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Diminishing Returns: Oregon Cities’ Struggle to Afford Basic Services

Diminishing Returns: Oregon Cities’ Struggle to Afford Basic Services. Barney & Worth, Inc. E.D. Hovee & Co. March 2002. Presentation. Consultant Team Clark Worth Barney & Worth, Inc. Eric Hovee E.D. Hovee & Co. Wes Hare, Chair, La Grande Helen Berg, Corvallis

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Diminishing Returns: Oregon Cities’ Struggle to Afford Basic Services

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  1. Diminishing Returns:Oregon Cities’ Struggle to Afford Basic Services Barney & Worth, Inc. E.D. Hovee & Co. March 2002

  2. Presentation Consultant Team Clark Worth Barney & Worth, Inc. Eric Hovee E.D. Hovee & Co. Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  3. Wes Hare, Chair, La Grande Helen Berg, Corvallis Barton Brierley, Newberg Scott Burgess, West Linn Duane Cole, Newberg Mike Hibbard, University of Oregon Julie Krueger, The Dalles Chris Lassen, Gresham Kate Mast, Cascade Locks Jon Nelson, Corvallis Mark Seltmann, Athena Stephanie Smythe, Salem Brent Steel, Oregon State University Scott Taylor, Canby Randy Wetmore, Roseburg Matt Winkel, Bandon Lynn McNamara, LOC Advisory Committee –The City Center @ LOC Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  4. Nancy Brewer, City of Corvallis Linda Burglehaus, Multnomah Co. Tax Supervisory Commission Rebecca Marshall Chao, Regional Financial Advisors Lance Colley, City of Roseburg Jef Faw, City of Medford Mark Gardiner, Western Financial Group Terry McCall, City of Gresham Ken Rust, City of Portland Kathy Tri, City of Newberg Gary Wallace, City of Wilsonville Bruce Weber, OSU Extension Service Expert Panel Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  5. Phase I Methodology • Case Studies of 7 Cities • Survey of All Oregon Cities – 109 Responses • NLC Annual Survey – Comparisons • “Weather Report” Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  6. Case Studies Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  7. Case Study Cities 2000 1990s Population Growth (%) Corvallis 49,332 10.2 Enterprise 1,895 0.0 Garibaldi 899 1.4 Grants Pass 23,003 31.4 Gresham 90,205 32.2 Prineville 7,356 37.3 Scappoose 4,976 41.0 Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  8. Case Study Purposes Purposes: • Selection of cross-section of cities – size, growth, location • Quantitative review of revenue / expenditure changes & issues since Measure 5 • Comparison of 90-95 versus 95-00 time periods • Qualitative comments by participants Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  9. Revenue Trends & Issues • Strong assessed value (TAV) growth in early 90s followed by flattened/declining values since • Governmental growth mixed – depending on offsets to property tax • Property taxes declining as % of total revenues • Utility/franchise fees and other taxes increased % of revenues • Declining general fund resources offset by growth in special revenues & enterprise funds Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  10. Change In Assessed Value – The Trend is Negative Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  11. Property Tax – Shrinking Share of City Revenues 60% 50% 40% Property Tax % of Governmental Revenues 30% 20% 10% 0% Garibaldi Enterprise Scappoose Prineville Grants Pass Corvallis Gresham 1990 1995 2000 Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  12. Gaining Importance:Enterprise Funds… Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  13. … and Utility Fees and Charges Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  14. General Fund – A Declining Share of Total Revenues Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  15. Expenditure Trends & Issues • Less consistency in CAFR accounting • Governmental expenditures up strongly 90-95, declining from 95-00 • Public safety increased share of expenditures 90-95, declining 95-00 • Capital funding declining or unpredictable share of expenditures Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  16. Government Expenditures Per Capita – Slow or Negative in 1990s Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  17. Capital Outlays – Declining & Unpredictable Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  18. Case Study Summary – Main Messages • Surpluses are in trouble • Ending fund balances recovered early 1990s, stagnated thereafter • Strong TAV growth of early 1990s cannot be relied upon for the future • City revenues continuing to shift from property tax • Oregon cities responded resourcefully to changes of the 1990s • Opportunities for local innovation appear more constrained through 2010 • Signs of impending fiscal strain – with timing exacerbated by economic downturn Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  19. Bottom Line – Surpluses In Trouble Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  20. Survey of Oregon Cities • All cities invited to participate • 109 cities responded • All size categories • Growing vs. stable communities • Rural, metro Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  21. Survey Questions • City revenues: positive / negative factors since 1990 • Expenditures – positive / negative factors • Effect of property tax limitations in 1990s • Revenue actions planned: 2001 and beyond • Expenditure / service actions planned • Better / less able to meet financial needs this year? Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  22. Positive Effects on City Revenues • Good economy; steady growth; growth in assessed value • New and increased fees: • Franchise fees/utility taxes • Building permits • SDCs Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  23. Positive Effects onCity Revenues (Cont.) • Special levies for libraries, police, streets • Measures 47/50 added new construction to tax base • Other positives: federal grants, annexation, room tax revenues, enterprises Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  24. Negative Effects on City Revenues • Measures 5 and 47/50 impact on property taxes • Gas tax not keeping up with inflation and population growth • Lack of economic growth; stagnant economy; plant closures • Inadequate fees, SDCs • Reductions in other sources: revenue sharing, timber receipts Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  25. Positive Effects –Expenditures • Growth: economy, population • Decline in interest rates; low inflation • Stable labor costs, COLAs, workers comp • Investments in new infrastructure, reducing O&M costs • Productivity improvements: new technology, City teamwork • Effective cost containment Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  26. Negative Effects –Expenditures • Growing public expectations for service: faster, better, more • Pension/health care cost increases • State/federal mandates: especially environmental • Other uncontrolled costs: energy! • Property/liability insurance • Litigation • Natural disasters • Binding arbitration for public safety Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  27. Revenue Actions * Nearly all are increases ** Compares Oregon with results of a survey of 325 cities conducted by National League of Cities in March-April 2001. Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co. * Nearly all are increases ** Compares Oregon with results of a national survey of 325 cities conducted by National League of Cities in March - April 2001.

