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HomeMy WebLinkAbout2011-054 2012 Ad Valorem TaxesORDINANCE NO. 2011 -54 AN ORDINANCE fixing and levying the amount of ad valorem taxes necessary to balance estimated revenue with estimated expenditures for the 2012 Budget for the City of Yakima. WHEREAS, the City Council finds that the total net amount of $16,760,892 in revenue must be raised by ad valorem taxes on real and personal property within the corporate limits of the City of Yakima to balance estimated revenues and expenditures for the 2012 Budget for the City of Yakima, now therefore, BE IT ORDAINED BY THE CITY OF YAKIMA: Section 1. There is hereby fixed to be raised by general property taxes upon real and personal property within the City of Yakima the amount of $16,760,892 for the following purposes: General Government Levy Operating Funds $15,445,892 Firemens' Relief & Pension Fund 1,315,000 Amount of tax levy for General Government Purposes (1) $16,760,892 Special Purpose Tax Levy 293,000 Total Levy Amount (1) $17,053,892 (1) Includes an additional $150,000 to provide for final adjustments in State assessed, new construction and annexation values. Section 2. The City Clerk is directed to transmit and file a certified copy of this ordinance with the Board of Yakima County Commissioners and the Yakima County Assessor on or before November 30, 2011. Section 3. Pursuant to Article VI, Section 2 of the Yakima City Charter, this ordinance shall take effect on November 15, 2011. PASSED BY THE CITY COUNCIL, signed and approved this 15th day of November, 2011. ATTEST: City Publication Date: November 18, 20 Effective Date: November 15, 2011 ORD NO. 2011 -54 ad valorem 20121 %.doc 11/16/2011 �p.Y'l Mq� SEAL i 1 �gSHm4 `I 0 Micah Cawley, Mayor • BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT n . Item No. 16 For Meeting Of: November 15, 2011 ITEM TITLE: Public Hearing on Revenue Sources and Consideration of Legislation pertaining to Ad Valorem Taxes to be levied for collection in Fiscal Year 2012: Ordinance A— Declaring the City Council's intent to increase the City's 2012 regular property tax levy up to 101 % of the amount levied in the previous year, plus new construction and annexation. Ordinance B— fixing and levying the 2012 ad valorem property taxes and excess levy taxes for the City of Yakima. SUBMITTED BY: Don Cooper, City Manager Rita M. DeBord, Director of Finance and Technology Cindy Epperson, Deputy Director of Accounting & Budgeting CONTACT PERSON/TELEPHONE: Don Cooper / 575 -6040 Rita M. DeBord / 576 -6771 Cindy Epperson / 576 -6771 SUMMARY EXPLANATION: Background • State law, based on Initiative 747, requires several administrative and legal steps to establish the property tax levy. (Even though 1 -747 was ruled unconstitutional in the fall of 2007, the legislature met and re- established property tax levy limits as set forth in the initiative.) Your package includes two (2) separate ordinances. Ordinance A and B will set the property tax levy for collection in 2012, based on CONTINUED Resolution Ordinances X (2) Other (Specify) Exhibit I. Attachments 1 -5: Funding Source PROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: City Management is recommending that City Council conduct a public hearing on the 2012 property tax levy, and then pass ordinances "A ", which declares Council's intent to increase the levy by 101 % above the prior year levy, and "B ", which fixes the levy amount. These ordinances follow state law imposing a 1 % increase in the property tax levy for 2012, plus new levies for construction and annexation, consistent with the provisions of 1 -747, and are the basis on which the 2012 budget was developed and balanced. BOARD /COMMISSION RECOMMENDATION: COUNCIL ACTION: 0 - Legal /BD Agenda Ad Val 1 11/9/2011 2012 Property Tax Agenda Statement — Continued page 2 of 4 • the 1 -747 limit of a 1 % increase (or the rate of inflation, whichever is less) over the prior year base levy, plus new levies for construction and annexation. (Note: the initiative defines the rate of inflation as measured by the Implicit Price Deflator (IPD) for consumer goods. For this year, the IPD increased by 2.755% from July 