Loading...
HomeMy WebLinkAboutAgenda - Mail Packet - 10/22/2013 - Council Finance Committee Agenda & Ura Finance Committee Agenda - October 21, 2013Council Finance Committee & URA Finance Committee Agenda Planning Calendar 2013 RVSD 10/17/13 kw Oct. 21 TOPIC TIME WHO CFC Policy Discussion Related to Capstone/Summit Loan 20 min M. Beckstead Revenue Policy Review 30 min J. Ping-Small New Fees Review – In advance of Nov 26th work session 30 min J. Ping-Small Foothills Mall Financial Review 30 min M. Beckstead URA URA Direction / Policy / Process 30 min J. Birks Nov. 18 TOPIC TIME WHO CFC Transfort Business Review 60 min Ravenschlag Budget Policy Review 30 min L. Pollack Investment Policy Review 5 min J. Voss URA Dec. 16 TOPIC TIME WHO CFC Policy Review – Reserve/Fund Balances 30 min J. Voss Audit Findings and Recommendations: Corrective Actions 15 min J. Voss PFA IGA Revenue Allocation Formula 30 min M. Beckstead URA Jan. ? TOPIC TIME WHO CFC URA Future Council Finance Committee Topics: • Revenue Implications of Annexation • Financial Management Policy Reviews during 2013 – Quarterly Commitments • Review Special Improvement Districts • Rebate Update (Q1 2014) Future URA Committee Topics: Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee October 21, 2013 10:00 to noon CIC Room – City Hall Approval of the Minutes from the September 16, 2013 meeting 1. Policy Discussion Related to Capstone/Summit Loan 20 minutes M. Beckstead 2. Revenue Policy Review 30 minutes J. Ping-Small 3. Street and Park Maintenance Fees 30 minutes J. Ping-Small 4. Foothills Mall Financial Review 30 minutes M. Beckstead 5. Scheduling Conflicts for 2014 Meetings 02 minutes M. Beckstead 6. Long Range Financing Plan—Update 02 minutes M. Beckstead 7. Council Work Plan—Update 02 minutes M. Beckstead 8. Flood Appropriation—Update 02 minutes M. Beckstead Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Council Audit & Finance Committee Minutes 9/16/13 10:00 to 12:00 CIC Room Council Attendees: Mayor Karen Weitkunat, Bob Overbeck Staff: Timothy Allen, Darin Atteberry, Mike Beckstead, Megan Bolin, Steve Catanach, Chris Donegon, Brian Hergott, Brian Janonis, Tom Leeson, Ken Mannon, Lawrence Pollack, Wayne Sterler, Lance Smith, Steve Roy, John Voss, Katie Wiggett Others: Dale Adamy, Douglas Donne, Daniel Parsons, Allen Shuman Approval of the Minutes Mayor Karen Weitkunat moved to approve the minutes for the August 18 meeting. Bob Overbeck seconded the motion. Minutes approved unanimously. Block 32 Master Plan Review Darin Atteberry explained that several years ago, Council allocated funds for improving the 700 Wood Street facility. Before spending the funds, Utilities realized that a new building on Block 32 would better solve long-term needs. The City of Fort Collins teamed up with RNL Design to look at a master plan for Block 32 and see how it can be developed and where a new Customer Service Building might be located on this block. As a Utility Customer Service Building would be the first of several improvements to Block 32, it is necessary to have a plan for Block 32 before beginning construction on the new Utility building. RNL has developed several possible designs that incorporate the City’s vision, mission and values and support a long-term vision for the City. Brian Janonis explained that 700 Wood Street is an older building that is actually several buildings which have been combined into one over the past 30 years. The resulting facility is one of the least energy efficient buildings the City owns. Substantial improvements are necessary to address the inefficiencies. An evaluation of the costs associated with these improvements and the necessary addition revealed that it is a better long term investment to construct a new building and renovate a portion of the existing vs. a full renovation and addition to 700 Wood Street. Councilmember Bob Overbeck and Mayor Weitkunat asked several questions about the proposed plans for Block 32. While Ken was able to present 3 rough sketches, more detailed and readable plans will be necessary for a Council discussion and decision. 2 The mayor noted that the first thing Staff needed to look at was how it messages this project to Council and the public. Staff needs to present the need and show how this will be a positive thing for staff and citizens. Staff should be focusing on social benefit of providing public service in a convenient location. Utility Building/Financing Lance Smith led a discussion on how a new Utilities Customer Service and Administration building would be financed. Staff recommends a revenue bond to finance this project. Preliminary discussions have resulted in the recommendation that the revenue bond be issued out of one utility fund rather than having four separate, smaller revenue bonds coming to market at once. Because the Light & Power Enterprise Fund is the largest utility fund, and it has debt capacity in excess of $50M, it is the recommended utility fund. The other three utility funds would make annual transfers to cover their portion of the debt repayment. This issuance will be for $15.5M, leaving more than $35M in debt capacity. The only identified potential need for future debt issuance in the Light & Power Fund is for the Mulberry Annexation which is several years into the future and is expected to be $10-15M. In addition to the new building, this debt issuance would also allow for the renovation of existing space at 700 Wood Street to meet growing operational needs. Together, the construction of the new building and the renovation of the existing building are expected to cost $20M. Currently, the Light & Power Fund has $4.5M in Reserves for this effort, leaving a need for $15.5M to be financed. The new building would initially have unused space for the Utilities to grow into in the future. The City’s Sustainability Services department could utilize this space through a lease arrangement which would provide some revenue toward the debt obligation. Incremental revenues from expiring and new service agreements are sufficient to cover debt obligations. This is significant because it means we should not have to adjust utility rates to finance these improvements. Utilities is seeking guidance on whether Council wants Fort Collins Utilities to continue to study and design this new building and bring forth a bond ordinance to the Electric Utility Enterprise Board and an appropriation request to City Council in early 2014 for this project. Construction could begin as soon as May 2014 so it will be necessary to bring the bond ordinance before the City Council and Electric Utility Enterprise Board in early 2014 for action. Lance presented an estimated timeline that included several boards that would be consulted. The Mayor asked that the Parks board be added to the list. Darin asked that Utilities also bring the information to the DDA. The Mayor again emphasized the need for public outreach that emphasizes the social good of this project. Darin noted that this improvement is part of moving toward Utilities of the 21st Century. It’s an important, significant improvement for the community. It will also be a great boon for downtown businesses as it will bring 135 more City employees to the downtown area. The Mayor asked if a 25 year plan is adequate and appropriate. Darin noted that this would be similar to the Police Building plan. Ken Mannon agreed that a 50 year plan may be better and he will look into what a 50 year plan would look like and whether it would be possible. Clean-up Memo Going to Council – Questions? Lawrence Pollack asked if Council Finance had any questions concerning the 2013 Clean-up Ordinance that is going to City Council for 1st reading on October 1, 2013. Bob Overbeck noted that he would like it 3 to be clearer whether the allocation for Cable 14 also includes Chanel 97. Mike Beckstead said that he will look into the specifics of what was being asked for. The Mayor asked whether No. A. 5 and No. C.2 are actually the same monies. Lawrence confirmed that they are and this will be corrected before first reading. Next Steps Staff will redesign the presentation of the Block 32 Master Plan to better speak to the social side of the project. Staff will bring the Clean-up Ordinance to Council on October 1, 2013. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Mike Beckstead, Chief Financial Officer SUBJECT FOR DISCUSSION: Financial Management Policy Format and Introduction EXECUTIVE SUMMARY: A current matter before the Council concerns the interest rate proposed on a loan between the City and the Fort Collins Urban Renewal Authority (URA). A deviation from the current investment policy is proposed to Council because of a short fall in estimated revenue and an increase in interest costs from the September 2011 estimates when Council approved a commitment to support the Capstone/Summit project. The City Attorney has recommended language be included within the Financial Management Policy that specifically states that the policies are developed per the Charter to provide guidance to staff, and that the Council has the ability to approve exceptions to the policies, either by resolution or ordinance, if it determines that doing so is in the best interests of the City. Staff and the CAO think the best place for this clarification belongs in the introduction section of the Financial Management Policy document and not within each individual policy. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Council Finance Committee agreement to the proposed Introduction section of the Financial Management Policy document. BACKGROUND/DISCUSSION Staff has committed to review and update the existing Financial Management Policies of the City with Council Finance during 2013. Other priorities has caused these reviews to be delayed, however the Debt Policy was reviewed in August, the Revenue Policy is to be reviewed in October, and the Budget, Investment & Reserve/Fund Balance Policies will be reviewed in November and December. During this review, staff has implemented a new standard format for all financial policies and is updating existing policies to the new format as part of the review. A current matter before the Council concerns the interest rate proposed on a loan between the City and the Fort Collins Urban Renewal Authority (URA). A deviation from the current investment policy is proposed to Council because of a short fall in estimated revenue and an increase in interest costs from the September 2011 estimates when Council approved a commitment to support the Capstone/Summit project. The City Attorney has recommended language be included within the Financial Management Policy that specifically states that the policies are developed per the Charter to provide guidance to staff, and that the Council has the ability to approve exceptions to the policies, either by resolution or ordinance, if it determines that doing so is in the best interests of the City. Staff and the CAO think the best place for this clarification belongs in the introduction section of the Financial Management Policy document and not within each individual policy. ATTACHMENTS 1. Financial Management Policy – Introduction Section Financial Management Policies Introduction Section I and II of the attached are Financial Management Policies adopted by the Council of the City of Fort Collins, pursuant to the provisions of Article V, Section 12 of the City Charter, to guide the administration management, deposit and investment of City funds and to foster sound and efficient financial planning and management of the City’s financial affairs. They reflect the current requirements and laws that apply to the City’s financial activities and, in the judgment of the City Council, represent the best financial practices for the City. The formulations of these policies has been guided by input and standards derived from nationally recognized organizations such as the Government Finance Officers Association (GFOA), National Advisory Council on State and Local Budgeting (NACSLB), and International City and County Managers Association (ICMA). A key objective of these Financial Management Policies is to provide a central location for all Council approved financial policies. Nothing herein is intended to supersede the provisions of the City Charter or City Code. Rather, these policies are intended to provide more detailed rules and guidelines to be used by decision makers, management staff, and other City employees in administering the financial affairs of the City. To supplement and implement these Financial Management Policies, and to further preserve and strengthen the financial health of the City, the City Manager and City Financial Officer may, in carrying out their respective duties and responsibilities under the City Charter and City Code, adopt any such additional administration policies as they deem necessary for that purpose. These additional administrative financial policies are included in Section III. Such policies will generally be more detailed and operationally focused. If, from time to time, the City Council determines that changing circumstances or changing objectives warrant revisions or exceptions to these Financial Management Policies, the City Council may approve by resolution or ordinance such amendments or exceptions to the same as the City Council considers to be in the best interest of the City. The City Financial Officer with concurrence of the City Manager may at times determine that changing circumstances or changing objectives warrant revisions or exceptions to the administrative financial policies. INDEX REF. # POLICY TITLE/SECTION Last Update Approver Page Section I – City Financial Management Policies 1 Budget 11/15/2005 City Council 2 Revenue 11/15/2005 City Council 3 General 11/15/2005 City Council 4 Fund 04/15/2008 City Council 5 Reserves (Fund Balance) 04/15/2008 City Council 6 Capital Improvement Funds 11/15/2005 City Council 7 Debt 11/15/2005 City Council 8 Investments 12/18/2012 City Council Section II – City Council Decisions related to URA Financial Management Policies URA TIF Financing Incentives (in process) TBD City Council COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Jessica Ping-Small, Controller/Assistant Financial Officer SUBJECT FOR DISCUSSION: Updated Revenue Policy EXECUTIVE SUMMARY: The Revenue Policy has not been updated in many years. Staff has developed a new framework for updating, controlling, formatting and publishing financial policies. The most significant change to the Revenue Policy is the inclusion of 5 revenue principles that provide staff and City Council a foundation for making sound financial decisions that will provide the citizens of Fort Collins a diverse, stable and fair revenue stream equipped to provide the services necessary to keep Fort Collins great. