Town of Oro Valley
Finance and Bond Committee
HOPI CONFERENCE ROOM
11000 N. LA CAÑADA DRIVE
Oro Valley, Arizona
Tuesday, January 26, 2010
CALL TO ORDER
|Chuck Kill - Chairman |
Dan Toth, Member
Bob Harris, Member
Peter Lamm, Vice-Chair
Jared Parks, Member
Bill Garner, Councilmember Liaison (via teleconference)
Stacey Lemos, Finance Director (via teleconference)
Lyra Done, PRAB Liaison
Wendy Gomez, Management & Budget Analyst
No one spoke during Call to Audience.
MOTION: A motion was made by Member Harris and seconded by Vice-Chair Lamm to approve minutes.
Councilmember Gillaspie addressed the committee and explained that after the November Finance & Bond Committee meeting and after a conversation with Councilmember Garner, Councilmember Gillaspie met with Ms. Lemos and Mr. Adler to discuss this item. Councilmember Gillaspie said that his purpose in addressing the committee was to share his views and to provide some background on the sign code ordinance issue. Town staff has been directed to create a sign code task force to comprehensively review different elements of the sign code and the General Plan, to suggest modifications to modernize and to better meet the needs to the business community, and to sustain community expectations for high quality. Recommendations are expected back by September 2010. Two years ago, Town staff reviewed the development review process and found that it could take two years for a developer to get through our development process. They worked hard to streamline the process, and as a result the process has been cut down by half. This reduced timeline depends not only on the Town doing a good job, but also having the developer present submittals in a timely manner. Last year, the master development plan process was introduced, and after the developer meets all the statutory requirements of our code, additional approvals are now being handled administratively.
Councilmember Gillaspie had a meeting scheduled with some department directors, but due to an illness, this has been rescheduled. We have been working to re-evaluate and explore additional suggestions on how we might be able to further streamline and improve our development review process, and some good ideas have come forward.
Based on what Councilmember Gillaspie knows about Mr. Adler’s suggestion that a task force be appointed, and from his own individuall perspective, he would recommend this suggestion and agrees with it. Councilmember Gillaspie said he would also recommend convening an economic development commission, which would assist in the process. He said he has specific issues he can discuss if the committee wants to hear them, and added that while he sees some problems with Mr Adler’s concept, overall it is a good plan. He believes some of the concepts could be incorporated into an overall process that would apply to all properties in the Town. Developers would know the Town’s principles and guidelines, that we would review their properties if they want to change zoning conditions, for example, the return on investment for the Town in terms of income. The key would be to set it up in a way that it wouldn’t be overly burdensome for developers.
Councilmember Gillaspie clarified he would suggest naming his recommended group the Economic Development Commission. This was once before proposed to Council about six months ago and was voted down, but the climate is different now. Also, if a town committee recommends it, it might have a higher chance of success. Chair Kill asked if it would be different from a task force and could they perform the same function. Councilmember Gillaspie explained they could perform the same function, but a task force is temporary, while a committee is permanent.
Mr. Harris said that what he has no objection to Councilmember Gillaspie’s recommendation. Chair Kill said that the committee would want to recommend that which would have the likeliest success with the Council. Mr. Harris said he had no objection to rescinding the motion and raising the issue of forming an Economic Development Commission to Town Council. Councilmember Gillaspie said he was in favor of it six months ago; the vote was 4-3. Chair Kill asked what the Council’s objections were six months ago. Councilmember Gillaspie replied that definition of what the group would do was not clear enough, and possibly not enough staff to support the recommended commission.
Councilmember Gillaspie said he disagrees with the part of the commission’s resolution regarding the increase of impact fees, as it would raise taxes in this economic climate. Chair Kill asked if there were an alternative revenue coming in, if we passed that to make up for the reduction in impact fees, whether it might be possible that we would have more revenue coming in over and above the loss of the impact fees. Councilmember Gillaspie said that was possible, and that fits into the recommendation of forming an Economic Development Commission, because we could look at trade-offs and other options He referred to scenarios, regarding the notion of having to raise taxes, that were presented at the budget retreat. Councilmember Gillaspie said he would be open to hearing the arguments regarding the impact fees, if the committee could show that there would be revenues to make up for the loss of the impact fees.
