SDA Annual Conference / Breckenridge, CO September 14-16, 2011

Transcription

1 SDA Annual Conference / Breckenridge, CO September 14-16, 2011 Survival of Districts in a Poor Economy: The Impact of Foreclosures and Declining Property Values on Special Districts Kim Seter Barbara Vander Wall Jacqueline Murphy Jeffrey Erb

2 Survival of Districts in a Poor Economy: The Impact of Foreclosures and Declining Property Values on Special Districts September 16, 2011 Seter & Vander Wall, P.C. 2

3 Foreclosures and declining property values are taking their toll on special districts. The Counties preliminary abstracts of assessed valuations are being released for the new assessment cycle. Many districts find themselves faced with increased foreclosures and declining property valuations, without any decrease in the cost of operations. How do Colorado special districts survive in these unique, yet increasingly more common circumstances? This session will explore special district options and limitations in learning how to survive these new economic times. September 16, 2011 Seter & Vander Wall, P.C. 3

4 HEADLINES: Special districts in Colorado face daunting budget decisions amid dip in property-tax revenues ~ Denver Post, August 7, 2011 September 16, 2011 Seter & Vander Wall, P.C. 4

5 September 16, 2011 Seter & Vander Wall, P.C. 5

6 How Did We Get Here? Assessed valuations are based on the real estate values as of June 30, These valuations form the 2011 tax base for special districts for operations in These valuations will endure for 2 years until the next assessment cycle which impacts September 16, 2011 Seter & Vander Wall, P.C. 6

7 Value based on comparable sales Taxable value is determined by taking the total actual value and dividing per a formula set by the state In 2009, tax valuations were based on values from June 30, 2008 just before the real estate bubble burst, estimated as a 40% increase over the 2007 valuations. September 16, 2011 Seter & Vander Wall, P.C. 7

8 Foreclosures Not necessarily a bad thing: Foreclosures do not wipe out taxes or fees Bank-owned property Strength in ownership September 16, 2011 Seter & Vander Wall, P.C. 8

9 Impact On District 2012 Budgets: Assessed Valuation: Decrease in AV: = less property tax revenues Increase in AV: = a pleasant surprise! September 16, 2011 Seter & Vander Wall, P.C. 9

10 Budget Options: (1) Raise revenues OR (2) Decrease expenses September 16, 2011 Seter & Vander Wall, P.C. 10

11 REVENUE RAISING ISSUES: Mill levy increase to maintain tax revenues or increase to higher levels for operations September 16, 2011 Seter & Vander Wall, P.C. 11

12 Restrictions to Mill Levy Increase: Constitutional / Statutory / Service Plan TABOR: Article X, Section 20, Colorado Constitution debt limitations , C.R.S.: 5 ½% growth limitations Service Plan limitations placed by City / County Limitations may be eliminated by election of voters amendment to service plan September 16, 2011 Seter & Vander Wall, P.C. 12

13 Election Qs: O&M Taxes (See Sample Ballot Questions A-D) Operations Tax Increase #1: High Dollar Limit / No Mill Levy Cap (Example A) Operations Tax Increase #2: Low Dollar Limit / Requires Attention to Mill Levy Based on AV (Example B) Operations Tax Increase #3: Dollar Cap / Mill Levy Cap (Example C) Operations Tax Increase #4: Fixed mill levy / Fixed dollar amount (Example D) September 16, 2011 Seter & Vander Wall, P.C. 13

14 Election Q: Taxes for Debt / Capital Purposes (See Sample Ballot Question E) General ability to increase debt service mill levy as necessary to meet debt service Electoral approval gives this authority Statutes limit the amount of debt Service plan limitations may exist September 16, 2011 Seter & Vander Wall, P.C. 14

15 Election Q: Debt for Operations Purposes (See Sample Ballot Question F) Bonds to fund operations Contractual arrangements limited use - private activity bonds concern - may not be tax-exempt qualified September 16, 2011 Seter & Vander Wall, P.C. 15

16 Election Q: TABOR exemption for non-ad valorem tax revenues aka De-Brucing or De-Taboring (See Sample Ballot Questions G - H) De-bruces District Fees, Rates & Charges Version #1: No dollar limit / All types of non-tax revenues Version #2: Limited dollar amount / Limited revenue source September 16, 2011 Seter & Vander Wall, P.C. 16