2010 to July 2011) Exhibit I details the calculation of the property tax levy with a base of 101 % of the prior year using preliminary information obtained from the County Assessor's office. According to state law, the certification of ad valorem taxes must be filed with the Board of Yakima County Commissioners on or before November 30, 2011 or the City will receive no funding from this source in 2012. The Commissioners have requested to receive this packet by November 23, so they can incorporate all of the requests into their required legislation. Ordinance purposes are: Ordinance A identifies Council's intent to authorize an increase in the tax levy over 2011 levels. This ordinance requires a simple majority to pass. It is required by RCW 84.55.120. This is legally necessary to increase the 2012 tax collections by anv amount over 2011 levels Ordinance B fixes the tax levy for collection by the City in 2012. This ordinance includes not only the regular tax but also special levy taxes for bond repayments. This ordinance complies with RCW 35.33.135 and also requires a simple majority vote to pass. These ordinances are in substantially the same format as the prior year levy legislation. General Government Revenue Discussion In reviewing General Government revenue, there are 4 revenues that each make up approximately one.fourth of the total —i.e. there are four "legs" that support General Government operations. Sales Tax (including the City's allocation of both county -wide Criminal Justice sales taxes) represents about 26% of the total. Property tax as proposed is about 26 %; Utility Taxes as presented in the Preliminary Budget make up about 21%; and all other revenue comprise the remaining 27 %. (See Attachment 1 for a summary of General Government revenues.) As the "great recession" lingers, the City's General Government revenue has remained flat. The 2008 actual revenue was $57.4 million, and we are on track to collect about $57.3 million in 2011, four years later. As the economy is not yet showing significant signs of recovery, revenue is estimated to grow only $500,000, slightly less than 1 %, even though inflation is running between 3 -4% depending on what index is used. Sales tax has not demonstrated any consistent trend throughout 2011, and has rather randomly been either higher or lower than the same month in the prior year. This "bouncing" has been the trend since April of 2010, which was the first month in 18 consecutive months in which collections exceeded the prior year. We are anticipating that this volatility will continue in 2012, so that this major revenue source is estimated with no change into 2012. The proposed 1 % increase in Property Tax is a major component in the slight growth of total revenues. Even though revenues have been flat, there continues to be pressure on expenditures, and there are increases in various categories such as fuel; property and liability insurance; state pension rates; and employee healthcare coverage. Legal /BD Agenda Ad Val 2 11/9/2011 2012 Property Tax Agenda Statement — Continued page 3 of 4 In response to these economic conditions, the City has exercised responsible budgetary restraint. City management has proposed necessary cost reduction measures to stay within available resources, in accordance with the Council's priorities of government budget model. Over $1.4 million of budget/service reductions were identified in the 2012 Preliminary Budget to balance to the estimated revenues without any reliance on reserves. This is on top of a $2.3 million reduction made to balance the 2011 budget, and $2.9 million in 2010 bringing the total 3 year reduction to over $6.6 million. Cumulatively, over the three years, staffing levels in General Government operations are being reduced by about 40 Full -Time Equivalent (FTE) employees. Additionally, expenditures for professional services, capital outlay, and supplies have been significantly reduced. The initial estimates from the County on the 2012 property tax levy included a growth rate for new construction of 0.7% which matched our original budget estimate, so we are not anticipating any change in this revenue source from the Preliminary Budget. Property