HomeMy WebLinkAboutItem 4: Ordinance on Business License Tax on Motor Vehicle Fuel Dealers
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Action: Adoption of Ordinance Concerning Motor Vehicle Fuel Dealers’ Business
License Tax and Repealing Section 3 of Ordinance No. 20337
Meeting Date: July 27, 2009 Agenda Item: 4
Department: Public Works Staff Contact: Kurt Corey
www.eugene-or.gov Contact Telephone Number: 682-8421
ISSUE STATEMENT
Tonight, the council is scheduled to take action on a proposed ordinance amending sections of the
Eugene City Code dealing with the Business License Tax on Motor Vehicle Fuel Dealers. This potential
action, outlined in the proposed ordinance offered as Attachment A, would repeal the sunset provision
on the two-cent fuel tax rate increase enacted in 2005, and later extended in 2008, with the effect of
keeping the City’s local gas tax rate at five cents per gallon indefinitely.
The state legislature recently enacted a transportation bill which will increase the state gas tax by six
cents per gallon, in addition to increasing vehicle title and license fees and weight-mile taxes on heavy
trucks. Eventually, Eugene and other Oregon cities are expected to realize increased funding from the
State Highway Trust Fund as a result of this legislation, but the increase in the state gas tax would not
take effect until the state sees two straight quarters of economic growth, or January 2011, whichever
comes first. Another provision of the bill prevents local governments from approving new gas taxes or
increasing existing ones until January 2, 2014, after which time voter approval will be needed for any
new or increased local gas tax. These moratorium provisions take effect September 28, 2009.
In 2005, the Eugene City Council added two cents to Eugene’s existing three-cent-per-gallon City gas
tax, with a three-year sunset provision which would have taken effect in February 2008. Last year, the
council voted to renew the two cents for another three years by extending the sunset date to February 28,
2011. However, unless the council elects to take action to repeal the sunset provision on the local gas
tax before September 28, 2009, the council will lose the option to renew the two-cent portion of the tax
beyond 2011 once the legislative moratorium on local gas taxes becomes effective. If by September 28
council has enacted an ordinance repealing the sunset provision, then the state moratorium will not
impact the council’s ability to retain the five-cent local gas tax.
Prior to the passage of the state transportation bill, the annual deficit for street operation and
maintenance services in the Road Fund was projected to exceed $3.0 million in FY11, growing to over
$4.0 million by FY13. However, with the new state transportation bill, the City could eventually expect
to receive $2.0-$3.0 million in additional state highway funding each year. Together with the ability to
charge right-of-way use fees on City utilities, Eugene may, for the first time in many years, have the
ability to stabilize funding for street operations services such as street lighting and signals, street signage
,
and striping, pothole patching and crack sealingconcrete and asphalt street repairs, and snow and ice
operations.
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However, the City still lacks adequate funding for major street repair projects, and the backlog of needed
street repairs has grown to over $170 million. While the five-year street repair bond approved by Eugene
voters last fall will fund 32 projects that will repair an estimated 70 lane miles of streets and three miles
of off-street bike and pedestrian paths, the City still has not resolved its long-term street repair funding
problem. Continuation of the City motor vehicle fuel tax at the five-cent level is a key component in a
package strategy endorsed by the council to ensure a stable, locally-controlled revenue stream to allow
the City to continue to make progress on that $170 million backlog of needed street repairs.
BACKGROUND
Previous Council Action and History
The City’s first motor vehicle fuel tax was enacted in January 2003, based on the recommendation from
the Citizen’s Subcommittee on Transportation System Funding. The subcommittee’s recommendation
was for a combination local motor vehicle fuel tax and transportation system maintenance fee for the
purpose of generating an additional $9.0 million annually to address the City’s critical transportation
system funding needs. That first fuel tax was implemented at three cents per gallon, and that portion has
generated an average of $2.0 million per year since 2003. The other revenue mechanism in that funding
recommendation, a street utility fee designed to generate an additional $6.5-$7.0 million per year, was
adopted but later repealed before it could be fully implemented.
