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HomeMy WebLinkAbout03/24/1998 Study Session MinutesII. IlL IV, PLACE AND DATE Marana Police Department, March 24, 1998 CALL TO ORDER By Mayor Ora Harn at 6:03 P.M. PLEDGE OF ALLEGIANCE Led by Mayor Ora Harn ROLL CALL COUNCIL Ora Ham Bobby Sutton, Jr, Ed Honea Herb Kai Sherry Millner Michael Reuwsaat Roxanne Ziegler Mayor Vice Mayor Council Member Council Member Council Member Council Member Council Member STAFF Hurvie Davis Michael Hein Jocelyn Entz. Sandy Groseclose Roy Cuaron Dave Smith Town Manager Assistant Town Manager Asst. to Town Manager Town Clerk Finance Director Chief of Police APPROVAL OF AGENDA A motion was made by Mike Reuwsaat, seconded by Ed Honea, to approve the agenda, as written. The motion carried 7/0. GENERAL ORDER OF BUSINESS A. Discussion and Review of Fiscal Year 1998-99 Revenue Estimates Hurvie Davis: We have come to you previously, I believe in regular session, regarding the budget process for this coming fiscal year. As I indicated at that meeting, I have asked my illustrious and capable Assistant Manager to head up this effort this year, since he is going to be the one living with the budget. He ought to be familiar with it as we go into the preparation, adoption and administration of it next year. We have outlined a process for you, how we go about bringing the issues to the Council and getting you input and feedback. What we have this evening to share with you is the revenue estimates that we have made for next year, projections. As I had indicated to the staff at the staff meeting earlier today, we have taken a conservative revenue projection. That, in my opinion, is the best policy to have. I have personally experienced, in the past, where we were trying to be as optimistic as we could, right down to the last nickel, and then the revenue didn't materialize as the year went on. By mid year we were struggling and having to cut budgets, and so forth, because revenues were not coming What we would do in cases like that is cut programs before we would cut staff. Perhaps that was a policy decision, but we got into cutting staff at times, too. That is very difficult, when you have to cut staff and then turn around a year or so later and add staff back again. We are some what cautious and conservative in our revenue regiment but I strongly recommend it and I think Mike and Roy would agree with that. At this point I would like to turn it over to Mike and Roy to get started with the presentation to you. would expect that if you have any questions as you go along, rather than wait, it would be best to bring them up right at that time. Mayor Harn: This is going to be very informal and I would hope that we could get this meeting done in about an hour and a half, two hours at the most. If you have some questions that you feel are just specific for your concern, it might be better to wait. Mike Reuwsaat: I know I did a lot of the prolonged effort last year and I thought it was necessary. I would like to compliment staff on the budgeting detail, right up front. It is really appreciated, it is easy to follow and in good detail. I only have about 5 or 6 questions, after reading it thoroughly. If you are expecting 200 questions out of me tonight, don't. I would like to see us done in 30 minutes, instead. Mike Hein: Given that, I actually do think we can accomplish this in under an hour. I would like to thank the Mayor, Hurvie, and all of you for allowing us to undergo a new process. I know it is different from a traditional budget process, as well as what you have employed in previous years. While I may not have been officially with the Town at the time, I was able to come to some of your budget session meetings last year. I got a good feel for some of the flow and realized that maybe this process would work well here. It is a process I have used elsewhere and it is a process that gives the Council an opportunity to be involved up front. I will almost guarantee that you will spend less time and aggravation on the budget process this year. You may spend more evenings but you will spend smaller chunks of time, sequentially. Just to overview the budget process as we are proposing it, the first night, tonight, we are going to go over the revenue estimates. This is opposed to traditional budget making, where you go to department heads and ask, "What is your wish list this year?" I have always found it prudent to identify resources first and then match those resources with projects and programs. I think that you will find this gives you a better base for understanding how the budget is put together. Just like you would do in your own personal life, you don't go out and say, "1 need a new stove, a new car and an expansion on my building," unless you figure out how much you can afford first. You kind of match uses and sources. Tonight, what we are going to do is go over the revenues and try to have you all agree. At first blush, you may not believe that these are conservative but we are actually going to give a description of every line item and our thought process as to where we came up with this number. I think Roy has done a very good job. We were talking that maybe they are overly conservative but I think they are prudent at this point. The next step in the process, if you agree with these revenues, we are proposing to bring to you fixed expenses next Tuesday. What that will be is, basically you have this as total revenues and then you take away from that all of your obligations (debt services, insurance and things of that nature that are fixed). You agree upon that and you come up with a net number, a discretionary number. From that number, you look at historical trends, as far as what each department has spent proportionally in that discretionary fund and you allocate either a percent or a number. So, at the end of next week, Tuesday it is hoped, and after maybe only 2 hours of your time, we will be giving each department head a number and saying, "This is your budget for next year." Then they will have several weeks to come back with their specific line items put into that number. Then, after about 3 or 4 weeks, you