Tax Discussion The total 2012 City of Yakima property tax levy includes the 101 % levy, levies for voted bond issues, and amounts for annexations and new construction. The budget currently includes an estimated revenue of $16,283,000 for the regular levy, an increase of $274,000 (made up of an estimate of 1 % for the regular levy, and 0.7% for new construction) over the 2011 year -end estimate of $16,009,000. The voted levy debt is budgeted to be $293,000, the same as the 2011 budget, based on scheduled debt service for the 1995 voted Fire bond issue. The total operating tax rate for next year is estimated to be $3.049 per $1,000 of Assessed Valuation (AV), up from the 2011 rate of $2.9185. (The statutory limit is $3.60 less the Library levy, which is capped at 50 cents per $1,000. The estimate for the 2012 Library levy is 49 cents per thousand) -- the bond rate is estimated to be $0.05378 per $1,000, slightly up from $0.05306 in 2011. It should be noted that the amounts included in the budget differ from the levy as shown in attached Exhibit I because of the timing of collections. In other words the budget is built on collection estimates of the levy. A home with an assessed value of $150,000 in 2011 paid. $437.77 for the regular levy, and $7.96 for the voted levy, for a total of $445.73. According to the preliminary valuation estimate provided by the County Assessor, the underlying assessed value of all taxable property in the City decreased by 3.3 %. If that rate is applied to the $150,000, the 2012 assessed value would be $145,050 and the regular levy tax would be $442.26, and the voted levy would be $7.80 for a total of $450.06 —a slight increase of $4.33 in the total annual levy. We believe the current request for the property tax levy is justified by the following cond.itions: (1) The property tax is needed to help meet mandates and contractual obligations, .principally Public Safety pensions /medical costs. Attachment 2 demonstrates the amount of property taxes dedicated to these areas. Fortunately, the City successfully implemented a program to move the medical costs of retirees over age 65 entirely to Medicare and supplemental insurances as of July 1, 2011. This is estimated to save over $300,000 in 2012. Note: even after factoring in this significant savings; $1.4 • million still needed to be reduced from the General Government budget to balance for 2012. Legal /BD Agenda Ad Val 3 11/9/2011 2012 Property Tax Agenda Statement — Continued page 4 of 4 (2) In the Street budget, property tax represents about 68% of all revenue in this budget. (see Attachment 3). Investing in maintaining and repaving the City streets has been a high Council priority for several years. The other major revenue source in this fund is Gas Tax, which is based on a "per gallon" charge. The economic downturn has affected consumption -- the 2011 gas tax is slightly more than 2010 actual, but is still below 2008 levels. The 2011 State budget included an across -the board reduction of 3.8% for all state shared revenues, and there is the potential of additional reductions in the next round of budget cuts at the state level. (3) Property tax is also a key revenue source for the Parks and Recreation Division, representing about 39% of all Parks revenue. Parks maintenance is supported entirely by property taxes, while other programs such as the Senior Center and Aquatics are supported in part by the property tax. The cost to maintain and operate these facilities increases annually. (Also see Attachment 3). (4) Again this year, the City is not expected to collect the full levy because of senior citizen exemptions, delinquent taxes and other refunds for disputed values. For the year 2012, the City is budgeting conservatively and estimating a reduction of up to 4% in actual collections from the authorized. levy, offset by a portion of delinquent taxes that are predicted to be collected. (5) Yakima's per capita property tax ranks $87 below the average of comparable Washington cities with populations of 45,000 to 120,000 in 2009, the most recent year this information has been compiled. Yakima ranks 10th out of 12 cities in this group. Further, for these same