AGENDA ITEM # 15d.

2013 Annual Report from the City Manager

State of the City

I read an ICMA article a few weeks ago that stated, Sustainability is the ability of communities to consistently thrive over time as they make decisions to improve the community today without sacrificing the future. This seems like a worthy aspiration. Establishing a Capital Improvements Fund (Or Capital Projects Fund and often called CIP) budget that prioritizes our capital projects over a six (6) year period within a reasonably attainable revenue projection is an example of Steamboat Springs recent efforts at sustainability. The Capital Improvements Fund pays for all general projects that exceed $50,000 in total cost. Enterprise Funds like Water, Wastewater and the Airport pay for capital projects within their funds the Capital Improvements Fund is for everything else. In 2011 the 6-year capital budget totaled $67 million dollars, over $10 million per year, and there was no real ability to complete the plan. This was the case in years prior to 2011 as well. But starting in 2012, projects were prioritized for the entire six (6) years based on realistic anticipated income, and all other unfunded or unfund-able projects were parked. Our current CIP budget reflects an attainable strategy and we are realistic about what can and cannot be done. Having a realistic, agreed upon capital projects plan dissuades quick spending decisions which can be just as quickly regretted. This approach does not mean that projects cant come off the 6-year CIP and be replaced by other projects; it just means that with this dynamic document any change will be looked at in the context of the whole and while keeping our revenue limitations in mind. This strategy is good for the spending side of the capital fund, but the revenue side demands consideration. Most cities dedicate a revenue stream to Capital Projects from their property tax collections. Generally, a City or County will identify x mils for Operating and x mils for Capital thereby guaranteeing a perpetual revenue stream for capital purposes. Steamboat Springs, instead, is staking its infrastructure health on future development. The Capital Fund receives dedicated revenue from Construction Use Tax, Excise Tax on Construction, a portion of a YVEA Franchise fee that is committed to undergrounding utilities and a small, annual Conservation Trust Fund payment. The City has also relied heavily on grants. All of these taxes, fees and grant funds have a potential end of life leaving the Capital Projects Fund very vulnerable. Additionally, over the years, these funds have not proven sufficient for the projects at hand and the fund has accepted transfers from the General Fund. The graph on the following page shows funding sources for the Capital Improvements Fund from 2003 to 2013. You can see that during the downturn, the general fund was unable to make up the loss in excise and use tax because it was 1|Page

stressed as well. The 2010 general fund transfer to the CIP was not related to a single project, but was a reallocation of fund balances in an attempt to ensure some capital funds in the downturn.

Make-up of CIP Fund Revenues

Current Fiscal Policies, another example of the Citys recognition of sustainability, will ensure that the Capital Fund receives about $1,000,000 annually. This will be accomplished per the Fiscal Policy by budgeting only 95% of annual Sales Tax Revenue the mainstay in the General Fund. After accommodating the fiscal policy requirement to fulfill the TABOR mandate and designating an additional 25% of the prior years expenditures as a rainy day reserve, the City can move the excess unassigned funds to the Capital Improvement Fund budget. Again, the new fiscal policies direct that transfer of funds by requiring that unassigned reserve funds be used for one-time expenditures, thereby not being spent for an action that would obligate future spending sustainable. Having a clear set of fiscal policies to work from allows the Management Team of the City to refine an operations strategy. We can budget within a reasonable set of restrictions on funds, knowing what is expected and available for operations. This allows us to structure a long-term pay commitment to our staff. It gives us the ability to identify and follow through on pay related incentives. As noted earlier,

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Capital spending is a staple of the City, but service is its heart. And it takes trained, experienced and dedicated staff to accomplish our mission of serving the City. The City has 10 reportable funds, and even more reportable activities. We run a number of unique businesses. Theres an airport, a wastewater treatment process, a water utility, a tennis center, a golf course, an ice arena, a rodeo, a ski operation, both a police operation and a regional fire service; we build roads, drive buses, manage a network of parks and trails, and oversee development. Its a powerful list. 2013 was a very good year for all of these operations. The tourist is back and brick and mortar businesses along with location neutral entrepreneurs are doing well. On February 15, we learned that sales tax increased by 6.96% in 2013 over 2012. Given the complexity of the Citys governmental accounting and the variety of its businesses, the year-end close doesnt happen quickly. Sales tax is usually known several weeks before Finance can estimate the final fiscal results of our year; so even knowing sales tax has increased, we are as yet unaware of the full effect on the bottom line. At this time (I am writing in early March) very preliminary information from Finance indicates that the General Fund balance for 2013 will grow to $21.25 million from $18.85 million the previous year. Of course a good deal of the increase has to be restricted or committed, but it is estimated that the fully unassigned portion of the fund may grow close to $2.2 million. Again, it is a bit too early to know this for sure. When Finance has completed the process of closing the books, some or all of this unassigned excess can go to the Capital Fund in addition to the $1 million that is already budgeted to go there (and already allocated as well) in the budget this year. With Councils guidance, the City has weathered the economic downturn and is looking forward to slow, but steady growth in the next few years. When the economy trended downward in 2009, the City had just completed a fiscal year (2008) that resulted in an unreserved fund balance of $10.9 million. While accounting rules have changed and we no longer report unreserved fund balances, our comparative number (if we were still accounting in the same way) for 2013 is estimated to be $19.3 million. The Citys ability to weather the storm without dipping into reserves has strengthened its credit quality. In fact, S&P upgraded a COP transaction from A to AA -two credit grade levels this year. S & P referred to the vulnerability of having only a sales tax, and no property tax, but credited the Citys strong fiscal practices when explaining the upgrade. The Citys dependence on sales tax is not out of the ordinary; many municipal General Funds list Sales Tax as its largest revenue. However, four (4) cents per dollar is an average sales tax for cities that also have a property tax. In 2001, when the City decided to grow a paid, professional fire department, it had a four (4) cent sales tax. The department grew from $811,000 in 2001 to $2,817,000 in 2012 (about of that cost is paid by the Fire District). This year, the stormwater initiative has created the need for an additional two (2) personnel and extra equipment required to clear and repair culverts. The City will be building trails with Accommodations Tax money that will cause an additional maintenance burden on the General Fund an amount, if fully performed, estimated to be $130,000 per year. And with a new look at affordable housing, aging infrastructure, and added requests for transit services, there is concern about how much fiscal pressure the Citys four (4) cents can handle. The chart on the next page is illustrative of the Sales and Property Tax levies of cities in western Colorado including resort communities. Note that Glenwood Springs, with a sales tax of four (4) cents per dollar, also has a mill 3|Page