will sit down with each department head, solo basically, some smaller departments for maybe 10 or 15 minutes and some larger departments only a half hour or 40 minutes, and they will go line item by line item over their budget. At the end of that period, we will have a tentative budget. You will actually know where all of the money comes from and where all of the money is going for the Town. Every department head and all of the staff should have a good working knowledge, and it lays out better. So, given that, lets start on revenues. What I am going to do is give an overview, explain what each line item is and not really get into the percents right now. Roy is going to explain the assumptions, but I wanted to make sure everybody understands where all of the money that funds this engine comes from. You can turn to that first spreadsheet, which is Revenue Estimates. Fiscal 1998- 99, and go through the revenue sources. "Sales Tax - Town" is basically our resale sales tax. "Sales Tax - Transportation Fund" is the new fund that the Council established out of the 1% increase from sales tax construction, as well as the additional matching from what customarily came out of the general fund. Let me preface it by saying that this year it will be a little awkward because it is not going to be apples and apples through out. You used a different process and there are a couple new funds this year. We will try to flush that out in the detail and explain how we came to that. The next several items, "State Shared" o "LTAF", are all shared revenues and those numbers come from, as Roy will explain, the League of Cities and Towns. Some of them have dedicated purposes, which Roy will talk about, and some have some options that we are going to recommend in the future, especially "LTAF", which is lottery funds. "HURF" is the Highway User Revenue Fund and that doesn't fluctuate with our annexations, it is based on annual census information. The rest change according to our population and what is available from the whole pie from the State. Roy will go line item by line item, explaining the big percent changes and how we derive that. "Court Fines & Fees" came from discussions with the Judge, it is what he sees based on historical trends. "Business License," "Franchise Fees," and "Park & Rec. Fees" come from staff estimates and historical trends. Basically, "Business License" comes through the Town. "Franchise Fees" are from Jones Intercable. "Interest Income" is the interest we gain off of our reserve fund and Roy will explain how we come up with that number. Then "Miscellaneous" is a whole bunch of things, not a big number, but you always have that catch all. Those are recurring revenues, things that you examine to explore the health of the business, if you will, and over all it is a real healthy situation. The next grouping of revenue sources are basically grants, 3 mostly for the Police. The "COPS Grant" is basically the police supplement hiring stuff, where we get funds through the Department of Justice to hire personnel to expand law enforcement, mostly in community oriented policing activities. Again, if you don't budget for it, you can't spend it. So when you are budgeting for grants, you budget very optimistically, but if you don't get the money you don't spend it. "M.A.N.T.I.S." is a regional task force for law enforcement. "H.I.D.T.A." is High Intensity Drug Trafficking, which comes from the State. "GITEM," which is the Gang Intervention... "AUTO THEFT" is the new one, I believe, where they are going to fund a position for auto theft. "RICO/ACJEG" is basically the racketeering stuff and the Arizona Cdminal Justice Enhancement Grants, coming from the State. The next one is the Arizona Criminal Enhancement Funds, which you recently approved some funding for, at least advocating for it. "CDBG/OTHER," obviously that is the Community Development Block Grant Funding and the "OTHER" is based on our colonia stuff. That is basically the grants we perceive applying for and receiving funds for in the next fiscal year. The final one is the "Special" Revenue Funds, for special projects or what we call enterprise funds. We will get to that. "Developer Contribution" we are probably going to change from 0, based on Sahuaro Springs. Again, we have to budget it or you can't utilize it. "PAG Funded Projects" is basically the balance of Tangerine and the Cortaro Interchange projects, where we get funding back from the Regional Council. "Bond Proceeds" is basically the left over obligated, unspent, funds. We spent some of the funds on reimbursements of old projects you had undertaken but you had also allocated, or obligated, funds for future projects, including water acquisitions and capital expansion. That is what bond proceeds are. "Use of Reserves," we heard loud and clear based on last year, we don't anticipate, nor will you see any use of reserves to fund general operations. "Water - Existing Systems" is our water fund. It is an enterprise fund, a separate business basically, and that is the total budget. We will explain that a little later. "Water - Proposed Systems," basically we came up with an accurate number, Roy did a lot more work than I maybe did when I was a finance director and I appreciate having him here, based on proposed revenues we may be able to realize if Tucson Water Acquisition goes through this year. I believe that is 6 months of revenues from Tucson Water, so basically fees from the Continental Ranch/RedHawk area. We will get into that detail. "Airport Revenue" we threw in there based on historical revenue estimates. That number will probably change as we dive into that a little bit more. Again, we wanted to start programming things and budgeting for them, should we undertake them. The final one, which is being used differently this year, is Contingent Revenue. One of the things that I have done in the past is if you had contingent revenue of 1,.1 million last year, based on annexation of the Foothills Mall and other annexations, and the revenues derived from them, contingent revenue this year represents what Roy and I basically shaved from realistic revenue estimates. We will get into the