17 Service Plan: Mill Levy Restrictions Mill levy cap? Debt Service Cap O&M cap Combined DS / O&M cap? Gallagher Adjustments? September 16, 2011 Seter & Vander Wall, P.C. 17

18 Service Plan Limitation: Mill Levy Cap The Debt Service Mill Levy Cap will be the maximum mill levy the District is permitted to impose for payment of general obligation debt, shall be fifty (50) mills. O&M Mill Levy Cap: In addition to applicable statutory and constitutional limits, the District shall have a limited additional operational mill levy cap of 10.0 mills Combined Cap: There may be one capped mill levy, used for both debt service and O&M September 16, 2011 Seter & Vander Wall, P.C. 18

19 Gallagher Adjustment (Debt or O&M Mill Levy) Gallagher Adjustment: however, in the event the method of calculating assessed valuation is changed after the date of approval of this Service Plan, the mill levy limitation applicable to such debt may be increased or decreased to reflect such changes, so that to the extent possible, the actual tax revenues generated by the mill levy, as adjusted, are neither diminished nor enhanced as a result of such changes. For purposes of the foregoing, a change in the ratio of actual valuation to assessed valuation shall be deemed to be a change in the method of calculating assessed valuation. September 16, 2011 Seter & Vander Wall, P.C. 19

20 Remedy: Service Plan Amendment Service Plan Amendment Same approval requirements as original service plan: Notice and Public Hearing City / County approval required Does NOT necessarily require an election September 16, 2011 Seter & Vander Wall, P.C. 20

21 Bond Covenant Limitations? Bond Covenants Required mill levy? Pledge of revenues? September 16, 2011 Seter & Vander Wall, P.C. 21

22 Common Bond Covenant re Mill Levy Pledge: (Excerpted from Bond Resolution) Covenant to Impose Required Mill Levy. For the purpose of paying the principal of, premium if any, and interest on the Bonds, there shall be levied on all taxable property of the District, in addition to all other taxes, direct annual taxes in each of the years 2005 to 2034, inclusive in the amount of the Required Mill Levy. Nothing herein shall be construed to require the District to levy an ad valorem property tax in excess of the Required Mill Levy. NOTE: Pay attention to the Bond Resolution Definition of Required Limited Mill Levy September 16, 2011 Seter & Vander Wall, P.C. 22

23 Other Pledged Revenues : Source of Payment of Bonds. The Bonds shall constitute limited tax general obligations of the District payable from Pledged Revenue as provided herein. the Pledged Revenue is hereby pledged to the payment of the Bonds. The Bonds shall constitute an irrevocable lien upon the Pledged Revenue, but not necessarily an exclusive such lien. Pay attention to Bond Resolution Definition of Pledged Revenue ; Example: Pledged Revenue means the moneys derived by the District from the following sources, net of any costs of collection: the Limited Mill Levy; the Specific Ownership Tax; the Tap Fees; and any other legally available moneys which the District determines, in its absolute discretion, to credit to the Bond Fund. September 16, 2011 Seter & Vander Wall, P.C. 23

24 Remedy: Modify Bond Restrictions Bond modifications Revise financial structure Bond holder consent Use legal counsel! September 16, 2011 Seter & Vander Wall, P.C. 24

25 Revenue Raising: Consider Your Constituents! The political climate of the community may control over any one or all of the legal limitations Consider: Grassroots efforts Public process September 16, 2011 Seter & Vander Wall, P.C. 25

26 FEES, RATES, TOLLS, & CHARGES (Plus Other Revenues) September 16, 2011 Seter & Vander Wall, P.C. 26

27 What are Fees, Rates, Tolls and Charges? Fees, rates, tolls and charges may be imposed by special districts to defray the costs of providing services, programs or facilities. September 16, 2011 Seter & Vander Wall, P.C. 27

28 Imposing Fees, Rates, Tolls and Charges Legislative function of the District No public hearing required Reasonably related to the overall cost of the service, program or facility Uniformity Exception: Rational reason for different rates: In-District vs. Out-of-District September 16, 2011 Seter & Vander Wall, P.C. 28

29 Penalties for Non-Payment of Fees, Rates, Tolls and Charges Delinquency Charges May not exceed the greater of $15 or 5% per month Total delinquency charges many not exceed 25% of the total amount due Interest Up to 18% per year on amount due (excluding the delinquency charges) Costs of Collection September 16, 2011 Seter & Vander Wall, P.C. 29