cities, Yakima's total per capita revenue collected from all taxes, fees and charges is $570 less than the average and again ranks 10th out of the 12 cities. Our residents are currently taxed and /or charged substantially less than other similar size cities. (See Attachments 2 & 4). (6) Finally, the City's current property tax levy represents only 25% (approximately 1/4) of the total property taxes paid by City residents. The State, local School District levies and County government receive approximately 3/4 of all property taxes paid. (See Attachment 5). In conclusion, property tax is a vital component of General Government revenue. Based upon the previous discussion, City management/budget staff respectfully requests the passage of moth Ordinances A and B to set the 2012 property tax levy, which is the basis on which the 2012 budget was developed. • Legal /BD Agenda Ad Val 4 11/9/2011 EXHIBIT I City of Yakima Property Tax Limitation Calculation Prior Year (2011) = Base 1% Increase Base 101% Valuation Decrease (3.3 %) New Construction (0.65 %) State Assessed Value Tax Limit Before Annexations Add for Annexation 2011 Tax 2012 Assessed Rate Levy Values Applied Dollars (Dollars in Thousands) $5,599,278.437 $2.9185 $16,341,343 $163,413 $16,504,756 ($187,719.49) N/A $36,366.353 $2.9185 $2.9185 $5,447,925.303 $3.0490 $0.000 $3.0490 $0 $106,135 $0 $16,610,892 $0 Limit for Subsequent Years $5,447,925.303 $3:0490 $16,610,892 Plus Contingency (And Refunds) $150,000 Total- ordinance $16,760,892 State of Washington Constitutional Limit Assessed Valuation $5,447,925.303 $3.6000 $19,612,531 Less: Library Levy (Estimate) $0.490 $2,669,483 2011 Levy for Collection in 2012 (Estimate) $3.110 $16,943,048 eje 11/9/2011 • • • • • • GENERAL GOVERNMENT REVENUE (BASED ON 2012 BUDGET OF $56.8 MILLION) 26.31 Sales Tax ($152 Million) 25.9C Property Tax ($15.0 Million) 20.7¢ Franchise & Utility Tax ($12.0 Million) ATTACHMENT #1 6.8¢ 3.3¢ Intergovernment & Other State Shared Revenue Revenue ($3.9 Million) (1.9 Million) .:'1. 11.81 5.2¢ Licenses, Permits Fines & & Charges Other Taxes for Services ($3.0 Million) ($6.8 Million) GENERAL GOVERNMENT RESOURCES THREE YEAR COMPARISON Source 2010 Actual 2011 Estimate Percent Change 2012 Budget % of 2012 Total 2012 vs. 2011 Increase Percent (Decrease) Change General Sales Tax $12,653,993 $12,650,000 (0.0 %) $12,650,000 21.9% $0 0.07 Crim. Justice Sales Tax(i) 2,553,893 2,588,000 1.3% 2,575,500 4.5% (12,500) (0.5 %) Property Tax 14,231,526 14,607,000 2.6% 14,968,000 25.9% 361,000 2.5% Franchise & Utility Taxes 12,035,789 11,742,000 (2.4 %) 11,986,000 20.7% 244,000 2.1% Charges for Services 6,076,139 6,297,948 3.7% 6,191,655 10.7% (106,293) (1.7 %) State Shared Revenue 2,934,636 2,975,659 1.4% 2,839,400 4.9% (136,259) (4.6 %) Fines and Forfeitures 1,658,467 1 1,636,344 (1.3 %) 1,645,700 2.8% 9,356 0.6% Other Taxes 1,394,441 1,395,500 0.1% 1,392,000 2.4% (3,500) (0.3 %) Other Revenue 652,103 677,257 3.9% 656,400 1.1% (20,857) (3.1 %) Transfers from other Funds 1,230,565 1,185,000 (3.7 %) 1,234,000 2.1% 49,000 4.1% Other Intergovernmental 1,271,580 .959,247 (24.6 %) 1,085,830 1.9% 126,583 13.2% Licenses and Permits 768,469 619,200 (19.4 %) 616,700 1.1% .(2,500) (0.4 %) Total Revenue $57,461,601 $57,333,155 (0.2 %) $57,841,185 100.0% $508,030 0.9% Beginning Fund Balance 6,413,707 5,954,903 (7.2 %) 5,612,257 (342,646) (5.8 %) Total Resources $63,875,308 $63,288,058 (0.9 %) $63,453,442 $165,384 0.3% (1) Some Criminal Justice sales tax is allocated to the Law and Justice capital fund (a non - general Governmental fund) for capital needs. General Fund $8,747,650 53.7% ATTACHMENT #2 2012 PROPOSED GENERAL PROPERTY TAX LEVY — BY FUNCTION Fire &Police Pension $2,501,350 General Parks & Recreation Street & Traffic Sub -Total General Government Fire Pension Total Parks $1,578,000 9.7% eets 56,000 .2% • C, 2011 2011 Est. 2010 Amended 2011 2012 vs. 2012 Actual Budget Estimated Budget Budget $9,190,326 $9,398,000 $9,548,000 $9,934,000 4.0% 1,665,500 1,546,000 1,546,000 1,578,000 2.1% 3,375,700 3,508,000 3,513,000 3,456,000 (1.6 %) 14,231,526 14,452,000 14,607,000 14,968,000 2.5% 1,502,765 1,502,765 1,402,000 1,315,000 (6.2 %) $15,734,291 $15,954,765 $16,009,000 $16,283,000 1.7% • C, • • is The City has compiled data from the State Auditor's Office that identifies per capita property tax for comparable cities throughout the State. The following chart compares the City's per capita property tax income for 2.009 (2009 data used as 2010 census data was not yet available). It shows the City of Yakima's property tax per capita is $167, which is $87 less than the average of all the comparable cities. Yakima ranks third lowest in tax per capita of the 12 comparable cities. 