detail a little bit, but basically, if you don't budget for it, you can't spend it. We want to budget, as Hurvie said, conservatively, because we don't want to be overly optimistic, obligate funds and then have to turn back or tighten the belt in the middle of the year. Contingent revenues this year is being used a little differently. It is funds that we actually think we may see and that may come from sales tax and other general uses, but instead of 4 budgeting for it in a specific line item, we put it at the bottom. You'll see on the expense side, later on, an off set for contingent expenses. So, if the revenues start coming in, we have a place to put them and then you have a place to program out from there. That comes up with the total, which is pretty flat line as you see the bottom numbers of 2.4. Now I want to have Roy go through line items, not necessarily spending a lot of time on some of the formulas, but starting with "Sales Tax - Town" and the assumptions that we used to come up with the number and the growth. Mike Reuwsaat: It may look flat lined, but it isn't fiat lined. Mike Hein: And you will see even more. We think this is a pessimistic number and I think Roy will, hopefully, be able to convince you of that. Roy Cuaron: I want to reiterate that I think it is prudent to take a cautious approach in preparing revenue estimates because it prevents a lot of headaches down the road. If you are optimistic and your revenue estimates don't materialize, then you end up doing a lot of cutting. What I hope to show you now, particularly on this sales tax revenue, is that based on historical trends and where we think we are going to end up this fiscal year, we have taken a cautious approach on sales tax revenues. Sales tax revenues are our biggest source of recurring revenue and they represent about 40% of our total budget, so it is quite an important revenue source. The industry group is all determined by the Arizona Department of Revenue based on the Standard Industry Classification Codes. Every month they provide us with a payment journal that breaks it down by industry categories, the amount, and then we calculate what the percent is. So, these categories are all predetermined based upon the Arizona Department of Revenue. What we have done is look at what the historical trend has been based on what percent each one of these industry groups is of the total. Pretty much, most of these industry groups have maintained a constant percent of our total revenue base. "Mining" has been .86%, .86% and .75% and we are estimating it to take a drop because other industry groups are going to pick up a bigger share. That was kind of the basis for us projecting our sales tax revenue. "Construction" shows a big increase because of the imposition of that additional 1% sales tax rate on construction activities. We are estimating that 97-98 is going to come in at 1.5million, and being conservative, we said 98-99 is going to be at 2.1 million. That is about a 5% increase in net growth when you factor out the impact of the additional 1%. Mike Hein: What Roy is saying here, to kind of explain that, is if we took away the 1% increase we would be at about 1.6 next year. Roy Cuaron: So, as you can see it is pretty fiat, just marginal growth. In comparison to the budget last year, we anticipated the construction industry group to represent about 13% of our total revenues and this year we are saying it is going to be about 24% of our sales tax revenues. So, you can see that is taking a big jump because of the additional 1% increase. We are also projecting a modest growth in the taxable base of that construction industry. I am just going to highlight the bigger components and if you have 5 MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 any questions on it I can go back and discuss whatever I missed. "Transportation, Communications, and Utilities" is our 4% utility tax on utilities. It has been pretty constant at 7%, 7.6%, 7.6% and 8% and we are projecting it at about 8.18% of our total revenues. We are showing some growth, based on the growth we have seen over the last several years. This industry group is less susceptible to fluctuations in the economy, people need the utilities. It is a past through, obviously, by the utility companies. Mike Hein: And, with the continued growth and square footage of retail and manufacturing, hotels on line for a whole year and some other major stuff coming on, we think it is conservative. Herb Kal: Roy, did I discuss with you or Mike that Southwest Gas doesn't have a new franchise agreement with the Town of Marana, yet we are still receiving those revenues from them. They are collecting those for us. Roy Cuaron: Correct. This is sales tax, as opposed to franchise fees. Mike Hein: This is a good issue. Most towns rely on getting that revenue through a franchise fee, which is allowed through the State statute. There has been some legislation this year kicked around about preempting localities rights to excise through a franchise fee. I am real pleased. It beat us up when we went through the Foothills Mall annexation, people kept saying, "Well, you have a 4% sales tax." But other jurisdictions have a 2% sales tax and a 2% franchise fee. It equates to the same amount of money, it is just how you describe it, if you will. We are much more insulated from some outside assaults and some preemption based on just the sales tax. I am pretty comfortable with that. Roy Cuaron: The biggest component of our sales tax is our "Retail Trade." That is the Targets, K-Marts, Price Club, Payless, etc. You can see, it generally has run about 58% of our total sales tax revenues. We have taken a cautious approach. This next fiscal year, we are saying it is going to represent less, at about 47%. We recognize we have new business establishments, the Drivers' Mart, the Links at Continental Ranch, etc. but we said that the construction at Ina and Thornydale is going to curtail some of that new business activity. So, again being cautious, lets factor in a moderate growth rate in that "Retail Trade." As you can see it is about a 2% increase over what we anticipated 97-98 to come in at. I might