PRESENT:

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

Finance Director Stacey Lemos presented the item. She noted that by the end of the fiscal year, there would be an estimated $2.1M deficit in the General Fund. She explained that:
~A $1.7M deficit had been accounted for in the budget.
~A portion of the excess $400,000 deficit was a $232,000 investment loss in Lehman Bros.
~This left a projected deficit of $168,000.

Ms. Lemos noted that historically, departments have ended the fiscal year 1-3% under budget. She recommended that Staff continue to monitor the budget in order to close the gap.

She informed Council of the deficits and surpluses in the following funds:
~Highway Fund:
  *$92,000 projected deficit
    -$41,000 loss in Lehman Bros. investment.
~Bed Tax Fund
  *Estimated surplus of $379,000
~Public Transportation Fund:
  *Projected deficit of $69,000
    -Could be accounted for at year end if under budget.
~Roadway Impact Fee Fund:
  *The projected year-end balance is $2.4M ***
staff is evaluating the cash flow in this fund for the projected year and the next 4 years.
~Storm Water Utility Fund
  *Estimated surplus of $134,000
    -Year-end estimate does not include possible Federal Emergency Management Agency (FEMA) funding.
  *could be a self-supporting fund
~Water Utility Fund
  *Expenditures $15.3M
  *Revenues $12.8M
  *Operating within the adopted budget and is sound.

Discussion ensued regarding:
~$1.1M is anticipated from FEMA for the Stormwater Utility project in the Lomas de Oro Subdivision
  *Town Engineer is negotiating with Pima County Flood Control District to pay for the Town’s share.
~The total loss from the Lehman Bros. investment was approximately $680,000.
  *The loss was allocated to each operating fund of the town based on the amount of
    reserves invested in the State Treasurer’s pool.
~Carrying over cost saving plans into the budget for the coming year.
~Hiring freeze
~Historic Inventory Project could be put on hold.
~Some budgeted items could still come in under budget at year end.
~Environmentally Sensitive Land Ordinance (ESLO) contract is ready to be awarded
  *$250,000 budgeted for land annexation counsel.
~$1.7M from the Contingency Fund was allotted to cover one time expenses and make up the anticipated difference in Fiscal Year ’08-’09. 
~Cash contingencies faired better by $2M in the General Fund.
~Savings due to vacancies and the hiring freeze have not been taken into account.
~An additional $300,000 from the Utility Tax will be accounted for in the last quarter.
  *The Utility Tax is due to sunset April 1, 2009.

The following items contain funds for this fiscal year that have not yet been spent:
~Capital Improvement Projects: $300,000 of the $751,000 budget has been spent to date.
~$175,000 budgeted for the ESLO consultant has not been spent
~$50,000 for the Historic Cultural Inventory has not been spent
~$250,000 remains of the $300,000 for annexation activity
~$360,000 payment to Sanofi Aventis for the sales tax rebate
~It was recommended that the $500,000 contribution to the Capital Asset Replacement Fund (CARF) be retained. 

Ms. Lemos stated that State Land Annexation expenses and the ELSO consultant would be eligible to rollover to next year’s budget.  She noted that the Capital Improvement Project (CIP) items were not likely to be carried forward since the projects were anticipated to be completed this fiscal year.
 

Town Engineer Craig Civalier stated that cut backs could be made from outstanding surface treatment projects in order to make up for the $51,000 deficit in the Highway Fund. It was noted projects released for bid in the spring could garner bids that are below estimates as the climate for bids is quite good.

It was clarified that the Economic Development funds were under budget due to the lack of an Economic Development Administrator.

It was clarified that interest payments on HELP loans were paid by the Town while the principle payments were made by the Pima Association of Governments (PAG). It was noted that the interest payments were projected to be less than $2.4 million over the next 5 years.

Mayor Loomis directed Staff to continue monitoring the budget very closely and to schedule a study/special session for the third quarter.

Ms. Lemos stated that for the second half of the current fiscal year there would be a reduction in Town revenues due to the following:
~Sunsetting of the Utility tax
~The decline in consumer spending
~High unemployment rate
~New larger stores depleating sales from smaller stores
~Construction sales taxes declining and projected to continue into next year.

Finance Director Stacey Lemos explained the assumptions for revenues and expenditures in the General Fund for fiscal year 2009/2010.

REVENUE	EXPENDITURES
Continued reductions in retail/restaurant spending	No new personnel
$700,000 reduction in State Income Tax Sharing	No cost of living adjustments, merit, market adjustments, STEP plan increases
9% reduction in State Sales Tax	10% annual increase in benefit costs
2% Utility Sales Tax sunsets April 2009 - $1.2M loss annually	Reduction in Capital Improvement Project funding
Projected 100 SFR permits issued; a reduction of 150 permits	Annual funding of Capital Asset Replacement Fund (CARF)
	Departmental budgets remain flat to FY ’09 levels
Projected Revenue $26.7M	Expenditures $30.9M

It was noted that the annual funding for CARF was $500,000

Ms. Lemos presented the recommendations for Deficit Reductions in the General Fund:
~Defer capital funding
~Use of Bed Tax revenue
~Renewal or increase of 2% utility sales tax
~Residential/Commercial rental tax
~1/4 cent rate increase to local sales tax
~Eliminate Community funding
~Program/Service level reductions
~Staffing level evaluations Townwide

It was noted that any vote by Council to extend the Utility tax must happen prior to April 1, 2009 and it would not require a public hearing unless the tax were to lapse. It was further noted that should Council choose to renew the tax, it would add $300,000 to fourth quarter revenues.

Ms. Lemos stated that revenue enhancement options coupled with expenditure reductions were recommended for financial sustainability due to the projected trend of declining revenue.