A two-cent increase to the motor vehicle fuel tax was approved in January 2005, along with a sunset
provision that would cause the tax to revert to three cents per gallon on February 29, 2008. On January
28, 2008, the council voted to extend the sunset provision for three additional years to February 28,
2011, in order to allow sufficient time to see what new funding might result from the state legislation
and also to allow for the development and implementation of other elements of the council’s locally-
controlled package funding strategy. One element of that strategy, a three-cent increase to the local gas
tax, was not approved by the voters at the polls in November 2007. Additionally, the council declined
last month to approve a garbage-hauler surcharge which would have generated $900,000 per year for
street operations and maintenance services. As a result of the defeat of these efforts for additional street
funding, it is now more important than ever that the City retain the ability to control the level of its five-
cent local gas tax, now and into the future.
Funding Needs, Legal Analyses and Implementation Issues
Retaining the two-cent portion of the local motor vehicle fuel tax rate would provide continuation of
over $1.2 million in annual revenue currently received by the City. Together with the proceeds from the
five-year street repair bond and one-time federal stimulus monies for pavement preservation projects,
continuation of this local funding source should provide funding through the life of the street repair bond
sufficient to at least begin to reduce the rapid rate of growth and stabilize the $170 million backlog of
unfunded capital street repairs.
Road Operations and Maintenance Needs - The City’s Road Fund accounts for the operation and
maintenance services for Eugene’s street system. Last year, the City received over $6.5 million in State
Highway Trust Fund monies to fund these critical street services. If the new state legislation were to
provide another $2.0-$3.0 million to the City upon full implementation of the bill, together with revenue
from a small right-of-way fee on City utilities, it is possible that Eugene could stabilize funding for its
street operations services for the first time in many years.
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Capital Pavement Preservation Needs - The current five-cent gas tax has allowed the City to complete
nearly $22 million in street preservation project work since 2003, with additional contracts in progress.
This year, the Pavement Preservation Program (not including bond measure projects or assessable
improvement projects) has scheduled more than 32 lane miles of slurry seal projects and 30.8 lane miles
ththth
of rehabilitation projects, including the overlay of portions of 6 and 7 avenues, West 11 Avenue,
Bertelsen Road, Country Club Road, Crescent Avenue, Danebo Road, Fox Hollow Road, McKinley
Street, Roosevelt Boulevard, Royal Avenue, and Seneca Road. In order to fully fund and stabilize the
annual overlay program and begin to make progress in reducing the substantial backlog of
reconstruction projects, it is critical that the City not go backwards by losing the ability to control the
two-cent portion of our local gas tax. To ensure continuation of a reliable fuel tax revenue stream, the
City Manager is recommending that the council adopt the attached ordinance, which would repeal the
sunset provision enacted in 2005 and extended in 2008, a provision which would otherwise cause the tax
rate to revert to the three-cent level after February 28, 2011.
Implementation Timeframe – If the council wishes to retain the ability to control the two-cent portion of
the local gas tax, action must be taken to enact the attached City ordinance within 91 days of the close of
the state legislative session. A work session was held on July 15 to allow council discussion of the
proposed ordinance repealing the sunset provision on the two-cent portion of the local gas tax. In that
discussion, the question was raised as to what the allowed and historical uses were for the proceeds from
Eugene’s local gas tax. The Eugene City Code authorizes the use of those revenues as follows:
“3.489 Use of Tax Revenues
(1)
For the purpose of this section, net revenue shall mean the revenue from the tax and
penalties imposed by sections 3.465 through 3.489 remaining after providing for the cost of
administration and any refunds and credits authorized herein.
(2)
The net revenue shall be used only for the reconstruction, repair, maintenance, operation,
and preservation of City-owned roads and streets within the city, roads and streets for which
the City is contractually or legally obligated to operate and maintain, or roads and streets for
which the City has accepted responsibility under intergovernmental agreement. No revenue
shall be used for capacity-enhancing street improvements.”
As a practical matter, until the current fiscal year, the proceeds from Eugene’s local fuel tax have been
used exclusively for capital pavement preservation (street repair) projects. Facing a significant budget
shortfall in the funding for ongoing street operations and maintenance activities for FY10, the Eugene
City Council for the first time authorized the use of up to $1.4 million of local gas tax proceeds to
preserve ongoing operating and maintenance services in the Road Fund for FY10. However, with the
eventual realization of new revenue from the state transportation bill, along with new revenue from a
small right-of-way use fee on City utility revenue, it is quite likely that in future budget years the council
would not need to resort to redirecting any portion of the local gas tax proceeds from high-priority
projects in the pavement preservation program.
The council in that work session also requested information as to what City engineering overhead rates
were and how those compared to private sector rates. The City engineer has prepared a response to that
request for information, which is included herein as Attachment B.
