Background
Council’s first goal is to “repair, replace and maintain infrastructure (streets and utilities).” 
 
In FY2013, staff completed an analysis on the condition of critical City infrastructure, including existing City streets.  Through this effort, the current and targeted conditions of streets were assessed.  The purpose of that assessment was to help fully understand cost to maintain the City’s critical infrastructure and projected infrastructure needs. 
 
Through the FY2014 Budget process we learned that the City requires approximately $50M to bring existing streets up to the target condition of 70 out of 100 Overall Condition Index (OCI).  Additionally, staff showed that once the repairs, replacements and/or maintenance is completed, it will require $4.5M per year on-going to keep the street in the target condition.  This is a number that cannot be achieved simply through re-allocation of existing budget dollars.  Moreover, staff showed that if the catch-up is not done quickly, in five years it will cost approximately $88M and in 10 years it will cost $120M (using 2012 pricing) to bring roads to target condition.
 
Therefore, staff was directed to explore ways to address this issue with new revenue sources.  On April 9, 2013, Council examined several options for long term transportation funding.  Staff was further directed to confer with other agencies about competing revenue requests and larger transportation issues. 
 
Highlights for FY2014 Budget

• Increased on-going pavement preservation from $1.2M to $2.2M.
• Increased one time pavement preservation from $0 to $1M.

Interagency Considerations
Staff conferred with Flagstaff Unified School District (FUSD), Coconino County, Coconino Community College (CCC), and Northern Arizona University (NAU) through the Alliance for the 21^st Century.  We learned that CCC will likely be placing a property tax question on the ballot in November 2013.  We also learned that FUSD will be placing the renewal of a property tax question on the ballot in November 2014.
 
In conferring with Coconino County staff, they are facing the same maintenance and service delivery conundrum with County and Forest Service roads.  A legal option available to counties is to create a dedicated revenue source to fund county-wide transportation issues. This would cover all of Coconino County and could not be limited to smaller sections (such as FMPO boundaries). 
 
City staff has been regularly meeting with NAIPTA, FMPO and County staff on this topic.  NAIPTA provides transit services through a 0.295% sales tax and FMPO provides planning services for FUTS, bike and regional road projects.  Through these discussions, staff would like to bring forward the following proposals.
 
Conditions

• Sales Tax is the preferred revenue source:
  • 1/10 of 1% generates approximately $1.5M per year vs. 2% increase in property tax generates approximately $100,000.
  • 50% of sales tax revenue is paid by non-residents.
  • The combined state and local sales tax rate recently decreased 1% due to the sunset of the 1% temporary State sales tax increase. 
• Of the City’s current 1.721% sales tax, .721% is dedicated by the voters to pay for transportation as follows:
  • 0.295% goes to NAIPTA for Transit Services
  • 0.16% goes for the debt service for the 4^th Street Rail Road Overpass.
  • 0.186% goes for Regional Transportation Plan (RTP) Improvements such as the Soliere Avenue connection, Empire Avenue connection, West Street improvements, and forthcoming Beulah Boulevard Extension, and University Avenue intersection realignment.
  • 0.08% goes to Safe Schools improvements which funds sidewalks, crossings and pick-up/drop-off zones at most elementary schools.
  • This tax is set to expire in 2020.
• $50M of street repairs and maintenance would likely take at least 3 years of construction.
• Currently $2.2M in on-going funding is budgeted between HURF and General Fund for maintenance.
• Municipal sales tax elections must be held at General Elections.
• If the Cities of Phoenix and Tucson are successful in their lawsuit against the State, Flagstaff can hold this election in May 2014.
• If the Cities of Phoenix and Tucson are unsuccessful in their lawsuit against the State, Flagstaff would have to hold this election in November of 2014 at the earliest.
• The Arizona State Legislature has moved all municipal general elections to November of even years.
• Flagstaff voters are scheduled to vote on the Regional Plan in May 2014.  This election is already budgeted.  If Flagstaff is able to hold this election in May 2014, then election costs would be significantly less than if held in November 2014.  In addition, outreach efforts and resources would be efficiently coordinated.
• Any possible County proposal for a dedicated revenue source to fund county-wide transportation issues could be voted upon in November 2014 or possibly May 2014.
• Recommendation is to continue efforts to recover HURF funding from State and allocate to the on-going maintenance costs.
• Recommendation is to continue with proposal even if Coconino County does not move forward with a ballot proposal.  If County does move forward, City will work with the County to consider opportunities for funding some transportation projects with the County’s dedicated revenue source.