add that 97- 98 is based on 8 months of activity and we extended that out over a 12 month period. Again, it is very conservative and we recognize that we have new business establishments but we also recognize that the construction at Ina and Thornydale will have some impact, particularly since, as I understand it now, the project has been delayed until April or May. If it runs into the holiday season it may even impact us a little further. If you look at the historical trend, you can see that retail trade has increased every year and we are only projecting a 2% growth factor. Mike Hein: I think the conservatism is further inflated when Roy said that we projected out the growth of an estimate for 12 months, based on a fiat 12 MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 month amortization. Again, we did not have Cracker Barrel, Drivers' Mart, and some of the other ones on line earlier in the year so it really understates a projection. A lot of the contingent revenue that we put on the bottom of the revenue budget comes from what we foresaw as a realistic number. Again, we are giving caution to the construction impact of Thornydale and Ina and just being generally conservative. We budgeted a full year of the hotels and we budgeted four months of revenue from Home Depot, they propose to open January 1't and we pushed that back a couple of months. Roy Cuaron: Right now Payless is one of our top ten largest tax payers and so what we think will happen when Home Depot comes out is they are going to take away some of that market share from Payless. Again, it is a cautious approach but we think it is a realistic approach. I think it is prudent to base our revenue on a cautious approach. The same factors lead us to forecast the "Restaurants & Bars" industry on a fiat line basis, a 2% growth on that as well, due to the construction at Ina and Thomydale. The other big one is "Hotels & Other Lodging." If you look at what it has historically been as a percent of our total, we are estimating a larger share this year because we now have four new hotels on line for a full fiscal year. Plus, we are anticipating the opening of the two additional ones at Cortaro, the Ramada and the Days Inn. For this industry category, we are projecting an increase as a percent of the total and an increase from the actual, as well. That pretty much summarizes the sales tax. If you look at the historical trend and then compare it to what we are projecting, you can see that we are being extremely cautious in our forecast. If you look at this 2.1 million, getting back to the transportation fund of 1.3 million, it represents 2/3rds of this 2.1 million that the Council directed staff to put in a special transportation fund. Mike Reuwsaat: On the "Mining," what is the status of Sun Materials and Granite? Did you guys just use them to kind of cancel each other out? Mike Hein: It is pretty flat, as you can see. I attribute the drop from 96-97 to 97-98 to the inactivity of Sunward the last several months. I think you will see Sunward reactivate some operation, through CalMat, or whatever the arrangement is through CalMat. You may see some activity toward the end of the fiscal year, if not sooner on the existing site. Sunward, Kennedy I should say, is coming to us with an agreement and they want to start mining that area again. I haven't heard much about Granite. We still talk about whether we need a development agreement and such but I haven't heard much on them. Herb Kal: The development agreement is being approached but the flood control is keeping them from really getting started. Mike Hein: I will tell you that they have been cooperative and are talking about expansion, there is not doubt that they are in expansion mode. Roy Cuaron: Just to summarize, if you look at it from a budget to a proposed budget, or adopted budget for 97-98, you can see that our sales tax increase is expected go about 30%. A large part of that is the 7 MINUTES OF COUNCIL STUDY SESSION MANANA TOWN COUNCIL MARCH 24, 1998 construction industry. What we are projecting represents about a 13% increase over what we think the estimated 97-98 sales tax revenue will come in at. It is a moderate growth rate, given the fact that we have new establishments coming in, but we think it is a prudent and cautious thing to do. Mike Hein: It is certainly less of a jump than from the 96-97 to the 97-98 budget. Roy Cuaron: Are there any questions on how we arrived at the sales tax? Vice Mayor Sutton: I have a question on the recurring revenues for "Building and Development." The large percentage in there has to be contributed to something. Can that be pointed to one or two things or is that just for estimated home permits and things like that, say for RedHawk? Roy Cuaron: In the 97-98 budget I think we were cautious, maybe too cautious. This number is actually about 400,000 less than what the departments are anticipating. If you look at what we have done for eight months, it is probably going to be greater than that, if you take an eight month average. Again, with this number we were being cautious, probably too cautious. That accounts for the big jump percentage wise, the budget number was probably overly cautious. Vice Mayor Sutton: The other question I have, right below that, falls in the same line of "if you don't budget it you can't spend it." Are we still looking at getting the 1-10 ticketing under "Court Fines & Fees?" Roy Cuaron: This does not reflect that provision, to site out of court. I don't know the status of that. Vice Mayor Sutton: Would it be a "budget it or you can't spend it" item, is it something we should think about? Roy Cuaron: Probably, we should throw it down there in the contingent revenue. Mike Reuwsaat: I have the same question as Bobby. given, that it became part of our revenue source annexations. I thought it was a after we did the Hurvie Davis: The reason is, the annexations were not too encouraging due to the fact that Southern Pacific/Union Pacific plays a major role in that and we have not been able to get them to agree, as well as the small businesses down there (the sand, gravel and rock places down there on the north end