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If you’ve read this blog for awhile you’ve no doubt noticed the participation of the great and wonderful Steve Toler, Foster City’s director of Aministrative Services. Steve’s a really terrific guy and a few weeks ago he e-mailed me some information about the state of Foster City in this current downturn and I thought it would be pertinent to print it “As Is” It’s good news, by and large, and speaks to how solid this community is…and will be going forward. Here we go, in the words of Mr. Toler himself:
 
“We presented our mid-year financial picture to the Council this week.  In case it’s interesting info to add to a blog entry in the near future about the impact this economy is having locally, here are the big issues we are facing:
 
The executive summary is that the City is in a healthy financial position.  We have $18 million in General Fund reserves (I explain why that’s important below), and have been blessed with good decision making the past 40 years to have a healthy mix of revenues.  It is not planned to reduce any services at this time.  Nevertheless, we are being conservative in our financial projections and are going to be vigilant in the next 5 years in ensuring we stay financially solvent while maintaining services at their existing levels.
 
Other than water, sewer, and certain capital projects, for the most part the City relies on property taxes, sales taxes, vehicle license fees, franchise taxes (from AT&T, Comcast, PG&E) and transient occupancy (hotel) taxes to pay for police, fire, parks & recreation, and the various other services residents enjoy.  This is known as the City’s “General Fund”, and is the most important fund we balance in any given year. With that as background…
  • Property taxes are holding their own at a 4% growth from the previous year, right on target with what the City projected.  Our total property tax revenue is about $11 million.  As you’ve indicated in your blog, we are seeing relatively few foreclosures and vacant properties, so the taxes are being paid at their assessed values back in January 2008.  That being said, real property transfer taxes (the one-time “make up” you have to do when you buy a home) is significantly down from last year, by about 50%, given the slowdown in the market.
  • Sales taxes are hurting … we are currently about 15% below our original projections, and I expect we will be 20% below projections by year end, that will be about a $1 million shot across the bow.  We assumed $5 million at the beginning of the year, but it’s looking more like $4 million.
  • Vehicle license fees, what we pay to the State for our car registration each year, come back to the cities to fund road projects, street maintenance, etc.  Those revenues are holding their own (~ $2.5 million), but the impact of fewer and fewer new cars being purchased may drop that next year.
  • Franchise taxes (~ $1 million) are holding their own, and we may even see a bit of an increase as more people spend money on television services like Comcast and AT&T UVerse during a recessionary period.
  • Transient occupany taxes ($1.5 million) are also holding their own, predominantly due to the fact that the Crowne Plaza has successfully negotiatied contracts with various airlines to house their flight crews.  However, if the economy takes its toll on business and personal travel, those revenues could slip in future years.  FYI, Foster City’s TOT rate is 8%, the lowest in the County.  In fact, every other city has their TOT rate at 10%, with some at 12%.  Cities hurting financially are looking at increasing their TOT rates right now.  Council has indicated they are not interested in doing that at this time.
Given all of this, the City’s General Fund reserves remain healthy at over $18 million.  To put this into perspective, cities and non-profit agencies strive to maintain 25% (or 90 days) of annual expenses in their reserves to allow them time to “tack and jibe” if revenues were to dry up.  The City’s reserves are ~ 60% of annual operating expenditures.  We have been, and intend to continue to be, good stewards of the financial resources we have been entrusted to manage.  That being said, we believe that we probably won’t see the bottom of this economic recession for at least another 18-24 months.  We’ve already seen a delay in the Mirabella / Parkview Plaza project for at least one year as the developer assesses the credit crunch that is impacting its ability to fund the project.  The lease agreement would have pumped $2 million into the City’s General Fund to allow us to proactively fund capital improvement projects like parks, roadway improvements, and city facility improvements.  We are now determining what impact the delay in development may have on long-term capital financing requirements and city services over the next 5 years.
 
A ray of sunshine, however, was the sale of one of the EFI buildings plus its undeveloped land to Gilead Sciences, which closed on January 29.  This will pump approximately $800k in additional property tax revenues into the City’s General Fund annually, and will allow Gilead to continue their plan to develop the Lakeside Drive area into a prime research facility and campus.”
 

Comments

  1. Dana Ferri says:

    This is great, Jim (and Steve!). Thanks for posting. Sure beats the doom & gloom local news in the Chronicle any day!

  2. Property tax value is only 11M. Is this the cause of prop 13?

  3. OK, Jim, I’ve said it before and I’ll say it again … I’m not “great and wonderful”, I just happen to know stuff, that’s all. And this is an area I know pretty well.

