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Joyce Clark Unfiltered

For "the rest of the story"

When my blog site was reconstituted after being down for two weeks four recent blogs disappeared. This is a reposting of one of the four “lost” blogs.

Disclaimer: The comments in this blog are my personal opinion and may or may not reflect an adopted position of the city of Glendale and its city council.

In my last blog I said that I would tackle General Obligation (G.O.) Bonds and Development Impact Fees (DIF). Both are complicated issues and I will do my best to explain their origin, purpose and use.

General Obligation (G.O.) Bonds. These and many other funding mechanisms cities use were created by and are still regulated by the state of Arizona.

The city uses G.O. bonds to fund many large scale capital projects, in other words, it is a major component of its Capital Improvement Plan. Every city must pay the principal and interest on these bonds through its secondary property tax.

However, the state constitution specifically limits the amount a city can borrow for G.O. bonds to 6% or 20% of a city’s total assessed valuation. In Glendale 6% bonds may be issued for economic development, cultural facilities, government facilities and libraries. However, the state constitution allows one exception, granting cities the ability to issue 20% bonds in these specific areas: flood control, open space/trails, public safety and streets/parking. Generally, these are extraordinarily big ticket items. Hence the exception.

Glendale’s total assessed valuation as of June 30, 2016 was $1,174,931,000. Multiply this figure by 6% and we have a figure of $70, 496,000. That $70 million figure is the total allowable capacity in Glendale for 6% debt.  In other words, if Glendale had the ability through the collection of secondary property tax to cover the principal and interest on just the category of 6% debt, it could do so. Now multiply $1,174,931,000 by 20% and we have a figure of $234,986,000 as the maximum allowable in the 20% bond debt category.

OK, we have a maximum 6% debt capacity of $70+ million and a maximum 20% debt capacity of $234+ million. Then why doesn’t the city just issue bonds in these amounts and be done with it?

Because there are two other factors that govern how much debt a city can take on. One is the city’s ability to repay annual debt. State statute mandates the city must pay the principal and interest on G.O. bonds from the secondary property tax it collects. It is prudent for a city to be conservative and try to figure out how much it can pay on debt not just in good economic times but when the economy takes a nose dive as it did for 5 years during the Great Recession.

The other factor is based upon you, the voter. Just because a city has debt capacity that doesn’t mean it can use it. Every city must go to the voters in a bond authorization election and ask for your permission to issue debt in each category for a capped amount of money. The most recent city-wide bond elections were held in 1981, 1987, 1999, and 2007. I won’t go through the whole list and how much bond authorization was approved in each category in each of the listed bond elections. In the last election in 2007 voters approved the issuance of bonds for flood control for a cap of $20 million+); Parks and recreation for a cap of $16 million +; Public safety for a cap of $102 million +; and Streets and Parking for a cap of $79 million+.

Both of these factors determine how much debt a city could take on in a given year. Even if you, the voter, have approved a maximum amount of debt in a certain category, such as flood control, the city must then look at how much debt it can comfortably afford to repay in good years and in bad years.

Another component of the CIP is Development Impact Fees (DIF). For many, many years Arizona lived by the imperative that “growth pays for growth.” It meant that developers had to pay X amount per house and it went into a city’s DIF. It allowed Glendale and every other Arizona city to use DIF to fund new parks, libraries, streets, police, fire, sanitation, water and sewer. It was a good funding mechanism for cities. As new residential subdivisions came on board cities would get DIF funds from the developer that was used, for example, to expand or build a new park. Need a new fire station because of several new subdivisions? DIF was used to offset the cost.

But the developers were not a happy lot.  For you see, DIF was added by them to the price of each new home. They complained that DIF was making their homes cost too much. They lobbied the state legislature and in 2011, SB 1525 was passed. Under this legislation some categories eligible for DIF were eliminated. Others were severely restricted and the formulas for the amount of DIF that could be collected were reduced to make them almost meaningless. This bill restricted every city’s ability to collect a reasonable DIF that followed the mandate of “growth paying for growth.” The state legislature at the behest of the development industry’s lobbyists literally passed on the cost of growth to the cities. And why would legislators do so? It’s understandable.  Many members of the development community contribute serious money to their campaigns.

 Suddenly cities found that in many cases, they simply did not have enough money to pay for infrastructure needed because of new growth in their communities.  If I were to make an educated guess I would estimate that Glendale has lost somewhere between $5 and $10 million dollars in DIF annually. Oh by the way, did developers drop the price of their new homes because DIF was suddenly reduced considerably by their buddies down at the state legislature? The answer is ‘no’… but their profit margins did increase.