Ms. Lemos explained the Highway fund assumptions: 

REVENUE	EXPENDITURES
Revenue projected to decline 19% for FY 2010 due to:	No new personnel
~Considerable slow down in development activity	No cost of living adjustment, merit, market adjustments or STEP plan increases
~Uncertainty of State shared Highway User Taxes	10% annual increase in benefit costs
	Roadway maintenance budget o f$1.2M

She stated that revenues were projected to be $4.2M with expenditures in the amount of $5.2M.

She recommended the following deficit reduction options for the Highway Fund:
~Additional revenue sources
~Program/Service level reductions
~Funding for pavement presentation

Ms. Lemos explained the Bed Tax fund assumptions:

REVENUE	EXPENDITURES
Revenue projected to decline slightly:	Economic Development continues to receive 2% allocation from tax
~Existing hotel revenue to decline 2%	Hilton El Conquistador continues to receive 2% rebate on their annual sales with the agreement to expire FY 2010/11
~Full year operation of hotel at Steam Pump Village
Projected revenue $1.2M	Expenditures $.8M

She stated that continued surpluses were anticipated.

Staff requested direction from Council regarding the following:
~Reconsideration of the 2% utility sales tax
~Preference on options for future fund deficits
~type of budget information requested
~Saturday overview budget session
~Further direction/requests of Council

Ms. Lemos stated that the Finance department is working to prepare a five year balanced budget plan.

The 2% allocation of the Bed Tax fund is allotted as follows:
~Metropolitan Tucson Convention and Visitor’s Bureau
  *Budgeted $120,000 for this year.
~TREO
  *Budgeted $50,000 for this year
~CPATH
  *Budgeted $25,000 for this year
~Local budget for Economic Development marketing efforts
  *Budgeted $60,000 for this year 

It was noted that State revenues were at a 14% decline this year and a 9% reduction was anticipated for next year.

Vice Mayor Carter requested cost amounts for the following:
~Visa
~Publications
~Surveys
~Management studies
~Retreats
~Cell phones for individual employees

He stated that he wanted every item reviewed.

Mayor Loomis stated that the department heads need to review programs in-depth.

Council Member Kunisch requested that:
~All departments reviw work loads
  *A reduction in work load could indicate that a reduction in the department may be warranted.
~Reviewcommunity funding.
~The Utility tax be addressed
~Town vehicles going home with employees be reconsidered.
~Out of state travel be discontinued

It was noted that:
~Utility sales tax percentages in surrounding jurisdictions averaged 2%
  *However the franchise agreements call for fees that collect an additional 2-4%.
~Rental taxes were common taxes among other jurisdictions in Arizona.

Economic Development Specialist Amanda Jacobs introduced the item stating that the goal of the policy was to encourage professional level employement in the Town of Oro Valley.

She stated that the targeted industries were:
~High tech/Bio tech
~Tourism/Resort/Convention facilities
~Hospitals/Medical facilities
Ms. Jacobs noted that the industries were consistent with the Town’s General Plan and the Community Economic Development Strategy.

She noted that the targeted development criteria as:
~Business attraction/expansion projects that add a minimum of twenty quality jobs.
  *She defined a "quality job" as:
    -Pays 10% above the Oro Valley median wage rate (Currently $68,900)
~Employer offers full employee benefits to include:
  *Employer paid medical benefits
  *Vacation
  *Sick pay
~Business attraction projects that bring a needed or unique product or service to the Town creating jobs and significant sales tax revenues.
~Recreation or tourism development projects which add needed recreational amenities for residents and visitors.

Ms. Jacobs explained the possible incentives:
~Fast tracking 
  *The Economic Development division would create project teams to assist the applicant through the review process 
    -Project teams would include representatives from all departments
  *Expedited plan check for non complex facilities
    -The number of days for review would be reduced from 20 to 12 days.
~Job credits - in order to qualify an employer must agree to:
  *Create and maintain a minimum of twenty full time new jobs
    -The employer will receive $1,000 per employee that lives in the Town
    -The employer will receive the credit after the employee has been with the company for 1 year.

Discussion ensued regarding:
~This item should be delayed due to current economic conditions.
~Fast tracking is legal
~Incentives would be more palatable if the Town received a direct benefit developers such as improvements to or creation of infrastructure.

Building Safety Director Suzanne Smith informed Council that in the Building Safety department requires that the developer must pay twice the usual fee in order to fast track or expedite the permit process.

Discussion clarified the following:
~Fees would not be waived in this policy.
~The "Shovel Ready" program was put forth by the Tucson Regional Economic Opportunities (TREO)
  *Businesses were looking elsewhere to establish their business due to:
    -The amount of time to begin building 
    -The amount of time to acquire permits to improve existing building.

It was noted that the following items would need to be addressed should a policy move forward:
1. Job credits - need to define type of industry
2. Identify the source of funds
3. Research whether there would be a requirement for an economic impact review
4. Time requirements, if applicable - establish allowable maximums.

Discussion noted that:
~Incentives should not be limited to the type of industry but rather to professional level jobs.
~The median wage rate will be researched
~Address the intangible benefit of education.
  *Important to work closely with Amphitheater School District as educational needs have been listed as a priority prerequisite for employers to move here.
    -The statistic was found in a survey conducted by Tucson Regional Economic Opportunities (TREO)
~A cap on infrastructure benefits would need to be established
  *Possible develop an account to support this. 
~Per State ruling, municipal funds cannot be used for schools.

Council concensus was to identify changes that may be needed however due to the current economy the item was tabled.

MOTION: A motion was made by Vice Mayor Carter and seconded by Council Member Kunisch to adjourn at 7:41 p.m.

MOTION carried, 7-0.