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Are there any questions about the new policy? 2. Are there any changes requested? 3. Is the policy ready to bring to City Council for consideration and approval? BACKGROUND/DISCUSSION The current revenue policy evolved as part of the Budget document. In that context it focused on explaining revenue concepts rather than setting policy. Staff has come up with a new format for financial policies. Because of the major overhaul in both format and content, it was impractical to use strike through and underline new text. The only significant change to the revenue policy’s content is the addition of 5 revenue principles: 1. Maintain a diverse revenue base 2. Maintain a stable revenue base 3. Cultivate revenue sources that are equitable among all economic levels 4. Generate adequate revenue to maintain core service levels 5. Maintain healthy reserves These revenue principles provide staff and City Council a foundation for making sound financial decisions that will provide the citizens of Fort Collins a diverse, stable and fair revenue stream equipped to provide the services necessary to keep Fort Collins great. The principles were presented to the Council Finance Committee and the Futures Committee in 2012 as part of the ongoing revenue diversification study. ATTACHMENTS 1. PowerPoint presentation 2. New Revenue Policy (proposed) 3. Old Revenue Policy (current) 4. 2012 Revenue Diversification presentation 1 Council Finance Committee Revenue Policy October 21, 2013 2 New Policy Framework • Uses newly created format • Assigns persons responsible for policy • Keeps language simple • Eliminates or minimizes non-policy language • Tracks policy versions • Provides direction on where to seek help interpreting policy Staff Will Bring Additional Policy Revisions to Council Finance Using the New Framework 3 Revenue Policy Update - Approach • Reviewed existing City of Fort Collins revenue policy • Information presented to Council Finance and Futures Committee in 2012 as part of Revenue Diversification analysis • Researched cities and organizations locally and nationally for revenue diversification and/or sustainable revenue policies  Examples: GFOA, ICMA, Colorado Springs, Loveland, Broomfield, Boulder, Centennial, Lakewood, Association of Metropolitan Municipalities of Minnesota, etc.. • Analyzed various policies to create 5 principles that staff recommend be incorporated into existing City revenue policy document and adopted by City Council (reviewed previously by CFC) STAFF IS RECOMMENDING 5 REVENUE PRINCIPLES 4 Revenue Principles 1. Maintain a diverse revenue base 2. Maintain a stable revenue base 3. Cultivate revenue sources that are equitable among all economic levels 4. Generate adequate revenue to maintain core service levels 5. Maintain healthy reserves THESE PRINCIPLES WILL SERVE AS A FOUNDATION FOR FUTURE REVENUE DECISIONS 5 • The City will seek and maintain primary revenue sources that are markedly distinct and varied from one another • City will strive to maintain diverse revenue sources by:  Targeting revenue from multiple sources  Working to expand fee based revenue where possible  Working to minimize overdependence on any single revenue source  Staff will monitor dependency on sales and use tax to ensure an over reliance does not occur • Other Factors:  Research suggests a “three-legged stool” approach or equal revenue from 3 primary sources  Cities that achieve “three-legged stool” diversity have an income tax, occupation privilege tax or significantly higher property taxes  Not feasible in Fort Collins IN 2011, SALES & USE TAX WAS 51% OF GENERAL GOVERNMENT REVENUE Principle 1 - Maintain a Diverse Revenue Base 6 Principle 1 Maintain a Diverse Revenue Base SALES AND USE TAX IS THE PRIMARY SOURCE OF REVENUE 2011 General Government Revenue Total - $191,576,730 Sales & Use Tax 109,732,062 48% Intergovernmental 53,191,662 23% Charges for Services 30,742,497 14% Property Tax 18,187,824 8% Other Misc. 4,223,645 2% Other Taxes 3,571,402 2% Fines & Forfeitures 2,782,990 1% Investment 1,754,139 1% Licenses/Permits 2,183,681 1% Intergovernmental: PILOT, Highway user tax, Lottery, Grants, etc. Charges for Services: Admin charges, Recreation, Transit, Transportation work for others, etc.. 2012 General Government Revenue 7 Principle 2 - Maintain a Stable Revenue Base • City will strive to maintain stable revenue sources by:  Targeting revenue sources with minimal volatility  Monitoring current revenue sources for variability  Adjusting forecasts as necessary to accommodate unanticipated increases and declines  Monitoring and adjusting expenditures for unanticipated revenue gains/losses Other Factors:  The perception of volatility is a key reason sales and use tax is seen as a problematic revenue source  The fact is sales and use tax has been relatively stable over the past 10 years: Sales Tax Growth Per Capita Change 2002 -0.51% -2.68% 2003 -0.44% -1.59% 2004 3.32% 1.01% 2005 2.46% 1.66% 2006 6.32% 4.32% 2007 1.60% -0.21% 2008 0.39% -1.43% 2009 -3.84% -5.74% 2010 2.40% 1.28% 2011 5.21% 3.67% 2012 5.46% 3.80% 8 Principle 3 Cultivate revenue sources that are equitable among all economic levels • The City will strive to preserve a revenue stream that does not overburden low income residents by:  Providing low income citizens with opportunities to participate in programs through reduced fee structures and scholarships  Providing a Sales Tax on Food and Utility rebate to lessen the burden of taxes and fees on low income citizens  Ensuring fees do not exceed cost to provide service • Other Factors:  Sales Tax is often referred to as a regressive tax  The City tax rate on food is 2.25% to mitigate the regressive nature of sales tax 9 Principle 4 Generate adequate revenue to maintain core service levels • The City will generate adequate revenue to maintain core service levels by:  Ensuring fees for service do not exceed cost to provide service  Maintaining a cost recovery model  Monitoring service level performance annually through the Community Scorecard  Regularly reviewing services to assess core vs. desired THE CHALLENGE IS TO BALANCE DESIRED SERVICE LEVELS WITH CORE OR NECESSARY SERVICE LEVELS. 10 Principle 5 Maintain healthy reserves • The City will maintain healthy reserves by:  Adhering to both State mandated reserve and internal reserve policies  Maintaining the Tabor (State) reserve for the General Fund of 3% or more or the City’s fiscal year spending  Meeting City policy for the General Fund of an additional contingency of 60 days or 17% of next year’s adopted budgeted expenditures • Each fund has a specific reserve policy that is adhered to and considered before granting interagency loans CITY MEETS AND GENERALLY EXCEEDS ALL RESERVE POLICIES 11 Closing • Recommended policy will provide staff and City Council a foundation to make sound financial decisions that will provide the citizens of Fort Collins a diverse, stable and fair revenue stream equipped to provide the services necessary to keep Fort Collins great. • Future Policy revisions coming to Council Finance: • Investment Policy – Nov 2013 • Budget Policy – Nov 2013 • Reserve/Fund Balance Policy – Dec 2013 Financial Management Policy 2 Policy – Revenue Issue Date: Version: Issued by: Revenue and Project Manager Financial Policy 2 – Revenue 1 2.1 Limitations The City of Fort Collins’ revenue and expenditures are limited by Article X, Section 20 of the Colorado Constitution (TABOR). While TABOR limits both revenue and expenditures, its primarily application is in limiting revenue collections. Growth in revenue is limited to the increase in the Denver-Boulder-Greeley Consumer Price Index plus local growth (new construction and annexation). This percentage is added to the preceding year’s revenue base, giving the dollar limit allowed for revenue collection in the ensuing year. Any revenue collected over the limit must be refunded to the citizens unless the voters approve the retention of the excess revenue. Federal grants or gifts to the City are not included in the revenue limit. City enterprises (electric, water, wastewater and stormwater utilities) are also exempt from the imposed limits. In 2003, the Golf Fund revenue sources was considered for enterprise status for purposes of TABOR. In order for an entity to become an enterprise, voters must approve a Charter amendment for that entity. In November 1997, Fort Collins’ voters approved a ballot measure that allows the City to retain revenues that exceed the growth limit imposed by TABOR. The measure specified that any retained revenues over the growth limit must be used for certain designated purposes. Objective: Monitoring and controlling revenues is important to the City of Fort Collins. Through its revenue policy, the City primarily aims to maintain a diversified revenue system which will protect it from possible short-term fluctuations in any of its various revenue sources. To accomplish this, revenues are monitored on a continuous basis. An understanding of the economic and legal factors which directly and indirectly affect the level of revenue collections is an important part of the City’s revenue policy. Applicability: This policy applies to all City Revenues. This policy does/does not apply to or govern revenues generated by City-owned general improvement districts. Authorized by: City Council Financial Policy 2 – Revenue 2 • Public Health and Safety (including, but not limited to, environmental monitoring and mitigation) • Transportation • Growth Management • Maintenance and Repair of Public Facilities Legal principles require that those revenues collected in excess of the growth limit from fees charged or other legally restricted revenues must be used for the purpose for which they were collected. In addition, such revenues must also be used for the designated purposes approved by the voters. 