of Cortaro Road). The annexations don't look too promising on the north end, we tried that annexation and met with opposition from agricultural areas so we went back to just taking the Interstate and the railroad but the railroad won't sign. MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 Mike Reuwsaat: Couldn't we do it without them? Mike Hein: Real quickly on that issue, the railroad is too significant a portion. I don't think there is a way to exclude them. There is really three slivers of the railroad. Dick Gear has been working on that and I wouldn't be surprised to see it happen this year. The railroad wants to rezone their property, all railroad property through Pima County is zoned R1. The railroad makes money off of lease space for billboards. Leasing billboard space on non-industrial zoning conflicts with the old FDR, Lady Bird Johnson Beautification Act. The billboard companies are telling the railroads, "We need you to rezone." The railroads don't care but they want the revenue. I have told the people that represent the companies, on both sides, "You annex those areas into the Town and we will consider rezoning the existing billboard to industrial, which is by Ina and 1-10. So, I don't know if we will get it or not. You will probably see the court revenues treated like annexation revenues in the past because I have no doubt that Judge Dillow, in his budget request, is going to say, "1 can't live with this number because if I annex this area, I am going to need to increase staff." So, you'll see contingent court revenue and contingent court expenses. These numbers, while I hope you can agree on their logic and foundation, will change after we see the expense requests come in. We will have to find sources for some and some of them will be contingent. Mike Reuwsaat: Is the railroad under the gun? Mike Hein: Yes, ADOT has started action to remove the billboards. Herb Kal: Mike, the highway beautification does not want new billboards put up. Mike Hein: These are existing billboards. One is in the County and one is in the Town, around Ina, that are within the 300 feet and aren't zoned industrial. I am not saying new billboards, I am saying existing. Our code prohibits new billboards, as well. Vice Mayor Sutton: For "CDBG/OTHER", with the anticipation of loosing CDBG as we get physically stronger, I was expecting to see a decrease from last year to this year. Roy Cuaron: A big portion of that is due to the colonia and anticipated grants that we will get from that. Mike Hein: Your point is well taken, in that we are becoming a wealthier community, if you will, given the per capita income. I still think next year we will see an increase over previous years but we have to boost the construction portion of that. Hurvie Davis: Supervisor Bronson had her Town Hall meeting out here over a week ago and she brought staff with her. CDBG staff were there and Mike had some conversation with them to kind of twist their arms a little and said 9 MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 we weren't getting our fair share. I think Supervisor Bronson is probably going to come to bat for us this year on CDBG, where previous years we have not had anyone at the Board rooting for us on CDBG. Vice Mayor Sutton: Al, the guy speaking for CDBG, said he had never taken into consideration the people from Avra Valley using our services. He said he would look at that and put more money in, so we might do better. Mayor Harn: They have known that all along, what has happened traditionally in the past, and I am very involved in CDBG things, is that they put together a budget and they talk about what they want to do. That has to be approved by the Supervisors and the other Supervisors, namely Dan Eckstrom, go down and tell them what they can cut out and Ed Moore never stood up and said, "Don't cut my district like that." So, it was never an issue. Actually, what we get in CDBG funds will rely heavily on how well our Supervisor will advocate for us for those funds. I feel very comfortable that our Supervisor will do well for us this year. Mike Hein: A good sign, or barometer, of that is that Hurvie received a letter today from Chuck Huckleberry stating to the Clerk of the County Board to place the designation of the colonia for the northern part of Marana on their agenda. That was copied to Supervisor Brenson. Mayor Harn: People need to go to the CDBG celebration and show that we do care about those funds and we want our share. Roy Cuaron: "Interest Income" assumes that for half the year we have an 8 million dollar reserve, earning 5.5%, and for the other half of the year it is down to 5 million. We are not anticipating the use of any reserves, so one would question, "Why don't you just put the whole 10 million dollars earning interest for the whole twelve months?" This is because we are taking a cautious approach. Ed Honea: Did we put any anticipated sales tax revenue in for the bank protection junk. That is a quarter of a billion dollars and a private company, I assume, is going to do that. That could be a considerable amount, unless we are going to turn it back in kind. When they did the Central Arizona Project it was in the hundreds of thousands of dollars. Mike Hein: The formula is 60% of total cost. Roy Cuaron: First of all, the sales tax numbers do not reflect that. However, is that a core engineers project or is it a County project? Mike Hein: I don't know, but I do know our IGA says we are going to give permits and etc. Ed Honea: It is Pima County Flood Control but I think Granite was going to try to get the contract. So, if a private company gets the contract and it is 12 10 MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 million dollars, and you figure it at 60% at 2%, you are talking about a good chunk of change, 300 or 400 thousand dollars. Mayor Harn: But it is not all in the Town of Marana, so it would only be what was in the Town of Marana. Ed Honea: About half of it is in the Town of Marana. Mike Hein: Let us look at that and maybe we will add a little, but we certainly won't ear mark it separately. Ed Honea: If we are going to estimates, we don't want to be so conservative