Item B: Funding Strategies for Transportation System Operations, Maintenance, and Preservation

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ATTACHMENT A Central Services Finance Division Financial Analysis City of Eugene th 100 West 10 Ave, Suite 400 M Eugene, Oregon 97401 EMORANDUM (541) 682-5589 (541) 682-5802 FAX www.eugene-or.gov Date: January 12, 2007 To: Mayor and City Council From: Sue Cutsogeorge, Financial Analysis Manager, 682-5589 Subject : Property Tax Funding for Pavement Preservation Projects There are two potential sources of property tax funding for pavement preservation projects: General Obligation Bonds (GO Bonds) and a 10-year capital local option levy. The templates prepared for the Budget Committee Subcommittee discussion on funding options were updated for the GO Bonds and the Capital Local Option Levy. Those are included in the packet as Attachment B. Briefly, the main differences between GO Bonds and a capital local option levy are: (1) using bonds requires borrowing money, with all the associated costs, while a capital local option levy is a pay-as-you- go funding approach; and (2) the local option levy would fall within the Measure 5 tax rate cap, and GO Bonds would not. If the council desires to include a property tax component in a pavement preservation funding package, staff recommends that a capital local option levy would be the preferred property tax-based funding mechanism for this purpose. The character of the pavement preservation projects that would be funded with either of these two property tax options are such that new projects would be initiated annually over a multi-year period. By contrast, GO Bonds are most advantageous for projects that require a large sum of money at the beginning of a major capital project, such as construction of a new fire station. Because GO Bonds are actually a form of borrowing money, the City would have to pay debt issuance costs estimated at about $250,000 for a $10 million bond measure. In addition, the City would have to pay interest costs on the borrowing, estimated at about $5 million for a $10 million, 15-year bond issue. Issuance of GO Bonds would be counted against the City’s debt policy limit of 1% of real market value. Given that the City is working on a City Hall project with a competing need for GO Bonding, there would probably not be sufficient room under the debt policy cap to accommodate both projects in the next few years. By contrast, a local option levy for capital purposes would provide new revenues each year that would approximately match the pavement preservation expenditures that would be expected to occur in that year. The staff effort and cost for implementing a local option levy are significantly less than the effort and cost for a GO Bond. No interest would be paid on a local option levy. A local option levy would count against the Measure 5 tax rate cap of $10 per $1000 of real market value for any general government taxes. In FY07, the general government tax rate was $9.14 per $1000, and is projected to go 1