2.2 Revenue Review, Objectives and Monitoring A. Review and Projections The City reviews estimated revenue and fee schedules as part of the budget process. The major revenue sources in the General Fund are sales and use tax, property tax, lodging tax, intergovernmental revenues, fines and forfeitures, user fees and charges, and transfers from other funds. Conservative revenue projections are made for the budget term. The projections are monitored and updated as necessary. B. Principles The City has established five (5) general principles that will be used to guide decisions on revenue: 1. Develop and maintain stable revenue sources. The City will strive to maintain stable revenue sources by: a. Targeting revenue sources with minimal volatility b. Monitoring current revenue sources for variability c. Adjusting forecasts as necessary to accommodate unanticipated increases and declines d. Monitoring and adjusting expenditures for unanticipated revenue gains/losses 2. Develop and maintain a diverse revenue base. For all general government operations, the City will strive to maintain diverse revenue sources. The City recognizes that becoming too dependent upon one revenue source would make revenue yields more vulnerable to economic cycles. Therefore, the City will strive to maintain diverse revenue sources by: a. Targeting revenue from multiple sources b. Working to expand fee based revenue where possible c. Working to minimize overdependence on any single revenue source d. Staff will monitor dependency on sales and use tax to ensure an over Financial Policy 2 – Revenue 3 reliance does not occur 3. Cultivate revenue sources that are equitable among citizens of different economic levels. The City will strive to preserve a revenue stream that does not overburden low income residents by: a. Providing low income citizens with opportunities to participate in programs through reduced fee structures and scholarships b. Providing a Sales Tax on Food and Utility rebate to lessen the burden of taxes and fees on low income citizens c. Ensuring fees do not exceed cost to provide service 4. Generate adequate revenue to maintain service levels in line with citizen expectations. The City will generate adequate revenue to maintain core service levels by: a. Ensuring fees for service do not exceed cost to provide service b. Maintaining a cost recovery model c. Monitoring service level performance annually through the Community Scorecard d. Regularly reviewing services to assess core vs. desired 5. Maintain healthy reserves. The City will maintain healthy reserves by: a. Adhering to State mandated reserve and internal reserve policies b. Maintaining a Tabor (State) reserve for the General Fund of 3% or more of the City’s fiscal year spending c. Meeting City policy for the General Fund of an additional contingency of 60 days or 17% of next year’s adopted budgeted expenditures C. Targets The City's major source of revenue for governmental activities and more specifically for programs within the General Fund is Sales and Use Tax. The City will monitor the dependency on Sales and Use Tax by tracking the percentage of the General Fund and General Government that comes from Sales and Use Tax. D. Monitoring The percentages are monitored each year with the preparation of the annual financial report. The percentages are reviewed by Council Finance Committee annually. 2.3 Fee Policy As a home rule municipality, the City of Fort Collins has the ability to determine the extent to which fees should be used to fund City facilities, infrastructure and services. Financial Policy 2 – Revenue 4 There are two kinds of fees that the City may establish: Impact Fees and Special Service Fees. Impact fees are typically on-time charges levied by the City against new development. The fees are based on current levels of service and act as a buy-in method for new development. The revenue can only be used for capital infrastructure needs created by the impact of the new development. Special service fees are charges imposed on persons or property that are designed to defray the overall cost of the particular municipal service for which the fee is imposed. This Policy sets forth principles for identifying: 1) the kinds of services for which the City could appropriately impose fees; 2) methods for calculating the percentage of costs to be recovered by such fees; and 3) the manner in which the fees should be allocated among individual fee payers. A. Fees should be cost related The amount of a fee should not exceed the overall cost of providing the facility, infrastructure or service for which the fee is imposed. In calculating that cost, direct and indirect costs may be included. That is: 1. Costs which are directly related to the provision of the service; and, 2. Support costs which are more general in nature but provide support for the provision of the service. B. Percentage of cost recovery The extent to which the total cost of service should be recovered through fees depends upon the following factors: 1. The nature of the facilities, infrastructure or services. In the case of fees for facilities, infrastructure as well as governmental and proprietary services, total cost recovery may be warranted. In the case of governmental services, it may be appropriate for a substantial portion of the cost of such services to be borne by the City’s taxpayers, rather than the individual users of such services. 2. The nature and extent of the benefit to the fee payers. When a particular facility or service results in substantial, immediate and direct benefit to fee payers, a higher percentage of the cost of providing the facility or service should be recovered by the fee. When a particular facility or service benefits not only the fee payer but also a substantial segment of the community, lower cost recovery is warranted. 3. The level of demand for a particular service. Because the pricing of services can significantly affect demand, full cost recovery for services is more appropriate when the market for the services is strong and will support a high level of cost recovery. 4. Ease of collection. In the case of impact fees, ease of collection is generally not a factor. In the case of fees for services, however, such fees may prove to be Financial Policy 2 – Revenue 5 impractical for the City to utilize if they are too costly to administer. C. Establishment and Modification of Fees and Charges Aside from user fees, (e.g. recreation classes and facility room rentals), all fees imposed by the City will be established by the City Council by ordinance. In the case of impact fees, utility fees and charges, and special service fees assessed against property the ordinance establishing the fees will determine: 1. The level of cost that should be recovered through the fees according to the criteria established in this Policy; 2. An appropriate method for apportioning the cost of providing each service among the users of the service; and, 3. A procedure for periodically reviewing and modifying the amount of fees in order to maintain appropriate cost recovery levels. The amounts of these kinds of fees may be modified only by ordinance of the City Council. The amounts of other Special Service Fees, such as user fees charged for the use of City facilities, may be determined by the City Manager, according to criteria established by the City Council by ordinance, absent any provision of the City Charter or Code to the contrary. All fee revenues will be estimated by the City Manager and submitted to the City Council as part of the City Manager’s recommended budget. D. Rebate Programs If the amount of a particular fee is considered to be too high to accommodate the needs of particular segments of the community and the public interest would be served by adjusting the amount or manner of payment of such fees in particular instances, the amount of the fee may be waived, rebated, or deferred as appropriate. In the case of fees established by ordinance, the criteria for waiving, rebating, or deferring payment of such fees shall be established by the City Council by ordinance. Financial Policy 2 – Revenue 6 2.4 Sales and Use Tax Distribution The City's Sales and Use Tax totals 3.00 cents, developed as follows: 1968 - General City uses 1.00 cent 1980 - General City uses 1.00 cent 1982 - General City uses 0.25 cent 2006 - Street Maintenance 0.25 cent* 2006 - Building on Basics 0.25 cent* 2006 - Natural Areas & Open Space 0.25 cent* 2011 - Keeping Fort Collins Great 0.85 cent* 3.85 cents *Excluding sales of grocery food. Revenue generated by the Sales and Use Tax will be distributed, based on adopted budgets, in the following manner: Subject to appropriations, actual Sales and Use Tax revenue generated by the 2.25 cent tax in excess of the fixed dollar amounts listed above, will be deposited to the General Fund. Actual sales and use tax revenue generated by the 0.25 cent tax for Natural Areas and Open Space will be transferred to, and be retained in the Natural Areas Fund to be used to acquire, operate and maintain open spaces, community separators, natural areas, wildlife habitat, riparian areas, wetlands and valued agricultural lands and to provide for the appropriate use and enjoyment of these areas by the citizenry, through land conservation projects to be undertaken where there is an identifiable benefit to the residents of the City, as determined by the City Council, either within the City or its growth management or regionally, provided certain provisions are met. Actual sales and use tax revenue generated by the 0.25 cent tax for Street Maintenance will be deposited and retained in the Transportation Services Fund to be used to pay the costs of planning, design, right-of-way acquisition, incidental upgrades and other costs associated with the repair and renovation of City streets, including but not limited to curbs, gutters, bridges, sidewalks, parkways, shoulders and medians. Actual sales and use tax revenue generated by the 0.25 cent tax for Building on Basics projects will be transferred to, and be retained in the Capital Projects Fund or corresponding operating funds to be used to pay the costs of planning, design, right-of-way acquisition, construction, and at least seven (7) years of operation and maintenance for street/transportation projects and other community capital projects, identified during the Building on Basics process, approved by the voters. Actual sales and use tax revenue generated by the 0.85 cent tax for Keep Fort Collins Great will be deposited and retained in the Keep Fort Collins Great Fund which is allocated as follows: 33% for street maintenance and repair; 17% for other street and transportation needs; 17% for police services; 11% for fire protection and other emergency services; 11% for parks maintenance and recreation services; and 11% for community priorities other than those listed above, as determined by the City Council. Financial Policy 2 – Revenue 7 2.5 Private Contributions The City encourages the solicitation of private contributions. These services and programs represent extra services that the City has not been able to provide to residents through its regular revenue base. In times of revenue constraints the City may not be able to provide the same level of service without additional support. Therefore, efforts should be made to secure private contributions in support of these programs and services, as these contributions are an integral part of their successful operation. With respect to TABOR, the City’s Finance Department will make a determination as to whether a contribution is a gift and is therefore excluded from constitutional limits. Financial Policy 2 – Revenue 8 Getting Help Please contact the Revenue and Project Manager with any questions at 970.221.6626. Related Policies/References Information about related policies or procedures, guidelines, forms, etc. Give complete references and ensure that documents cited are readily available (i.e. either as widely distributed manuals or online). If needed provide additional background discussion here. Reference to detailed procedures that are recommended in order to carry out the intent of the policy. Definitions Governmental Services: services provided by the City for the public good such as regulating land use, maintaining streets, and providing police and fire protection. Impact Fees: usually one-time charges, levied by the City against new development to offset the impacts of the new developments Proprietary Services: services provided for the benefit and enjoyment of the residents of the City, at their discretion, such as parks and recreation services Special Service Fee: charges imposed on persons or property that are designed to defray the overall cost of the particular municipal service for which the fee is imposed REVENUE POLICIES 2.1. REVENUE LIMITATION The City of Fort Collins’ revenue and expenditures are limited by Section 20 of Article X, Section 20 of the Colorado Constitution (Article X, Section 20 or ATABOR@). While TABOR places limits on both revenue and expenditures, its primary application is in limiting of the State and all local governments. Even though the limit is placed on both revenue and expenditures, the constitutional amendment in reality applies to a limit on revenue collections. Growth in revenue is limited to the increase in the Denver-Boulder- Greeley Consumer Price Index plus local growth (new construction and annexation). This percentage is added to the preceding year’s revenue base, giving the dollar limit allowed for revenue collection in the ensuing year. Any revenue collected over the limit must be refunded to the citizens, unless the voters approve the retention of the excess revenue. Federal grants or gifts to the City are not included in the revenue limit. City enterprises (electric, water, wastewater and stormwater utilities) are also exempt from the imposed limits. Beginning in 2003, the Golf Fund revenue source was s will allow it to be considered for enterprise status for purposes of Article X, Section 20TABOR. In order for an entity toTo become an enterprise, voters would need tomust approve a Charter amendment for the Golf Fundthat entity. In November 1997, Fort Collins’ voters approved a ballot measure that allows the City to retain revenues that exceed the growth limit imposed by Article X, Section 20TABOR. The measure was effective for 1996 and ensuing years. The approved measure specified that any retained revenues over the growth limit must be used for certain designated purposes. $ Public health and safety (including, but not limited to, environmental monitoring and mitigation) $ Transportation $ Growth management $ Maintenance and repair of public facilities While not included as part of the approved ballot measure, legal Legal principles require that those revenues collected in excess of the growth limit from fees charged or other legally restricted revenues must be used for the purpose for which they were collected. In addition, such revenues must also be used for the designated purposes approved by the voters. 