On July 20, a public hearing was held to gather community input on the proposed ordinance, but no
speakers signed up to testify on the proposal to repeal the sunset provision. Council action on the
ordinance is scheduled for tonight in order to allow sufficient time for enactment of the City ordinance
prior to the effective date of the state transportation bill, with its moratorium on local gas taxes.
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RELATED CITY POLICIES
The council’s Vision and Goals Statement with respect to Fair, Stable and Adequate Financial
Resources reaffirms commitment to “a local government whose ongoing financial resources are based
on a fair and equitable system of taxation and other revenue sources and are adequate to maintain and
deliver municipal services.” In January 2007, the council identified a new council goal to “Develop
mechanisms to adequately fund our transportation system for cars, trucks, bikes, and pedestrians
including maintenance and preservation and capital reconstruction.” Additionally, the City’s Financial
Management Goals and Policy, A.4, states that the City’s municipal service priority Level 2 (second
only to the preservation of the public safety system) is to “maintain and replace the City’s fixed assets,
which includes… infrastructure…so as to optimize their life.”
COUNCIL OPTIONS
The Eugene City Council has the following options with regard to the proposed code amendments:
?Option 1: The council could decline to take action on the ordinance, choosing to make no
changes to the Eugene Code and effectively allowing the City’s motor vehicle fuel tax rate to
revert to three cents per gallon after February 28, 2011;
?Option 2: The council could approve the proposed code amendment as shown in Attachment A
to repeal the sunset provision enacted in 2005, and extended in 2008, effectively leaving the fuel
tax rate at five cents per gallon for an indefinite period, or
?Option 3: The council could choose to extend the sunset for an additional three years to
February 28, 2014 (beyond the four-year moratorium period), after which time any additional
extensions on the two-cent tax would need to be referred to the voters, with the attendant election
costs.
CITY MANAGER’S RECOMMENDATION
The City Manager recommends Option 2 for the adoption of these proposed amendments to the motor
vehicle fuel tax code to repeal the sunset provision and preserve the council’s ability to keep the local
City gas tax at the five-cent level.
SUGGESTED MOTION
Move to adopt an ordinance concerning motor vehicle fuel dealers’ business license tax and repealing
Section 3 of Ordinance No. 20337.
ATTACHMENTS
A. An Ordinance Concerning Motor Vehicle Fuel Dealers’ Business License Tax and Repealing
Section 3 of Ordinance No. 20337
B. Memo on Engineering Overhead on Capital Projects from City Engineer Mark Schoening
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FOR MORE INFORMATION
Staff Contact: Kurt Corey
Telephone: 682-8421
Staff E-Mail: kurt.a.corey@ci.eugene.or.us
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ATTACHMENT A
ORDINANCE NO. ______
AN ORDINANCE CONCERNING MOTOR VEHICLE FUEL DEALERS’
BUSINESS LICENSE TAX AND REPEALING SECTION 3 OF
ORDINANCE NO. 20337.
The City Council of the City of Eugene finds that:
A.
On January 24, 2005, the City Council enacted Ordinance No. 20337 which
amended subsection (b) of Section 3.467 of the Eugene Code, 1971, by increasing the motor
vehicle fuel dealer tax from three to five cents per gallon. Section 3 of Ordinance No. 20337
contained a sunset provision to cause the tax to revert to three cents per gallon on February 29,
2008.
B.
On January 28, 2008, the City Council enacted Ordinance No. 20401 which
amended Section 3 of Ordinance No. 20337 by extending the sunset provision. The amendment
provided that “Unless otherwise extended by the City Council, the amendment to Subsection (b)
of Section 3.467 shall sunset on February 28, 2011, and the tax will revert to three cents per
gallon.”
C.
Although substantial street preservation work has been completed utilizing the
five-cent per gallon motor vehicle fuel tax, the backlog of needed repair work continues to grow
and construction costs continue to rise.
D.
The City Council finds it is in the public interest to repeal the sunset provision in
Section 3 of Ordinance No. 20337, and allow the motor vehicle fuel dealer’s business license tax
as set forth in Section 3.467(b) of the Eugene Code, 1971, to remain at five cents per gallon.
NOW, THEREFORE, based on the above findings,
THE CITY OF EUGENE DOES ORDAIN AS FOLLOWS:
Section 1.