on the budget that we set it to a point and then decide we want to do a major transpodation project, or something, and not have the ability to use the money. Mike Hein: And that is my theory about using contingent revenue. Then if the money comes in you can reprogram it from contingent revenue and put it in. Certainly, if it is construction related and belongs in the increase in construction tax, it automatically goes into that special fund. Roy Cuaron: The others are pretty self explanatory. The big increase for "COPS Grant" is that we are anticipating funding for five additional officers. If we get the funding, we will hire the officers, if we don't then we won't. Basically, Mike touched on all of the others. If there are no questions in that, then we will show you what the trends have been for the last several years. Mike Hein: The Vice Mayor brought up "Building and Development Fees" and I think it is a good line item to explain. Often times, and one thing I have seen in newspapers is they will say, "The Town of Marana adopted a budget of tax which is 80% higher than their actual." Well, actual and budgets are entirely different. Again, your budget is always going to be higher than your expenses because legally you can't over spend your budget when we are talking apples and apples. That is why you saw some big percent increases in the budget for revenue, we just undershot on some of the actual revenues. "Building and Development Fees" is a good example of that. Roy Cuaron: To arrive at this 1.7, if you look at what we have been experiencing, there has been a steady pattern of growth. What we are doing is saying that there is going to be marginal growth over the estimated actual. This is about 400,000 less than Building and Planning and Zoning are anticipating. They anticipated about 2 million and we cut that back and came up with about 1.7. Mike Reuwsaat: Is engineering a filter, then? Mike Hein: We have changed that a little bit this year. Roy Cuaron: What this shows is basically what our discretionary spending is. We have our general fund and special funds. Special funds are those MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 revenue sources that have dedicated uses and we can't spend them anywhere else except on those specific purposes. What you see under "Building and Development Fees" is that we are projecting about 400,000 which represents engineering costs associated with reviewing development plans and so forth. Mike Hein: We broke it up because Dave Atler does not want to overstate his budget, rightfully so. He does not want it to look like he is spending so much when it is really a pass through back to Collins Pina, mostly, for review and inspection paid by developers. On "Building and Development Fees," "Court Fines," "Park and Rec. Fees," we trimmed back what the department has estimated fairly significantly. What we trimmed down from the estimates is put into the 750,000. That 750,000 represents "Building and Development Fees," "Sales Tax," "Recreation Fees," of which Dave Atler estimates higher revenues because he is going to implement some new programs. Given my experience, implementing fees sometimes goes slowly, especially in Parks and Rec., so we cut that back and put that into contingent revenues, as well. Ed Honea: I believe in being conservative, but if we are too conservative on the revenue side, is that going to impede our ability to hire new staff or do capital improvement to our existing facilities and things of that nature that we made need? I think you were extremely conservative on the sales tax, as well, maybe a half a million dollars or more. We are looking at probably 200 or 300 thousand on building fees and development. All of a sudden, we are starting to get millions of dollars conservative and, of course I don't want to spend any more money than we have to, I am wondering about modular buildings because we are growing out of our buildings and we are probably going to need more personnel if the building growth continues at the same rate as Sahuaro Springs comes on. It squeezes your department head if you can't put personnel on to do the job. Mike Hein: That is a very appropriate point. Again, as I told you up front, even if you agree on these numbers tonight, expect them to change and probably go up a little bit. Next week you will get the answer to your question when we show you. I will tell you, not to get ahead of ourselves, we are looking fiat. When we compare this year to last year and we take out the fixed expenses from the discretionary fund, we are looking at no growth. Debt service has gone up considerably because of the bonds, but our fire service contract has gone down. It is basically washed. In regard to your question, we are going to have to look at that. If staff comes back and Council decides there are programs that you, for certain, want to implement, we will probably change some of the numbers around, take some out of the contingent revenue and look at how to do that, still being reasonable. I am not sure if we are that exaggerated. I think Roy and I both would acknowledge that we are airing conservatively. I have some trepidation about the sales tax because of the impact of the Thornydale and Ina construction. We are probably 400,000 Iow on that, but you have to discount something there. Building and development will always be a growing industry. We will see if some of the developments that Building and Planning and Engineering project to get off the ground do, but I don't think it will be a 12 full year. I think Sahuaro Springs may go, but it is not going to go in July, it will go in January. So, we won't see a full year. I think we are six months, or so, away from seeing more rapid growth. It is a good point and you are going to see the results of conservatism next week when we come up with a net discretionary fund that is going to be roughly equivalent to what it was last year. Vice Mayor Sutton: My question was exactly the same, but then when you say you have to budget it to spend it and that you are moving it into contingent, that is what contingent is for. if something comes up and we need a modular building