HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 10/9/2001 * PLEASE NOTE: Since the Glendale City Council does not take formal action at
the Workshops, Workshop minutes are not approved by the City Council.
MINUTES
CITY OF GLENDALE
CITY COUNCIL SPECIAL WORKSHOP
October 9, 2001
3:00 p.m.
PRESENT: Mayor Elaine M. Scruggs, Vice Mayor Thomas R. Eggleston, and
Councilmembers Joyce V. Clark, Steven E. Frate, David M.
Goulet, H. Phillip Lieberman, and Manuel D. Martinez
ALSO PRESENT: Martin Vanacour, City Manager; Ed Beasley, Assistant City
Manager; Rick Flaaen, City Attorney; and Pamela Oliveira, City
Clerk
1. GOVERNOR'S PROPOSED REDUCTION IN STATE SHARED REVENUES
CITY STAFF PRESENTING THIS ITEM: Mr. Chris Zapata, Deputy City Manager; Mr.
Art Lynch, Finance Director; Charlie McClendon, Management and Budget Director;
and Ms. Pilar Aguilar, Budget and Rate Manager.
On September 19, 2001, Governor Jane Hull sent a letter to Ms. Cathy Connolly,
Executive Director of the League of Arizona Cities and Towns, stating her intention to
request that political subdivisions receive 4% less in state-shared income tax and state-
shared sales tax revenue in both Fiscal Year 2002 and Fiscal Year 2003.
The State of Arizona shares a portion of tax revenue it collects with local governments,
based on population formulas established by State law. Voters approved the system of
state-shared revenues through initiatives in 1942 and 1960 (sales tax), 1946 (gas tax),
and again in 1972 (income tax).
In Fiscal Year 2000-01, the Legislature changed the formula for future income tax
disbursements to cities. Previously, cities received 15.8% of the State income tax
revenue. Beginning in Fiscal Year 2000-01, cities now only receive 15.0%.
On September 21, 2001, Mr. Charlie McClendon, Management and Budget Director
drafted a memorandum that addresses current economic conditions.
In accordance with approved Council guidelines, on September 24, 2001 Mayor
Scruggs directed staff to expeditiously gather information regarding Governor Hull's
proposal and any other budgetary issues that may effect the City of Glendale.
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On September 24, 2001 , staff attended a meeting at the League of Arizona Cities and
Towns to discuss Governor Hull's proposal.
Staff was present at this Workshop to discuss the performance of local, state and
national economies, as well as possible budget impacts that Governor Hull's proposal
may have on the City of Glendale.
This item was presented for review and a request to provide staff with direction.
Councilmember Clark asked if the state sales tax also lags a year behind. Mr.
McClendon explained that the state sales tax collection has a one-month lag.
Vice Mayor Eggleston pointed out that it is a retroactive cut from income tax received
two years ago. Mr. McClendon agreed with Vice Mayor Eggleston.
Mayor Scruggs asked how much they had originally projected income tax revenues to
increase. Mr. McClendon said they anticipated an increase of 9%. He pointed out that
some of the projections could have been made quite some time ago because they work
from a two-year budget.
Councilmember Clark asked if Governor Hull's 4% reduction would result in Glendale's
projected income tax revenues now being 5%. Mr. McClendon explained that the 9%
income tax growth projection in the state budget was for the current year, whereas the
City's receipts from the state have a two-year lag. He confirmed that the amount of
growth in income tax would be less than previously projected.
Mr. McClendon confirmed for Mayor Scruggs that, while the City uses the state's
projections for income tax and state sales tax growth, it uses the City's projections for
city sales tax growth. He noted that he had to estimate the state's sales tax number
this year because census numbers were not available when the budget was prepared.
Mayor Scruggs clarified that the City prepared its budget based on the State's
projections and spent money according to that budget. She noted, however, that a
portion of that money is no longer available because of Governor Hull's reduction. Mr.
McClendon agreed.
Councilmember Clark said tourism, higher-end retail, and retail make up 52% of the
sales tax base. She asked what the other components were. Mr. McClendon said 26%
of the local sales tax comes from auto sales, construction, and hardware, all of which
are highly volatile and where they would expect to see a drop-off. He said
communications, publications, rental properties, and other smaller categories make up
the remaining components.
In response to Councilmember Lieberman's question, Mr. McClendon stated that, since
it is not uncommon for month-to-month projections to vary, yearly totals are typically
more reliable indicators.
Councilmember Lieberman asked when the State would finalize its projections. Mr.
McClendon said a special session was planned for November 13, 2001 . He said,
although everyone agreed that there will be a softening in the economy, the magnitude
of that softening is still unknown. Councilmember Lieberman asked if they had
compared the current down turn to the down turns that occurred from 1988 to 1992.
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Mr. McClendon noted the real estate factors that contributed to the previous downturn.
He stated that those same factors are not present at this time. He said the current
downturn is primarily attributable to a recession in manufacturing.
Councilmember Clark asked if the County Assessor was proposing a 10% reduction in
corporate property assessments. Mayor Scruggs clarified that the County Assessor
would like to reduce the assessed valuation of tourism-related properties.
Mayor Scruggs said the staffs recommended short-term solutions take care of the first
year. She asked how they would address the shortfall in following years. Mr.
McClendon said they would have to carefully review the Fiscal Year 2002/2003 budget
and concentrate on making policy revisions. Mayor Scruggs asked if it would be
advisable for the Council to move forward with items that have recurring costs. Mr.
