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HomeMy WebLinkAboutagenda.council.worksession.20180522 CITY COUNCIL WORK SESSION 4:00 PM I. Wheeler RETT Modeling II. Procurement Update CITY COUNCIL WORK SESSION May 22, 2018 4:00 PM, City Council Chambers MEETING AGENDA P1 1 MEMORANDUM TO: City Council FROM: Pete Strecker, Assistant Finance Director THRU: Sara Ott, Assistant City Manager MEETING DATE: May 22, 2018 RE: 0.5% Real Estate Transfer Tax _____________________________________________________________________________________________ Background Aspen’s 0.5% Real Estate Transfer Tax (RETT) is one of two RETTs applied on the sale of property within City limits, and was first adopted in 1979 for the purpose of “renovation, reconstruction and maintenance of the Wheeler Opera House and for the purpose of supporting the visual and performing arts”. This initial voter-approved tax, scheduled to sunset twenty years after its initial adoption date, was extended for a second twenty-year term by voters, through December 31, 2019, and again to December 31, 2039 in the more recent November 2016 election. Aspen is one of twelve communities that have real estate transfer taxes applied to the sale of property. Due to the passage of the Tax Payer Bill of Rights (TABOR) in 1992, no new real estate transfer taxes can be adopted into law in Colorado. While no new taxes can be created, there has been some precedent for expanding purposes. Community RETT Rate Breckenridge 1.0% Frisco 1.0% Gypsum 1.0% Minturn 1.0% Snowmass Village 1.0% Vail 1.0% Winter Park 1.0% Aspen 0.5% and 1.0% Avon 2.0% Crested Butte 3.0% Telluride 3.0% Ophir 4.0% Volatility in Collections Highlighted by the collapse of the real estate market during the Great Recession, the inherent unpredictability of real estate transfer tax collections often results in communities applying RETT resources to non-recurring expenditures such as land acquisitions for parks and open space, transportation fleet purchases, or other capital outlay needs. It is less typical for this type of tax revenue to be relied upon for general operating expenses, as it has been for the Wheeler Opera House. Looking at Aspen’ s experience specifically, despite annual increases in collections since 2000 averaging $92,000, yearly changes in Aspen’s 0.5% RETT collections are wildly sporadic – as great as 56% increases and as low as 42% declines. Given this swing in annual variances, caution needs to be exercised when dividing out resources, if such a decision is made. P2 I. 2 Wheeler Revenues and Expenditures Wheeler revenues originate predominately from the 0.5% real estate transfer tax; however, there are other revenue streams into the Fund. These other revenues include the rental income from the restaurant and art gallery leased spaces, performance space rental revenues from productions put on within the Wheeler space and within other venues where the Wheeler staff serve as a box office representative for those events, and from investment income on existing fund balance. Past and current revenues have also included smaller amounts for cash advances from the Wheeler Opera House Fund for both the Red Brick and most recently for the Water Utility land acquisition. A graphical representation of projected 2018 revenues is shown below. y = $92,278x + $2,849,686 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Annual Real Estate Transfer Tax Revenue Since 2000 23% -3% -5% 11% 43% 53% 19% -16% -42% 4% 5% -16% 24% -10% 44% 20% -38% 56% -60% -40% -20% 0% 20% 40% 60% 80% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Annual Change in 0.5% RETT Revenue Since 2000 P3 I. 3 Expenditure authority for 2018 highlights some volatility in the uses of available resources. The graphic below reflects recurring and non-recurring appropriation categories. The one-time cash advance for the land acquisition made by the Water Utility Fund comprises slightly more than a third of the annual expenditure allowance, but is a non-typical appropriation and is programmed to be fully repaid, with interest, within the next 10 years. Budgeted capital needs for 2018 reflect slightly more than $500,000 in 2018 – this is a lower figure than the average capital spend over the last 10 years, as there have been three substantial renovation projects, so this expense category can fluctuate significantly depending on the year. The remaining expense categories of grants, internal transfers, and operations are more consistent each year. Note that for arts grants specifically, $100,000 is permitted to be funded by the 0.5% real estate transfer tax, but the remaining $300,000 must be funded by non-RETT revenues. 