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QUESTION AND ANSWER FACT SHEET 1. How much has been raised by the current Utility Users Tax and how was it spent? Through June 2002, the City has received $32.2 million and spent $32.1 million on capital improvement projects and Bluff Cove settlements as follows:
2. We have spent $32.1 million from the Capital Improvement fund. Why must we continue to spend more? The cost of refurbishment of the streets, storm drains, and parklands is a permanent and on-going expenditure. The capital assets of the City depreciate, and must be refurbished on a continual basis. Mandated financial reporting requires us to recognize these costs. The program recommended by the Committee must be revisited at the conclusion of 10 years, and updated based on the condition of the City’s physical plant. 3. What assurances do we have that the money will be spent for streets, storm drains and parklands?
By state law and City ordinance, these revenues are restricted and the money can only be used for specified capital projects. The Utility User Tax will fund non-sewer capital projects included in the City's capital improvement budget (streets, storm drains and parklands). 4. Property values have increased greatly in recent years. Why don't increased property tax revenues take care of the City's financial needs? Property values have been strong in recent years, but the City only receives 11 cents of each $1.00 of property tax and the annual increase in assessed property values is capped by Proposition 13. Although the City received $3.1 million in property taxes last year, this amount did not cover even the cost of Police Department operations. 5. How has the amount of the Utility Users Tax been determined? The capital improvement needs, as outlined in the 10-year master plans, were divided into non-sewer and sewer projects. The non-sewer projects will be funded by a proposed 2.5 % Utility User Tax (UUT), which is the projected rate needed to cover these capital projects (~$837,000 per year). This is a 75% reduction from the current 10% tax and the City Council has the authority to reduce the rate of the UUT if revenues generated exceed the capital needs. Sewer projects will be funded by a property-related fee, which will be put before the homeowners for approval at mid-year. 6. What is the average cost per household for the combined financing mechanisms? The estimated average cost per household would total $400, which represents a 23% reduction in taxes beginning July 1, 2003. The City currently levies a 10% UUT, which, if continued in FY 03-04, would cost the average household $521. The proposed 2.5% UUT would average approximately $130 per household; and the sewer fee would average approximately $270 per household with a combined estimated total of $400. 7. Why split the funding into two parts instead of voting on just one package? A relationship can be established between the estimated use of the sewer by each property and the amount of the fee to be assessed per property. Hence, the revenue for this service is more appropriate as a property fee, which would appear on the property tax bill, and the non-sewer projects can be funded by the much-reduced proposed Utility User Tax. The public approval process for these two revenues is different: Voter approval at a general election for the Utility User Tax and property owner protest hearing before the City Council for the property fee. 8. Isn’t the use of a property fee for the sewer projects an attempt to avoid a vote of the public? No. The property fee was recommended by the Citizens’ Committee for the reasons stated above. The fee would be assessed in accordance with Proposition 218, the "Right to Vote On Taxes" measure. This requires that each property owner be formally notified of the proposed fee on his or her property. An owner may file a formal protest if he/she objects to the fee. If over 50% of the property owners protest the fee, the proceedings will be dropped. Otherwise, the City Council may order the placement of the sewer fee on the property tax bills beginning in FY 03-04. 9. Is there a sunset provision for finance mechanisms? Yes, although the capital needs are permanent and on going, both finance mechanisms will expire in 10 years. At that time, voter and homeowner approvals will be needed to collect the necessary revenue to satisfy the projected capital needs. 10. Does the City's $4,989,000 insurance settlement for the Bluff Cove properties reduce the need for one or both taxes? Why is it assigned to the sewers? These monies serve as a 17% contingency reserve on the $29.4 million of needed improvements identified in the Sewer Master Plan. The principal will be preserved, and the interest earnings used to reduce the fee assessed against each property owner. The reserve is needed to provide a measure of security in the event that one or both of the pump stations fail before they are replaced, or if some other system failure occurs. 11. Why doesn’t the City sell the Bluff Cove properties and use the monies to reduce the need for one or both of the taxes? Legal counsel has advised that in the event of sale, a future owner, even knowing the history of the properties, could sue the City in the event of further land slippage. While it is theoretically possible to avoid this liability by writing into a sales contract the City's right to remove the land from under the houses, it is unlikely anyone would purchase property under these circumstances. The City continues to explore the best use or disposition of the properties. 12. Why can't the 50% operating reserve be used for capital projects? The City Council has established a policy of maintaining a 50% reserve of the annual operating budget. The reserve is for unforeseen emergencies and economic uncertainties, including, for example, the State retaining a larger portion of our property tax and vehicle license fees, which is currently proposed in the Governor's budget. This threat, coupled with the City's very limited ability to raise revenue from other sources, requires the City maintain a prudent reserve. |