Mr. Adler addressed the committee and said there is agreement that we are trying to turn vacant land into revenue regeneration. The process is what is at issue. He has no problem working through an Economic Development Commission, but his concern is that the staff members are the ones that do the work and the Town does not have sufficient staff to support another commission. Attempts should be made to try to put a minimum of additional work on staff. A task force would do what an Economic Development Commission would do, but all they would need is a zoning map to determine what is allowed or prohibited. This is straightforward but takes time. Once the determination is made of the conditions of a specific property, the property owner is contacted, and asked if they would be willing to reconsider a use that was previously prohibited as being now acceptable. Mr. Adler offered Steam Pump Village as an example. Steam Pump Village is disappointed with the existing process, and they are prepared to run with their development if the restrictions are modified. Under the task force format, knowledgeable volunteers, rather than staff, would do the work. Mr. Adler believes a task force volunteer would be committed to a two-year time frame. The task force would deliver the results to the commission. We need to expedite the permitting process and one way of reducing the time process is to reduce the number of meetings that the developers have to attend.
Vice Chair Lamm asked if the task force would seek out landowners and suggest ways to change prohibitions on the use of the properties, he found it hard to imagine that the landowner wouldn’t already know what they have. He asked why a task force would be more qualified than the land owner. Mr. Adler said that a business owner is equally knowledgeable, but the task force would be able to initiate the possibility of the revision, so the initiative would be on the part of the Town. Right now property owners don’t have any incentive to move forward because they already know that the restrictions exist.
Vice Chair Lamm asked if Mr. Adler was suggesting that the task force bypass the stages or functions of the various boards and commissions. Mr. Adler said that all advisory board are admirable and necessary, but the task force would determine where the possibilities might be. Vice Chair Lamm asked how that would bypass the boards and commissions, or is Mr. Adler suggesting the abolition of some of these boards and commissions. Mr. Adler responded that the task force would determine where the opportunities were, determine whether the property owner would be willing to come forward with an application based on the revised restrictions. Under present circumstances, an issue goes to staff, then to Planning & Zoning, and then to Town Council. Mr. Adler suggests expediting the process by eliminating or reducing the number of meetings. He pointed out that the task force process would be less imposition on staff, by having the process go through the board and commission or task force, next to staff, and then council. So, the two issues are related but separate.
Mr. Harris said that all are in agreement regarding the goals, but he doesn’t think it appropriate for this commission to direct how the process is to be done.
In response to Chair Kill’s question, Ms. Lemos said the process of establishing an Economic Development Commission would be anywhere from 60 to 90 days before they would first be able to meet, depending how large the commission would be, its makeup, and after Town Council agreed to do it.
Vice Chair Lamm said he is worried about the proliferation of boards and commissions, and he can see how creation of more might defuse the responsibility, progress and flow of information. He can’t absolutely say they are not worth it, but there is a point of diminishing returns.
Mr. Toth said he also is worried about the proliferation. He came from state government, and in his experience, a task force was often created whenever there was a problem that could not be resolved by staff.
Mr. Parks said that the task force route might be more desirable and efficient than a commission.
Chair Kill said that this commission can only bring it to the attention of Town Council, and they can agree or disagree. It would take a while to select the right people for a commission, so a task force might be quicker. All we can do is make a recommendation. He asked for suggestions to change the motion or leave as is.
Vice Chair Lamm suggested taking the existing structure and making it more general, which would reinforce Council’s view that they are not being pushed. We could modify to read "task forces or commissions" which would leave us taking no position on the issue of which route to go in. Chair Kill suggested saying "and/or commissions."
MOTION: Vice Chair Lamm re-read the motion, as follows: "A motion was made by Member Harris to recommend to the Town Council that consideration be made to revisit, perhaps through one or more Town Council appointed task forces and/or commissions, existing zoning code restrictions and prohibited uses on vacant land, streamlining the planning and zoning process, and reassessing development impact fees in an effort to add economic vitality to the Town’s economy. The motion was seconded by Mr. Harris. MOTION carried 5-0.
Ms. Lemos gave a presentation on Home Rule. The Mayor’s seat and three councilmember seats are on the March 9 primary election ballot. Also on the ballot is the Local Alternative Expenditure Limitation Option, or "Home Rule" question. Home Rule was last on the ballot in 2006. Every four years we are required to ask voters to approve this option to allow us to set our budget limits locally, based on our community needs and on the amount of available funding resources. Otherwise, if this question were to fail, we would be required to come under the state imposed expenditure limitation, which is a formula-based limitation, provided for in the State constitution, that doesn’t take into consideration all the services and programs that the Town provides or what the revenue base is.
