Study Session
November 9, 2009
CALL TO ORDER - at 6:02 p.m.

Mayor Loomis announced that Council Member Paula Abbott had submitted her resignation effective immediately. He thanked her for her years of service to the Town.


Paul Loomis, Mayor
K.C. Carter, Vice Mayor
Bill Garner, Council Member
Barry Gillaspie, Council Member
Al Kunisch, Council Member
Salette Latas, Council Member

Mayor Loomis moved Item 2 ahead of Item 1.


Environmentally Sensitive Lands Ordinance Update

Click here for Item 2

Senior Planner Karen Berchtold recognized consultants in the audience for this project David Williams of Willdan and Colby Henley a biologist with Recon Environmental.

Ms. Berchtold stated that a project was measured by the work of the committees involved. She stated that the first committee was the Environmentally Sensitive Lands Technical Advisory Committee (ESLTAC). She explained that this committee was comprised of professionals with scientific expertise and that their work was nearly complete. She noted that:
~They had been defining the criteria for various resources.
~The field work data had been gathered and maps were almost ready for final review.
~The ESLTAC will continue to be engaged in ordinance development to keep the committee aware of the progress.
~The ESLTAC’s involvement with the mapping component.

Ms. Berchtold explained that in addition to the ESLTAC there was an Environmentally Sensitive Lands Public Advisory Committee (ESLPAC). She stated that the ESLPAC was comprised of citizens and appointees of Council. It was noted that:
~The members were learning about the Sonoran Desert Conservation Plan, Arroyo Grande and Town codes.
~The ESLPAC worked with the Historic Preservation Commission which conducted the cultural resources inventory.
~Study sessions with major landowners had been held as well as a public open house. 
  *Another open house would be held toward the end of the process.
~The field work and mapping had been completed. 
~The field work and mapping had been completed.
~The original schedule had not been adhered to as permits to map Arroyo Grande were not available in a timely manner.
~Final draft may be possible in the spring.
~May have study sessions prior to the amendment.

Project Manager David Williams stated that the project was sixty days behind schedule. He explained that twice the number of ESLPAC meetings than originally planned for were needed. He stated that the committee was in the "Rule Making" phase. He noted that a public hearing could be conducted in the spring and more study sessions could take place in January 2010.


Town of Oro Valley’s 5-year Economic Sustainability/Resiliency Plan for FY 2009/10 through FY 2013/14

Click here for Item 1

Interim Assistant Town Manager Stacey Lemos presented the item. She reviewed the General Fund's Forecast assumptions:
~Slow recovery of sales taxes and state-shared revenues 
  *$1.3M shortfall from state-shared income taxes
    -25% decrease from that resource
  *Two year lag for state-shared income taxes 
    -Will reflect declines through fiscal year 2011/2012
~60 Single Family Resident (SFR) permits in fiscal year 2009/2010
  *75 permits per year thereafter.
~Limited commercial development with Ventana Medical Systems expansion 
  *Two possible hotels
  *Other minor commercial projects
~No new personnel and continue hiring freeze
~No salary increases
~10% annual benefits increase and 1/2% annual pension increase
~Inflation of Operations and Maintenance (O&M) expenditures at rate of 2.2% to 2.4%
~No new capital projects
~$100,000 for emergencies only
~Continued and increasing allocations from Bed Tax Fund
~Flat community funding

Ms. Lemos presented a graph which illustrated that expenditures surpassed revenues.

Ms. Lemos reviewed the forecast for FY 2010/11 for General Fund revenues:
Local Sales Taxes $12.3M 48%
State-Shared Revenues $  8.2M 32%
Fines, Licenses & Permits $  1.7M   7%
Outside Funding Sources $  1.4M   5%
Charges for Services $  1.0M   4%
Bed Taxes $    .7M   3%
Miscellaneous $    .4M   1%

It was noted that the State had not yet adopted a final budget which perpetuated the Town’s uncertainty regarding the amount of revenue to expect from the State. 