McClendon said delaying some of those items was an option and would provide greater
flexibility in terms of setting new policies. He stated that, based on available data, he
believed the Council could move forward with the items included in the Fiscal Year
2001/2002 budget.
Councilmember Lieberman asked, in terms of the short-term solutions, if they were
factoring in any kind of increase in income. Mr. McClendon said they assumed other
revenue sources would perform as projected, increasing by approximately 3%.
In response to Councilmember Martinez' question, Mr. McClendon explained that
various factors over which the Council has no control, including revenue growth of other
components and increases in utilities costs, would have an effect on the estimated $3.8
million deficit.
Councilmember Lieberman noted that the prime rate is the lowest it has been in 38
years. He said the low mortgage rates should encourage home sales and the zero
percent financing being offered by most auto dealerships should spur auto sales. He
asked to be updated on the City's tax collections on a monthly basis. Mr. Lynch offered
to furnish all the Councilmembers with a monthly breakdown on taxes.
Councilmember Goulet asked if continued strong growth in the State's population would
add to the problem by increasing costs or spur economic recovery. Mr. McClendon
said, historically, economic slowdowns last between 12 to 24 months. He
acknowledged that population growth increases costs. He noted, however, that
population growth typically fuels the state's economy. He said the state took population
growth into account in its projections.
Councilmember Clark stated that Glendale and several other cities would be looking at
using their contingency funds. She asked what effect using their contingency funds
would have on their bond ratings.
Mayor Scruggs said emergency funds are for true emergencies and not for paying
regular expenditures. Councilmember Clark agreed that the contingency fund is not for
day-to-day use. She stated that she believed emergency funds are there to help in an
economic crisis.
Councilmember Lieberman asked if the City had seen a decrease in interest income.
Mr. Lynch said the reduction had been taken into consideration.
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Councilmember Lieberman said a 1.2% sales tax reduction on food would result in a
savings of $40 per year per family, based on an average food purchase of $62 per
week. He said, conversely, the $4.7 million that the City would receive from that tax
would be significant in terms of City services.
Councilmember Martinez expressed his opinion that the Council should accept staff's
recommendation to immediately implement the suggested initiatives.
Councilmember Goulet agreed with Councilmember Martinez. He asked if limited
expenditures for temporary employees included work sent to outside agencies. Mr.
McClendon said the recommendation refers to limiting a department's ability to hire
temporary employees to fill vacant positions. He said there are areas in the City where
outsourcing to temporary or hourly employees is the most effective way to do business.
Vice Mayor Eggleston suggested that Mayor Scruggs appeal to the State Legislature
and stress the negative effects that the reduction would have on the City. He agreed
that the Council should move forward with staff's recommendations.
Mayor Scruggs agreed that staff should proceed with their recommendations. She
asked Mr. McClendon if, in his professional opinion, the City would be able to pay its
bills in subsequent years if the Council continued with all of the items added into the
budget. Mr. McClendon said holding back on some of the new items would provide
more flexibility to the Council; however, he would recommend proceeding with the
police and fire positions and other priority items. Mayor Scruggs asked if it would be
wise to continue with the budget goal setting session scheduled for November 8t". Mr.
McClendon said, the goal setting session should occur sooner to allow staff to get a feel
for the policy direction that the Council will take. He noted, however, that delaying the
session until after the November 13`h Special Session of the Legislature would be a
good idea. Mayor Scruggs asked if the Council would develop dual-track budgets, one
that includes the $5 million in food sales tax and one that does not. Mr. McClendon
said he believed a dual-track budget process should be developed.
Mayor Scruggs suggested that they delay the budget goal setting session until after the
Legislature's Special Session and that staff develop a dual-track budget process. The
Council agreed. Mayor Scruggs said, in the interim, staff would estimate the financial
impacts of the current proposal. Councilmember Lieberman pointed out that a number
of the Councilmembers would be gone from December 4t through December 9th. Mr.
McClendon said he would work with staff to reschedule the goal setting session.
Councilmember Clark said other strategies, other than Capital Improvement Project
(CIP) cuts, are available. She asked staff to present those strategies for Council's
consideration.
In response to a question posed by Vice Mayor Eggleston, Mr. McClendon assured the
Council that staff would update the Council should it appear that the situation is worse
than current data indicates.
Councilmember Frate expressed his option that Governor Hull's reduction was not in
response to the events of September 11 as she had claimed.
Mayor Scruggs stressed the fact that the State controls the checkbook; therefore, it is
the City's responsibility to demonstrate the difficulties that would be caused by the
reduction. She said the State needs to hear from its constituents.
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Councilmember Martinez noted that, prior to September 11th, Governor Hull had
reported there would be a budget shortfall. He asked what other strategies could be
considered. Mr. McClendon said other strategies would include determining whether
services currently offered by the City should be continued, as well as determining if
changes should be made in terms of how employees are assigned to departments. He
expressed his opinion that across-the-board budget cuts could result in a slow
strangulation of service.
Councilmember Clark recommended that staff not look at September figures since they
would not provide an accurate picture.
Mayor Scruggs said the Council would do everything possible to protect the quality of
life that the City offers its citizens. She suggested that they look at the City of Mesa as
an example of what happens when the normal distribution of tax burden is disrupted.
ADJOURNMENT
The meeting was adjourned at 4:35 p.m.
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