or we need to hire someone, we can pull it out of contingency. Mike Hein: Right now, to be honest with you, Roy and I have probably overstated the fixed expenses because we included the space. We thought about the space, you have money programmed in the bond proceeds that could either be used for modular or tenant improvements of existing leased space or new leased space. Roy and I will probably argue whether it is available for the actual lease payments. I hear what you are saying and you are going to see that, and it is very possible. Ed Honea: I know that Estes bought all of the lots in Cortaro Ranch and they did not buy all of those lots to just sit on them. That is going to start. On Sahuaro Springs, Tom Bark told me that they have almost reached a deal for a thousand lots in their project. They are ready to sign on the dotted line and they have the financing. If these things break loose, we might have to increase our staff 20%-30% in the inspections and building departments, Mike Hein: I am not ever going to propose this, but the option always exists to do a mid year budget adjustment. I have been in a situation, as Hurvie indicated he had been, where in the middle of the year, not because of revenue but because of the Home Rule Expenditure Limit issue, we had to actually lay off personnel. That is not fun. It is your decision. We can increase that contingent revenue line item tonight, or eventually, until we are all comfortable. Or, we can put it back into recurring revenue in the general fund source. Hurvie Davis: I think when you get further into the process and you have seen the revenue side and you get looking at the service level side, you will say, "That is not quite what we think we want the service level to be." Then you have to go back to the revenue side and make adjustments to that. Whether you do it in an individual category, such as revenue, saying you have some slush in there and you can adjust that, you still have to be somewhat cautious. Or, maybe you have to revert to the fact that you are going to take a million dollars out of the reserve fund just to balance the budget with the service levels you had. I will admit that in our past budgets we have had a lot of flexibility because I felt that with the growth that we have had, and with so many uncertainties, if you look back to the previous year we had 3.4 million dollars in our reserve fund. The worst struggle or heartburn you can have is to get to the middle of the year and find out you need money. MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 I guess we have the ability to make a one time government override, or emergency override. Ed Honea: The point I wanted to make is that we have been, over the last couple of fiscal budgets, a couple of million dollars under our spending. If we push this to 24, or something of that nature, it does not mean we won't spend 20. It just gives us that ability. When we were working on Ina/Thornydale, we did a parallel budget. We did a budget that we turned in, which was pretty high, and then we did a realistic budget that all of the department heads had to live by. But, we had that flexibility that if we won the law suit and the money came in and we needed the employees or increased space, we had the ability to do it. We could put the contingency up to 3 million dollars, or even 3.5 million. Mike Hein: The one part Roy and I have not gotten to yet is looking at the actual expenditure trends. Roy and I have a real good feel on the revenue side and the fixed expenses and the discretionary amount, as it weighs to last year. But, as you are saying, you never come in over budget on the expense side, total. I don't have a handle on that yet. If we get into that area and see that we are 4 million dollars under the actual budget variance, then maybe we don't need to pump up the revenue aspects to accommodate growth and staffing and other areas. In the fixed expenses, as well, we are going to be talking to you about some policy directions, as far as employee benefits and things of that nature. So, you can make the policy decisions in advance, separately for each individual department. Vice Mayor Sutton: I just don't want our hands to be tied. That is a good idea, taking the contingency fund and pumping it way up so we can use it. Mike Hein: Roy and I ara going look at the sales tax from the levee, which we hadn't thought of, and I appreciate that. Again, that number may change but we wanted to get direction from you whether or not this looks reasonable, whether anything is way out there or anything else we should be looking at. Roy Cuaron: My recommendation is that if we are going to bump up the contingent revenue, we do so based on some of these issues that have been discussed, like the levee sales tax. But, have it rely more on a more realistic perspective of sales tax revenue or building and development fees, or any other recurring revenue sources, rather than what we have budgeted. Mike Reuwsaat: The increase in expenses would be attributable to where we are going to get the revenues from. Roy Cuaron: As opposed to saying, "Lets budget 3 million dollars of reserves to allow us that flexibility." Mike Hein: Let us do this for the next meeting, if this is OK. We will actually break it down to the exact number Roy initially came up with and I rounded off and show you where we got the contingent revenue ballpark. What we will do is show you, based on trends not discounting for other factors, where 14 MINUTES OF COUNCIL STUDY SESSION MARANA TOWN COUNCIL MARCH 24, 1998 we projected sales tax, building and development fees, and some of the other big revenue sources. That way you can see that at the next meeting and if we are still too conservative we can act on that. Vice Mayor Sutton: We could be in a lot worse condition than making a couple of million dollars per year because we are under budget, but... Mike Hein: That is really our presentation, as it pertains to revenue. If you have any questions, we will do our best to try to answer them. Otherwise, we will kind of move forward with this number as we go into next week because next week we will take this 11.3 out of the