The formula starts with what our existing budget was in FY 79/80 and escalates it by a population growth factor based on our census population and an inflation growth factor. That formula is used to arrive at a calculated spending cap for the community. This next coming year the formula based spending cap from the State amounts to about $47M, and that compares with our variable projected resources for next year of about $108M. If the vote fails we would only be allowed to spend $47M of those available $108M. The expenditure limitation is a limit on expenditures only; it does not limit the revenues coming in. We would still continue to receive our sales taxes, state shared revenues, fines, and fees; we would just not be able to spend it. If this ballot question fails, we would have to severely reduce our budget and our services and programs by almost 60% next year.
Ms. Lemos reported that the City of Tucson had this vote fail, which restricted their spending by approximately $20M to $25M less or this coming year than what they would have otherwise been able to spend. When this ballot question fails, the city or town is required to maintain under the State imposed expenditure limit for two years before the next election cycle, when they can go back to the voters and ask for them to reapprove.
This item has been on the ballot in Oro Valley since 1982 and has passed quite generously every time in the past. In 2006 it passed with an affirmative vote of 75% to 25%. Finance has been working with Communications Administrator Mary Davis to put together an outreach effort to educate the voters. The ballot language is in legalese and cannot be changed, so the only thing we can do is educate the voters. Ms. Lemos believes that the reason the City of Tucson ballot question failed was because the voters did not understand what it meant or what it said.
Chair Kill asked for clarification why the Town’s monetary impact is so much more than the City of Tucson’s. Ms. Lemos explained that the primarily reason is that in 1979/80 the Town’s total budget was approximately $270,000, and our population was 1400 people. Our relative growth over the last thirty years has been significant over this time period, whereas the City of Tucson’s population hasn’t changed much 1979 to now. The City’s budget in 1979/80 was probably already rather substantial. The Town of Oro Valley population is about 44,000. The City is approaching .5 million.
Town staff has scheduled speaking events before the publicity pamphlets and mail ballots go out in early to mid-February. Information pamphlets will be mailed out to residents. Chair Kill asked for the cost of this outreach and education effort. Ms. Lemos explained it was mostly staff time; the mailer will cost $5,000. The Town is prohibited from advocating or swaying the vote. We are not telling voters how to vote, we are simply telling them what a yes and a no vote would mean. The Town attorney is reviewing the mail-out materials. Vice Chair Lamm suggested we could probably use the same language as was done 4 years ago. Mr. Harris suggested that it would be nice if could include what the 60% reduction would mean in terms of how many staff persons that would translate into, and also remind voters that we don’t have a property tax. If the vote fails, it would be up to Town Council to decide what staff positions would be affected. The materials do show the figures attached to the different departments. Mr. Harris said he was concerned about the Amphi vote and how it relates to this. Chair Kill asked how the Tucson vote went last time; Ms. Lemos said she didn’t know, but we could look into it. Chair Kill said it looked like a very good use of staff time. Ms. Lemos said that it would be helpful for the committee members to pass on this information. Non-Town employees are able to advocate. Residents can also refer to the town web site, or they can call Stacey or Mary Davis.
DISCUSSION AND POSSIBLE ACTION - TOWN OF ORO VALLEY FY 2009/10 FINANCIAL UPDATE THROUGH DECEMBER, 2009
Ms. Wendy Gomez presented the financial update through December 2009. Ms. Gomez provided an update of the figures associated with the General Fund, Highway Fund, Bed Tax Fund and Public Transportation Fund, as reflected on Item 4 (Finance & Bond Committee Communication). Ms. Gomez explained that the estimated operating deficit for December is approximately $1.3M.
Vice Chair Lamm asked how the rebates that were being withheld were being accounted for. Ms. Gomez explained that they have been put into an escrow account and are building interest. Vice Chair Lamm asked if we are recording the interest. Ms. Lemos clarified that as we are recording interest, accumulating it each month as the balance grows, and as we journal entry those amounts to our payable accounts we are calculating how much the interest rate is that we are earning on our LGIP investments and applying those on a monthly basis to the growing balance. We don’t have to record it monthly per the agreement. We are required to record the payments on a quarterly basis, so with each quarter we calculate the interest earnings according. We record as an expense and then we record it as a payable.
The Highway fund figures for December are very close to last month’s figures, with an estimated operating deficit of approximately $531,000. The Bed Tax fund figures are also very close to last month’s figures; the Hilton rebate will be lower, and the fund’s estimated operating deficit is approximately $226,000. The Public Transportation fund figures for December do not reflect much change, although the state grant estimate figures were modified; this fund’s estimated operating surplus is approximately $37,000. The committee members did not have any questions about these three funds.
