Funding Sources for Parks, Trails, and Greenspace in Salem, Oregon

Transcription

1 Funding Sources for Parks, Trails, and Greenspace in Salem, Oregon Draft December 14, 2006 (revised March 1, 2007)

2 Table of Contents Introduction...3 Executive Summary...4 Fiscal Portrait...6 Budget...6 Debt...7 Parks and Recreation in Salem...8 Local Parks, Trails and Greenspace Funding...10 Property Taxes...10 Bonds...16 System Development Charges...19 Specific Tax...32 City Park and Recreation Fees...33 Other City Budget Funds...34 Local Improvement District Assessments...35 Special Districts...37 Urban Renewal Agency...41 State Parks, Trails and Greenspace Funding...44 Federal Parks, Trails and Greenspace Funding...46 Election Analysis...55 Voter Turnout and Registration...55 Election Results...56 Appendices...60 Appendix A: State and Local Conservation Measures... I Appendix B: Park System Development Charges...III Appendix C: Analysis of Parks SDCs in Communities Located in Metro Portland... IV Appendix D: Salem s Park SDC Expenditures, FY I Appendix E: Private Funding Sources...VII Appendix F: Local Funding Options Matrix... XI Appendix G: Trail Funding Matrix... XIV Page 2

3 Introduction The Trust for Public Land (TPL) is a national nonprofit land conservation organization working to protect land for human enjoyment and well-being. TPL helps conserve land for parks, greenways, recreation areas, watersheds and wilderness. To date, TPL has helped protect almost 3,300 properties, totaling over 2.2 million acres all fifty states. In Oregon, TPL has helped protect over 71,700 acres. To help public agencies or land trusts acquire land, TPL assists communities in identifying and securing public financing. TPL s conservation finance program offers technical assistance to elected officials, public agencies and community groups to design, pass and implement public funding measures that reflect popular priorities. Since 1996, TPL has supported six successful statewide and local conservation finance ballot measures in Oregon, generating over $900 million dollars for parks and land conservation purposes. The objective for this study is to research and analyze the most viable local, state and federal funding sources for parks, recreation facilities, trails, and greenspaces in the City of Salem, including a detailed analysis of the Parks System Development Charge. Page 3

4 Executive Summary The City of Salem is in the midst of updating its 1999 Comprehensive Park Systems Master Plan, which will include the addition of information on the city s trails and open space needs and funding strategies to finance parks, trails and greenspace in the city. This report analyzes Salem s current funding for its parks and greenspaces and examines the most viable options for financing park and greenspace acquisition and maintenance. In Oregon, a range of public financing options have been utilized to fund parks and for land conservation, such as the property tax and general obligation bonds. However, due to constitutional restrictions and limitations inherent to these mechanisms, system development charges and the creation of districts with the capacity to impose assessments, levy taxes and issue bonds are becoming increasingly popular funding mechanisms in the state. This study delves into each of these options from property taxes to special districts as well as less frequently used mechanisms, such urban renewal funds and franchise fees, as tools for financing land conservation and open space acquisition in the city of Salem. Many of these funding options require voter approval. Voters in Salem have shown little appetite for public finance/spending measures in recent elections; since 2000, Salem voters have rejected seven finance measures, including two parks-related measures. Therefore, public opinion polling is recommended to gauge potential support for any funding measure to be considered for parks, trails, and greenspace in Salem. Appendix F to this report contains a chart summarizing the local funding options presented in this report, while Appendix G provides a matrix of these funding options as they relate to trails. The local funding options considered in this report are as follows: 1. Property Tax, or Local Option Levy, for either operation and maintenance or capital projects. An operation levy may be imposed for a maximum of five years, while a capital project levy may be imposed for the lesser of the useful life or ten years. A double majority (majority of voters at an election with at least 50 percent voter participation) or a simple majority of voters must approve the local option levy at an even-numbered general election. A local option levy of $0.25 could generate an estimated $2 million a year at an annual cost of $38 for the typical Salem household. 2. General Obligation Bond proceeds that may be used for land acquisition or park and greenspace capital projects, but not for operation and maintenance purposes. A general obligation bond must be approved by a double-majority of voters or a simple majority of voters at an even-numbered general election. A $25 million general obligation bond could be supported by a $0.25 property tax, which would cost the typical household $38 a year. 3. Revenue Bonds may be issued by city resolution, though city voters may petition for an election. A $25 million revenue bond with a 20-year maturity requires debt service payments of $2 million a year. City fees, taxes, or other revenue must be pledged to pay the debt service on revenue bonds. As such, revenue bonds have historically been used for water and sewer purposes. Page 4

5 4. System Development Charges, or developer impact fees, provide funding for park and recreation capital projects for new residential developments. Salem has not updated its Park SDC since 1999 and is in the midst of updating its rates. 5. Franchise Taxes generate revenue that may be used for capital or maintenance purposes. A percentage allocation from the city franchise tax revenue could be considered. For instance, a 15 percent allocation from Salem s franchise tax revenue would generate about $1.9 million a year for park, trail and greenspace purposes. 6. Specific Tax, or a tax imposed as a fixed sum on residential and/or commercial units for park, trail and greenspace purposes. A charter amendment approved by a simple majority of city voters is required. 7. City Park and Recreation Fees could be assessed or increased to generate more revenue for parks, trails and greenspace. However, any new assessment or increase to the fees must be balanced against the affordable provision of park and recreation services to Salem residents. 8. City Transportation and Stormwater/Wastewater Funds could be accessed for parks, trails, and greenspaces where the projects have compatible goals. 9. Local Improvement District Assessments are levied on properties benefited by the park, trail or greenspace and based on the amount of benefit received by the property. Formation of a local improvement district and imposition of an assessment require preparation of plans, public hearings, and notice. 10. Park and Recreation Districts may levy property taxes and issue bonds. Formation of a park and recreation district requires petition to the County Commissioners. A simple majority of voters must approve district bonds. 11. Urban Renewal Agencies raise funds through tax increment financing (property taxes and bonds) but rarely dedicate such funds to park purposes, though park and recreation facilities are often part of the urban renewal plan. This study also includes information on state and federal grant programs that are available for parks, trails and greenspace in Oregon. Finally, Appendix E to this report contains a list of private funding sources. Page 5

