Diminishing Returns: Oregon Cities’ Struggle to Afford Basic Services

Diminishing Returns:Diminishing Returns:Oregon Cities’ Struggle to Afford Basic ServicesOregon Cities’ Struggle to Afford Basic Services

Barney & Worth, Inc.

E.D. Hovee & Co.

March 2002

Financial Forecast for Oregon CitiesFinancial Forecast for Oregon CitiesBarney & Worth, Inc. Barney & Worth, Inc. E.D. Hovee & Co. E.D. Hovee & Co.

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PresentationPresentation

Consultant TeamClark Worth Barney & Worth, Inc.

Eric Hovee E.D. Hovee & Co.


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Advisory Committee Advisory Committee ––The City Center @ LOCThe City Center @ LOC

Wes Hare, Chair, La Grande Helen Berg, CorvallisBarton Brierley, NewbergScott Burgess, West LinnDuane Cole, NewbergMike Hibbard, University of

OregonJulie Krueger, The DallesChris Lassen, GreshamKate Mast, Cascade Locks

Jon Nelson, CorvallisMark Seltmann, AthenaStephanie Smythe, SalemBrent Steel, Oregon State

UniversityScott Taylor, CanbyRandy Wetmore, RoseburgMatt Winkel, BandonLynn McNamara, LOC


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Expert PanelExpert Panel

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


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Phase I MethodologyPhase I Methodology

• Case Studies of 7 Cities

• Survey of All Oregon Cities – 109 Responses

• NLC Annual Survey – Comparisons

• “Weather Report”


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Case StudiesCase Studies


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Case Study CitiesCase Study Cities

2000 1990s Population Growth (%)Corvallis 49,332 10.2Enterprise 1,895 0.0Garibaldi 899 1.4Grants Pass 23,003 31.4Gresham 90,205 32.2Prineville 7,356 37.3Scappoose 4,976 41.0


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Case Study PurposesCase 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


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Revenue Trends & IssuesRevenue 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


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Change In Assessed Value – Change In Assessed Value – The Trend is NegativeThe Trend is Negative

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

% C

han

ge O

ver

Fiv

e Y

ear

Per

iod

Garibaldi Enterprise Scappoose Prineville Grants Pass Corvallis Gresham

1990-95 1995-00


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Property Tax – Shrinking Share of Property Tax – Shrinking Share of City RevenuesCity Revenues

0%

10%

20%

30%

40%

50%

60%

Pro

pert

y T

ax %

of

Gov

ernm

enta

l Rev

enue

s


1990 1995 2000


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Gaining Importance:Gaining Importance:Enterprise Funds…Enterprise Funds…

0%

10%

20%

30%

40%

50%

60%

Per

cen

t of

Tot

al R

even

ues


1990 1995 2000


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… … and Utility Fees and Chargesand Utility Fees and Charges

0%

10%

20%

30%

40%

50%

60%


1990 1995 2000


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General Fund – A Declining Share General Fund – A Declining Share of Total Revenuesof Total Revenues

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%


1990 1995 2000


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Expenditure Trends & IssuesExpenditure 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


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Government Expenditures Per Government Expenditures Per Capita – Slow or Negative in 1990sCapita – Slow or Negative in 1990s

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

Gov

ern

men

t E

xpen

dit

ure

s P

er C

apit

a (I

nfl

atio

n A

dju

sted

)


1990 1995 2000

Population Decline 1995- 2000


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Capital Outlays – Declining & Capital Outlays – Declining & UnpredictableUnpredictable

0%

5%

10%

15%

20%

25%

30%

35%

Per

cen

t of

Gov

ern

men

t E

xpen

dit

ure

s


1990 1995 2000


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Case Study Summary – Case Study Summary – Main MessagesMain 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


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Bottom Line – Bottom Line – Surpluses In TroubleSurpluses In Trouble

-$200

-$150

-$100

-$50

$0

$50

$100

$150

$200

$250

An

nu

al P

er C

apit

a S

urp

lus

(Def

icit

), I

nfl

atio

n A

dju

sted


1990 1995 2000

Local Option Levy

Reduced Capital Outlay

Reduced Capital Outlay


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Survey of Oregon CitiesSurvey of Oregon Cities

• All cities invited to participate

• 109 cities responded

• All size categories

• Growing vs. stable communities

• Rural, metro


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Survey QuestionsSurvey 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?