2.2 REVENUE REVIEW, OBJECTIVES, AND MONITORING a. Review and Projections The City reviews estimated revenue and fee schedules as part of the budget process. The Major major revenue sources in the general General fund Fund are sales & use tax, property tax, lodging tax, intergovernmental revenues, fines & and Formatted: Indent: Left: 0.5" Formatted: Indent: Left: 0.5", First line: 0" Formatted: Font: (Default) Arial, 11 pt Formatted: Indent: Left: 0.5" Formatted: Indent: Left: 0.5", First line: 0" Formatted: Font: (Default) Arial, 11 pt Formatted: Indent: Left: 0.5" Formatted: Indent: Left: 0.5", First line: 0" Formatted: Font: (Default) Arial, 11 pt Formatted: Indent: Left: 0.5" Formatted: Indent: Left: 0.5", First line: 0" Formatted: Font: (Default) Arial, 11 pt forfeitures, user fees & and charges, and transfers from other funds. Conservative revenue projections are made for the budget term. The projections are monitored and updated as necessary. b. ObjectivesPrinciples The City has established five (5) general principles that will be used to guide decisions on revenue 1. Develop and maintain stable revenue sources. The City will strive to maintain stable revenue sources by: a. Targeting revenue sources with minimal volatility b. Monitoring current revenue sources for variability c. Adjusting forecasts as necessary to accommodate unanticipated increases and declines d. Monitoring and adjusting expenditures for unanticipated revenue gains/losses 2. Develop and maintain a diverse revenue base. A. For all general government operations, the City will strive to maintain diverse revenue sources. The City recognizes that becoming too dependent upon one revenue source would make revenue yields more vulnerable to economic cycles. Therefore, the City will strive to maintain diverse revenue sources by: a. Targeting revenue from multiple sources b. Working to expand fee based revenue where possible c. Working to minimize overdependence on any single revenue source d. Staff will monitor dependency on sales and use tax to ensure an over reliance does not occur 3. Cultivate revenue sources that are equitable among citizens of different economic levels. The City will strive to preserve a revenue stream that does not overburden low income residents by: a. Providing low income citizens with opportunities to participate in programs through reduced fee structures and scholarships b. Providing a Sales Tax on Food and Utility rebate to lessen the burden of taxes and fees on low income citizens c. Ensuring fees do not exceed cost to provide service 4. Generate adequate revenue to maintain service levels in line with citizen expectations. The City will generate adequate revenue to maintain core service levels by: Formatted: Font: Not Bold, No underline Formatted: Indent: Left: 0.88", First line: 0" Formatted: Font: Not Bold, No underline Formatted: Indent: Left: 1.25", No bullets or numbering Formatted: Font: Not Bold Formatted: Underline Formatted: Font: (Default) Arial, 11 pt Formatted: Normal, Indent: Left: 1.5", No bullets or numbering, Tab stops: Not at 0" Formatted: Font: (Default) Arial, 11 pt Formatted: Indent: Left: 1.25", No bullets or numbering Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold Formatted: Font: Not Bold a. Ensuring fees for service do not exceed cost to provide service b. Maintaining a cost recovery model c. Monitoring service level performance annually through the Community Scorecard d. Regularly reviewing services to assess core vs. desired 5. Maintain healthy reserves. The City will maintain healthy reserves by: a. Adhering to State mandated reserve and internal reserve policies b. Maintaining a Tabor (State) reserve for the General Fund of 3% or more of the City’s fiscal year spending c. Meeting City policy for the General Fund of an additional contingency of 60 days or 17% of next year’s adopted budgeted expenditures For all general government operations, the City will strive to maintain diverse revenue sources. The City recognizes that becoming too dependent upon one revenue source would make revenue yields more vulnerable to economic cycles. c. Targets The City's major source of revenue for governmental activities and more specifically for programs within the General Fund is the Sales and Use Tax. The City will monitor the dependency on sales and use tax by tracking the percentage of the General Fund and General Government that comes from sales and use tax. Over the past five years, 2000-2004, the percentage of General Government Total Revenue from sales and use tax (the 2.25% portion not dedicated for specific uses by the voters) has been approximately 38%. The target for this percentage shall be 40%. For the General Fund, the percentage of revenues from sales & use tax has been approximately 60%. When the Comprehensive Annual Financial Report is completed each year, the Finance Department will monitor these two percentages and report the results to Council. For the General Fund the target shall be 60%. d. Monitoring The percentages will beare monitored each year with the preparation of the annual financial report. Preliminary estimates of the percentages should be available in April and be incorporated into the budget process. The percentages will beare reviewed by Council Finance Committee annually. and Council annually.Council. e. Policy Action In the event the percentages exceed the targets, the City Manager will provide an analysis of the City's revenues to the Council. The City Manager may propose adjustments to revenue sources other than the sales and use tax (some examples include user fees, fines & forfeitures, transfers from other funds) to meet the Formatted: List Paragraph, Left, Numbered + Level: 1 + Numbering Style: a, b, c, … + Start at: 1 + Alignment: Left + Aligned at: 1.5" + Indent at: 1.75", Tab stops: Not at -0.83" + -0.5" + 0" + 0.5" + 0.88" + 1.25" + 1.63" + 2" + 2.5" + 3" + 3.5" + 4" + 4.5" + 5" + 5.5" + 6" + 6.5" Formatted: Font: +Headings (Cambria) targets or decrease the trend of increasing dependency on sales and use tax. Generally, for this policy to be effective, revenues from all other sources will need to grow at roughly the same rate as the sales and use tax collections. 2.3. FEE POLICY As a home rule municipality, the City of Fort Collins has the ability to determine the extent to which fees should be used to fund City facilities, infrastructure and services. There are two kinds of fees that the City may establish: impact fees and special service fees. Impact fees are typically one-time charges levied by the City against new development. The fees are based on current levels of service and act as a buy-in method for new development. The revenue can only be used for capital infrastructure needs created by the impact of the new development. to generate revenue for the construction of infrastructure and capital facilities needed to offset the impacts of the new development. Special service fees are charges imposed on persons or property that are designed to defray the overall cost of the particular municipal service for which the fee is imposed. This Policy sets forth principles for identifying: 1) the kinds of services for which the City could appropriately fees could appropriately be imposed by the Cityimpose fees; 2) methods for calculating the percentage of costs to be recovered by such fees; and 3) the manner in which the fees should be allocated among individual fee payers. a. Fees Should Be Cost Related The amount of a fee should not exceed the overall cost of providing the facility, infrastructure or service for which the fee is imposed. In calculating that cost, direct and indirect costs may be included. That is: 1. costs which are directly related to the provision of the service; and, 2. support costs which are more general in nature but provide support for the provision of the service. b. Percentage of Cost Recovery The extent to which the total cost of service should be recovered through fees depends upon the following factors: 1. The nature of the facilities, infrastructure or services. In the case of fees for facilities, infrastructure as well as governmental and proprietary services, total cost recovery may be warranted. In the case of governmental services, it may be appropriate for a substantial portion of the cost of such services to be borne by the City=’s taxpayers, rather than the individual users of such services. Governmental services are those which are provided by the City for the public good such as regulating land use, maintaining streets, and providing police and fire protection. Proprietary services are those which are provided for the benefit and enjoyment of the residents of the City, at their discretion, such as parks and recreation services. 2. The nature and extent of the benefit to the fee payers. When a particular facility or service results in substantial, immediate and direct benefit to fee Formatted: Indent: Left: 0.88" Formatted: Font color: Red payers, a higher percentage of the cost of providing the facility or service should be recovered by the fee. When a particular facility or service benefits not only the fee payer but also a substantial segment of the community, lower cost recovery is warranted. 3. The level of demand for a particular service. Because the pricing of services can significantly affect demand, full cost recovery for services is more appropriate when the market for the services is strong and will support a high level of cost recovery. 4. Ease of collection. In the case of impact fees, which can be collected at the time of issuance of a building permit, ease of collection is generally not a factor. In the case of fees for services, however, such fees may prove to be impractical for the City to utilize if they are too costly to administer. c. Establishment and Modification of Fees and Charges Aside from user fees, (e.g. Recreation classes and facility room rentals), all fees imposed by the City will be established by the City Council by ordinance. In the case of impact fees, utility fees and charges, and special service fees assessed against property the ordinance establishing the fees will determine: 1. the level of cost that should be recovered through the fees according to the criteria established in this Policy; 2. an appropriate method for apportioning the cost of providing each service among the users of the service; and, 3. a procedure for periodically reviewing and modifying the amount of fees in order to maintain appropriate cost recovery levels. The amounts of these kinds of fees may be modified only by ordinance of the City Council. The amounts of other kinds of special service fees, such as user fees charged for the use of City recreational and cultural facilities, may be determined by the City Manager, according to criteria established by the City Council by ordinance, absent any provision of the City Charter or Code to the contrary. All fee revenues will be estimated by the City Manager and submitted to the City Council as part of the City Manager=’s recommended budget. d. Rebate Programs If the amount of a particular fee is considered to be too high to accommodate the needs of particular segments of the community and the public interest would be served by adjusting the amount or manner of payment of such fees in particular instances, the amount of the fee may be waived, rebated, or deferred as appropriate. In the case of fees established by ordinance, the criteria for waiving, rebating, or deferring payment of such fees shall be established by the City Council by ordinance. 2.4. SALES AND USE TAX DISTRIBUTION The City's Sales and Use Tax totals 3.00 cents, developed as follows: 1968 - General City uses 1.00 cent 1980 - General City uses 1.00 cent 1982 - General City uses 0.25 cent 2006 - Street Maintenance 0.25 cent* 2006 - Building on Basics 0.25 cent* 2006 - Natural Areas & Open Space 0.25 cent* 2011 - Keeping Fort Collins Great 0.85 cent* 3.85 cents *Excluding sales of grocery food. Revenue generated by the Sales and Use Tax will be distributed, based on adopted budgets, in the following manner: TAX ON ALL SALES & USES: 2.25 cents $ Fixed Dollar Amounts Annual Debt Service Sales & Use Tax Debt Service Reserves $ General Fund Subject to appropriations, actual Sales and Use Tax revenue generated by the 2.25 cent tax in excess of the fixed dollar amounts listed above, will be transferred deposited to the General Fund. Actual sales and use tax revenue generated by the 0.25 cent tax for Natural Areas and Open Space will be transferred to, and be retained in the Natural Areas Fund to be used to acquire, operate and maintain open spaces, community separators, natural areas, wildlife habitat, riparian areas, wetlands and valued agricultural lands and to provide for the appropriate use and enjoyment of these areas by the citizenry, through land conservation projects to be undertaken where there is an identifiable benefit to the residents of the City, as determined by the City Council, either within the City or its growth management or regionally, provided certain provisions are met. Actual sales and use tax revenue generated by the 0.25 cent tax for Street Maintenance will be deposited transferred to, and retained in the Transportation Services Fund to be used to pay the costs of planning, design, right-of-way acquisition, incidental upgrades and other costs associated with: the repair and renovation of City streets, including but not limited to curbs, gutters, bridges, sidewalks, parkways, shoulders and medians. Actual sales and use tax revenue generated by the 0.25 cent tax for Building on Basics projects will be transferred to, and be retained in the Capital Projects Fund or corresponding operating funds to be used to pay the costs of planning, design, right-of- way acquisition, construction, and at least seven (7) years of operation and maintenance Formatted: Indent: Left: 0", First line: 0" for street/transportation projects and other community capital projects, identified during the Building on Basics process, approved by the voters. 