Item B: Tax Levy for Funding of Pavement Capital Preservation Projects0

Home Browse Search

Effect of Interest and Issuance Costs on $65 million GO Bond Measure $65 million GO Bond Long-Term Bond Short-Term Bond Difference Interest + Issuance Costs over 10 Years $17.6 million $1.4 million $16.2 million Project + Interest + Issuance Costs $82.6 million $66.4 million $16.2 million Annual Average Cost to Owner of Median- $110 $88 $22 Value Home There are other considerations in making the choice between GO bonds and a capital local option levy. Most importantly, the taxes for short-term GO bonds would not count against the Measure 5 tax rate cap, leaving that resource available for future priorities of the City and County. GO bonds should be evaluated in terms of their impact on the City’s debt ratios, but because debt would be outstanding for only a very short period of time, these short-term GO bonds would not have any significant impact on the City’s debt capacity. Finally, a GO bond approach would allow for more flexibility in generating revenue each year, in order to accelerate a high-priority project, while a capital local option levy is a fixed amount or tax rate each year. Inflation Factor In May 2007, the council directed staff to consider a property tax measure that would raise $6.5 million per year for street repairs. This amount was not adjusted for annual inflation, which will erode the ability of the measure to fund capital preservation projects in future years. In order to maintain the purchasing power of the tax measure and continue to purchase the equivalent of $6.5 million of projects in today’s terms, it would be necessary to increase the tax measure for an inflation adjustment. The amount of future inflation is not known, however, so an estimate must be made. For a capital local option levy, the council could choose to use a tax rate levy, rather than a flat dollar amount levy (either choice is available under the state statutes). In this way, as assessed value of prop- erty within the City increases, the amount generated by the capital local option levy would also increase and would help alleviate some of the inflation effects in the future. Current projections are for an aver- age assessed value increase of about 4.8% over the next six years. For a short-term GO bond measure, the bond size could also be increased to assume a certain level of future inflation. If $6.5 million of annual spending were adjusted for inflation estimated at 4.8% per year, for instance, instead of a $65 million short-term GO bond measure, the council could ask for authorization for an $81 million GO bond measure. This would increase the cost to the typical homeowner by approximately $21 per year for a total cost of $109 per year, as shown in the chart below. Comparison of Short-Term GO Bonds @ $65 Million vs. $81 Million (including inflation factor) Short-Term GO Bonds $65 million $81 million Difference Average Tax Rate per $1000 of AV $0.51 $0.62 $0.11 Average Annual Cost to Owner of Median-Value Home $88 $109 $21 Levy/Bond Restrictions The measure language for either a capital local option levy or a bond measure will contain certain restrictions, such as the amount (either annual or total), the length of time, and the types of expenditures that may be made from property tax revenues. F:\CMO\2007 Council Agendas\M071210\S071210B.doc