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HomeMy WebLinkAbout2000-07-17 City Council (23)TO: ATTENTION: City of Palo Alto C ty Manager’ Report HONORABLE CITY COUNCIL FINANCE COMMITTEE 1 FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE SERVICES DATE: SUBJECT: JULY 17, 2000 CMR: 321:00 LONG RANGE FINANCIAL PLAN AND VOTER SURVEY FOR NEW PROJECTS This is an information report to provide background for the study session on the Long Range Financial Plan (LFRP). No Council action is required. BACKGROUND On June 6, 2000, City staffmet with the Finance Committee to discuss the City’s LRFP (CMR:269:00), as well as presenting a draft scope of services (CMR:265:00) to conduct a voter survey. The survey’s purpose is to determine voter preferences for new infrastructure projects and voter sensitivity to pay for those projects. The LRFP projection of the General Fund’s revenues and expenditures over the next ten years results in the following conclusions: The City will experience modest surpluses of $1-2 million annually. The surpluses are not adequate to support major new project or program initiatives. There are significant financial challenges ahead (e.g., the loss of $4 million in annual rental income from the Refuse Fund beginning in 2012 and funding of a $32 million liability for retiree health care costs) that warrant prudent financial planning. The conclusion coming from the forecast is that additional funding sources are needed to finance the balance of the City’s existing infrastructure needs and any major new undertakings. CMR:321:00 Page 1 of 4 One of Council’s highest priorities has been the rehabilitation of City’s existing infrastructure. In 1998, Council confirmed this by approving the policy that existing infrastructure should take priority over new facilities and that new projects would be funded through new sources of revenue. Council conceptually approved $74 million in funding for a $95 million, ten-year existing infrastructure plan and directed staff to discuss with the Chamber of Commerce (Chamber) a proposal to use a transient occupancy tax increase to raise the remaining $21 million. The Finance Committee subsequently gave conceptual approval to pursuing a Transient Occupancy Tax increase of 2 percent and extending the Utility Users Tax to interstate and international calls, after taking into consideration the input from the Chamber. These changes are expected to annually add General Fund revenues of $1.7 million and $2.0 million, respectively. The revenues would fund: remaining existing infrastructure improvements, augmented business district maintenance efforts, and other General Fund needs. In addition, the Committee directed staff to continue discussions with the Chamber on instituting a Business Registry Fee on a cost-recovery basis, in order to facilitate the gathering of valuable information on businesses. The Committee then discussed options for funding new infrastructure projects as well as conducting a survey and outreach effort to determine the community’s priorities and willingness to pay for those priorities. One of the chief concerns of the Committee was asking voters to bear new taxes for new projects in light of a number of rate and fee increases that the City and other jurisdictions would be requesting. These included, for example, the City’s storm drain fee increase, the Santa Clara Valley Water District’s assessment increase, and extension of the County half-cent transportation sales tax. In particular, questions were raised about the financial burden of new revenues on fixed income households and small businesses. Sensitivity analyses showing potential impacts were requested and will be presented in the future as taxing options are considered. A list of the known proposed rate and tax increases is provided in Attachment A. To fund new projects, the Committee recommended that staff continue to consider General Obligation bonds, a parcel tax, and tax increment financing. The Committee requested additional information on the third option in order to make full, informed decisions about its utilization. In addition, staff was directed staff to pursue the potential implementation of development impact fees. Staff is currently identifying services for which impact fees can be assessed. Finally, at the June 6 meeting, staff presented to the Finance Committee a long list of new infrastructure needs that have been identified by the community, Council and staff (Attachment L in Chapter 7 of the LRFP). Roughly estimated costs for all of these projects ranged from $192 million to $341 million. Prior to prioritizing these projects, the Finance Committee directed staff to hire a consultant(s) to assist with: CMR:321:00 Page 2 of 4 identifying projects that had synergy and could be grouped together determining projects that had wide appeal to the community and did not set one ~..