2.5. PRIVATE CONTRIBUTIONS The City encourages the solicitation of private contributions. These services and programs represent extra services that the City has not been able to provide to residents through its regular revenue base. In times of revenue constraints the City may not be able to provide the same level of service without additional support. Therefore, efforts should be made to secure private contributions in support of these programs and services, as these contributions are an integral part of their successful operation. With respect to Article X, Section 20 of the State ConstitutionTABOR, the City=’s Finance Department will make a determination as to whether a contribution is a gift and is therefore excluded from constitutional limits. Formatted: Font color: Red Getting Help Please contact the Revenue and Project Manager with any questions at 970.221.6626. Related Policies/References Information about related policies or procedures, guidelines, forms, etc. Give complete references and ensure that documents cited are readily available (i.e. either as widely distributed manuals or online). If needed provide additional background discussion here. Reference to detailed procedures that are recommended in order to carry out the intent of the policy. Definitions Governmental Services: services provided by the City for the public good such as regulating land use, maintaining streets, and providing police and fire protection. Impact Fees: usually one-time charges, levied by the City against new development to offset the impacts of the new developments Proprietary Services: services provided for the benefit and enjoyment of the residents of the City, at their discretion, such as parks and recreation services Special Service Fee: charges imposed on persons or property that are designed to defray the overall cost of the particular municipal service for which the fee is imposed Formatted: Font color: Red Formatted: Font color: Red 1 Council Finance Committee Revenue Diversification September 17, 2012 2 Overview • Where Are We Now • How Do We Compare 3 Revenue Diversification “Not putting all your eggs in one basket” Revenue – the total income produced by a given source Diversity – the condition of having or being composed of differing elements There is merit in the notion that states and local governments should balance their tax systems through reliance on the "three-legged stool“** ** Source – National Conference of State Legislatures (NCLS) Is the “three-legged stool” a feasible option for Fort Collins? 4 Fort Collins Governmental Revenue Fort Collins is Currently More of a Two-Legged Stool Sales & Use Tax 74,718,996 45% Property Tax 17,832,713 11% Other Revenue Other Taxes 3,134,928 2% 68,956,811 42% 2010 Total Revenue $164,643,444 Govermental Funds Only Other Revenue • Intergovernmental - $37M • Charges for Service - $23M • Other Misc. - $2.7M • Fines & Forfeitures - $2.8M • License/Permits - $1.2M • Investments - $2.0M 5 How do we compare in Colorado and Nationally? 6 2010 Revenue Comparison - Colorado Cities Fort Collins reliance on sales tax increased to 51% with KFCG 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% Other Revenue Other Taxes Property Tax Sales & Use Tax 7 2010 Revenue Comparison – National Cities Limited Revenue Diversification in Other Cities…. Diversity Requires Increase in Property Tax or an Income Tax 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Other Revenue Other Taxes Sales & Use Tax Property Tax Other Taxes • Springfield, OH – Income Tax & State levied shared taxes • State College, PA – Income Tax • Williamsburg, VA – Restaurant Tax, Hotel-Motel Tax 8 Tax Burden Comparison – Colorado & National Cities $- $2,000.00 $4,000.00 $6,000.00 $8,000.00 $10,000.00 $12,000.00 Total Tax Paid (Income, Property, Sales) Fort Collins is in the Middle of the Pack on Citizen Tax Burden What do the * mean on the graph?? $- $1,000.00 $2,000.00 $3,000.00 $4,000.00 $5,000.00 $6,000.00 $7,000.00 $8,000.00 $9,000.00 $10,000.00 Total Tax Paid (Income, Property, Sales) **Based a normalized salary of $75k and a normalized home value of $250k 9 Fort Collins Combined Sales Tax Rate is on the Low End Current Sales Tax Rate Comparison – Colorado Cities **Jurisdictions with multiple tax rates due to special districts and/or located in multiple counties 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% Other Cultural County State RTD City 10 Layer Cake of Taxes…. Significant Portion of Tax Rate Sunsets 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sales Tax Rate Sale and Use Tax Rate, 1968-2035 .25 BCC Community Enhancements, Voter Approved 1% by City Council Ordinance 140, 1979 1% DTT Voter Approved 1% General, Voter Approved .25% by City Council Ordinance 149, 1981 .25% Necessary Capital (RECAP) Voter Approved .25% 11 Mill Levy Rate Comparison Fort Collins is Slightly Above the Average of 8.828 mills Compared to Other Colorado Cities 0 5 10 15 20 25 30 35 8.828 mills 12 Conclusions of Comparison • Only three Colorado communities analyzed achieve revenue diversity • Revenue diversification in Fort Collins would require a three-fold increase in the property tax rate…the mill levy would need to be raised to….31.162!! • Issue – How to reduce dependency on tax rates that sunset and carry the risk of non renewal 13 Conclusion • Future actions concerning revenue diversification should be integrated with the overall strategy to renew the BOB and Transportation ¼ cent taxes that sunset in 2015 Questions? Council Direction… COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Jessica Ping-Small, Revenue and Project Manager Mike Beckstead, Chief Financial Officer SUBJECT FOR DISCUSSION: Street and Park Maintenance Fees EXECUTIVE SUMMARY Street maintenance is currently funded primarily through sales tax including the designated ¼ cent sales tax that has a sunset date of December 31, 2015 and the Keep Fort Collins Great sales tax. Although sales tax initiatives have been supported multiple times by citizens, relying on an expiring sales tax has risks such as revenue variability and potential expiration. Staff has explored the feasibility of a Street Maintenance Fee (SMF) to replace the ¼ cent designated sales tax. Park and trail maintenance is currently funded though the General Fund and $735K of Conservation Trust Funds that were diverted from trail construction in due to funding shortfalls. Staff has drafted a Park Maintenance Fee (PMF) to generate $735K annually which would allow the Conservation Trust Funding to go back to trail construction. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Are there any questions about the fees? 2. Is there additional information requested for the Work Session? BACKGROUND/DISCUSSION Street Maintenance Fee History The Transportation Maintenance or Transportation Utility Fee has a long history in Fort Collins, dating back to its adoption by City Council in 1988, and a subsequent review of the fee by the Colorado Supreme Court. A court challenge regarding the ability of the City to levy such a fee was made and the case was argued at the Colorado State Supreme Court. In the case, the court found that the fee was not a property tax, excise tax or special assessment, but rather a special service fee. Though the fee was upheld, the fee was discontinued. In 2005, staff embarked on a second journey to implement a Transportation Maintenance Fee (TMF). The proposed street maintenance fee was not a replacement of the ¼ cent sales tax but was in addition to the existing ¼ cent sales tax. The ordinance was passed on first reading, however, between first and second reading, the Library District was formed. The creation of the Library District freed up General Fund dollars for street maintenance therefor the ordinance did not pass second reading. Overview A Street Maintenance Fee (SMF) would be charged on City utility bills for maintaining City streets, bike lanes, medians (excluding landscaping) and City maintained sidewalks. Maintenance includes such work as keeping pavement surfaces in good condition, performing seal coats as needed, repairing potholes and cracks, repaving and other work to keep our transportation system safe. This fee is being considered due to the quarter-cent sales tax approved by voters in 2005 that is sun-setting in 2015. The fee will be assessed based a flat fee for residential residents and a trip generation based fee for non-residential properties. The fee will be assessed on the following parcel use categories: • Residential • Commercial • High-Traffic Retail • Retail • Industrial • Institutional The basis of this fee is to charge users of the City’s transportation system for a portion of its maintenance. By charging a fee for the cost of maintenance, a portion of the system would be funded by the parties most frequently using the streets and most directly benefiting from its maintenance. The fee would be based on the actual cost of maintaining the system, including City streets, bike lanes, medians (excluding landscaping), and City maintained sidewalks. The fee would be allocated to different users based on the average number of trips each type of user generates in a day. This results in a fee structure in which users pay in rough proportion to the extent they use the system. For example, users who add 10 trips per day to the transportation system pay a fee much lower than those user types (i.e. high traffic businesses) that average 300 trips per day. This trip generation theory is similar to the method used to calculate street oversizing fees, and has also been recognized by courts as a fair and legally appropriate way of apportioning costs. Fee Structure: Street Maintenance Fee (Enter target here) $ 7,216,500 Pavement Management Need Total Annual Percent of Fee SMF Fee Schedule Revenue by Land Use Institutional $45.30 Per Acre 757,894 10% Industrial $39.01 Per Acre 297,899 4% High Traffic Retail $478.45 Per Acre 1,557,960 22% Retail $191.00 Per Acre 1,913,765 26% Commercial $45.30 Per Acre 551,458 8% Residential $2.99 Per Unit 2,137,524 30% Total Fee $ 7,216,500 Administrative Cost (3%) (216,495) Revenue Net of Administrative Fees $ 7,000,005 Potential Costs to Consider Utility Billing Charge (unknown) Rebate/Delinquencies (1200 estimated) (259,550) Institutional Exemption Government (303,386) Public Schools (307,429) Private Schools (13,715) Churches (133,364) Total Potential Costs $ (1,017,444) Revenue Sought Use Monthly Fee Yearly Fee Lot Size in Acres Industrial Manufacturing $210.66 $2,527.88 5.4 Manufacturing $2,730.74 $32,768.87 70 Retail Drug Store $401.10 $4,813.24 2.1 Old Town Restaurant $38.20 $458.40 0.2 Old Town Shop $22.92 $275.04 0.12 Large Retail $1,890.92 $22,691.01 9.9 Institutional Church (large lot) $226.51 $2,718.07 5 Church (small lot) $22.65 $271.81 0.5 Elementary School $244.63 $2,935.52 5.4 High School $543.61 $6,523.38 12 High Traffic Retail Fast Food $861.21 $10,334.49 1.8 Bank $574.14 $6,889.66 1.2 Convenience Store $382.76 $4,593.10 0.8 Grocery Store $2,822.85 $33,874.15 5.9 Commercial Law Office $11.33 $135.90 0.25 Motel $63.42 $761.06 1.4 Total Annual Fee Cost Per Residential Unit: $35.88 Total New Fee Revenue $ 7,000,005 Distribution of Total New Fees By Land Use 30% Residential 70% Non-Residential Sample Street Maintenance Fees Park Maintenance Fee History City Council by Resolution 83-173 on October 4, 1983 adopted a policy that Conservation Trust (Lottery) monies should be utilized primarily for 1) the acquisition and development of Open Space and Trails, and 2) any other project deemed appropriate by City Council. However, due to General Fund shortfalls, Conservation Trust Funding was redirected by Council to parks and trail maintenance. Currently, $735K is used for maintenance leaving only $470K for trail planning, design, right-of-way, and construction. To help offset the loss of Conservation Trust funding, the Natural Areas Department has contributed about $350K annually to trail construction since 2003. However, Natural Areas may not be able to make this