City Council 17-Jun-2014: 2014-15 Budget and Library Tax.

APPEARANCES

1. Public Comment: There were about 50 people in attendance. 20 spoke, all in support of the library and keeping the dedicated library property tax. More on that later.

CONSENT ITEMS

2. MOTION: Approval of Meeting Minutes for City Council Regular Session – May 20, 2014 —Approved no discussion

3. MOTION: Ratifying the Mayor’s Appointments to the Highland City Economic Development Committee – Jeffrey Clyde, Rob Clauson, John Allen, Robert Vukich and Marshall Meier.— Approved. I asked if this represented all applicants. The answer was no and more will be considered. Brian Braithwaite also wanted clarification as to whether or not Marshal Meier was a property owner in Highland. The answer was yes.

4. MOTION: Approval of Final Budget –— Approved. We discussed potential changes to the utility rates (specifically Pressured Irrigation) to keep associated funds from continuing to run negative. We agreed to have this as a discussion item in our August meeting and that our finance director would prepare an analysis and make recommendations. We also discussed the potential for utilizing revenues from the sale of two homes the city owns to offset the $200K withdrawal from our city reserves.
   
   Note, I posted a Google Sheets version of the budget (including a summary and some charts) so that anyone interested can review and analyze the budget using a spreadsheet. You can download the budget in Excel format from Google Sheets.

ACTION ITEMS

5. Eliminating the Dedicated Library Tax Levy - Combine the Library Fund certified tax rate with the General Operating Fund certified tax rate into a single General Operating Fund. –— Tim moved to amend the resolution to read that the council and library board would meet in the next three months to thoroughly discuss the library, its goals, and how we can work together more effectively. The amended motion was approved on a 4 to 1 vote. This means for the library tax remains intact for now. I’ve added more details below.

6. Adopting the Certified Tax Rate – As determined by Utah County Adopting the Certified Tax Rate Subject to Truth in Taxation Hearing. Tax rate will be 0.001681 (0.00146 General Operating Fund, and 0.000221 dedicated Library Fund) - August 5, 2014. — Approved  unanimously. See below for details

MAYOR/ CITY COUNCIL & STAFF COMMUNICATION ITEMS

Nathan Crane reviewed his  progress on impact fee certification. He wanted council support before going to bid to have our impact fees certified. Zion’s bank gave a quote for $44K (originally their estimate was $100K – well done Nathan). We are having our impact fees certified to avoid potential lawsuits by developers. American Fork, the Sewer District are  among the entities that have been sued recently for excess impact fees. The council was in agreement to proceed. The estimated amount is more than $25K and we therefore we need to issue a RFP (Request for Proposal) and get formal written quotes from vendors.

What is a Certified Tax Rate?

Each year the county calculates a new certified tax rate for all taxing entities (i.e. cities, school districts, service districts) by taking the revenue collected the previous year by a taxing entity and dividing it by the current assessment of all property within the taxing entities boundary (except new growth). This is the tax rate which is applied to all assessed property (including growth).

What does this mean for the City of Highland and its residents.

• While your property may increase or decrease in value, the actual dollar you pay from one year to the next should be roughly the same (unless a tax increase or decrease is passed). If your property appreciates more or less than the average home in Highland then your property tax will go up or down based on the difference from the average property value change. For example, if your property value had a 1% increase in value but the average home value in Highland declined by 10%. Your tax  would increase by much more than 1%.
• The city’s revenue from property tax only increases when there is growth.
• There is no adjustment for inflation so without a tax increase city residents are getting a property tax cut each year equal to the rate of inflation. Can the city operate more efficiently? I believe that is the case. However, at some point in the future we will need to raise taxes or cut services. 

The cap on the certified tax rate for cities is 0.007 and for libraries 0.001. The Highland 2014 tax rates are 0.00146 and 0.000221 which are 21% of their respective limits.

For more detailed information please refer to the following:

• “How Does a Certified (Property) Tax Rate Work?” by David Rodeback (an excellent summary of a complicated subject, takes about 5 minutes to read).
• “Tax Rate Certification Standards of Practice” by the Utah State Tax Commission, Property Tax Division (22 page explanation of how tax rates are calculated plus 4 appendices).
  

The Dedicated Library Property Tax

While I did supported Tim Irwin’s amendment, which in effect tabled the resolution to rescind the dedicated library property tax, I am still opposed to it and here is why.

• The dedicated tax prioritizes the library ahead of all other general fund departments: parks, events, public safety, and roads. From my point of view this is in principle incorrect.
• If the library budget for any fiscal year ends up being less than the revenue dedicated to it (this includes the library tax, fees, fines and grants) then a surplus is generated which must remain in the library account. The question is, “what is the best use of those dollars in that year?” Would it be best let the money sit in the library account or would it be better for the city to have those dollars put into roads, parks or public safety? With the dedicated tax in place that conversation can never happen. Note, this is not an imagined scenario. In every year from 2009-10 through 2013-2014 the library had a surplus ranging from $10K to $33K (the total is $100K). In the 2014-15 budget there is a planned $15K surplus.
• It decreases transparency by allowing surpluses to accumulate without requiring a defined purpose.

So you might ask why did I in essence vote not to rescind the library tax this year? Here is the answer. I have been digging into the financial info specific to the library for the last few weeks and have discovered a few things that don’t make sense.

• Even though by my calculation there should have have been a $77K surplus in the library fund at the end of the 2012-13 budget year. There was only $37K.
• There was a $43K transfer to the library reserve fund registered in the 2010-2011 budget year but no notation in the city’s reserve fund that the money is there.
• Although any year-over-year increases in property tax revenue for the general fund and the library should be identical, from 2010 to 2013 they varied by 5% to 20%. The net of that is that while city property tax revenue grew by 11.2% during that timeframe library property tax revenue grew by only 6.5%.

Our finance director is looking into these issues but it will take some time to sort it out. I don’t believe it is wise to change the current the environment until we know what happened and why. I know there are valid arguments for proceeding with the change anyway but, this is why I voted to table the resolution to rescind the library property tax.

Now back to the 20 residents who spoke at the council meeting and the 13 who emailed me, who support the dedicate library tax. Most of their arguments came from the perspective that without a dedicated library tax the library would cease to exist. Therefore if someone opposes the library tax they most also oppose the library. As a result their comments were directed at persuading opponents that the library is valuable. They talked about why they liked the library, how much they and others use the library, how libraries add value to a community … . I certainly don’t disagree that libraries add value. However, for me that was not the question at hand. The question was “what is the best way to fund the library?” There are arguments to both sides of that question. I personally  believe that the city is better served and our tax dollars used more efficiently if the library is funded directly of out the general fund rather than through a dedicated tax.

In Utah County there are 13 cities with libraries. Only 3 cities have library property taxes (Highland, Provo, and Santaquin) and none of the other cities that participate in the North Utah County Library Cooperative utilize a library tax to fund their libraries. Clearly if over 75% of the city libraries in the county (American Fork, Eagle Mountain, Lehi, Orem, Payson, Pleasant Grove, Salem, Saratoga Springs, Spanish Fork, and Springville) are funded by means other than a library tax then the premise that without a dedicated library tax the library will cease to exist is not accurate.

I did respond to all emails I received; most of the time in some detail. I will summarize the questions, my responses and additional  thoughts in a separate post.

Links

1. Google Sheets version of the approved budget.
2. “How Does a Certified (Property) Tax Rate Work?”
3. “Tax Rate Certification Standards of Practice”