Impact Fee Analysis:Maintaining the Public’s Trust
Continuation of a Process that is related to all other financial issues
Unfortunate Situation during a Hectic time Lack of Structure, Accountability,
Experience, and Trust Long Lasting Implications
Interfund Loans New Impact Fee Law
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CFO Perspective
Impact Fee Fund Deficits and No Interfund Loans Recorded Fire Impact Fee Fund Deficit = $4+M
Transfers instead of Loans FY 2010 Budget showed a $4M+ Transfer
Out from the Library Impact Fee Fund
“Paid Cash for City Hall” Limited Discussions of Financing
Decisions with City Council3
Warning Signs
Scope of Work Verify accuracy and consistency with
current Impact Fee study Project Funding (Growth vs. Non-Growth) Accuracy of project costs, scope, etc.
Verify Accounting and Budget Practices Use of “Home Fund” Transfers between funds
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Consultant Analysis
Outcomes Preserve Integrity of Impact Fee Program Accurately report the City’s Financial
Condition Document the Priorities and Strategies of the
Current City Council
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Consultant Analysis
Project Evaluation Steps
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Examples City Hall Public Safety Headquarters 2003 MPC Debt Service Allocation
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Consultant Analysis
Flow of Funds-Development Activity
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Police
General CIP FundGeneral CIP FundNon-Growth Projects Non-Growth Projects
Fire
PublicWorks
Wastewater
General Gov’t
Library
Parks Rec
Water Production
WaterResource
Reclaimed Water
Roads
General FundGeneral Fund
One-Time One-Time Revenues: Revenues:
Permits,Permits,ConstructionConstructionSales Tax, etc.Sales Tax, etc.
Portion of One-Time Revenues
$61M City Hall-Should Have Been
General General GovernmentGovernmentImpact Fee Impact Fee
Fund Fund
City Hall: -$35MCity Hall: -$35M
City Hall’s growth costs (future needs) of
$35M, or 57%
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General CIP FundGeneral CIP Fund
City Hall: -$26MCity Hall: -$26M
City Hall’s non-growth costs (existing needs) of
$26M, or 43%
$61M City Hall-Actually Recorded
General General GovernmentGovernmentImpact Fee Impact Fee
Fund Fund
City Hall: $0MCity Hall: $0M
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General CIP FundGeneral CIP Fund
City Hall Costs:City Hall Costs:Non-Growth -$26MNon-Growth -$26MGrowth Growth -$35M -$35MTotal -Total -$61M$61M
Because incorrectly recorded in General CIP Fund, the fact there were insufficient funds in the General Government Impact Fee Fund as masked.
$61M City Hall-Proposed Action
General General GovernmentGovernmentImpact Fee Impact Fee
Fund Fund
City Hall: $0MCity Hall: $0M
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General CIP FundGeneral CIP Fund
City Hall Costs:City Hall Costs:Non-Growth -$26MNon-Growth -$26MGrowth Growth -$35M -$35MTotal -Total -$61M$61M
InterfundLoan
$61M City Hall-Proposed Action
General General GovernmentGovernmentImpact Fee Impact Fee
Fund Fund Growth -$35MGrowth -$35MLoan From $35MLoan From $35M
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$61M City Hall-Proposed Action
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General CIP FundGeneral CIP Fund
City Hall Costs:City Hall Costs:Non-Growth -$26MNon-Growth -$26MLoan RepaymentLoan Repayment +$35M +$35M*** OPPORTUNITY ****** OPPORTUNITY ***
Repayment of Loan
Example – Public Safety Building
Fee Area Square Feet Percent Components
Fire 16,500 17.2% Fire Admin / Training Center
Police 46,000 47.9% Police Admin / Shooting Range / Training Center
Gen. Gov. 33,500 34.9% Court / Prosecution / Broadcast Center
Total 96,000 100.%
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Example – Public Safety Building
Service Units Percent Allocation
Fee Area Units Existing Future Total Growth Non-Growth
Fire Res. / Emp. Pop 133,065 174,778 307,843 56.8% 43.2%
Police Trip Ends 260,888 202,264 463,152 43.7% 56.3%
Gen. Gov Res. / Emp. Pop 133,065 174,778 307,843 56.8% 43.2%
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Example – Public Safety HQ
Fee AreaNet Funded
– $ M (1)
Growth % Growth - $ M Within
Fund (2)Due (to) /
from Fund
Fire $2.56 56.8% $1.45 $0 ($1.45) Gen. Capital
Police $7.13 43.7% $3.11 $0 ($3.11) Gen. Capital
Gen. Gov $5.19 56.8% $2.95 $0 ($2.95) Gen. Capital
Subtotal $14.87 $7.51 ($7.51)
Funded in single fund with multiple funding sources
(1) Total expenditures all sources less any MPC debt funding which is addressed through debt service repayment.
(2) Amounts funded within the separate development fee funds.
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Results– 2003 MPC Debt Service
Fee Area Actual 07 - 10 Corrected 07 - 10 Difference
Fire $ 794,800 $ 485,571 ($ 309,229)
Police 1,896,109 982,217 (913,892)
Parks & Rec 7,639,422 3,174,741 (4,464,681)
Gen Gov 0 2,664,877 2,664,877
Sewer Sys. SPA 1 6,932,718 5,828,627 (1,104,091)
Gen. Fund (1) 2,004,602 6,131,618 4,127,016
Total $ 19,260,650 $ 19,260,650 $ 0
(1) Remaining debt service not related to growth-related development fee projects are allocated to the general fund.