Proposal Details

• Question #1: Repair, replace and maintain existing streets – 0.279% = $4.2M a year/ $63M over 15 years/ $105M over 25 years.
  • Borrow $50M in Years 1-3 to address projects.
  • Pay debt service over 15 years (would require all $4.2M annually).
  • Pay debt service over 25 years (requires $3M annually). 
  • Balance:
    • $1M annually toward on-going maintenance.  Balance to come from General Fund and HURF.
    • $200,000 annually toward FUTS capital and maintenance.
  • Authorize any ancillary repairs to streets such as curb, gutter, sidewalks, bridges, and bike lanes.
• Question #2A: Transit – from 0.295% to 0.3% = $4.5M/year total, or a $100,000 increment
  • Maintains all existing services
  • Hybrid Fund becomes capital fund
• If the incremental rate of 0.279% will be used to fund a bond issue for 15 yrs then ongoing maintenance of $2.3M will be needed from this fund.  If the 0.279% can be used to pay debt issued for a 25 year term, then ongoing maintenance of $1.3M will be needed from this source.
• Ability to pay-as-you-go or bond for projects ($5M a year or $100M over 20 years).
• May spend up to $70 million on RTP projects. Possible candidates:
  • $50M Lone Tree Overpass
  • $10M I-40 and 4^th Street Bridge
  • $10M JWP from Lake Mary to the Airport
• $30M toward Rio de Flag (if three preceding projects funded).
• Authorize any ancillary repairs to streets such as curb, gutter, sidewalks, bridges, and bike lanes.
• Question #2B: RTP Improvements, Rio de Flag  and Ongoing Maintenance 0.421% = $6.3M a year

Proposal Options
Council directed staff to take a wholistic approach toward matching revenue with transportation needs.   While both proposals accomplish this, one does so in a single election while the second accomplishes across multiple elections.

• Option 1 - Present 3-5* potential questions at the 2014 election:
  • Question #1: A new 0.279% sales tax increase for 25 years (2015 – 2040) to accomplish and maintain $50 million repair and maintenance backlog
    • Not possible to finance a bond over more than 25 years.
    • May choose 15 or 20 years as an alternative with repercussions on on-going maintenance. (Question for Citizen Review Committee.)
  • Question #2: Extend the existing transportation sales tax of 0.721% to fund transit, regional transportation plan (RTP) improvements and Rio de Flag Flood Control Project.
  • From 2020 – 2040
  • Fund breakdown:
    • 0.3% for transit.
    • 0.421% for RTP improvements, Rio de Flag, and ongoing maintenance
  • Question #3: Authorization to bond for transportation projects and use these sales tax revenues as repayment source.
  • *A fourth question may need to be considered regarding the City’s expenditure limitation.  The City is statutorily restricted on the amount it can spend annually.  As the City determines the path forward, analytics will be completed to assure the City has the appropriate authority to spend the additional dollars that will be generated through this rate increase.  Should the City not have sufficient expenditure capacity, a fourth question will be proposed that increases this capacity.
  • A fifth question might be a dedicated revenue source to fund county-wide transportation issues.
     
• Option 2 – Present 4-5 questions over two elections.
  • Question #1A: Propose a new 0.279% sales tax increase for 25 years (2015 – 2040) to accomplish and maintain $50M repair and maintenance backlog. Propose at the November 2014 election. Or
  •  Question #1B: Propose a 1.0% sales tax for 3.5 years (Jan 2015 – June 2018) to accomplish and maintain $50 million repair and maintenance backlog. No additional funds for on-going maintenance. Propose at the November 2014 election.
  • Question #2A: Propose extending the NAIPTA Transit tax of 0.3% for 20 years (from 2020 – 2040) at the 2018 election.
  • Question #2B: Propose renewing the transportation sales tax at 0.321% to fund transportation improvement, ongoing maintenance costs and FUTS projects over 20 years (2020 – 2040) at the 2018 election.
  • Question #4: propose a 0.1% sales tax to partially fund the Rio de Flag Flood Control project over 20 years (2020-2040) at the 2018 election.
  • A fifth question might be a dedicated revenue source to fund county-wide transportation issues.

Discussion Questions

1. Is Council interested in exploring this proposition further? 
2. Should Rio de Flag be included or should it be strictly transportation related?
3. Are you willing to file an amicus brief in the Phoenix and Tucson lawsuit at the appellate level to advocate for the possibility of May general elections?
4. Should we take this to a Citizen Review Committee for comments and alternatives?
   1. Role of Committee – identify scope and tasks
   2. Sales or Property Tax
   3. Rio de Flag Flood Control Project
   4. How to frame the ballot questions and single election or two elections
   5. Publicity Pamphlet