general fund and take fixed expenses out of that (i.e.: general insurance, debt service, special projects, etc.) I will be coming to you with a couple of recommendations on special programs. One thing, for example, out of LTAF, by statute, we are allowed to take up to 15% and set it aside for arts programs and I am going to recommend that we do that. I am going to recommend $10,000 for arts programs, LTAF outside funding. I have seen you guys get hit up by Soccer teams and Little League teams and this way we will have a process. We can say, "There is 'X' amount available, please apply," and we will have a committee. We will have a few of those things, as well, at the next meeting. Hurvie Davis: That is the growth industry, if I might say. Once you start, the Council Chambers are going to packed the following year. Vice Mayor Sutton: Ed just brought up the Gallery Golf Course. Are you guys considering a half year of revenues there? Mike Hein: Not a half year, no. The one thing about that place is that it is also going to be private. Vice Mayor Sutton: That was in the paper, but that is not going to be the case. Maybe they are working it in for tax reasons or something. Mayor Harn: If something is written in for the revenue for the bank protection, I would like to see something put in for new parks and trails in the upcoming year. Maybe we could begin to think about some new parks and trails in our community. I think it is time for us to not just have one park in one area, but to be thinking about some other areas. Even if we could put the park in right now, to be at least setting aside some property for the Town. We might need to be thinking about some of these areas, where if nothing else we just obtain the land for future parks. Mike Reuwsaat: What about Core of Engineers funding, along that. It used to be 80/20, I don't know what it is now. Mike Hein: I am meeting with them, I will find out. Sherry Millner: Along with the Mayor's thought, I have had some people point out that there is nothing for the kids to do around here, like Funtastiks and golf and things in Tucson. For the teenagers, 13 or 14, there is nothing 15 for them to do. I know SVP may be putting in some theaters but, as for somewhere to go, we don't have anything in Marana. I think that is a very good suggestion. Mayor Ham: I really would like to see, and I think it has been mentioned before, both the citizens and Council looking to how we want to expand our parks and trails systems, and really be putting some money behind it. Ed Honea: Everybody is ready, Kennedy was talking about donating some land for a park, all he wants is a thousand acres of free zone. Hurvie Davis: Check with the County because in the County Park program, we have Huckleberry putting money in there for the park that developed into Continental Ranch. Apparently, the County owns some land up there and we may look into building that park. When that money is available, maybe we will want to advance that money and then the bond program can pay us back when the bonds are sold, if we want to advance that park at the north end of Continental Ranch. Mike Reuwsaat: The new Park Management Plan is going to identify service gaps but I don't believe it will provide any kind of priority. Sherry Millner: We have talked about that on the Park Committee, about purchasing land. We need to start thinking about that. That is one thing I have really pushed for, is parks, and I agree with Ora, we need to budget some money before these developers gobble it all up and there is nothing left out there for us to get, we need to get some of our own money out there. Mike Reuwsaat: The other part of it, when you don't have CDBG funds, the development is going to be an expensive part. Mayor Harn: The other thing we might look at is talking to some of these developers. I know we can get them to give land for schools, maybe we can get them to donate some land to the Town for parks. Maybe we can't put a lot on those lands for a while, but maybe we can put some ball fields on there or at least have areas started so we can do something with it in the future. Hurvie Davis: I hate to mention it, but when I went up to Oregon last fall to get my building plans approved, I met with the building official and I asked him how much the building permit would be and he said about $5000. I told him it is only $2200 in my community. He said there is a street fee, which maybe equates to our transportation fee, there is a parks fee, and State fees, etc. We thought about getting a lot of land for another regional park in Marana, maybe on the east side where there is a lot of open land that is going to be built around (Cortaro and Linda Vista area). The problem is that we would have to probably buy it because we won't be able to get any one developer that is large enough to give us a lot of land for a regional park. Perhaps we can come up with something where every builder pays a certain amount into a park fee. I will propose that before I leave. Vi. Vice Mayor Sutton'. One other suggestion would be getting a non-profit, or lining up a relationship with the national trust or the major conservancy. When you are talking about land banking, if you put it into a non-profit, you can pull it out whenever you need it. If it comes to the Town, we are not going to be able to use it for match and grants and foundation assistance. Whereas, if it is in the conservancy, or if we get our own non-profit, we will be more apt to be able to match. And, I am not just talking about park land, I am talking about other public infrastructure, too. We would look at it on a case by case basis. Then we can have it and maximize our ability to generate funds off of it at a later date. Mike Hein: We will be revising some things tomorrow and getting the expense stuff. It will be hand delivered to you Thursday. ADJOURNMENT A motion was made by Mayor Harn, seconded by Vice Mayor Sutton, to adjourn. The motion passed 7/0. The meeting adjourned at 7:10 PM. I hereby certify that the foregoing minutes are the true and correct minutes of the Marana Town Council held on March 24, 1998. I further certify that a quorum was present. t7