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Positive Effects on Positive Effects on City RevenuesCity Revenues

1. Good economy; steady growth; growth in assessed value

2. New and increased fees:– Franchise fees/utility taxes– Building permits– SDCs


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Positive Effects onPositive Effects onCity Revenues (Cont.)City Revenues (Cont.)

3. Special levies for libraries, police, streets

4. Measures 47/50 added new construction to tax base

5. Other positives: federal grants, annexation, room tax revenues, enterprises


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Negative Effects on Negative Effects on City RevenuesCity Revenues

1. Measures 5 and 47/50 impact on property taxes2. Gas tax not keeping up with inflation and

population growth3. Lack of economic growth; stagnant economy;

plant closures4. Inadequate fees, SDCs5. Reductions in other sources: revenue sharing,

timber receipts


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Positive Effects Positive Effects ––ExpendituresExpenditures

1. Growth: economy, population2. Decline in interest rates; low inflation3. Stable labor costs, COLAs, workers comp4. Investments in new infrastructure, reducing

O&M costs5. Productivity improvements: new technology,

City teamwork6. Effective cost containment


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1. Growing public expectations for service: faster, better, more

2. Pension/health care cost increases

3. State/federal mandates: especially environmental

4. Other uncontrolled costs: energy!– Property/liability insurance

– Litigation

– Natural disasters

– Binding arbitration for public safety

Negative Effects Negative Effects ––ExpendituresExpenditures


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Revenue ActionsRevenue 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.

Revenue Actions* 2001 Oregon

Future No Change / No Response

2001 National**

1. Fees & charges 49% 40% 35% 35%

2. Impact/development fees 33% 40% 39% 17%

3. Other taxes 13% 21% 74% N/A

4. Property taxes 7% 22% 76% 22%

5. Business taxes 8% 11% 82% N/A


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Expenditure ActionsExpenditure 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%

Expenditure Actions 2001 Oregon

Future No Change/ No Response

2001 National*

1. Infrastructure/spending increase 40% 53% 31% 65%

2. Pension/health care increase 36% 38% 45% N/A

3. Operating spending increase 36% 39% 45% 62%

4. City service levels* * 33% 32% 54% 31%

5. Productivity increase 31% 27% 62% 43%

6. Public safety spending 25% 35% 54% 83%

7. Interlocal agreements 17% 31% 66% 24%

8. Contract out services 15% 28% 62% 29%


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Better/Less Able to Meet Better/Less Able to Meet Financial Needs in 2001Financial Needs in 2001

* Compares Oregon with results of a survey of 325 cities conducted by National League of Cities in March-April 2001.

Oregon National*

Better able 22% 46%

Less able 59% 54%

Not sure/no change 19% NA


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Weather Forecast:Weather Forecast:City Revenue SourcesCity Revenue Sources

Enterprise Funds

Sales and User Fees

Fines and Penalties

Property Taxes

Business License Taxes / Fees

Transient Lodging Taxes

State-Shared Revenues

Urban Renewal

?Utility Franchise Fees

Building / Development Permits

SDCs

One-Time Revenues


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Weather Forecast:Weather Forecast:Property TaxProperty 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


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Oregon Demographic Trends: Oregon Demographic Trends: 2000-20012000-2001

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.


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Weather Forecast:Weather Forecast:Cost PressureCost 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?


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Strategies: Strategies: At Local LevelAt 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


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Strategies: StatewideStrategies: 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


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Your Turn!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?

Documents

Diminishing Returns: Oregon Cities’ Struggle to Afford Basic Services