0.5% RETT $3,713,000 64% Investment Income $628,700 11% Production Revenue $920,000 16% Rental Spaces $219,000 4% Loan Repayment $284,770 5% Projected 2018 Revenue Operations $3,158,000 44% Arts Grants $400,000 6% Capital $506,500 7% Cash Advance $2,515,000 35% Internal Transfers $565,900 8% 2018 Expenditure Appropriations P4 I. 4 Wheeler Use of the 0.5% RETT Excluding capital outlay, the Wheeler Opera House has required an operational subsidy of 68%1 its total annual operating budget since the 0.5% RETT was extended by voters; the remaining operating need was provided for by production revenue and leased space rental income. During this same period, the 0.5% RETT has generated roughly $67 million in annual income, or roughly $34 million more than annual operational needs. 1 For comparison purposes, a 2014 report by the National Center for Arts Research (NCAR Report Volume 2) found that small and medium sized performing arts centers throughout the country tend to cover an average of 41-43% of their operating expenses with earned income. The remainder of the operating expenses and nearly all capital expenses are funded by philanthropic contributions and direct government subsidies. 61% 63%63%64% 67%68% 64% 67% 71%73%73% 76% 69%70% 67% 75% 71%70% 40% 45% 50% 55% 60% 65% 70% 75% 80% Operating Subsidy Need from 0.5% RETT Since 2000 Subsidy Needed from RETT Annual Average $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 0.5% RETT Revenue (Line) and Operational Subsidy (Bars) Operations Subsidy Funded By RETT RETT Revenue P5 I. 5 In addition to the operating subsidy, RETT resources have provided for $15 million in capital improvements for the building and other equipment needs. Beyond scheduled replacement of equipment and other more “routine” building improvement expenses, there have been three significant remodel efforts that were supported by RETT funding, including: the basement remodel (2011), the balcony and A/V booth remodel (2013) and box office, lobby, back of house and roof renovations (2015). Finally, an additional $1.8 million in grants to local non-profit art organizations has occurred since 2000, as well as roughly $19 million deposited into the Wheeler Opera House Fund balance. Possible Repurposing of Annual Collections There is precedence for an existing real estate transfer tax being extended to new uses beyond what was originally specified by voters. The nearest example would be the RETT for our neighboring community of Snowmass Village, where in 2004 voters approved to renew a 1.0% RETT and to expand its uses from road maintenance, bus replacement, and right-of-way upkeep to also now include recreation-related and operational transit needs. With the provided information on the preceding pages, it has been identified that the Wheeler Opera House requires an annual operational subsidy of roughly 70%. Looking at two recent but distinctively different years to provide context, we can see how the volatility in collections and capital can result in a deficit in one year, and a surplus in the next. (Rounded to $10,000’s) 2016 2017 0.5% WRETT Collections $3,340,000 $5,220,000 Operational Subsidy $2,530,000 $2,400,000 Remaining Surplus / (Shortfall) $810,000 $2,820,000 Capital Outlay $1,400,000 $50,000 Remaining Surplus / (Shortfall) ($590,000) $2,770,000 Given these real swings, if there was a desire for a repurposing of some portion of the 0.5% real estate transfer tax, one possible recommendation would be to make a determination of annual disbursements using a lookback [CELLRANGE] [CATEGORY NAME] [PERCENTAGE] [CELLRANGE] [CATEGORY NAME] [PERCENTAGE] [CELLRANGE] [CATEGORY NAME] [PERCENTAGE] [CELLRANGE] [CATEGORY NAME] [PERCENTAGE] 0.5% RETT Revenues: Jan. 2000 - Dec. 2017: $67 million P6 I. 6 process. Under this process, a determination of surplus collections would be performed after the fiscal year was completed, and disbursements of excess collections would be awarded in the subsequent year. This would ensure that resources are available and would not result in any additional burden on City coffers. Possible Repurposing of Existing Fund Balance As of December 31, 2017, the fund balance within the Wheeler Opera House Fund was approximately $32 million. This balance has accumulated over time, even after three significant renovations to the existing Opera House were afforded. There have been discussions in the past about expansion opportunities for the Wheeler, including development of the parcel adjacent to the existing building, repurposing the City Hall Armory building, and others. Discussions continue around framing the need for expansion and what that might look like, but no new course has been set. If there was voter-approval to repurpose some portion of the existing fund balance within the Wheeler Opera House Fund, both upkeep of the existing facility and possible expansion plans should be considered. Additionally, when determining what amount may be available to allocate, recognition of the current 25% reserve requirement, as adopted in the City’s financial policies, must be carved out. Finally, given that existing fund balance is not a recurring revenue source, any repurposing of these funds is best for one-time needs. Quantifying Possible Surplus Resources Based on a current 10-year projection, assuming a 5% increase to annual