  28. Expenditure Actions * Compares Oregon with results of a survey of 325 cities conducted by National League of Cities in March-April 2001. ** Oregon increase – 23%; decrease – 24% Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  29. Better/Less Able to Meet Financial Needs in 2001 * Compares Oregon with results of a survey of 325 cities conducted by National League of Cities in March-April 2001. Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co. * Nearly all are increases ** Compares Oregon with results of a national survey of 325 cities conducted by National League of Cities in March - April 2001.

  30. Weather Forecast:City Revenue Sources Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  31. Weather Forecast:Property Tax • Assessed values flat and/or declining • Today: 49 cities in compression (up from 41) • Revenues lost: 5 cities losing $50k to $3.9m • Assessed value not reaching 3% ceiling in 31 cities Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  32. Oregon Demographic Trends: 2000-2001 • Sustained population growth for Oregon and the Pacific Northwest • Moderate growth in children (0-4 years), K-12 (5-17), and young adults • Significant increase in criminally “at risk” population (males 15-39) • Significant growth in older wage earners and elderly • No growth in prime wage earners (25-44) Source: Oregon Economic and Revenue Forecast, Oregon Department of Administrative Services, September 2001. Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  33. Weather Forecast:Cost Pressure • Demographic trends creating growing service demand • PERS employer contributions expected to increase • Employee health costs rising faster than inflation • Environmental mandates • Measure 7? • Response to terrorism? Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  34. Strategies: At Local Level • Cities/counties/districts need flexibility to pursue revenues • Education effort for public • Stimulate economic development • Formation of special service districts • Public/private partnerships • Regionalization of services, intergovernmental agreements to seek economies of scale Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  35. Strategies: Statewide • Bi-partisan leadership for statewide tax reform • Educate Legislature and Governor about effects of unfunded mandates • Allow cities more flexibility • Increase state-shared revenues • Revise statewide initiative process Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

  36. Your Turn! • What’s the current situation facing your city? • Looking ahead, which revenues can grow: • Faster than inflation? • Faster than population? • Your ideas for solutions? Financial Forecast for Oregon Cities Barney & Worth, Inc. v E.D. Hovee & Co.

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