contribution after 2014 due to NA program funding needs. Staff has drafted a Park Maintenance Fee (PMF) to generate $735K annually which would allow the Conservation Trust Funding to go back to trail construction. Overview A Park Maintenance Fee would be assessed on residential dwellings through the Utility billing system to contribute to maintenance funding of community parks and neighborhood parks Park maintenance includes, but is not limited to maintenance of all landscaped areas, facilities, infrastructure, administration and minor capital improvements as needed to keep the park facilities in safe and usable condition for the general public. The fee is structured to replace the $735K of Conservation Trust Funds currently being used to fund park maintenance. The fee is only assessed to residential units. Fee Structure General Fund Revenue Projections Proposed Park Maintenance Fee Funding to Replace Transfer from Conservation Trust Residential Accts only Total Fee Revenue $757,750 Administrative Fee (3% of fees) ($22,733) Net Fee Revenue $735,018 Potential Costs to Consider Utility Billing Charge (unknown) Rebate Program (1,200 refunds, assuming 100% fee rebate) ($15,263) Total Potential Costs ($15,263) Residential Units Only Residential Units= (electrical accounts) 59,575 Monthly Fee 1.06 Additional Considerations – Both Fees: If City Council chooses to continue the discussion the following items will need additional consideration: • Significant public outreach/education • Exemption for Institutional (churches, schools, government) –SMF ONLY • Utility billing fee and actual retail space on bill • Rebate Program • Delinquency Issues Staff has completed a TBLAM exercise for the street maintenance fee and a analysis has been scheduled for the park maintenance fee. The outcome of the analysis will be presented as part of the work session packet. Next Steps The fees will be discussed at the City Council Work Session on November 26, 2013. ATTACHMENTS 1) Power Point Presentation 2) Benchmark Data 1 Street and Park Maintenance Fees Council Finance Committee October 21, 2013 2 3 Year Work Plan 2012-Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2-Q4 2014 Revenue Diversification Analyze Street Maintenance Fee and Park Maintenance Fee Complete Comprehensive Fee Study Council Decision on Fee vs. Tax for Street Maintenance Analyze Additional Fees – Parking and Transit Analyze City’s Revenue Diversity & Draft Policy DONE Revenue diversification and fee analysis will continue through 2014. 3 Fees – Approach • Developed methodology including: – What is it? – What will it fund? – How will it be assessed? – How much? – Current funding source – does it go away? • Additional analysis: – Benchmark data both locally and nationally – TBLAM (will be included in work session packet) 4 Street Maintenance Fee - History • In 1984, City Council adopted an ordinance establishing a Transportation Utility Fee (TUF) to fund street maintenance • In 1985 a lawsuit was filed regarding the validity of the fee • The validity of the fee was upheld by the Colorado Supreme Court, however City Council repealed the ordinance in 1992 • In 2006, City Council was poised to adopt a new iteration of the TUF but with the formation of the Library District, the fee was tabled 5 Street Maintenance Fee (SMF) • Why now? – ¼ cent Street Maintenance sales tax expires December 2015 (forecasted at $7M in annual revenue) – Direction is needed on whether to pursue a fee or tax • What is it? – A fee assessed monthly on utility bills to residents and businesses within the City to fund street maintenance • What will it fund? – A portion of the maintenance for streets, bike lanes, medians (excluding landscaping) and city maintained sidewalks 6 Street Maintenance Fee • How will it be assessed? – Fee calculation based on factors such as: • Trip Generation • Land Use Type • Square footage for commercial • Who pays? – Residential households – Commercial and Industrial properties based on factors of land use, size and trip generation Fee calculation is based on the proportional use of streets by each land use type. 7 Street Maintenance Fee – How Much? Fee based on current annual revenue projection of the ¼ cent sales tax or $7 million annually. Land Use Monthly Fee per Acre % of Fee Revenue by Land Use Institutional $45.30 10% Industrial $39.01 4% High Traffic Retail $478.45 22% Retail $191.00 26% Commercial $45.30 8% Residential $2.99 per Unit 30% 8 Street Maintenance Fee – Examples Use Monthly Fee Annual Fee Lot Size in Acres Manufacturing $210 $2,527 5.4 Manufacturing $2,730 $32,768 70 Old Town Restaurant $38 $458 0.2 Large Retail $1,890 $22,691 9.9 Fast Food $861 $10,334 1.8 Grocery Store $2,822 $33,874 5.9 Office $11 $135 0.25 Residential $2.99 $35.88 N/A High traffic retail and industrial land uses will see the most impact. 9 Street Maintenance Fee The revenue source is stable yet impactful to the business community. Pros Cons Stable and predictable funding source for core service Costs shifted to businesses that generate the most traffic- very impactful Shifts cost of maintenance to those who use streets most heavily Perception that non-residents get a free pass to use the streets Relatively easy to implement via existing utility bills Businesses may perceive that they pay a disproportionate share 10 Park Maintenance Fee (PMF) • Why now? – Conservation Trust funds have been redirected from trail construction to park and trail maintenance for many years – The use of Conservation Trust funds for maintenance have impacted the ability to construct new trails – A PFM provides a reliable and stable funding source for maintenance • What is it? – A fee assessed monthly on utility bills to residents within the City Objective of PMF fee is to replace $735k of Conservation Trust Funds currently directed from trail construction to park maintenance. 11 Park Maintenance Fee • What will it fund? – A portion of park and trail maintenance which includes landscaped areas, facilities, infrastructure, administration, etc. • How will it be assessed? – Fee based on the revenue needs and the number of residential utility meters • Who pays? – Residents through their utility bill 12 Park Maintenance Fee • How much? – $735K annual revenue (net of admin fees) – Fee = $1.06 per month per household – $12.75 annually Although the fee is minimal, it is a new fee assessed to residents. Pros Cons Reliable funding source New fee Redirects Conservation Trust funds back to trail construction Adds revenue – not replaces which could be a negative for residents Funds future trail construction Increases utility bill 13 Street and Park Maintenance Fee • Additional considerations: – Significant public outreach/education – Institutional exemption - $760K annually (SMF ONLY) – Utility bill considerations (fee and space) – Rebate program – Delinquency issues There are significant considerations and public outreach work to be completed if staff is directed to move forward. 14 Street and Park Maintenance Fee Benchmark Data • Street Maintenance Fee: – Loveland is the only local jurisdiction with one – Common in Oregon – Trip generation/land use methodology very common – Many street maintenance programs funded with general fund or designated sales tax • Park Maintenance Fee: – Not common – Longmont, CO uses one – Generally a flat fee – Maintenance commonly funded by general fund 15 Next Steps • City Council Work Session – November 26 • Street Maintenance Fee - based on direction from work session staff will proceed with fee analysis or ¼ cent sales tax renewal effort • Park Maintenance Fee- staff will proceed as directed by City Council in November STREET MAINTENANCE TYPE FEES IMPOSED BY OTHER MUNICIPALITIES City Residential Commercial Multi-Family Austin, TX $7.80 per unit $39.02 per developed acre $5.93/per unit Bryan, TX * $14 per unit $49-$210 depending on size Canby, OR $5.00 per unit $0.522 per trip charge - minimum $5.00 $3.34/unit Corpus Christi, TX $5.38 per unit $5.38 per meter (SF/1500 x TF x $5.38 per meter) $2.42/unit Corvallis, OR $1.53 per unit $0.023 x trip generation $1.02/unit Lake Oswego, OR $4 per unit $2.45 - 20.58 $2.68/unit Lewistown, MT annual determination based on need by district - covers 75% of cost Loveland, CO 1.87 per unit 20.71-207.09 per acre based on category Mission, KS $72/year less than $1,000 year (1.490 cent trip rate) Tigard, OR $5.56 per unit. $1.25 per required parking space $5.56/unit * Fee is used for both Transportation and Drainage STREET MAINTENANCE FUNDING SOURCES City Funding Sources Fort Collins Dedicated Sales Tax & General Fund Boulder Dedicated Sales Tax, General Fund, Federal & State Funding Broomfield General Fund Colorado Springs General Fund Greeley Dedicated Sales Tax, General Fund, Federal & State Funding Lakewood General Fund Longmont Dedicated Sales Tax, General Fund, & Intergovernmental Loveland Street Utility Maintenance Fee, General Fund, Federal & State Funding Thornton General Fund Westminster General Fund PARK MAINTENANCE FEES IMPOSED BY OTHER MUNICIPALITIES City Funding Sources Longmont, CO $1 per unit West Linn, OR $10.70 per household San Antonio, TX $1.00 per unit Medford, OR $.31 per unit PARK MAINTENANCE FUNDING SOURCES City Funding Sources Fort Collins General Fund & Conservation Trust Boulder General Fund Broomfield General Fund Greeley General Fund Longmont Park Maintenance Fee & General Fund Loveland General Fund Westminster General Fund COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Mike Beckstead, Chief Financial Officer SUBJECT FOR DISCUSSION: Foothills Mall Financial Update EXECUTIVE SUMMARY: The planned development at Foothills Mall associated with the Redevelopment Agreement and incentive package approved by Council on May 7, 2013 has several modifications and revisions that will be going back to the Planning & Zoning Board in November 2013 and January 2014. These changes will have a minor impact on the financial incentive package. Staff will review the details of all changes to the financial incentive package as detailed in the attached presentation. In summary, the deal is intact, there is no change to the incentive package, and the financial return to the City is substantially unchanged. Details are highlighted below: 1. The Foothills Mall has reduced in size by approximately 10%. 2. The opening of the Mall is delayed approximately 1 year. 3. The Foothills Activity Center is planned at 18K square feet and to be located in between Macy’s and the planned parking structure. 4. Estimated sales per square foot have increased from $350 to $378 based on known tenants that will occupy the Mall. 5. The incentive value of $53M to support the public improvements is unchanged. 6. The par value of the bonds has declined slightly from $73M to $71M. 7. The maximum bond payment amount is unchanged at $180M 8. Sales tax remitted as part of the Sales Tax Revenue Pledge is unchanged at $9M. 9. Net new sales tax revenue has increased from $108M to $117M. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Council Finance Committee understanding of the current proposed redevelopment agreement financial incentive package and underlying return to the City of Fort Collins BACKGROUND/DISCUSSION ATTACHMENTS 1. PowerPoint presentation 1 Foothills Mall Redevelopment Redevelopment and Reimbursement Agreement Oct 21, 2013 2 • Objectives: • Realize Community Vision & Expectations • Launch a Catalytic Opportunity in Midtown • Realize a Significant Revenue Opportunity • Minimize Risk to Balance Sheet, Credit Rating & Revenue • Challenges • Build a Competitive Design & Create a Sense of Place • Resolve Tenant Issues without Resorting to Eminent Domain • Create a Connection with Mason BRT • Replace the Youth Activity Center • Resolve County Concerns around URA TIF Objectives & Challenges 3 Summary • Change in Mall Configuration • Commercial square footage down by 10% • Grand opening delayed approximately 1 year – phased opening • P&Z reviews and approval scheduled • Deal is Intact • $53M Public Improvements • Maintained cap on maximum bond payments at $180M • Financial Return to the City Slightly Improved • Sales per square foot increased based on known tenant mix • Net new sales tax net of remittance increased from $108M to 117M 4 Foothills Activity Center Less Retail Eliminate Entrance No D&B Above Theater Reconfigure Shops Along College Acquire & More Retail More Retail More Retail 5 Planning Process • November 14 & /or Nov. 21st  The Planning & Zoning Board hearing for the Foothills Redevelopment Overall Development Plan, Major Amendment to the approved Project Development Plan and Phase One. • December 4th  Phase Two (Major Amendment) Final Plans submitted by Alberta. • December 6th  Phase One Final Plans to be approved (administrative) and recorded. • December 23rd  Building Permit for Phase One • January 22nd  Phase Two (Major Amendment) Final Plans administratively approved and recorded. 