2009 PER CAPITA PROPERTY TAXES Comparable Cities between 45,000 and 125,000 in Population (Rounded to the closest dollar) $450 Yakima's per capita property taxis $167, which is $87 less $400 than the average city per capita of $254 $350 $275 $283 $300 $250 $210 . $167 $189 $200 $148 $150 $112 $100 $50 $332 $298 $311 $356 $362 Pasco Kennewick Yakima Auburn Bellingham Richland Bellevue Kirkland Kent Everett Renton Redmond PROPERTY TAX AS A PERCENTAGE OF TOTAL FUND REVENUE 2012 BUDGET YEAR 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% General Fund Parks Streets Fire Pension ■ % Property Tax 0 % Other Revenue ATTACHMENT #3 ATTACHMENT ##4 The largest revenue source for the General Government Funds is sales tax. Yakima has moved from the lower half to the upper of per capita sales tax compared with similar cities in the State. However, Yakima is in the lower 1/3 of ranking in all other revenue comparisons per capita and is still the third lowest out of the twelve cities compared in combined per capita revenue. Yakima's $1,253 per capita taxes is $570 below the average of $1,823 based on 2009 actual data (2009 data used as 2010 census data was not yet available), as demonstrated in the chart below. The most important conclusion from this analysis is that the City of Yakima has a very limited revenue / tax base compared with most cities of its size in the state, and yet provides similar or enhanced services and programs to its citizens. $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 2009 PER CAPITA TOTAL REVENUES Comparable Cities between 45,000 and 125,000 in Population (Rounded to the closest dollar) Pasco Kennewick Yakima Auburn Kent Bellingham Renton Kirkland . Everett Bellevue Richland Redmond C ] 1� u • • ATTACHMENT #5 Property Taxes The total property taxes paid by property owners within the City of Yakima include taxes levied by several governmental entities: the State, School Districts, special county -wide voted levies and the City's general and special voter approved levies. The percentage of the total property taxes levied by, and allocated to, each individual governmental entity will change slightly from year to year. The City's portion is generally under 30% of the total amount collected. (Refer to the graph and chart below for how the 2011 property taxes were allocated between these governmental entities.) 2011 PROPERTY TAX DISTRIBUTION Yakima School District State of Washington Schools . 0.37 City of Yakima 0.19 'NE9ALA5{I AY OF:i p,.�"'C. iyi'�;s: MENE iR� �22'1.235��5p !" Asip'Nivl l Library .04¢ Yakima County EMS .250 .13¢ .02¢ City of Yakima Property Tax - In 2011, a typical City resident pays approximately $11.87 per thousand of assessed value on property taxes. Only $2.99, or about 25.0 %, goes to the City, with the balance. divided between the County, schools, and other special districts. Description Of How Property Taxes Are Levied - The following explanation is included to help the reader understand how property taxes are assessed to the individual property owners. To aid in this explanation, three commonly used terms must be understood. They are Property Tax Levy, Property Tax Rate and Assessed Value. ➢ Property Tax Levy - is the total amount of money that is authorized to be collected. This is what is required to be set by Council action each year. ➢ Assessed Value - is the total value, as determined by the County Assessor's Office, of all property within the City. ➢ Property Tax Rate - is the property tax amount that will be applied to every $1,000 of assessed value; the rate is determined by simply dividing the levy amount by the total assessed value amount and dividing that number by 1,000.