Memorandum 17-027 HART Finances

Memorandum 17-027

TO:                        Honorable Mayor Zak and Homer City Council

FROM:                 Katie Koester, City Manager

DATE:                   February 8, 2017

SUBJECT:          HART Finances

The purpose of this memo is to provide the Council with information on funds from HART that are currently being redirected to General Fund, potential future anticipated need for HART funds, and facilitate a conversation on the possibility of requesting a permanent suspension of a portion of HART from voters.

2017 sales tax value

(HART is .75% with 10% of that value going to HART Trails)

1%

$1,712,095

.75%

$1,284,876

.5%

$856,047

.375%

$642,035

.25%

$428,023

.1%

$17,120

What would the 2017 budget have looked like without the suspension of HART? $350,000 operating budget deficit

Without the suspension of HART for the 2017 budget, the City would be $1.1m short for the current General Fund budget, $350,000 of which represents operating budget needs alone ($750,000 represents non-mandatory transfers to reserves). This number takes into account the overhead charges that previously went into the General Fund.

What if only a portion (3/4) of HART was redirected to General Fund? $500,000 transfer to reserves in 2017 budget

For example, during the 2017 budget if the voters had retained .25% sales tax to HART and allowed .5% to be redirected to General Fund ($850,000), we would have covered our operating budget needs ($350,000) and been able to allocate $500,000 to reserves.

How do we know what our future budget needs will be? $500,000-$1m

That is a difficult question as there are so many variables at play: for example, continued cost shifting from the State to municipalities and increased costs/inflation. We have already tackled low hanging fruit like renegotiating our insurance contract, attorney contract, and trimming 6 positions in the 2016 budget cycle. I believe by 2019 we will need between $500,000 and $1m in revenue to replace HART to avoid a reduction in City services. This estimate is a snapshot and anticipates continued growth in taxable sales, a lean status quo operating budget, no new major projects that increase maintenance costs, and limited funding of reserves. It will undoubtedly change over time and with more information.

How do we know what the future demands on HART are? $500,000/yr

Future demands will depend on available budget, and the City may have to say no to large infrastructure projects if the funding is not available. The current unencumbered HART Roads balance is $5.2m. Staff analyzed historical use of HART over the last 5 years, both by the City and by SADs and came up with an annual average encumbrance of City funds of $546,228. Based on the historical success of SADs and future anticipated City project needs (slip lining and repaving, for example) the average annual encumbrance of HART City funds is $504,306. See the attached chart for more information.

Do we still need HART?

The City uses these funds for major road improvement projects such as storm drain rehabilitation and repaving. HART is also used for new construction, such as Waddell Way and Greatland Street.

The SAD Roads program offers an important avenue for citizens to organize and improve their roads. Without this venue, complaints could go directly to Council with no official way of obtaining neighborhood buy in.

There is pressure for expansion of HART (sidewalks, maintenance, etc.). See Memorandum 17-028 from Deputy City Planner Engebretsen. The policy recommendations contained in the memo need to be taken up at a future date by Council. I recommend scheduling a work session to discuss HART policy questions.

Recommendation?

Discuss asking voters for a permanent redirection of a portion of HART. A starting point is .5% of sales tax to General Fund ($856,047) and .25% to HART ($428,023 with $42,802 going to trails).

Enc:

-Charts: Approved HART Road Fund Encumbrances, Projected HART Road Fund Encumbrances and Special Assessment Districts

-Table: HART Roads, Trails & Pedestrian Improvements and Storm Drainage 2010-Current

-Memorandum 17-028: HART Policy Revisions