6 Mall Financing 7 Foothill Mall Project Summary Comparison 10% Smaller Mall but with Higher Sales Per Square Foot….. City Sales Tax Remittance $9M….. Net New Sales Tax Revenue Increase from $108M to $117M GLA 711K + 24K 637K + 18K Sales Per Sq Ft $350 $378 Total Cost Retail Project $237 $231 Open Assumption Nov ’14 Phases ‘14-’15 Bonds at Par Value $ 73 $ 71 Cum Bond Payments $165 $158 Metro District Revenue $170 $151 Dedicated Sales Tax Rev $105 $106 GF Sales Tax Revenue $147 $149 Estimated City ST Remitted $ 8.8 $9.0 Net New ST Revenue $108 $117 ($ millions) May 7th Oct 16th 8 Public Improvement Costs No Change to Public Improvement Costs ($ millions) Blight Removal Infrastructure City Infrastructure Total Public Land Acquisition $ 5.5 $ 5.5 Parking Structure 9.6 9.6 Deconstruction / Abatement 3.9 3.9 Fixture & Amenities 1.4 1.4 Ditch Relocation 2.8 2.8 Site Work 12.9 12.9 Utilities 4.5 4.5 Soft Costs 4.6 4.6 Foothills Activity Center 4.8 4.8 Pedestrian Crossing / Culvert 3.0 3.0 TOTAL $ 45.2 $ 7.8 $ 53.0 9 Bond Details • Bond Issue Spring of 2014 $71M less Capitalized Interest 8M less Reserve Fund 7M less Issuance Cost 3M • Net Proceeds $53M • Additional Supplemental Reserve of $7.1M from Pledged Revenue • Senior Lien on Pledged Revenue in order of seniority: • Metro District 50 mills of property tax • URA Property Tax Increment • Developer 1% Public Improvement Fee (PIF) • City Sales Tax Revenue Pledge on 2.25% Core rate Slight Reduction in Bond Par Value, Still Anticipate 7% Interest Rate, No Change to the Seniority of Pledged Revenue 10 Metro District Funding • Metro District revenue: • Releases Sales Tax Share if Metro District revenue covers debt • PIF expires when bonds paid off • Remaining excess assigned to a Foothills Mall Fund • Metro District Assigned 3 Revenue Sources…. Property Tax, Public Improvement Fee, Property Tax Increment ($ millions) May 7th Oct 16th Cumulative Metro District Revenue 25 Years District Property Tax $ 50.0 $ 2.1 Sales PIF 64.7 2.3 URA Property Tax Increment 55.2 2.3 Metro District Funding $ 169.9 $ 6.7 Today's Value $ 62.5 Annual Funding 2020 25 Years $ 43.1 $ 1.8 65.6 2.4 42.7 1.9 $ 151.4 $ 6.1 $ 55.3 Cumulative Funding Annual Funding 2020 11 Sales Tax Revenue Total of Sales Tax Revenue Expected over 25 years $252M………………….$255M Annual Sales Tax Revenue in the First Full Year $8.4M………………….$8.7M Base = existing revenue from the existing mall Transfer = revenue from other areas of the city that will transfer to the mall New = net new revenue associated with the redeveloped mall ($ millions) May 7th Oct 16th Cumulative City Sales Tax Revenue 25 Years First Full Year Dedicated Base / Transfer / New $ 104.6 $ 3.5 Core Base 44.4 1.8 Core Transfer & New 102.7 3.1 City Sales Tax $ 251.7 $ 8.4 Today's Value $ 94.7 Annual Funding 2016 25 Years First Full Year $ 106.0 $ 3.6 44.5 1.8 104.6 3.3 $ 255.1 $ 8.7 $ 94.8 Cumulative Funding Annual Funding 2016 12 Base Transfer New 44 31 74 $ 149 32 22 52 $ 106 $ 76 $ 53 $ 126 $ 255 Sales Tax over 25 years New and Pledged Sales Tax Revenue May 7th = $108M of Net New Sales Tax Revenue Anticipated Oct 16th = $117M of Net New Sales Tax Revenue Anticipated ($ millions) Base Transfer New Core Tax - 2.25% 44 35 68 $ 147 Dedicated Tax 1.6% 32 24 49 $ 105 $ 76 $ 59 $ 117 $ 252 Sales Tax over 25 years Remitted Revenue: $9M $9M Sales Tax Revenue retained by the City = $149M $151M Sales Tax Revenue pledged towards debt service = $103M $105M May 7th New City Revenue Oct 16th 13 Risk Analysis 1% increase in bond rate results in $25M more debt service and $xxM reduction in Net New City Revenue… Oct 16th model estimates $9M in Remitted Sales Tax and a resulting $9M increase in Net New City Revenue ($ millions) Note: 2012 Sales per Square Foot at Foothills = $185 sq ft Assumptions Oct 16th May 7th May 7th May 7th May 7th Sales per square foot $378 Sq Ft $350 Sq Ft $350 Sq Ft $315 Sq Ft $280 Sq Ft Property Tax Estimate Value Estimate Value Estimate Value Base less 10% Estimate Value Cum Bond Pmts & Supp Res $159 $165 $190 $165 $165 Risk Sensitivity Metro Revenue 151 170 170 150 157 Remitted Sales Tax Revenue 9 9 20 15 11 Net New City Revenue $ 117 $ 108 $ 97 $ 85 $ 73 7% Interest Base Case 7% Interest Base Case 10% Reduction 8% Interest Case Prop Tax Base -20% Sales Adj Will Update For the Meeting 14 Project Assumptions • Project Timing • Mall except Sears – Ground breaking June 2013 – Completion Nov 2014 • Sears & Residential – Summer 2015 • Economics: • Annual Sales per square foot - $350 • Occupancy – 80% 2015, 95% thereafter • Growth – 2% year sales, 1% year property assessed value • Project Costs - $319M: • Mall - $237M • Residential 446 units - $82M • Public Improvement Costs - $53M • Blight Removal & Infrastructure - $45M • Public Benefits - $8M Mall Open for 2014 Holidays, Fully Completed by Summer 2015… Total Cost $319M Including $53M of Public Improvement Costs May 7th Oct 17th • Project Timing • Mall – Ground breaking Winter 2013 – Partial Completion Spring 2015 • Majority completed Winter 2015 • Economics: • Annual Sales per square foot - $378 • Occupancy – 50-75% 2015, 95% 2016 • Growth – 2% year sales, 1% year property assessed value • Project Costs - $313M: • Mall - $231M • Residential 446 units - $82M • Public Improvement Costs - $53M • Blight Removal & Infrastructure - $45M • Public Benefits - $8M Partial Mall Open in Spring 2015, Majority Completed Winter 2015. Total Cost $313M Including $53M of Public Improvement Costs 15 Summary • Change in Mall Configuration • Commercial square footage down by 10% • Grand opening delayed approximately 1 year – phased opening • P&Z reviews and approval scheduled • Deal is Intact • $53M Public Improvements • Maintained cap on maximum bond payments at $180M • Financial Return to the City Slightly Improved • Sales per square foot increased based on known tenant mix • Net new sales tax net of remittance increased from $108M to 117M 16 Back-Up 17 ($ millions) City Sales Tax Revenue – First 5 Years Remitted Sales Tax Revenue = $8.8M + + = = YEAR 2012 - 4.8 2015 2.1 2.5 4.6 - 5.0 5.0 2016 2.3 3.1 5.4 - 5.3 5.3 2017 6.5 3.2 9.7 - 5.4 5.4 2018 6.5 3.3 6.0 3.3 5.5 8.8 2019 6.7 3.4 5.7 3.4 5.6 9.0 City Sales Tax Revenue Metro District Revenue Pledged Sales Tax Increment Bond Payments & Reserve Sales Tax Returned to City Base & Dedicated Sales Tax Sales Tax Revenue in 2016 Exceeds 2012 Current Revenue. City Net New Sales Tax Revenue Exceeds May 7th Estimate. + + = = May 7th YEAR 2012 - 4.8 2015 1.8 0.8 2.7 - 3.8 3.8 2016 2.4 3.2 5.6 - 5.5 5.5 2017 4.9 3.3 8.1 0.2 5.5 5.7 2018 5.5 3.4 5.3 3.4 5.6 9.0 2019 5.5 3.5 5.4 3.5 5.7 9.2 City Sales Tax Revenue Metro District Revenue Pledged Sales Tax Increment Bond Payments & Reserve Sales Tax 18 ($ millions) Sales Tax Revenue Illustration of Revenue Retained by the City and Revenue Pledged Sales Tax Revenue retained by the City Sales Tax Revenue pledged towards debt service Base Transfer New Core Tax - 2.25% 1.8 1.0 2.1 $ 4.9 Dedicated Tax 1.6% 1.3 0.7 1.5 $ 3.5 $ 3.1 $ 1.7 $ 3.6 $ 8.4 Base Transfer New Core Tax - 2.25% 1.8 1.1 2.2 $ 5.1 Dedicated Tax 1.6% 1.3 0.8 1.6 $ 3.7 $ 3.1 $ 1.9 $ 3.8 $ 8.8 Sales Tax in 2016 Sales Tax in 2018 May 7th Base Transfer New 1.8 1.0 2.3 $ 5.1 1.3 0.7 1.6 $ 3.6 $ 3.1 $ 1.7 $ 3.9 $ 8.6 Base Transfer New 1.8 1.0 2.4 $ 5.3 1.3 0.7 1.7 $ 3.8 $ 3.2 $ 1.8 $ 4.2 $ 9.1 Sales Tax in 2016 Sales Tax in 2018 Oct 17th Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Urban Renewal Authority Board Finance Committee October 21, 2013 noon to 12:30 p.m. CIC Room – City Hall Approval of the Minutes from the September 16, 2013 Meeting 1. URA Direction / Policy / Process 30 minutes J. Birks Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com URA Finance Committee Meeting Minutes 9/16/13 11:00 to Noon CIC Room Council Attendees: Mayor Karen Weitkunat, Bob Overbeck Staff: Timothy Allen, Darin Atteberry, Mike Beckstead, Megan Bolin, Chris Donegon, Tom Leeson, Lawrence Pollack, Lance Smith, Steve Roy, John Voss, Katie Wiggett Others: Dale Adamy, Daniel Parsons Approval of the Minutes of May 20, 2013 Mayor Karen Weitkunat moved to approve the minutes for the May 20, 2013 meeting. Bob Overbeck seconded the motion. Minutes were approved unanimously. Prospect Station TIF Support Tom Lesson presented the Prospect Station Redevelopment Project, a project improving the SW corner of the Mason Trail and Prospect Road, including 32 residential rental units and 1 commercial/retail unit. The project has significant public benefits including blight remediation and infrastructure Upgrades. The total TIF Requested for this project is $494,000. This is a significant reduction from the original request of $772,879. Total TIF collection over the life of the project with 0% growth each year is forecasted at $865,340. The project will use combination lump sum payment and pay over time TIF reimbursement structure. Mike Beckstead noted that this project’s TIF Reimbursement Structure is a great example of Finance and Economic Development working together to improve City practices. Tom Leeson presented the following key reimbursement points: • Developer must obtain C.O. of building before URA will make lump sum payment • URA may pre-pay the reimbursement at any time • TIF projection is based on County Estimate of Value • Annual payment is fixed = $11,762 Tom Lesson noted that the City developed a hybrid structure because the developer began with the assumption that they’d get a total lump sum as had been done in the past. When Staff told them the City was planning on a pay as collected structure, the developer said he would have to walk away from the project. The hybrid method allowed the project to move forward. The City’s total obligation will be $494,000 plus financing costs estimated at $175,284. Based on current estimates including financing, 77% of the available TIF will be used to support the project. 2 URA Loan – Summit In September 2011, the Fort Collins Urban Renewal Authority (URA) approved a Redevelopment Agreement with Capstone Development Corp (Developer) for The Summit on College, a mixed-use student housing project in the Prospect South Tax Increment Financing (TIF) District. The Agreement obligated the URA to reimburse the Developer for up to $5 million of eligible costs upon completion of the project. The Developer obtained a Certificate of Occupancy for the project in August 2013 and is in the process of submitting their reimbursement request to the URA. When the amount of tax increment generated by The Summit was estimated in 2011, the URA used a methodology based on project costs and assumed 1% appreciation each year, for a total of approximately $8 million. It was anticipated that the URA would have to borrow from the City to pay the reimbursement to the Developer, and at the time, the financing charge on a $5 million loan was estimated to be $2.4 million. Based on the most recent August 2013 preliminary valuation from Larimer County, the project is estimated to generate $7 million of tax increment, creating a $1 million revenue shortfall from the original projection. Additionally, a combination of rising interest over the past two years (adding 71 basis points) and the City’s new interagency loan policy (adding 25 basis points), have increased the expected interest rate on the loan from the City from 4.0% to 4.96% increasing interest cost from $2.4M to $3.8M. Table 1 summarizes the difference between the original estimates and actual numbers: Table 1* – Note: numbers have been updated per latest interest rates 2011 Estimates 2013 Actuals Total Tax Increment $8 million $7 million Reimbursement Obligation $5 million $5 million¹ Financing Cost to URA $2.4 million $3.8 million Balance $0.6 million ($1.8 million) ¹ Subject to final verification by URA staff. *Number have been updated since the Between the decrease in tax increment revenue and increase in financing charge, the URA would be unable to afford the full debt obligation of a $5 million loan from the City under current investment policy interest rates. Consequently, City and URA staff have negotiated a loan agreement that allows the URA to uphold its reimbursement obligation to the Developer and remain financially solvent, while making a concerted effort to uphold the City’s interagency loan policy. Proposed Loan Agreement Terms The URA cash flow does not support a $5 million loan from the City based on the current interest rates and the current interagency loan policy. A new loan structure was developed that assigns an interest rate based on the known revenue stream and term, which turns out to be 2.68%. Since City policy would require 4.96% interest, this leaves a gap of $1.78 million. To fill this gap, the URA commits to pledge 50% of future unencumbered revenue from the Prospect South TIF District to the City. For example, assume the URA collects $1 million in revenue in a given year and owes the City a $400,000 payment on the Capstone loan; 50% of the remaining $600,000, or $300,000, would be paid to the City to help pay down the $1.78 million interest rate gap. This revenue share structure would continue for the life 3 of the Prospect South TIF District, or until the $1.78 million is paid in full, whichever happens first. While City and URA staff support the negotiated loan terms, the variation from current policy is duly acknowledged. Several practices have been put into place since approval of the Capstone Redevelopment Agreement to prevent the need for additional policy exceptions, including:  Tax increment estimates are based on Larimer County’s estimate of valuation that the Developer provides to the URA; the estimates assume 1% appreciation over the life of the associated TIF District.  