30 Collecting Unpaid Fees, Rates, Tolls and Charges Statutory Perpetual Lien Foreclose on Property Certification of Unpaid Water and Sewer charges to County Treasurer At least 6 months past due Owe at least $150 Expenses incurred in certifying the delinquent amounts Must meet County deadline September 16, 2011 Seter & Vander Wall, P.C. 30

31 Potential Fee Revenue Restrictions Service Plan TABOR Enterprise Exception September 16, 2011 Seter & Vander Wall, P.C. 31

32 Enterprise Exception Definition of Enterprise: Government-owned business Fee for service Capable of issuing revenue bonds Less than 10% of revenues from grants No taxes Examples Water Activity Enterprise Government-owned non-profits Eagle County Air Terminal Corporation September 16, 2011 Seter & Vander Wall, P.C. 32

33 Other Revenue Sources: Grants What is a Grant? Any direct cash subsidy or other direct contribution of money from a government that is not required to be repaid Examples of State and Local Grants: Great Outdoors Colorado (GOCO) Lottery proceeds used to preserve and enhance Colorado parks, open space, outdoor recreation and trails Conservation Trust Funds (CTF) Lottery proceeds for the acquisition, development and maintenance of park recreation facilities and open spaces, and capital improvements County Open Space Grants Sales tax revenues used for preservation of open space September 16, 2011 Seter & Vander Wall, P.C. 33

34 Open Space Park and Trail Grants September 16, 2011 Seter & Vander Wall, P.C. 34

35 Other Revenue Sources: Federal Grants American Recovery and Reinvestment Act (ARRA) 2009 Federal Economic Stimulus Package $1,686,151,002 received by Colorado governments $84m (~5%) received for water / wastewater infrastructure projects September 16, 2011 Seter & Vander Wall, P.C. 35

36 Other Funding Resources: Colorado Water Resources & Power Development Authority (CWRPDA): Special District Association: WIN Colorado wincolorado.org CO Division of Local Government: September 16, 2011 Seter & Vander Wall, P.C. 36

37 Limitations on Grant Revenues Service Plan Some service plans limit the types of grant funds available to the special district TABOR Enterprise State or local grant money cannot exceed 10% of annual revenue Federal grants are not counted as revenue, even if the funds pass through a state or local government Non-Enterprise Federal, state and local grants count as revenue unless the District has de-tabored its revenue stream September 16, 2011 Seter & Vander Wall, P.C. 37

38 REDUCTION IN EXPENSES: Planning for the economy Is it too late? Short term vs. mid term vs. long term planning September 16, 2011 Seter & Vander Wall, P.C. 38

39 Reduction in Services: Share with alternative service providers, eg. HOA (recognize limitations) Water conservation (balance with reduced fee revenues) Reduction in staff (be aware of employer liability issues) Convert paid to voluntary staffing September 16, 2011 Seter & Vander Wall, P.C. 39

40 Management of Expenses: Strategic use of resources / individual expenses for the district Employees / benefits / salaries /overtime Professional services Deferred capital expenditures Review cash reserves September 16, 2011 Seter & Vander Wall, P.C. 40

41 Debt Service Shortfalls: Cyclical economy: 1980s to 2008 Post 1980s legislative fixes Protective measures Bondholder risk vs. District risk September 16, 2011 Seter & Vander Wall, P.C. 41

42 Inactive District vs. Limited Operations? Inactive districts : H.B , amending & 104, C.R.S. to create inactive district exempt from performing certain regulatory requirements restricted to the performance of a very limited number of acts Limited operations districts: Minimal activity, in compliance with all statutory requirements September 16, 2011 Seter & Vander Wall, P.C. 42

43 Inactive Districts: Inactive special district must perform statutorily required acts, unless exempted per (5), C.R.S. Required acts: execute oath of office and performance bonds for directors conduct director elections and appointments as needed provide annual reports as required by county or municipality at least one Board of Director meeting per year to confirm decision to remain on inactive status a Board of Director meeting and appropriate resolution is required to change to active status from inactive, or vice versa. September 16, 2011 Seter & Vander Wall, P.C. 43

44 Conclusions: Community balance Determine needs / wants / priorities of the community September 16, 2011 Seter & Vander Wall, P.C. 44

45 Questions? Seter & Vander Wall, P.C September 16, 2011 Seter & Vander Wall, P.C. 45