MOTION: A motion was made by Vice Chair Lamm, and seconded by Member Toth to submit the FY 2009/10 Financial Update (through November 2009) to Town council for approval. MOTION carried 5-0.
Ms. Lemos reported on conference calls she had with the bonding agencies, Fitch and Standard & Poor’s, regarding the suggested changes in the use of contingency reserve funds. Vice Chair Lamm had suggested the concept of allowing the Town Council to use increasing amounts of the contingency reserve funds with a gradually increasing voter majority, and also removing any distinctions as to the use of those funds. Ms. Lemos discussed with the bonding agencies the idea of ways to strengthen and clarify our contingency reserve policy.
Fitch doesn’t guide us in setting policy, and don’t show their cards too much. Their comments were brief, but Steve Murray, from Fitch, said this policy would be a weaker policy, as it could politicize the decision-making process to use contingency reserves, and it could have the impact of reducing financial flexibility at a time when the Town could need to use contingency reserves for an emergency or unplanned event. Overall, he was concerned with the wording and the manner that I suggested and didn’t feel it would be a positive improvement to our reserve policy.
Paul Dyson, of Standard & Poor’s, had similar comments. He thought it was a looser policy and he stated that when they do a bond rating review there are seven areas that they look at in a community’s management and policy areas and financial statements. One of the areas is the reserve policy. He thought that we may not get credit for having a full reserve policy if it were worded that way and thought that could weaken the assessment in this area. He also mentioned that he had not seen language of this type in any other policies that he had done reviews for. Although he said he has not reviewed every single policy in every single city or town, he has seen more communities starting to look at their contingency reserve policies and identify portions of their reserves to use during economic down turn or to set aside for economic contingencies.
Chair Kill asked if Mr. Dyson had stated how it would weaken our policy by putting the suggestion into effect. Ms. Lemos said that he wasn’t specific, but overall he mentioned not identifying a clear criteria for when Council could use contingency reserves - it didn’t identify whether it was for recurring or nonrecurring costs. Also, they were concerned that the policy didn’t include a pay-back provision.
Chair Kill asked if reserves had been used for recurring expenditures. Ms. Lemos said this past year, a use of approximately $350,000 in cash reserves was included to balance the budget for recurring expenditures that were over and above the one-time dollars that would be needed. Ms. Lemos said that what the rating agencies do is take a look at our year-end totals and what you actually encountered, and what the year-end total cash usage is . Councilmember Garner added that when the voluntary reduction was done, and by not filling some vacant positions, that was part of the premise to try to eliminate the need to dip into the contingency reserves, to try to lessen the impact of that decision. Councilmember Garner asked Ms. Lemos to clarify whether the Town was close to covering that full amount, which means that we will not have to use contingency reserves to cover that policy. Ms. Lemos said that Councilmember Garner was correct.
Ms. Lemos said that she had included some material from Governmental Accounting Standards Board, which is a new statement that will become effective next fiscal year that might help us come up with more guidelines for financial reporting. Ms. Lemos suggested we use this materials to come up with a reworded policy to bring back to the committee, based on best practices by the Governmental Accounting Standards Board. Ms. Lemos suggested that staff could go back and look at our existing wording and come up with a reworded policy to bring back to the committee for discussion. Ms. Lemos said that she did not feel comfortable recommending a reserve policy below the 25% threshold, but the committee can discuss further.
Councilmember Garner asked if this was a good time to bring up an issue that a constituent had brought up. Ms. Lemos suggested he bring it up as new business.
Chair Kill asked Vice Chair Lamm to refresh the committee’s memory regarding his proposal. Vice Chair Lamm explained that the proposal was to revamp the contingency reserve policy, so you would be able to invade some fraction of the beginning-of-year balance, rather than only during the budget year, and that the amount of the invasion would be tied in to the majority vote in favor, with progressive super majority. This would mean that with four votes the fund could be invaded by 1/7, with five votes the fund could be invaded by 1/5, with six votes the fund could be invaded by 1/3, and with unanimous approval of the Council or by majority vote with a declaration of emergency by the governor affecting the Town, the fund could be invaded in its entirety. Vice Chair Lamm commented that if this is disliked by bonding agencies, this could be a major negative impact. Although he is not impressed with their reasoning, we can’t dismiss their position, and he said he is perfectly willing to withdraw this motion, especially if the committee might be revisiting the issue for other reasons. Vice Chair Lamm asked Mr. Lemos for clarification on the GAS 54 document that was distributed, as it seems that most of this refers to restrictions but doesn’t address recurring versus nonrecurring. Ms. Lemos explained that Vice Chair Lamm was correct in his observation. She further explained that these relate to identifying portions of our cash reserves that are restricted for spendability based on any legal requirements tied to those funds, and do not refer to recurring versus nonrecurring. Vice Chair Lamm also commented that it appears that nothing in these rules is inconsistent with his proposal. Ms. Lemos said that that was also correct.