© Joyce Clark, 2017          

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This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such material. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

 

The Tuesday, November 19, 2013 Glendale city council workshop is jam packed and includes a Development Impact Fee update, the Fire Department Budget deficit, special project recommendations and the Ballpark Boulevard extension.

Since the Arizona Legislature changed the way all cities in the state can impose, collect and spend Development Impact Fees Glendale, like many other cities, has developed a new Impact Fee structure. Impact Fees are charged to new developments and the developers typically add these fees into the price of a home, apartment, office, commercial or industrial building. Tischler Bise is the consultant hired to prepare the study on Impact Fees. I would like to know the cost of the study for I assure you, as thorough as it is, it was not cheap.

The consultants divide Glendale into three zones. The East Zone runs the entire length of Glendale, north to south and from 43rd Avenue to 75th Avenue. It is a very large zone and is approximately 42 square miles.  The Loop 101 zone is the smallest running from Northern Avenue to Camelback Road, 75th Avenue to 115 Avenue. It is a very small zone and is approximately 13 square miles. The West Zone is all land within Glendale’s annexation boundaries and is approximately 36 square miles. Although very thorough the consultants provide no rationale for the establishment of the Zones that are essential to the study.

There is concern with the disparity of size of the zones for they comprise a “nexus.” By that is meant that development impact fees are collected and spent within each zone. With the Loop 101 Zone being the smallest there will be less opportunity to collect/spend fees to provide the same quantity and quality of infrastructure as enjoyed by the East Zone. As an equitable issue all land south of Northern Avenue from 43rd Avenue to 115th Avenue should form the Loop 101 Zone. That would remove approx. 12 square miles from the East Zone making it approx. 30 square miles and increasing the Loop 101 Zone to 25 square miles. The West Zone would remain static at 36 square miles.

The balance of the study is impressive. Their facts and figures are well grounded and formulas are used to determine what the new fee structure for state mandated infrastructure should be. Although the Development Impact Fee structure is no longer what Glendale and every other city used previously there is no choice but to work within the new state-mandated regulations. We will not see the kind of Impact Fees that helped to make Glendale what it is today but it is important that we make the best use of them possible. With the exception of the determination of the zone configuration this is exactly what this study does.

The second item of discussion is the fire department’s deficit. There is but one question to ask. Is the fire department being managed effectively by current Fire Chief Burdick? In juxtaposition the Police Department led by Chief Deborah Black is not facing this kind of deficit. What kind of deficit? How about $1,674,887 minus one-time savings netting a deficit of $1,328,070? In addition the on-going, annual deficit of over $800,000  goes to pay for overtime due to the department’s philosophy of “constant staffing.” It’s time for a study to demonstrate which brings more value to citizens – constant staffing which entails an enormous amount of overtime at time and a half pay or the hiring of more personnel eliminating the need for the constant staffing regimen and its requisite overtime pay.

That item will be followed by a presentation and discussion of recommendations that resulted from the half million dollar external audit.  The City Auditor’s and City Attorney’s roles will be part of that discussion as well as the Trust Fund Citizen Boards and departmental internal premiums for risk management.

The last item of discussion will be what to do about Ballpark Boulevard. The city in an agreement with the two baseball teams agreed to extend Ballpark Boulevard north to 99th Avenue and Maryland Avenue. The current, approved concept will cost the city $18 million to acquire land for right-of-way and construction. Mayor Weiers asked that two alternatives be considered that would come in between $6 and $8 million. Both of these alternatives would run adjacent to the city’s airport on either its west or east side. The only problem with the alternatives is that they will not replace the contractually mandated concept of connecting to 99th and Maryland. That will still have to be done. So the question is…does the city construct a stop gap measure costing $6 to $8 million now knowing that down the road it still must spend $18 million per its contract with the City of Phoenix and both baseball teams? The city has no money right now and without any demonstrated urgency it is something that can wait. Neither Phoenix nor the teams are demanding immediate action.

This is not going to be one of the council’s typical one hour or less meetings. The issues are complex and I would hope that council “has done its homework” and is prepared to ask meaningful and relevant questions on all of these complex issues…but then again, it could be wishful thinking.

© Joyce Clark, 2013

FAIR USE NOTICE
This site contains copyrighted material the use of which has. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to :http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

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