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HomeMy WebLinkAbout03/13/2013 Study Session Minutes�OW N OF i 7 9 7 qRIZONP STUDY SESSION MINUTES 11555 W. Civic Center Drive Marana, Arizona 85653 Council Chambers, March 13, 2013, at or after 6:00 PM Ed Honea, Mayor Patti Comerford, Vice Mayor David Bowen, Council Member Herb Kai, Council Member Carol McGorray, Council Member Jon Post, Council Member Roxanne Ziegler, Council Member STUDY SESSION CALL TO ORDER AND ROLL CALL. Mayor Honea called the meeting to order at 6:02 p.m.. Town Clerk Bronson called roll. All Council Members were present. PLEDGE OF ALLEGIANCE/INVOCATION/MOMENT OF SILENCE. Led by Mayor Honea. APPROVAL OF AGENDA. Motion to approve by Vice Mayor Comerford, second by Council Member McGorray. Passed unanimously. CALL TO THE PUBLIC. No speaker cards were presented. DISCUSSION/DIRECTION/POSSIBLE ACTION 1: Presentation: Relating to Budget; an update of the Town's financial status of the General Fund for the seven months of the 2012-2013 fiscal year. Presented by Erik Montague. He noted that this update is through January which includes the holiday shopping season. An item that is included is the general fund Budget in Brief, a high level overview of the town's operating fund for the same period. His focus is on the "big three" — sales taxes, state shared revenue and licenses, permits and fee - which comprises about 90 percent of the town's operating revenue. Sales tax revenues through January is about 59 percent, which is normal. There are some areas that area lagging — contracting sales tax, which is challenging to predict. A lot of volatility in that area has to do with one capital project — near the Ina/I-lO location. There is some positive traction in new home construction but no other major construction activity. There is good news in year over year results with bars Study Session Minutes — March 13, 2013 Page 1 of 5 and restaurants — almost 7 percent higher. The largest individual category is retail. For this period we're almost 7 percent year over year growth. There is growth in same source sales in most major categories; that is a positive leading indicator. Manufacturing is lightly lagging. Overall, collections for this period at $11.8M are 59.3 percent of budget, which is within expectations. He then referred to a comparison chart of year over year changes for construction, retail, and restaurants. The overall average through October was about 9 percent less than the previous year. Contracting sales tax was primarily responsible for that drop. Year over year, we're flat, but we're where we need to be from a budget perspective. State shared revenues are within budget category. These numbers come to us from the League and the department of Revenue. State shared sales tax is lagging a bit, but urban revenue is the same each month and auto lieu tax is lagging slightly. Another key revenue to the community is from the highway user revenue fund, to be used for major program maintenance. Those numbers are pretty much on the mark. About 7 percent of the budget comes from licenses, permits and fees. The largest portion comes from single family residential permits. We budgeted for 330 and actuals through January are 344. We issued 52 for February (not included in this report). We have exceeded our budget which is why we're at 124 percent of SFR revenue. There are many smaller categories that are significantly over due to a variety of reasons. But there is some growth in our community, especially in some key corridors. For the year, we're already at 96 percent, which is largely a good thing. Expenditures are trending pretty much as expected. We are running a bit behind on operating supplies and equipment and capital outlay, sometimes it takes a while to get going, but most of those will be expended by the end of the year. Cash was transferred out of the general fund for debt service, to pay for this building and other projects. We'll transfer the second half of those in June for July's debt service payment. Year to date we're to the good by about $3.2M. For the month of January, we're to the good just shy of $800K. Mr. Montague then transitioned into the 2014 budget with a budget timeline update, including meeting with departments on their budget proposals beginning March 14, 2Q13. We are scheduled to bring the Manager's Recommended Budget as well as any changes to the Comprehensive Fee Schedule to Council on April 16. Tentative and Final Budget adoption will be brought to Council in June. Council Member Bowen asked why contracting sales tax is lagging in light of the other higher numbers. Mr. Montague responded that most of the volatility in that number has to do with one large project. So based on the information that was available, we projected what was going to be on that project, and actual is different than what we had anticipated. 2: Relating to Transaction Privilege Taxes; Presentation surrounding proposed legislative changes included within HB2657 - Transaction Privilege Tax Changes. Erik Montague gave an update and overview of the legislation as it has been moving through committees. He gave some background on the origination of the Transaction Privilege Tax (TPT) Study Session Minutes— March 13, 2013 Page 2 of 5 report, the proposed bill and an amendment. The bill is 89 pages, so he focused on a few key elements. He started with the town's uses for the TPT. He noted that TPT is not a true sales tax; it's a tax on the privilege of being able to do business. The TPT Simplification Committee was established by Executive Order 2012-01. The Governor's Office has had an interest in becoming business-friendly in the past few years. The Committee's purpose was the identify opportunities to simplify the t� code and issue a report, which they did in December 2012. The report included a number of recommendations and provided the basis for HB 2657. He focused on three key pieces of the bill. First was one point of contact, so that the Arizona Department of Revenue would collect TPT for all cities and towns. Also of note was a provision for a single point of audit. All cities and towns would lose the ability to self-audit. Last, the elimination of construction sales tax from the job site. The transactions would instead be taxed at the point of sale for retail transactions. The challenges for cities and towns is that the Arizona Department of Revenue (ADOR) is unable to provide accurate and timely return data and delays in the receipt of funds from ADOR and reliability of the ADOR website. The current option is that a web portal was created last