levy close to five (5) mils. With an assessed valuation in Steamboat Springs of around $700 million, if the City had a five (5) mil levy its general fund revenue would increase by $3,500,000 and it would still be one of the lowest taxing areas in the State. See the Chart on page 5 for detailed information about towns/cities and their current tax levels.

25.000

Property Tax Mills

Sales Tax

20.000

Bar Chart of Municipal Mil Levy

15.000

10.000

5.000

0.000 Steamboat Springs Durango Carbondale Winter Park Eagle Vail Glenwood Springs Grand Lake Gypsum Minturn Aspen Rifle Basalt El Jebel Meeker Granby Grand Junction Fraser New Castle Silt Kremmling Rangely Fruita Oak Creek Hot Sulfur Springs Avon Parachute Hayden Yampa Craig Dinosaur

The City has a significant list of parked capital projects. When CDOT decides to improve the Elk River Road and Downhill Drive intersections, we will need funds to do our share and those funds are not in the 6-year CIP at this time. Elk River Road needs improvements to enable bikers and pedestrians to navigate the road and its intersections thats about a $1.3 million fix. The Rodeo needs a $4.4 million facelift. More money is needed for snowmaking equipment and if the hill slides again, as it did year before last, we could be looking at another $300K there. When the stormwater crew is in place, it will enhance the current CIP list with newly discovered projects. Core trail extensions are at least $3.5mm going south 4|Page

and probably another $2.5 million to the west. Yampas pedestrian bridge at the ambulance barn needs some upgrades if not replacement given the number of individuals who cross it during certain events. Theres a push for a second sheet of ice. Many city streets that have been annexed into the City limits are inadequate and need shouldering. There is a $15 million sidewalk plan that could complete sidewalks throughout town. Some bridges in town like the Oak Street Soda Creek Bridge will have to be replaced in the near future. Will the City ever want to rehomologate Howelsen so that FIS events can take place there? And restrooms - it has been determined that we can place vault toilets in City parks. These, while being much less expensive than plumbed toilets, remain unfunded. For the next six years, the Citys CIP Budget does not accommodate these items.
Property Tax Aggregate Aspen Durango Steamboat Springs Vail New Castle Parachute Rifle Silt Meeker Granby Rangely Eagle Avon Gypsum Hot Sulfur Springs Grand Junction Fraser Kremmling Grand Lake Carbondale Winter Park Glenwood Springs Minturn Fruita El Jebel Basalt Hayden Yampa Craig Oak Creek 32.048 36.477 42.071 46.900 48.217 48.537 51.277 54.807 55.068 55.157 55.421 56.157 57.490 58.450 58.821 60.029 60.177 61.881 61.962 62.195 63.026 63.363 63.805 67.488 68.632 73.874 74.491 78.201 79.802 82.810 Steamboat Springs Durango Carbondale Winter Park Eagle Vail Glenwood Springs Grand Lake Gypsum Minturn Aspen Rifle Basalt El Jebel Meeker Granby Grand Junction Fraser New Castle Silt Kremmling Rangely Fruita Oak Creek Hot Sulfur Springs Avon Parachute Hayden Yampa Craig City Only 0.000 2.507 3.594 3.765 4.044 4.740 4.852 4.933 5.094 5.094 5.236 5.261 6.139 6.139 7.203 7.230 8.000 8.067 8.540 8.973 9.652 10.000 10.146 11.186 11.950 12.072 13.247 17.691 17.691 18.996 Meeker Rangely Basalt Fruita Yampa Dinosaur Aspen Craig Grand Junction Durango Oak Creek Silt Carbondale New Castle Rifle Glenwood Springs Parachute Avon Eagle Fraser Granby Grand Lake Gypsum Hayden Hot Sulfur Springs Kremmling Minturn Steamboat Springs Vail El Jebel Sales Tax City Only 0.00 0.00 2.00 2.00 2.00 2.10 2.20 2.25 2.75 3.00 3.00 3.00 3.50 3.50 3.50 3.70 3.75 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.00 4.50

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Dinosaur

87.308

Dinosaur

20.717

Winter Park

5.00

Considering the appetite of the City and regional residents for amenities and services and the need to take care of what we have and to increase services caused by organic growth, the Citys ability to meet the needs with the current revenue base will at some point prove insufficient. Nonetheless, the Citys current fiscal health is strong and has grown stronger over the last 4 years due to the sustainable decisions made by Council. Council has been thoughtful in its actions to ensure that current operations are not a threat to the Citys future. The City has bounced back from one of the strongest economic downturns this country has seen and is looking at slow, but steady growth, and we didnt bankrupt the City, nor did we even dip into reserves for operations during the downturn. The City of Steamboat Springs is poised to meet current demand, but it may not have the right revenue base for the long term.

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