Council Meeting Date: October 14, 2013
Council Meeting Location: City Hall, 220 Clay St, Cedar Falls, IA 50613
There's a lot going on. 2014 Pavement Management, the Audit, sanctuaries, dragnets, and transparency. I even try to explain the 8.10 and low taxes. The what? Yeah, there's this thing called the 8.10 and it's pretty important.
- Committee of the Whole (5:00pm, Mayor's Conference Room)-
2) We review the 2014 Pavement Management Program. The city will be spending about $3.5 million, mainly derived from Local Option Sales Tax (LOST) revenues to rebuild road infrastructure. The biggest project involves State Street from 4th to 8th - $584,000. You'll also be relieved to know that concrete reconstruction of Rownd and Orchard will conclude in the next construction season as well.
4) We review the statutory Fiscal 2013 Audit Report (144 pages). Led by Jennifer Rodenbeck and Lisa Roeding, our Finance Department does a superb job managing the complexities of public finance, especially with the myriads of regulations pertaining to each funding source on the local, state, and federal level. As with any audit, public or private, the insights to be gained are tremendous. I have spoken of this issue many times, but there is one significant deficiency in GASB (the government GAAP equivalent). Not in the report, nor in the Management Discussion & Analysis, do we talk about the great elephant in the room - pension liabilities. My most recent calculation pegged this number at $17MM for our city alone. This is the value of our future promises to retired and current employees that are currently unfunded. I have a real issue making future generations pay for the benefits and services we received today; but equally concerning is that we can continue to operate local and state governments without accounting for accrued liabilities such as pensions. Private sector companies must operate in full disclosure of balance sheet liabilities, why should government be exempt?
-Regular Council Meeting (7:00pm, Council Chamber)-
Special Order of Business
E.1) We move forward on the right-of-way vacation and property sale at the end of Tremont to an adjacent property owner. As discussed in my September 9 post, this is a prudent decision to return unnecessary right-of-way to private hands which augments the tax rolls and reduces city operating expenses. The petitioner also requests that we suspend the rules and bypass the 1st and 2nd readings for the 3rd and final this night. The matter has been through P&Z and Council Committee and seems non-controversial, I see no reason not to accelerate the process.
G.2.f) This item relates to the naming of 15 acres south of North Cedar School and north of Longview St. as the North Cedar Natural Resource Area. This development has been nothing short of remarkable. While the flood of 2008 created great challenges, it also opened the eyes of opportunity. In this example, visionaries come together to create a one-of-kind natural feature in the heart of the neighborhood - a sanctuary featuring savanna, wetlands, prairie, and timber. In 2012, a masterplan was developed by Jake Larsen (ISU Animal Ecology) and Jim Weimer (BHC Conservation Board). With the plan in hand, Jim Newcomb led the project involving countless volunteers to bring the vision to fruition. Hours upon hours were spent removing invasive species and re-establishing native trees, flora and fauna. CF staffer's Mark Ripplinger and Kevin Cross were great enablers. This is a fine example of a public-private partnership for the enhancement of the neighborhood and the community at large.
G.2.g) This item relates to the bid acceptance from Cardinal Construction for the Beach House reconstruction. The bid came in at $588,000 versus the engineer's estimate of $585,000. $42,000 needs to be removed from the project to be within the 'not to exceed' level set by Council. I have a few outstanding questions on this item.
G.2.j) This item relates to a $12,780 grant to fund police overtime and related materials to establish dragnets to identify impaired drivers and other infractions. The application contains quota-like language. This is a federally funded grant. Considering that the federal government is flat broke, I have a hard time justifying a dragnet as an essential health, safety or welfare priority versus all other funding needs in the country. On October 5th, a dragnet funded by a similar grant from last year resulted in 98 traffic stops and two arrests. I can't support the grant in good conscious in absence of a conclusive cost/benefit analysis.
G.2.k) This item relates to a new Vendor Managed Inventory program for parts management. The contract saves on personnel costs and results in lower part pricing. Savings should amount to $118,000/year. NAPA will be providing these services. Smart.
G.3) This item will change our ordinances to make skiing, surfboarding or the use of towable items on the Cedar River legal on Sunday afternoons. Yes, you read that correctly, it is currently illegal to do these activities on Sunday afternoon in Cedar Falls. This is a fine example of how we live day by day while committing numerous crimes unbeknownst to us. It is estimated that we commit 3 federal crimes each day. This is either an example of how horrible and criminal we are as US citizens or it illustrates the lunacy of the many federal, state, and local laws. I appreciate the resident who brought this to my attention. It took only 4 months to go from suggesting a code change to drafting an ordinance amendment for council approval. Not too shabby.
The Sky Doesn't Have to Fall - The costs to run Cedar Falls local government are increasing faster than we can add new tax base. The city has been operating a general fund deficit for over 3 years now. Today, we cover the deficit through re-allocation of special purpose funds, but capacity is running out. So where does that leave us? The city needs to reduce costs (or the rate of increase) and/or increase revenues (i.e. add tax base or raise taxes).