~egment of the community against another evaluating the immediate and cumulative financial impact of new infrastructure efforts as well as other tax and rate initiatives, particularly on fixed income and small businesses timing the City’s financing proposals in a manner that is realistic and successful developing project recommendations for Committee consideration prior to conducting a voter survey constructing a survey that had wide input and would comprehensively gauge community sentiment Sensitive to the numerous financial requests that will be made to Palo Altans, the Committee wanted to move forward in a prudent and deliberate manner, both prior to conducting a survey and afterwards in asking for voter approval of financing. DISCUSSION Staff has recently identified a public outreach consultant who can support the efforts described above. This consultant will participate in selecting a surveyor, assist in gathering feedback from other sources to augment the information provided by the survey; interpret survey results; assist staff and the City’s Financial Advisor in developing a coordinated financing strategy for Council review; and develop mechanisms to communicate the proposed strategy. Based on Finance Committee comments, staff has redrafted the scope of services for a surveyor (Attachment B). At this time, it is anticipated that a surveyor could be hired by late Summer and that a survey would be conducted in the Fall. Once the survey is completed, staff will return to the Finance Committee with the results. Assuming the survey indicates community support for new projects, staff would then prepare an analysis and recommendation on appropriate financing vehicles to be delivered late this year or early in 2001. Further work and discussion on the various financing options selected by the Finance Committee (General Obligation bonds, parcel tax, and tax increment financing) is necessary prior to an election. The earliest that an election can be conducted is November 2001. In addition, Council and staff must explore the appropriate timing for proposing increases to the TOT and extending the UUT, assuming funding the remaining $21 million of existing infrastructure needs is of the highest priority. While current levels of the Infrastructure Reserve might provide some flexibility, the optimal timing needs further examination and discussion. CMR:321:00 Page 3 of 4 RESOURCE IMPACT It is estimated that the costs for an outreach consultant for support of the voter survey, interpretation of the results, and development of a communications plan will be $21,000. A voter opinion survey conducted by telephone will cost between $20,000 and $25,000. Funds for the consultant and a surveyor can. be allocated from the Administrative Services Department’s 2000-01 budget. POLICY IMPLICATIONS The approach outlined in this report is consistent with the policy direction received from the Finance Committee on June 6, 2000. TIMELINE Summer 2000 Fall 2000 Winter 2000 Spring.2001 Summer 2001 Hire a surveyor Conduct a Voter Survey Meet with Finance Committee to discuss voter survey results and financing options Finance Committee and Council approval of financing vehicles and timeline Call for an election for financing infrastructure projects ENVIRONMENTAL ASSESSMENT This report on the City’s Long Range Financial Plan and the conduct of a voter survey represents preliminary policy assessment and direction to staff. It does not require California Environmental Quality Act (CEQA) review. ATTACHMENTS Attachment A: Attachment B: Projected Timeline for Potential Tax and Rate Increases Draft Scope of Services for Survey PREPARED BY: Joe, Saccio, Manager, Investments and Debt DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: ~~~ EMILY HARRISON Assistant City Manager Services CMR:321:00 Page 4 of 4 ATTACHMENT A Timing of Proposed Local Tax, Rate and Fee Initiative Votes and Estimated Impacts * 2. 3. 4. o ° August 2000 Gas Rate Increase - 15 percent September 2000 City of Palo Alto Storm Drainage Fee Increase - $4.75 November 2000 Santa Clara Valley Water District Rate Increase - $39 November 2000 Extension of Existing Half-Cent County Transit Sales Tax for 20Years December 2000 City of Palo Alto Downtown Parking Assessment District - $1.17 per square foot (estimated) November 2001 and Beyond City of Palo Alto General Obligation Bond or Parcel Tax Vote for New Infrastructure - Taxes dependent on Funding Approved by Voters and/or City of Palo Alto TOT Increase of 2 Percent and Extension of the Utility Users Tax to International and Interstate Phone Calls for Existing Infrastructure The proposals cited above are in various stages of discussion and review. For example, whereas the City Council has given staff approval to move forward with an assessment district for new downtown parking garages, it has not asked staff to move forward yet with extending the UUT. ATTACHMENTB REQUEST FOR PROPOSALS FOR PUBLIC OPINION SURVEYOR The City of Palo Alto is soliciting responses from public opinion research firms interested in conducting a survey of the City’s voters. There are two purposes for this survey. The first is for voters to identify their highest priorities or preferences for new infrastructure projects, either by selecting