year to simplify administration and remittance. The concern is that if you're a company that has multiple locations, you would be audited multiple times but with different auditors. The current option for single point of audit is that a multi jurisdictional audit coordinator already exists. The challenge is that the crime rate for those is pretty high. ADOR lacks the resources to conduct all audits due to a downsizing of the department which is just now beginning to turn around. And ADOR already has millions of dollars in unpaid audit receivables sitting on the books. The elimination of the construction sales tax means taxable transactions move from the job site to the point of sale for retail transactions. In the town's current general fund budget, constructions sales tax represents 12% of ta�c revenues budgeted ($2.4M/$19.8M). For the Transportation fund, that represents 1-00% of revenues for budgeted year. As part of the town's resolution, one cent stays in the general fund, and three cents goes to the transportation fund. Those dollars are key to provide for our current and future obligations. With the change, we would move from a four percent to a two percent sales tax. Some of the dollars have been allocated to pay the annual debt service allocated to the Transportation Fund. The current option or idea that the League of Cities and Towns is trying to float is to keep contracting largely as it is with respect to contracting and make changes to trades (plumbers, HVAC, etc.). He then reviewed what the town uses TPT revenues for. We are averaging about a quarter of a million dollars a year on audit revenue. That's very significant to our community. We work hard to establish and maintain a balanced budget. These dollars are one-time dollars. They do not support ongoing obligations. The positive to that if there is a new business, there is a one-time element and also an ongoing element. We've averaged about $SM a year since 2009 in contracting revenue; about 75 percent of which has been allocated to Study Session Minutes — March 13, 2013 Page 3 of 5 transportation projects. One thing we did do was to identify significant projects such as the Twin Peaks Interchange and Crossroads District Park, and we advanced funded those projects by issuing bonds in the amount of $39.8M in 2008 in anticipation of the collection of future construction sales tax dollars. We de-leveraged ourselves on a portion of them as additional dollars came through on Series A and Series B bonds, so that from time to time we've prepaid some of those bonds. Currently, our annual debt service is about $3.4M. What we're allocating to the transportation fund is about $2.4M or 70 percent of that. If those dollars are no longer available, then we need to identify how we're going to be able to fund that $2.4M delta. So with audit revenue loss, those one-time revenues provide key projects and vital program such as a classification and compensation study. There are other projects and programs that may have to be delayed. The current comp and class study is funded, so he's not implying anything by using that as an example. We know we won't lose 100 percent of those dollars, because some of those dollars will come back to our community through retail and some through additional shared sales tax. We will not be made whole and will be drastically short. As far as strategies, we've been looking at restructuring or refinancing our debt. Should this measure continue to move forward, we need to identify current resources and strategize allocating them toward future debt service. The bill is currently being held in committee. The bill has been held for a number of days with the intent or expectation that the two sides which are significantly apart at this point, will come together with meaningful and agreeable solutions for both. A number of proposals have been submitted by the League and cities and towns as well as the other side. One amendment (Mesnard) has been adopted that has been identified as a workable solution. We're currently losing time on the movement of this bill. He responded to Council Member Bowen regarding the circumstances under which the town would want to collect its own sales tax. First, is the availability of the information from ADOR. Second, the accuracy of the data from ADOR. Mr. Montague runs the ADOR data through a separate program to clean up the data because they (ADOR) don't have the resources to verify the accuracy of the data. The flip side of self-auditing is the cost of hiring additional staff to run the data, but he believes that the savings that could be obtained by getting accurate data would make this cost-effective. He also noted that we don't know how accepting the state of the online portal concept. The legislature has until March 22 to get the bill out of committee. It needs to happen quickly. He also stated that the lack of movement isn't necessarily a good thing. There are enough other bills moving where language could be inserted that are ready to go to the Floor which would eliminate further negotiation of the existing concerns. Executive Session pursuant to A.R.S. §38-431.03 (A)(3), Council may ask for discussion or consultation for legal advice with the Town Attorney concerning any matter listed on this agenda. Study Session Minutes — March 13, 2013 Page 4 of 5 EXECUTIVE SESSION. Motion to go into executive session at 6:54 p.m. by Council Member McGorray, second by Council Member Bowen. Passed unanimously. Council Member Kai was excused from the executive session. 1: El: Executive Session pursuant to A.R.S. §38-431.03 (A)(3), Council may ask for discussion or consultation for legal advice with the Town Attorney concerning any matter listed on this agenda. 2: E2: Executive session pursuant to A.R.S. § 38-431.03(A)(3),(4) and (7), for discussion or consultation with the Town's attorneys and to instruct the Town's representatives concerning (1) the lawsuit entitled Pima County v. Town of Marana, Maricopa County Superior Court No. CV2011-099966 and (2) pending legal issues, settlement discussions and contract negotiations relating to the transition of Marana wastewater collection and treatment from Pima County to the Town of Marana. ADJOURNMENT. Motion to adjourn at 7:23 p.m. by Vice Mayor Comerford, second by Council Member McGorray. Passed unanimously 6-0. CERTIFICATION I hereby certify that the foregoing are the true and correct minutes of the Marana Town Council meeting held on March 13, 2013. I further certify that a quorum was present. . Bronson, Town Clerk Study Session Minutes — March 13, 2013 Page 5 of 5