real estate transfer tax collections, a surplus of $10 million would be generated. While the 5% is definitely not a guarantee in any given year, it is at the lower end of the range given the long-run compound average annual growth rate, which has been between 5.0% to 8.5% depending on how far one looks back. 10 Year Period (2018-2027) Projected Collections from 0.5% RETT $46 million Operational Subsidy Need $28 million Capital Need $8 million Total Support From RETT $36 million Hypothetical Surplus $10 million Assumptions: · 5% escalation on 0.5% RETT revenue · 3.5% increase to labor expenses · 2.0% increase to non-labor expenses · Programming assumed at existing levels · Capital programmed in as it is known today; no new facility / expansion assumed P7 I. 7 Repurposing Process Any redirection of Wheeler RETT revenues will likely require a public vote. A ballot question on redistribution of the Wheeler RETT can occur during a November, May or special election set by City Council. For the election in November 2018, the intergovernmental agreement (IGA) with Pitkin County should be approved no later than the August 13, 2018 regular City Council meeting. Additionally, the ballot question(s) should be approved by the August 27, 2018 regular City Council meeting. Note, this is City Council’s timeline and that the timeline for any citizen initiated petition is different. Direction requested There a multiple financial and policy questions for the City Council to consider related to any purposing of the WRETT. 1. Does the City Council wish to consider redirection of the revenues in excess of the Wheeler subsidy for another purpose? If so, are there specific policy areas City Council wishes to discuss redirection towards (e.g. arts grants to non-profits, visual arts, funding the Red Brick Center for the Arts, top ten goals, etc.) a. Does the City Council concur with the staff recommendation to award funds after collections? For example, revenues collected in 2019 would be awarded in 2020 and disbursed in 2021. 2. Does the City Council wish to consider repurposing any portion of the existing $32 million Wheeler Fund balance? If so, for what purposes? Given the nature of these dollars accumulating over time, staff would propose that Council only consider one-time expenses, such as capital expenses. 3. Should staff prepare a moderate or a significant public engagement process regarding the possible redirection of revenues? A moderate engagement will formulate a few spending purposes/packages for circulation and comment by the public. A significant engagement would include key elements such as advisory polling, multiple public open houses, and full campaign. P8 I. 8 2016 BALLOT LANGUAGE (2E) CITY OF ASPEN – EXTENSION OF WHEELER REAL ESTATE TRANSFER TAX SHALL THE CITY OF ASPEN ONE-HALF OF ONE PERCENT (1/2%) REAL ESTATE TRANSFER TAX, EARMARKED FOR THE MAINTENANCE OF THE WHEELER OPERA HOUSE AND THE SUPPORT OF THE VISUAL AND PERFORMING ARTS WHICH IS SCHEDULED TO EXPIRE ON DECEMBER 31, 2019, BE EXTENDED THROUGH DECEMBER 31, 2039; AND SHALL THE REVENUES FROM SUCH REAL ESTATE TRANSFER TAX AND THE EARNINGS THEREON BE COLLECTED, RETAINED AND SPENT AS A VOTER-APPROVED REVENUE CHANGE WITHOUT LIMITATION UNDER ARTICLE X, SECTION 20 OF THE COLORADO CONSTITUTION (TABOR) OR ANY OTHER LAW? P9 I. Page 1 of 4 MEMORANDUM TO: Mayor and City Council FROM: Rebecca Hodgson, Procurement Officer THRU: Sara Ott, Assistant City Manager and Don Taylor, Finance Director DATE OF MEMO: May 16, 2018 MEETING DATE: May 22, 2018 RE: Procurement Code Threshold Limits REQUEST OF COUNCIL: Staff requests City Council raise the current procurement thresholds to levels to reflect inflation since 1991. PREVIOUS COUNCIL ACTION: The current purchasing practices have remained unchanged since the adoption of Ordinance 46-1991 in 1991. BACKGROUND: Ordinance 46-1991 established the current procurement thresholds and approvals: 1. Department Purchase: For purchases of $2,000 or below, department heads may approve the purchase and a formal or informal process is not required. 2. Competitive Quotes: A minimum of two quotes must be obtained on purchases between $2,000 and $24,999 and the City Manager must sign the contract. 3. Formal Solicitation: The formal competitive process, invitation to bid or request for proposals, must be used on purchases of $25,000 or more. The formal competitive process requires City Council approval before the contract is executed. 