    I want to make one point that I didn’t stress above. As people are looking for a community in which to live, work, and raise their family (if they so choose), I can’t stress enough the importance of knowing that community’s financial health. We all know about Vallejo’s bankruptcy, the impact foreclosures are having on Stockton, Rio Vista, Fairfield, etc. Even San Carlos is hurting right now and are desperately seeking to implement a utility users tax to stave off serious cuts. San Mateo has had to look at 10+% cuts, and San Bruno has frozen salaries and hiring to avoid any layoffs. It’s ugly out there. But the financial health of the community will have a dramatic impact on the services one can enjoy in that community … roadways, stormdrains, street lights, water / sewer services, parks and recreational amenities … and probably most importantly police and fire services. We take those for granted, but if a City hurts financially, typically 80% of a city’s costs are personnel, and that equates to service reductions. OK, enough said on that…

  4. Alex — not sure if I totaly understand your question, but let me take a stab at what you might be asking. When Prop 13 went into effect in the late 70’s, property tax rates were reduced to a total rate of 1% of the assessed value of the property at that time. The assessed value can increase by 2% per year as an inflationary factor. Taxing agencies (including cities, counties, school districts, special districts, etc) will only see enhanced property tax revenues when someone sells their house, which becomes the new assessed value.

    Another tidbit of information is that when rates were locked at 1%, the taxing agencies were given their pro-rata share of whatever they got before. So, in the case of Foster City, our tax revenues were about 26% of the total taxes that were levied on property at that time. San Carlos, for example, was only ~ 12%. So ever since Prop 13 went into effect, FC is getting 26 cents for every property tax dollar you pay on your property. San Carlos, however, only gets 12 cents on the dollar. That makes a HUGE difference in the revenues collected by that agency.

    So FC’s property taxes for 2008-2009 are estimated to be $11 million. That is based on approximately $6 trillion of assesed value (AV) of all the properties in our City limits. AV has been growing at a rate of anywhere from 5-12% over the past 10 years. Remember, other than the 2% CPI factor, it only grows when someone sells their home / property. During this downturn of property values, we will only see a decrease if there is a preponderence of short sales or sales below current assessed values. However, there are also several people selling homes in this market that have been around for a while and are still seeing gains on their property. Markets like Fairfield, Rio Vista, and Stockton are going to be in a world of hurt becuase they have relied on a certain tax base, and that is eroding quickly with foreclosures. We do not expect that to be the case in Foster City given the relatively low amount of foreclosure notices and short sales in this town.

    If that didn’t answer your question, let me know. (Probably more than you wanted to know!) 🙂

  5. Steve: thanks for the information 🙂

    I would assume that you mean $6 billion AV, instead of 6 trillion, which is almost half of US GDP. Still, 1% property tax would mean $60 million revenue. So, there is a $49 million shortfall.

    I wonder what might cause the shortfall:
    . foster city only gets a small proportion of the above
    . a lot of houses are taxed much lower because of prop 13
    . the combination of the above two

    Can you give us a little more information about that?

  6. SteveTinFC says:

    Heh heh, $6 trillion … that was a bit too hopeful on my part, wasn’t it? LOL Yes, it’s $6 billion (with a B). And I was trying to not get too complicated, but here we go…

    Remember what I said … we only get 26% of the 1%, so of $60 million, we would get around $15 million. However, part of the assessed value I mentioned above is wrapped up in our Community Development (Redevelopment) Agency (aka “CDA”). The $11 million in property tax revenues are the portion that the City (through its Estero Municipal Improvement District) gets. The assessed value in the Community Development Agency goes to the agency, which in turn reinvests that money into redeveloping properties. An example is Marlin Cove Shopping Center / Apartments. The increased assessed value, or “tax increment”, that was generated by the redevelopment of that land is within the CDA. In that case, the CDA gets virtually ALL of the tax increment. Each project area has a specified timeline under which that money stays with the CDA. After that time,it goes back to the taxing agencies that share in the 1% pool.

    Our CDA has 3 project areas … Marlin Cove, Miramar Apartments (formerly Port o’ Call Shopping Center), and an area known as “Project One”, which encompasses much of the commercial area north of 92 and the non-residential areas along E. Hillsdale Blvd (including the Civic Center campus). The Project One area will reach the end of its life in 2010-2011. At that time, there will be an infusion of tax increment that will go back to the City, schools, and other taxing agencies. We estimate that the increased tax revenue in the City’s General Fund will be around $3-4 million. So by 2010-2011, our property tax revenues will be up beyond $15 million. You asked! 🙂

    One final note … by next year, the City will be entirely debt free! All of its bonds will be paid off. Some of you that have lived in this community from the start should rejoice and tell the rest of the world “See, I told you so … I told you this community would thrive!” That in and of itself is testament to the sound financial condition we are in as a community.

    We are not through this storm yet … in fact, the City probably hasn’t see the first wave of turbulent financial times. But we are well prepared going into the storm that’s coming for local government.

  7. Thanks for the explanation and I can see the good job that city officials are doing! (except the hight school)

    Since 75% of tax would go to san mateo county, it occurs to me that we should file more reduce value claim 🙂

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