First, lets talk taxes (i.e. revenue). Note: image to the right was compiled by yours truly based on Iowa Department of Management data and my study of our budget and staff inquiry. It is not an official City of Cedar Falls graph.
All cities have the authority (granted by the state) to tax for general expenses up to $8.10 per one thousand dollars of taxable property value. There are other levies like the band levy (a state law), but for the most part, general expenses run through the '8.10'. General expenses include costs for police, fire, parks, engineering, administration. Certain fees are collected to augment the general fund (i.e. rec center memberships), but they fall short compared to expenses. Above the 8.10, the city is authorized to levy for debt service, employee benefits, and financial emergency. Revenues from these levies can be used for what their names imply. The use of these levies results in increased taxes. Taken together, they define your tax rate.
Cedar Falls' stated financial goal is to contain expenses within the 8.10, including debt and employee benefits. By law, we can not tax for general expenses above the 8.10. Today, we manage most expenses within 8.10. Taxes that fall into the other levies, mainly the Employee Benefit Levy, are levied to normalize the tax rate to the property owner from yearly rollback gyrations (the horribly convoluted, excruciatingly complex, ag-biased rollback formula). We don't make regular use of the levy otherwise. So today, we attempt to incur Debt and Employee Benefit expenses within the 8.10. By moving these expenses to the Debt and Employee Benefit levies, the city increases its capacity to tax. The policy to keep expenses within the 8.10 has resulted in years of prudent financial management.
An additional Cedar Falls' financial goal is to not allow 'controllable' expenses to grow greater than the rate of inflation. This basically amounts to salaries and has forced a 'soft' hiring freeze for as long as I have been on council. The policy of only containing 'controllable' expenses is in direct conflict with trying to manage expenses within the 8.10. This is a clever way to avoid blame for 'uncontrollable' expense increases. I hear, "it is the state's fault." Well, maybe it is, but we certainly have the power to control it.
Back to the 8.10. Based on projected expenses, our 8.10 levy runs out in 3-5 years even after funding qualified expenses through the Debt and Employee Benefits levies. When the 8.10 runs out, we have no choice but to make manpower cuts, the #1 expense. At this point, the proverbial sky is falling, we must eliminate expenses, seek new revenue sources, or bond (incur debt).
Given the base scenario for revenue and expense estimates, we must do something now! I'll cover "something" on another post. For now, let me explain my view on keeping taxes low.
First, low taxes are a competitive advantage (one of many) in attracting businesses and jobs. Business and jobs have a multiplier effect on housing and related economic activity. Based on cities over 10,000 residents, Cedar Falls ranks 11th out of 38 in its total tax levy, $12.02. Not terrible, but not the best. More telling is recent economic activity. Looking at the list, Altoona ($9.14), Urbandale ($9.57), Dubuque ($11.03) and Johnston ($11.15) have all been economic bastions. On the lower end, Waterloo ($17.49), Council Bluffs ($17.75), Ottumwa ($20.30) and Fort Dodge ($20.81) have been economic dogs. Each of the final four have used their emergency levy too! Tax rates seem correlated to economic activity.
Second, low taxes are better for the tax payer. Taxes are levied to pay for public goods or services. Cedar Falls local government arguably offers better goods and services because people are willing to pay for it (i.e. taxes). Each $1,000 of property in Cedar Falls is taxed at $12.02. Hudson residents pay $9.72. Denver pays $7.13. While not to oversimplify, people may prefer to live in Cedar Falls for its quality of life features such as the library, recreation center, pools, etc. which are funded in part or all by property taxes. If these features aren't valued, a person may be influenced by lower taxes to live in a regional community. In all cases, residents entrust elected officials to make wise and prudent spending decisions. If elected officials abuse their power to levy taxes to support unnecessary capital projects or to fund waste in operations, people will vote with their feet (compare population growth rates for the cities above!). Another indicator of desirability is property valuation growth rates (again, compare taxable value growth on the cities above!).
My point, low taxes seem to be positively correlated to residential desirability and economic prosperity. Low taxes are achieved by making prudent investments and focusing on operational improvement. Our 8.10 is running out, we need to be vigilant investors and supportive of operational excellence.
Transparency Now Updated - I'm impressed. In the last Council Meeting, 23 September, I requested that we refer "online publication of council packets" to a committee meeting for discussion. Within 2 days, staff implemented the process for online publication. No committee, no discussion, no report needed. A little more background... over a year ago, Council moved to an electronic format to reduce printing and postage costs while making it compatible for the modern technology user. My request was made to to get more caring (and expert) eyes to help review the mountain of documents and to make public documents including memos, analysis, planning, and reporting more available than ever before. Originally, I expected resistance to this kind of openness due to fears of added scrutiny and an organization's natural bias for not sharing information. Perhaps Cedar Falls is different. There is little to 'hide' in our council documents. In fact, there is much to be proud of. Council documents, while voluminous, are a demonstration of staff's professionalism, analysis and thoroughness on all matters of governance from temporary sign requests to multi-million dollar development agreements. This information is ripe and ready for public consumption. Thank you Mr. McAlister and Ms. Saathoff for your rapid implementation.