She reviewed the projected General Fund deficits:
~FY 2009/10 - $1.7M
~FY 2010/11 - $1.7M
~FY 2011/12 - $2.1M
~FY 2012/13 - $1.8M
~FY 2013/14 - $1.2M

She noted that in FY 2011/12 there would be a spike in the debt service payment schedule. She explained the causes for the deficit:
~Significant declines in State-shared revenues - major recurring revenue source
  *$1.5M decline in State-shared revenues projected for FY 2010/11 (income tax $1..25M)
~Year-to-date construction sales taxes down 50%
  *Limited residential and commercial development expected
~Slow, gradual economic recovery anticipated
  *Arizona’s recovery may take longer

Ms. Lemos presented options to consider for closing the deficit:
~Target reductions to recurring expenditures and/or new or increased recurring revenue sources would be key
~Service level evaluation/program prioritization
  *Discern core vs. non-core programs
~Early defeasance of outstanding bonds
~Formal Cost of Service study to evaluate amounts billed to Enterprise Fund
~Revisit Construction Sales tax distribution to General Fund and Highway Fund
~Implement a local sales tax increase within existing taxable categories
~Implement a local sales tax on categories that are currently not-taxed
~Primary property tax
~Unknown outcome of Turken vs. Gordon sales tax rebate decision

She explained the Early Bond Defeasance option:
~Three series identified for early defeasance
  *2000 bonds
  *2001 bonds
  *General Fund's portion of the 2003 bonds
~One time principal payoff of $5.8M from contingency reserves
  *Would combine General Fund reserves with $3.7M unused Municipal Operations Complex (MOC) funds
~Average annual recurring debt service savings of $800,000 ($650,000 in FY 2010/11) 

Ms. Lemos reviewed the Highway Fund Forecast assumptions:
~Highway User Revenue Funds (HURF) increase 1.5% to 4% annually in future years
~Continued HURF sweeps by the State to fund the Department of Public Safety (DPS)
~27% decline in Constructions Sales taxes for FY 2009/10 with growth of 3% - 7% in commercial development in future years
~Annual roadway maintenance budget capped at $1.2M
~No new personnel and continue hiring freeze
~No salary increases
~10% annual benefits increase and 1/2% annual pension increase
~Inflation of O&M expenditures at rate of 2.2% - 2.4%
~Would be fairly stable over the five year term

The Bed Tax fund forecast assumptions were reviewed:
~11% decline in bed taxes for FY 2009/10
~No growth in existing hotel taxes until FY 2012/13
~Two new hotels included in the forecast
  *Declines in tax revenue from existing hotels expected as a result
~Continued and increasing allocations to the General Fund
~Flat tourism and economic development funding
~Hilton bed tax rebate ends December 2010 

Transit Fund Forecast assumptions were reviewed:
~Flat local transportation assistance funds
~Flat user fee revenues with no ridership or fare increases
~Continued subsidy from General Fund to supplement Transit Fund operations
~No new personnel and continue hiring freeze
~No salary increases
~10% annual benefits increase and 1/2% annual pension increase
~Inflation of O&M expenditures at rate of 2.2% to 2.4%

Ms. Lemos requested direction from Council regarding the options to close the deficit. She further requested guidance for two processes that were rapidly approaching the beginning phases. She asked whether the Town should conduct Community funding to outside agencies and whether to conduct comprehensive Capital Improvement Projects or simply complete existing projects.

It was noted that there was a balance of $1.2M to $1.4M of the Bed Tax fund that was not allocated.

It was clarified that $700,000 in bed tax funds, originally earmarked for the Naranja Town Site, had been allocated to the General Fund.

It was noted that program priorities should be reviewed as revenues will not match expenditures as time goes on. It was suggested that a review of new programs adopted in the last five to ten years should be conducted and compared with the population and perhaps service levels should be adjusted to what they were ten years ago.

It was suggested that employees should pay for benefits and then possibly receive a salary increase.

Human Resources Director Sandra Abbey clarified that not all employee benefits were paid by the Town at 100%. She explained that part-time employees paid a greater percentage of the premiums and dependents of full-time employees were paid for at 75%.

Ms. Lemos noted that the benefits would be reviewed however the Town had changed healthcare brokers and insurance providers this fiscal year which cut costs sharply.

Mayor Loomis requested a spreadsheet of the historic changes with healthcare benefits for Oro Valley and nationwide or statewide guidance. Ms. Abbey replied that the information could be provided and noted that national trends had generally been between 8% to 10% increases each year. She confirmed that Oro Valley had aggressively negotiated and had always achieved a better rate than national trends.

Discussion noted the following:
~Cost of Living Adjustments (COLA's) would remain non-existent in the assumptions.
~The expenditures for the police department had decreased as a result of the consolidation of the department's Information Technology (IT), Communications and Fleet Maintenance staff and moving those positions to other departments.
~Future years included inflation factors.
~The Clerk's office budget went up every other year due to the cost of elections.

It was noted that capital costs rose sharply last year for the Park and Ride.

Mayor Loomis noted that with regard to the Transit Fund, the Regional Transit Authority (RTA) could assume ADA transit services for the region. He stated that he anticipated an announcement to that effect in December 2009 or January 2010.