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Interfund Loans: Opportunities and Challenges
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Fund Advances From Advances To Net Impact
1. General $2.7M -$6.8M -$4.1M2. General CIP $45.1 -$7.1 $383. Fire and EMS $0.3 -$4.3 -4.04. Police $3.4 $3.45. Parks and Rec $4.5 -$4.7 -$0.26. General Gov -$38.7 -$38.77. Public Works $4.6 $4.68. Water Replen. $2.0 -$0.1 $1.99. Water System $1.5 $1.510. Water Ops -$1.6 -$1.611. Sewer System $1.1 -$9.5 -$8.412. Sewer Ops $7.6 $7.6
$72.8M -$72.8M $0
$38M net Due From Other Funds Owes Police SDF fund $2.5 million and Public Works SDF
fund $4.6 million because growth portion of facility was overstated
General Govt. SDF fund owes General Capital $36.0 million due to charging growth portion of City Hall and other facilities to this fund
Parks & Rec. SDF fund owes $4.7 million due to transfers exceeding non-growth portion of various projects charged to Gen. Capital
Fire/EMS SDF fund owes $4.3 million due to funds transferred from General Capital to cover deficit.
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Summary: General Capital Fund
1. No Money is Missing
2. Impact Fees were Used to Construct Growth Related Projects
3. Timing of funding-not usage causing $73 million disconnect!
4. Growth projects budgeted vs. spent
Consultant Report Findings
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Consultant Report Findings
5. JE’s lacked supporting documentation, explanation of intent, and approvals
6. Significant number of correcting journal entries
7. Three MPC Bond Issues were all recorded in the same fund1. $3.4 M Deficit in 2000 MPC Bond Const. Fund
2. $4.0 M Excess in 2007 MPC Bond Const. Fund
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8. Bond Reserve requirements were not met
9. Restatement of $971K on financials
10. $3.9M bond issuance to cover a shortfall in pooled operating cash
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Consultant Report Findings
Consultant Recommendations
1. Record $73M of Interfund Loans and other correcting entries
2. Journal entries should always be approved by appropriate staff and contain good supporting documentation including explanation of intent and outcome (e.g. transfers and loans)
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Consultant Recommendations
3. The City should transfer funds into the 2007 Bond Reserve account to bring the balance up to the required $5M
4. Update the Impact Fee Study and fee calculations
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1. Who was responsible? ALL involved could have done a better job
2. What does this mean to the City?1. Growth pays for growth
2. General Fund’s Fund Balance $4.1M Reduction
3. $1M+ Increase in Debt Payments in General Fund
4. Bond Rating?
5. CIP: Opportunities and Challenges
Questions
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How did SB 1525 effect Surprise? After January 1, 2012, cannot charge or collect
fees for specific projects defined in new statute Limitation on fees collected and pledged for
repayment of debt service for projects not allowed under the new legislation
Debt must be issued before June 1, 2011 Surprise “pledged” impact fees for interfund loan
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New Development Fee Legislation
How did SB 1525 effect Surprise?
Dev. Fee schedules will need to be revised Funds collected up to Jan.1, 2012 must be spent
in same fee category by January 1, 2020 Surprise will be impacted by this portion of the
law---i.e. City Hall
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New Development Fee Legislation
Major Policy Change regarding Funding and Financing Infrastructure More Narrowly Defines “Necessary Public Services” Unclear, Unproven Language Cities are Impacted Differently Difficult for cities to issue new debt with impact fees as
repayment pledge Specific project types are not allowed to be paid by
impact fees starting January 1, 2012
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Major Changes in SB 1525
Fees under new statute must be adopted by August 1, 2014
New requirements for Infrastructure Improvement Plan (IIP)Includes existing infrastructure and available capacityIdentify service areas for “necessary public services”Includes “land use assumptions”Must be prepared by “qualified professionals”Must be updated every 5 years
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Major Changes in SB 1525
New timelines for adoptions Advisory committee vs. biennial audits Additional reporting requirements Required to demonstrate need to service new
growth by “service unit” and “service area” requirements
Forecast growth related revenues to offset costs of new infrastructure/facilities
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Major Changes in SB 1525
New growth projects allowedMust have a 3 or more year life
expectancyMust be owned or operated on behalf
of municipalityFinancing costs are allowed for growth
related projects
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Major Changes in SB 1525
What is not allowedGeneral government facilitiesAdministrative, operating and maintenance
costsLimits projects for police, fire, parks and libraryIncreased level of serviceParks over 30 acres that do not show a direct
benefit to new development
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Major Changes in SB 1525
Capacity can be reserved Development fees MUST be assessed to all customer
classifications and burden on new growth Provides additional language for
credits/reimbursements Define time period for projects to be completed for
new growthExcept for water & sewer, cannot exceed 10 yearsWater and Sewer is 15 years
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Major Changes in SB 1525
On or after June 1, 2011 – No adoption or increase in TPT rate for construction or similar excise tax
Remains in place until July 31, 2010 On or after August 1, 2014 – Excess TPT above
average TPT rate has to offset development fee calcs
Potentially could impact future development agreements
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Major Changes in SB 1525
Most important upcoming dates: January 1, 2012 August 1, 2014 January 1, 2020
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Summary of SB 1525
Comments and Questions
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