in the economy; and
WHEREAS,these revenue shortfalls have already reduced the City's general fund operating
budget by approximately six million dollars per year, making the delivery of ongoing City services
more difficult; and
WHEREAS, the additional reduction in revenues that would result from voter approval of
the Ballot Measure would necessitate drastic reductions in City services that would adversely affect
the health, safety, welfare and quality of life of all City residents and would jeopardize the City's
ability to maintain the level of governmental services that have made Fort Collins an exceptional
place to live and work; and
February 1, 2005 -4- Item No. 30
What would this tax cut mean along with the recent decreases in sales tax collections? The
City of Fort Collins has been through difficult economic times the last three years. In the past
three years, sales and use tax collections fell short of original budget projections, leading to cuts
in programs and services. The City's outlook is that programs and services will have to remain
below previous levels until the economy regains enough strength to support them.
It is very difficult to find and for voters to reinstate tax revenues once they have been reduced --
especially when a recession rolls around or when budgets are otherwise pressured. The reduced
amount of revenue to the City's general fund would be about $6 million when the final phase of
the amendment is implemented.
How common is it to have a sales tax on food? Of the 58 Colorado cities and towns that
collect their own sales taxes, 47 (over 80%) tax grocery food. Of all cities and towns in
Colorado that have a sales tax, 82% of them include grocery food in the tax base.
Is Fort Collins the largest City in Colorado to tax grocery food? No. Lakewood taxes
grocery food. Of the larger cities who exempt grocery food, all have higher base tax rates than
Fort Collins' 2.25% rate. Aurora at 3.75%, Denver at 3.5%, and Colorado Springs at 2.5%
exempt grocery food. The State of Colorado does not tax grocery food, but has a base rate of
2.9%. The following table shows the tax rate for grocery food in neighboring communities.
Sales Tax Rate for
City Grocery Food
Loveland 3.0%
Greeley 3.46%
Estes Park 4.0%
Johnstown 3.0%
Windsor 3.2%
Cheyenne, Wyoming 6.0%
Couldn't the reduction in sales tax revenues be absorbed by the City through increased
efficiencies? The City always seeks to improve the efficiency of services, and while it takes
time for all of the efficiencies to be demonstrated in dollar savings, the productivity gains will be
minor when compared to the large loss of funds if this initiative is approved by the voters.
Is there anything else about the sales tax on grocery food?
1. Food is a basic necessity, but like shelter, utilities and clothing, it is subject to City sales
tax as a percentage of the final price. Sales tax on food is an appropriate form of taxation
in Colorado, and is utilized by many municipalities including Fort Collins. The broader
the base the more fair the tax.
2. CML's 2004 annual report opposes further reductions in state and local sales and use tax
rates. CML also supports a broadening of the state sales and use tax base. (Elimination
of the state's tax on grocery food was the single largest exemption ever provided by the
State of Colorado.)
WHEREAS,the City Council Finance Committee,working with the City Manager and other
members of City staff,has identified four cost reduction scenarios that it believes maybe necessary
if the Ballot Measure is approved by the voters; and
WHEREAS, in the opinion of the City Attorney, the approval and implementation of the
Ballot Measure would violate a covenant that is contained in a 2003 bond ordinance approved by
the City council in connection with the refunding of certain sales and use tax bonds, in which the
City promised not to reduce the sales tax revenues pledged to the payment of the bonds, and such
action would unconstitutionally impair the contract thereby established between the City and its
bondholders; and
WHEREAS,the repeal of the City's sales tax on grocery food would serve no useful purpose
for low income residents of the City, since the City already has in place a sales tax rebate program
which makes it possible for low income residents to obtain a full rebate of the sales tax they pay on
grocery food; and
WHEREAS, the proponents of the Ballot Measure have publicly acknowledged that the
purpose of the measure is to reduce the size of City government which will, in turn, reduce the
number and quality of services provided by the City; and
WHEREAS, the City Council strongly believes that such reduction in services is not in the
best interests of the City, and wishes to urge the electors of the City to vote against the Ballot
Measure; and
WHEREAS, the Council Finance Committee has, after thorough review of the Ballot
Measure and its potential impacts on the provision of City services, recommended that the City
Council adopt a resolution opposing the Ballot Measure, as permitted by law.
NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT
COLLINS that, for the foregoing reasons,the City Council strongly opposes the proposed repeal of
the City's sales tax on grocery food and urges the registered electors of the City to vote against the
Ballot Measure.
Passed and adopted at a regular meeting of the Council of the City of Fort Collins held this
I st day of February, A.D. 2005.
Mayor
ATTEST:
City Clerk