Discussion ensued regarding:
~As of the 2004 budget, the General Fund subsidy was approximately $100,000 and the overall budget for the Transit Fund was $400,000 per year vs. $600,000, today.
~A 1% increase in the Utility tax would generate an additional $700,000 per year.
~In 2014, the Town would be below the policy limit for General Fund Contingency Funds at the current rate of spending.
~$3.7M could be transferred from MOC funds to the General Fund and used to pay down the debt.
~A recommendation that bond defeasance must be used in concert with other options otherwise funds will continue to decline.

Discussion regarding bond ratings followed:
~Bond rating agencies looked favorably at cash reserves 
~A water bond was recently rated as A+ with Fitch and AA- which is excellent with Standard & Poor.
~Could get more feedback from bond rating agencies for this proposal.
~25% of adopted expenditures is the current cash reserve policy
~Even if the rating were to drop to 21%, the ratings agencies would still look favorably on the Town.
~Cash reserves used for one-time payoffs would also be viewed favorably.
~Cash reserves used to fund recurring fees could damage the rating.
~If funds were used for the defeasance, it would bring the cash reserves down to 16%.
~New sources of revenue or cutting program costs could also help with ratings and reserves balance

It was noted that:
~If the Utility tax were increased by 1% it would bring an additional $700,000 in new annual revenues to the Town. 
~Nearly $1M had been cut in personnel costs due to the serverance packages, vacancies and the hiring freeze
  *The positions that the original Utility tax was used to fund have essentially been cut. 
~Projections were based on current staffing levels.

Mayor Loomis asked Council Member Gillaspie to share information gleaned from a recent town hall meeting he attended regarding the condition of the State’s economy. Council Member Gillaspie stated that Arizona has an unstable tax system as it relied too heavily on sales tax and coprporate and individual income taxes. He noted that it was not a diverse system. He explained that when the State was doing well, taxes were cut, but failed to cut expenditures. He noted that a Constitutional amendment was created that required 2/3 vote of the legislature to raise revenue. 

He stated that the Rainy Day fund was at 15% and was reduced to 7%. He conveyed the fear that the legislature had become accustomed to being in debt. He noted that there was no penalty for not balancing the budget.

He stated that the problem was political. He explained that the legislature was polarized at opposite extremes. He noted that term limits had forced out institutional knowledge and that achieving a 2/3 vote was impossible with the split in the legislature.

He noted that the state of Utah was noted to have the best tax system in the country. He stated that the tax rate was broader and lower and could easily adjust to fluctuations.

Oro Valley resident Bill Adler stated that growth was the part of the equation needed to be developed. He noted that the idea of no raises for employees for four years was unacceptable. He explained that the Town has opportunites to stimulate revenue through growth. He suggested that Council work with businesses to generate ideas and that projects should be expedited through the process to entice businesses. He stated that he supported identifying core services.

It was noted that the amount of the Town's share of funds based on the census was shrinking. It was explained that other cities had grown and the Town's share would likely decrease due to the lack of growth. It was noted that Oro Valley was the 15th largest town in the State in 2000; however the Town's ranking had dropped to approximately 30th.

Mayor Loomis stated that he wanted to continue looking for options for closing the deficit. He noted that the Bed tax and Transit funds should be considered. He stated that he would like to have more information and opinions regarding having outstanding bonds and a contingency amount versus paying off the bonds. He explained that he believed there would be a need for additonal Contingency funds when the economy turns around as there will be projects that will need to be addressed.
He stated that some study sessions should be conducted in order to sort out the issue of Community Funding. He stated that with regard to Capital Improvement Projects (CIP) that the current projects should be completed and that new CIP projects should not be pursued.

Council Member Latas stated that she did not see the need to have a study session on Community Funding.

Mayor Loomis stated that he wanted to discuss the process as well as whether the program should be suspended to determine if a new approach should be taken in the future.

Interim Town Manager Jerene Watson noted that a decisions needed to be made quickly as the Community Funding cycle would beginning about now and the next study session would not take place until January 13, 2010.

Council Member Garner stated that he felt the program should be suspended for at least this fiscal year.

Mayor Loomis stated that the November 18, 2009 Council meeting agenda would be amended to bring forward the issue of Community Funding in order to make a decision.

Council Member Gillaspie added to his comments regarding the town hall meeting. He stated that in the opinion of the experts, the property taxes were below the national avearge. He noted that it was recommended that the State re-enact the property tax. 


Future Agenda Items

Council Member Latas confirmed that it was Council’s desire to bring forward the issue of Community Funding for discussion and possible action.


MOTION: A motion was made by Vice Mayor Carter and seconded by Council Member Garner to adjourn the meeting at 7:26 p.m.

MOTION carried, 6-0.