4. Emergency Procurement: The threshold for emergency procurement is $25,000 and must be reported to City Council. Current practice allows department heads to approve purchases up to $9,999; to use the competitive quotes process for purchases between $9,999 - $24,999; and to use the formal solicitation process that requires Council approval for purchases $25,000 and over. DISCUSSION: The $25,000 current level that requires the formal solicitation process and Council approval was established in 1991. According to the Finance Director, the buying power of $25,000 in 1991 equates to approximately $46,000 in today’s dollars. P10 II. Page 2 of 4 Staff seeks to increase the procurement thresholds to recognize the effect of inflation on the price of goods and services which will free up staff time for: contract audits; identifying opportunities for bulk purchasing; develop city-wide contracts for services for greater efficiency and savings; and to continue to implement and refine Oracle procurement modules. Specifically, the changes requested are: 1. Department Purchase: Allow departments to make purchases up to $25,000 using guidelines for small purchases: negotiation on the open market without formal competition but whenever practical or advantageous, obtaining two quotes. The current approval process which allows department heads to approve purchases under $10,000 and the city manager approve purchases of $10,000 or more will stay the same. 2. Competitive Quotes: Increase the limit from $10,000 to $25,000, requiring the competitive quotes process be used: a minimum of two quotes and city manager approval. 3. Formal Solicitation: Increase the limit from $25,000 to $50,000 requiring the formal solicitation process of invitation to bid or request for proposal be used, city manager approval and council approval. 4. Emergency Procurement: Increase the limit from $25,000 to $50,000 with city manager approval. Staff also requests these threshold amounts be increased every five years as determined by the change in Consumer Price Index. The limits will increase in conjunction with inflation, rounded up to the nearest thousand dollars. In 2017, there were twelve purchase contracts between $25,000 and $50,000 presented to council for approval. Four were fleet and equipment purchases: electric vehicles, turf sprayer and a radar trailer. Five were projects listed in the AMP: trash cans, boiler, lighting upgrade, Highlands pump station, and GIS tree inventory. One, water chemicals, has been an ongoing purchase but just recently the costs have reached our procurement threshold of $25,000. Only two of the twelve were not listed in either the 2017 Asset Management Plan or included the department’s budget. Table 1 2017-019 Water Chemicals $26,268 2017-009 GIS Tree and Park Inventory $26,624 2017-50041 Lighting upgrade $30,000 2017-50667 Boiler for Marolt $30,125 2017-107 Mobility lab project manager $30,625 2017-077 Radar trailer replacement $31,800 2017-040 Water Rights Support Activities $34,925 2017-093 Bear proof trash cans $35,036 2017-038 Toro Turf Sprayer $36,182 2017-059 Fleet - electric vehicle $39,459 2017-068 Fleet - electric vehicle $40,837 2017-132 Highlands pump station $49,000 P11 II. Page 3 of 4 Although the thresholds will increase, oversight will be more stringent than in the past. The new Oracle enterprise resource system allows greater oversight than the previous financial system. All requisitions are reviewed by at least one department approver, the finance department, and if over $10,000, purchasing. The city manager and city attorney will continue to review and approve all purchases over $10,000 and purchasing will conduct the formal or informal solicitation processes for all purchases over $25,000. City council will approve all contracts $50,000 and over. The information in Table 2 was gathered from the Rocky Mountain Governmental Purchasing Association membership list serve. Most governmental entities with similar budgets as Aspen’s have two to three people in the purchasing department. Table 2 Entity Quote Formal 2017 Entire Budget # in Procurement Department Pitkin County $10,000 $50,000 $102,701,166 1 Arapahoe County $5,000 $25,000 $177,700,000 5 City of Grand Junction $10,000 $25,000 $140,500,000 2 Weld County $5,000 $25,000 $130,000,000 3 City of Aspen $5,000 $25,000 $117,000,000 .75 Garfield County $10,000 $25,000 $105,687,458 6 City of Brighton $0 $50,000 $100,524,640 4 City of Glenwood Springs $10,000 $25,000 $79,833,651 2 City of Steamboat Springs $0 $50,000 $73,820,297 1.75 FINANCIAL/BUDGET IMPACTS: No impacts to the budget are anticipated. ENVIRONMENTAL IMPACTS: None Sustainability initiative? Outcome area affected: Key metric affected: RECOMMENDED ACTION: Staff requests City Council raise the current procurement thresholds to levels to reflect inflation since 1991. PROPOSED MOTION: This should be a brief statement for a Council member to read such as “I move to approve Ordinance # . . .” CITY MANAGER COMMENTS: ATTACHMENTS: P12 II. Page 4 of 4 Notes: · Please use page numbers on all memos and attachments, especially for work sessions · The memo should be as long as it needs to be – but remember, you’re not writing a novel. Use attachments for more detailed information, ordinances and resolutions, etc. · Attachments: All attachments to the memo should be referenced somewhere in the body of the memo. All attachments should be titled as “Attachment”, “Exhibit” or “Schedule” with a letter following: Attachments: A - B - C - D - P13 II.