from projects cited in the survey or by recommending projects to the surveyor. The second purpose of the survey is to determine how much and in what manner (debt versus pay-as-you-go) voters are willing to pay for their high priority projects. In other words, what is the voters’ sensitivity or threshold for new taxes to support new projects and how should these taxes be used to finance construction. Currently, the City has a long list of new infrastructure projects that have been identified by the community, Council and staff. Roughly estimated costs for these projects range from $192 to $341 million. Examples of new projects under discussion include a Library Master Plan, major work on thoroughfares to calm traffic, and construction of a new police building. Realizing that all projects recognized to date cannot be included in the survey, the City is currently working with an outreach consultant who will assist in identifying projects for the survey and in conducting an outreach effort if the survey indicates support for new facilities. It is anticipated that the surveyor will work closely with staff, the outreach consultant and other interested parties in developing a survey. Palo Alto is a thriving, largely built-out community with a highly educated, affluent, and articulate citizenry. Having a population of 61,000 residents, the City provides a wide and high level of municipal services for its size. These include police, fire, public works, planning, building, transportation, and community services. The City owns it utilities, has six libraries, eight fire stations, a golf course, a Cultural Center, a Children’s Theatre, a Community Theatre, ’a Junior Museum and numerous parks and open spaces. The City offers a considerable array of social, recreational and cultural programs such as human services for seniors and youth, subsidized childcare, concerts, art exhibits, team sports and special, holiday events. Because of a diverse and healthy revenue base, the City has been able to provide these extensive services. The growth in current revenue sources, however, cannot keep pace with the desire for new projects and the need to rejuvenate existing facilities. It is important to note that the City is considering proposals to increase its Transient Occupancy Tax and extend its Utility Users Tax to interstate and international calls. These increases would be used to rebuild the City’s aging infrastructure. The City of Palo Alto is also in the process of establishing a new downtown parking assessment district and seeking voter approval for several utility rate increases. Moreover, there is increasing pressure from outside jurisdictions, such as the Santa Clara Valley Water District, to ramp up their own infrastructure programs by increasing assessments on Palo Alto property owners. Because of these numerous tax and rate initiatives, it is important to hire a surveyor who can efficiently and accurately gauge the community’s major new priorities and their willingness to pay for those priorities. Should your firm be interested in this project, please provide the following information: General firm description: Describe the history and experience of your firm with a focus on surveys for public agencies in Califomia that are similar to Palo Alto’s request. Staff resumes: Identify the principal staff to be assigned to this project, their respective responsibilities, and the location of their primary office. Provide a brief resume of each staff member including their experience in conducting surveys in California. Scope of services: Based on the request above, summarize your understanding of this project and describe the services you will provide the City. Staff envisions, at a minimum, an "all hands" or kickoff meeting; a meeting to discuss and develop survey questions; a meeting to discuss survey results, and a presentation of results to Council. Provide a discussion of your methodology to include: sample size, method of selecting samples (representation of all geographic and demographic areas is important), survey techniques, and the level of confidence expected for the survey. Please include recommendations on the preferred number of closed-ended versus open-ended questions in a typical 10-12 minute interview. It is expected that the survey and its results can be completed within an 8-9 week time frame. Time flame for survey: It is expected at this time, that a survey would be conducted in Fall, 2001. Proposed fee: Itemize the fees for the types of surveys your firm conducts. It is our understanding that basic surveys rely on a 400 sample size and that there are larger sample surveys providing additional information based on geographical area, socio- economic group etc. Fees for each of the different types of surveys should be cited. In addition, include an estimate for any out-of-pocket expenses. Client references: Provide a list of your recent clients (contact person and phone number), particularly those with projects similar to the City of Palo’s. A sample of a survey for one these clients is highly desirable.