Vice Chair Lamm asked for clarification on some of the policy content at the bottom of the page. Ms. Lemos explained that if a council takes an action to set aside a stabilization fund (economic or rainy day fund) then that is something that would show up on the balance sheet as a category that would be a committed category and would have to be disclosed and would have to show up on the year-end balance sheet.
Member Harris asked if the bonding agencies gave opinions on how they viewed this classification scheme; Ms. Lemos said that they had not.
Chair Kill asked Ms. Lemos that if she speaks to them again, he would be interesting to know how a reduction of contingency funds would reduce our bonding rates. Ms. Lemos explained some of the criteria the bonding agencies look at when giving a rating; they look at debt service cover ratios, the amount of revenues coming in to the ratio of outstanding debt service, our management practices and policies, for a total of seven different areas. Revising our existing contingency reserve policy can make it stronger or more specific, but it may not have that much more of an incremental impact in our overall bond rating to give us an upgrade because it’s one small piece of what they are looking at. Ms. Lemos simply wanted to get the bond rating agencies’ feedback on any kind of changes that took away the language that was a distinction between using cash for recurring versus nonrecurring purposes, because once you take that distinction away and you are not looking at that but are using cash reserves at an accelerated rate, you may be ignoring a root cause that is a structural imbalance on our budget.
Chair Kill and Vice-Chair discussed the suggested motion. Vice Chair Lamm said there are some negatives here, so he said he would withdraw the proposal, and perhaps some of these ideas could be revisited at a later time.
Mr. Adler said that the issue that Councilmember Garner referred do are comments he wants to voice, so he is willing to have it put on "Future Agenda Items." Mr. Adler also said that he believes the contingency policy should be changed with regard to recurring expenses, and his suggestion deals with that.
COMMITTEE MEMBER/COUNCIL MEMBER LIAISON REPORTS
Councilmember Garner gave an update on Turken v. Gordon regarding developer subsidies. The Arizona Supreme Court made their decision today, and it doesn’t bode well for the Town to continue to retain funding on the EDAs. Council will be having an executive session to discuss. We have collected those monies and they have been accruing interest.
Member Harris asked for feedback on the Budget Retreat. Councilmember Garner reported that the retreat had a outside facilitator who got everyone on the same beginning stage of the budgeting mindset and forecasting. Finance staff gave an overview of the budget. A task force, comprised of various staff members, went over priorities and department program areas which were rated. The concept of the "new normal" was discussed. Numbers that were shown on the budget books were assumptions, now department heads know where the councilmembers stand on a policy standpoint. There was a lot of positive feedback, this was a different approach, and is just a jumping off point (especially since last year’s budget was such a difficult one). One of the areas that got high marks was a bond defeasance issue, which was something that was discussed at this committee.
Councilmember Garner reported that based on the current financial times, and based on the fact that the Town may or may not use reserve contingency funds for re-occurring expenses, Mr. Adler’s thought was to have the Town borrow from the contingency fund and pay back with interest. Councilmember Garner used the analogy of borrowing against one’s 401K. Chair Kill asked for wording on the item. Garner explained that the item would be the recommendation to enact a policy to allow the Town to borrow against the contingency fund. The committee did not have any objections to putting this item on the agenda.
Chair Kill asked if there is a policy that includes a requirement that the bidders have an Oro Valley presence. Councilmember Garner referred to a Town Council presentation from Brian Garrity that addressed some of the restrictions and guidelines for procurement. Ms. Lemos said there are certain areas where we are prohibited legally from restricting bidding to local vendors, but we also follow best practice to allow for competition, where we try to look for local preferences. We can provide copies of the Town Council meeting where Brian Garrity gave the presentation.
Ms. Lemos explained that over the next couple of months the Finance staff is going to be working very hard on the budget process, and she asked if the committee would object to next meeting on April 26, which is the next regularly scheduled meeting. There were no objections from committee members.
A motion was made by Member Harris, and seconded by Member Parks, to adjourn. MOTION
carried 5-0. Meeting adjourned at 8:05 p.m.