Section 3 of Ordinance No. 20337 (the sunset provision) is repealed.
Section 2.
A copy of this Ordinance shall be appended to Ordinance No. 20337 and
Ordinance No. 20401.
Passed by the City Council this Approved by the Mayor this
______ day of _____________2009 _____ day of _______________ 2009
___________________________ _____________________________
City Recorder Mayor
Ordinance - Page 1 of 1
S0907274-attA.DOC
ATTACHMENT B
Public Works
Engineering
M
City of Eugene
EMORANDUM
99 E Broadway, Ste 400
Eugene, Oregon 97401
(541) 682-5291
(541) 682-5032 FAX
Date:
July 21, 2009
To:
Mayor Piercy and City Council
From:
Mark Schoening, 682-5243
City Engineer, Public Works Engineering
Subject: COUNCIL ASSIGNMENT – ENGINEERING OVERHEAD ON CAPITAL
PROJECTS
This memo responds to the Council Assignment regarding engineering overhead on capital
projects. The Infrastructure Project and Information Management service profile includes the
following measures that address this Council Assignment –
?Comparison of Eugene’s professional services rate to private sector rates in public
contracts for professional services.
?Cost of design compared to contract cost. (Assessable and non-assessable)
?Cost of construction management compared to contract cost
Professional Services Rate
The City adopts an administrative order annually that establishes the professional services rates
for classes of positions that charge time to capital projects. The positions include engineers,
engineering technicians, surveyors, landscape architects, real property officers and support staff.
The professional service rate includes the full cost of each class of positions including salaries,
fringe benefits, office rent, equipment, materials and supplies, and Central Service Allocation.
Up until 2004 the Oregon Department of Transportation (ODOT) annually conducted an analysis
of all of the consulting engineering firms under contract with ODOT and published a report of
the average professional services rates for different classes of positions. In 2004 the City’s
professional services rates averaged 17% less than the professional service rates for similar
positions in the private sector.
The City contracts with consulting engineers for some of its engineering work and has
established pool contracts with numerous engineering firms. City staff reviewed the professional
service rates of eight consulting engineering firms that perform work similar to the Engineering
Division’s project teams. The City’s FY10 professional services rates average 15 percent less
than the professional service rates for similar positions for the eight engineering consultants with
City pool contracts.
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ATTACHMENT B
Engineering Costs as a Percentage of Construction Costs
A longstanding rule of thumb is that for capital projects the engineering costs should be about 20
percent of the construction costs. Under this rule of thumb engineering costs include
engineering, surveying, and construction management.
For the Engineering Division’s project teams engineering costs include public involvement,
surveying, engineering, construction management, landscape design, real property services,
specialty consultants, and material testing. Engineering costs include everything except the cost
of construction contracts and real property.
Capital projects may include any or all of the following elements that affect the cost of
engineering services –
?
Public involvement
?
Right-of-way acquisition
?
Assessments
?
Federal funds
?
Environmental documentation
?
Specialty consultants such as geotechnical or structural engineers
?
Materials testing
?
Local, state and federal permits
In reviewing the pavement preservation projects completed in 2008 the engineering costs as a
percentage of construction costs ranged from 17 percent to 19 percent. Because of the similarity
of the engineering work required from project to project it is possible to compare engineering
costs for different pavement preservation projects. However, for the Crest Drive project the
engineering costs are estimated at slightly less than 50 percent of the construction costs. This
project was unique in its level of public involvement and the engineering costs cannot be
reasonably compared to other projects.
Two recent projects, the Courthouse District Transportation Improvements and the Delta Ponds
Bike Path and Bridge were primarily designed by private consultants. Both of these projects
included all of the elements listed above that added significantly to the complexity and cost of
engineering as a percent of construction cost. For both of these projects the engineering costs as
a percentage of construction costs exceeded 40 percent.
Conclusion
Comparing the professional services rates for the City’s project teams to the private sector is a
reasonable indicator of the cost efficiency of City staff providing the engineering services needed
to implement the City’s capital improvement program. Using this measure the City’s
professional services rates have historically been 15 percent less than the private sector.
Engineering costs as a percentage of construction costs is a valuable indicator in comparing
engineering costs for similar projects whether the engineering services are provided by the
Engineering Division project teams or the private sector. Because of the large number of
variables that affect engineering costs, this is not a good indicator of the cost efficiency of the
Engineering Division’s project team compared to the private sector.
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