Establishing a maximum percentage of tax increment that would be available to reimburse a project that includes a combination of both reimbursable costs to the developer and URA financing costs.  Establishing a maximum tax increment contribution percentage of the total project cost. These items, particularly the last two bullets, have been the topic of recent discussions between the City and URA, and staff is scheduled to present more detail to the Finance Committee for further vetting at an upcoming meeting. Bob Overbeck asked why the City would make an exception to common practices in this case. Mike Beckstead answered that the City has a commitment to the developer, and by making this exception, we can honor that commitment. The Mayor agreed that Council would need to know how this exception would affect City policies or practices. Is the City setting a precedent by making this exception? Mike Beckstead answered that, going forward, the City may limit itself to a 75% commitment to ensure that this situation never happened again. Next Steps Staff will work on drafting a policy for estimating TIF financing. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Josh Birks, Economic Health Director; Tom Leeson, Redevelopment Program Manager SUBJECT FOR DISCUSSION: Urban Renewal Authority Financial Management Policy - Tax Increment Financing Parameters EXECUTIVE SUMMARY: PURPOSE: Present a proposed Financial Management Policy related to Tax Increment Financing commitments to the URA Finance Committee and seek feedback. The Fort Collins Urban Renewal Authority (URA) has been engaged in a process of continuous improvement since the beginning of 2012. Recent improvements include:  Reorganization moving the management of the URA out from under the Finance Department allowing for an independent review by Finance;  Changes to the method for estimating Tax Increment generated by a project, consistent with the proven track record of the Downtown Development Authority’s approach;  Increased consultation with outside legal counsel relative to specific URA financing, operations, and formation issues; and  Documentation of the Redevelopment Agreement negotiation, adoption, and execution process. The item presented to the URA Finance Committee today continues the process of improvement by present a series of parameters to be used in developing the TIF commitments made to individual projects by URA staff. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does the URA Finance Committee have questions about the proposed TIF commitment parameters? 2. Does the URA Finance Committee believe that the proposed URA Financial Management Policy needs to be reviewed by the entire URA Board during a work session? BACKGROUND/DISCUSSION The attached proposed URA Financial Management Policy (Financial Polisy) addresses a concern consistently voiced by URA Board members in the past two years. The concern relates to over commitment of TIF dollars to individual redevelopment projects. This concerns stems from recent experience where initial estimates of the TIF generated by a project exceeded the initial actual TIF generated by the project. One measure taken to address this concern has been adopting a method of estimating the TIF anticipated from a project by using the approach employed by the DDA. This approach has a long proven track record. In addition, estimates of TIF over the course of a Urban Renewal Plan Area (Plan Area) life have been adjusted to assume no growth as an additional layer of conservatism. The proposed Financial Policy provides additional insulation against this concern. The Financial Policy is intended to provide a set of operating norms for future TIF commitments to be used by URA staff. The financing parameters presented represent a range of preferred methods. The decision to use one method over another or to blend methods will be contingent upon a project’s need for gap financing, the size of the particular project, the type of improvements supported by the TIF and/or the public benefit provided by the project. The attached proposed Financial Policy (See Attachment 1) provides parameters related to the two primary approaches to providing TIF commitments: (a) lump sum payments (historically the prevalent approach) and (b) pay over time. In addition, the parameters are defined by two of the three previously outlined URA assistance purposes: (a) Create – When existing conditions on a site make private market rate redevelopment impractical (i.e., environmental contamination or insufficient infrastructure) so providing TIF assistance removes financial barriers and helps to create a project that would not otherwise happen, and (b) Enhance – When conditions on a site are such that the likely market rate redevelopment outcome is not consistent with goals for Targeted Redevelopment and Infill Areas. In these cases, providing TIF assistance changes the scope of the project so that it conforms, or exceeds identified objectives in City Plan. Specific details of the proposed financing parameters are provided in the attached Financial Policy (See Attachment 1). ATTACHMENTS 1. Urban Renewal Financial Management Policy 1.1 – Tax Increment Financing Parameters 2. PowerPoint presentation 1 URA Financial Management Policy 1.1 Tax Increment Financing Parameters URA Finance Committee Meeting October 21, 2013 2 Direction Sought • Does the URA Finance Committee have questions about the proposed TIF commitment parameters? • Does the URA Finance Committee believe that the proposed URA Financial Management Policy needs to be reviewed by the entire URA Board during a work session? 3 Recent Improvements • Reorganization allowing for an independent review by Finance • Changes to the method for estimating Tax Increment generated by a project • Increased consultation with outside legal counsel • Documentation of the Redevelopment Agreement negotiation, adoption, and execution process 4 Proposed Parameters URA Assistance Purpose: Create URA Assistance Purpose: Enhance Element Lump Sum Payment Pay Over Time Lump Sum Payment Pay Over Time Max % TIF Commitment Available to Support Project 75%* 90%** 75%* 75% TIF Payment Calculation Fixed $ Commitment (a) % of Actual Annual Tax Increment collected (b) Fixed Annual $ Commitment Fixed $ Commitment (a) % of Actual Annual Tax Increment collected (b) Fix Annual $ Commitment URA Cost of Capital Borrowing Costs: -City Interagency Loan Policy -Bank Loan Underwriting Req. -Other: Section 108 standards N/A Borrowing Costs: -City Interagency Loan Policy -Bank Loan Underwriting Req. -Other: Section 108 standards N/A Developer Cost Capital N/A -Negotiated -Limited by the Max % TIF Commitment Available N/A -Negotiated -Limited by the Max % TIF Commitment Available % TIF Contribution relative to Total Project Cost 25% 15% *Includes borrowing costs **Max % TIF Commitment on Future Prospect South projects limited to 75% 5 Three Basic Approaches • Lump Sum Payment (Historically Prevalent) • Pay Over Time – Percent of TIF collected • Pay Over Time – Fixed Dollar Amount – In the first year if actual TIF comes in lower than the Estimate of Value, the actual TIF reimbursed will be prorated based on the actual TIF received. – In the first year, if actual TIF comes in higher than the Estimate of Value, the TIF reimbursed will be based on the original Estimate of Value calculation. – The actual TIF paid does not grow with inflation. Once established in (b) above, it stays constant. Once established by (a), it can grow to equal (b) but not exceed (b). 6 General Procedures • Use updated TIF estimation method • Growth Estimate will be held at 0% • Cash flows shall be based on absolute dollars and NPV. – The discount rate used shall equal the URA cost of capital. • The term of a City loan to the URA shall be based on the estimated TIF stream. – The term shall be minimized to the greatest extent possible given the estimated cash flow. • The minimum time to process the request for payment from the development will be 90 calendar days. 7 Direction Sought • Does the URA Finance Committee have questions about the proposed TIF commitment parameters? • Does the URA Finance Committee believe that the proposed URA Financial Management Policy needs to be reviewed by the entire URA Board during a work session? URA Financial Management Policy 1.1 1.1 Tax Increment Financing Issue Date: TBD Version: 1 Issued by: Director Economic Health URA Financial Policy 1.1 – TIF Parameters 1.1-1 1.1 Guiding Principles A. Retaining a percentage of the total tax increment collected guards against the risk associated with rising interest rates, a diminution of assessed value, and other market risks. B. During volatile and/or rising rate environments, consideration will be given to reducing the amount of TIF committed by the URA as a hedge against dramatic rate increases that increase the cost of financing to the URA Objective: The following parameters are intended to provide a set of operating norms for financing URA projects. The financing parameters represent a range of preferred methods. The decision to utilize a particular financing method is contingent upon a project’s need for gap financing, the size of a particular deal, the type of improvements supported by public financing and/or the public benefit provided. Applicability: This policy applies to Fort Collins Urban Renewal Authority. Authorized by: Tax Increment Financing Parameters URA Financial Policy 1.1 – TIF Parameters 1.1-2 1.2 TIF Parameters URA Assistance Purpose: Create URA Assistance Purpose: Enhance Element Lump Sum Payment Pay Over Time Lump Sum Payment Pay Over Time Max % TIF Commitment Available to Support Project 75%* 90%** 75%* 75% TIF Payment Calculation Fixed $ Commitment (a) % of Actual Annual Tax Increment collected (b) Fixed Annual $ Commitment Fixed $ Commitment (a) % of Actual Annual Tax Increment collected (b) Fix Annual $ Commitment URA Cost of Capital Borrowing Costs: -City Interagency Loan Policy -Bank Loan Underwriting Req. -Other: Section 108 standards N/A Borrowing Costs: -City Interagency Loan Policy -Bank Loan Underwriting Req. -Other: Section 108 standards N/A Developer Cost Capital N/A -Negotiated -Limited by the Max % TIF Commitment Available Tax Increment Financing Parameters URA Financial Policy 1.1 – TIF Parameters 1.1-3 a. In the first year if actual TIF comes in lower than the Estimate of Value, the actual TIF reimbursed will be prorated based on the actual TIF received. b. In the first year, if actual TIF comes in higher than the Estimate of Value, the TIF reimbursed will be based on the original Estimate of Value calculation. c. The actual TIF paid does not grow with inflation. Once established in (b) above, it stays constant. Once established by (a), it can grow to equal (b) but not exceed (b). Definitions Create: When existing conditions on a site make private market rate redevelopment impractical (i.e., environmental contamination or insufficient infrastructure) so providing TIF assistance removes financial barriers and helps to create a project that would not otherwise happen. Enhance: When conditions on a site are such that the likely market rate redevelopment outcome is not consistent with goals for Targeted Redevelopment and Infill Areas. In these cases, providing TIF assistance changes the scope of a project so that it conforms, or exceeds identified objectives in City Plan. Getting Help Please contact the Director of Economic Health with any questions at 970.221.6324. N/A -Negotiated -Limited by the Max % TIF Commitment Available % TIF Contribution relative to Total Project Cost 25% 15% *Includes borrowing costs **Max % TIF Commitment on Future Prospect South projects limited to 75% 1.3 General Procedures: A. The Larimer County Estimate of Value provided to the developer/property owner shall be utilized for estimating future tax increment collections associated with a project. There shall be no annual appreciation applied to the estimate. B. Growth Estimate in cash flow analysis will be held at 0% C. Cash flows shall be based on absolute dollars and NPV. The discount rate used shall equal the URA cost of capital. D. The term of a City loan to the URA shall be based on the estimated TIF stream. The term shall be minimized to the greatest extent possible given the estimated cash flow. E. The minimum time to process the request for payment from the development will be 90 calendar days. F. In the pay over-time as a Fixed Annual $ Commitment as described in (b) above: Returned to City Base & Dedicated Sales Tax Oct 16th EPIC, Voter .25% Choices 95 Capital Program, Voter Approved .25% BCC Natural Areas and Parks, Voter Approved .25% BCC Streets & Transportation, .25% Street Maintenance, Voter Approved .25% BOB Community Enhancments, Voter Approved .25% City Natural Areas, Voter Approved .25%Pavement Management, Voter Approved .25% Open Space, Yes, Voter Approved .85% KFCG