6 Fiscal Portrait Budget City services and programs are funded through revenue that is derived from many different sources. The property tax is the largest source of governmental revenue in Salem. While some revenues may be spent on any citywide service, many revenue sources are limited to a specific program or service. Additionally, there are restrictions that dictate in which fund certain revenue is to be placed. The budget for Salem consists of a number of governmental funds, the largest and most flexible being the general fund or operating fund used which is used for general government purposes. The proposed fiscal year budget is $472 million. 1 Within this budget, general fund revenues are projected to be $97.9 million and expenditures to be $95.5 million. Revenues for the general fund budget are derived largely from taxes (mostly property taxes at $44.7 million or 46 percent of general fund tax revenue), other funds ($15 million; 15 percent), and franchise taxes imposed upon utilities ($12.5 million; 13 percent). The largest city expenditure is for public safety purposes (comprised of police and fire costs that total $49.3 million or 49 percent of general fund expenditures), as illustrated in the charts below. General Fund Revenues = $97.9 million General Fund Expenditures = $95.5 million All Other 11% From Other Funds 15% Cash Balance 11% Franchise Taxes 13% State Shared 4% Property Taxes 46% Information Technology 6% Fire 21% Urban Development 3% Administrative Services 11% Non- Departmental 8% Library 5% Police 29% Community Development 3% Community Services 9% Administration 5% 1 Proposed Budget, FY , City Manager s Office, City of Salem, at FS1; FS6 to FS10; (April 5, 2006). Page 6

7 Debt As of June 30, 2007, the City of Salem will have $341.2 million in outstanding debt. 2 Of the outstanding debt, $66.85 million is comprised of general obligation debt payable from property taxes and $1.8 million general obligation debt that is payable from the system development charges fund, as detailed below. Outstanding General Obligation Debt in Salem Original Issue Issue Date Maturity Balance General Obligation Bonds $66,855,000 Citizens Bonds C $61,685,000 8/1995 1/2007 $60,580,000 Pedestrian Safety 1996B $28,153,000 10/ ($425,000) Refunding Issue 1999 $18,865, , 1994, ($2,625,000) 1996 Refunding Issue 2004 $12,130, $9,325,000 Systems Development Charges State Lands BallfieldGeer Community Park 4 $3,230,000 9/ $1,817,000 Pursuant to statute, the applicable debt limitation for general obligation bonds is three percent of the real market value of taxable property less outstanding bonded debt and other applicable deductions. 5 As of December 31, 2005, the legal debt margin was $214 million after deducting outstanding debt. 6 2 Proposed Budget, FY , at Citizens bonds are issued and sold by the city in denominations in denominations less than $5,000 and may be sold directly to members of the public at preestablished interest rates in compliance with the rules of the Oregon Municipal Debt Advisory Commission Proceeds of these general obligation bonds may be used to finance any capital project not in conflict wit the issuer s comprehensive plan. 4 The Geer Community Park State Lands Community Youth Ballfield Complex encompasses entails the development of acres of state property near the state penitentiary for use as a community park that includes two 90 ft. baseball fields and two full-size soccer fields.. 5 Or. Rev. Stat The legal debt margin does not apply to bonds issued for water, sanitary or storm sewers, sewage disposal plants, hospitals, gas power or lighting purposes, parking facilities, or bonds issued to pay assessment for improvements in installments. 6 Comprehensive Annual Financial Report, FY Ended December 31, 2005, at 167. Page 7

8 Parks and Recreation in Salem Within the general fund, Salem allocates $2.85 million to the Parks Operations DivisionParks Operations and Planning Division and $ million to the Community Resources and Recreation Division, which are both housed within the Community Services Department. The Parks Operations DivisionParks Operations and Planning Division maintains parks and open space in the city, including park construction and support for the acquisition and development of new neighborhood park sites. In addition to the general fund projects, significant resources are also expended through this division for maintenance of Public Works projects, wetlands, highway landscape areas, culture and tourism areas, and other non-park areas with the use of additional funds. The Community Resources and Recreation Division oversees and manages neighborhood recreation and youth sports, neighborhood services and citizen involvement, social services, facility/contract/public event administration, the city senior centers, youth development activities, and aquatics. For , the Parks Operations DivisionParks Operations and Planning Division intends to accomplish the following items: Implementation of Approved Capital Improvement Projects, including updating the 1999 Comprehensive Park Systems Master Plan that guides the acquisition and development of parkland, constructing two neighborhood parks (Weathers Street Neighborhood Park in East Salem and Wes Bennett Neighborhood Park in South Salem), improving another park (Northgate), and completing the design of a neighborhood park at West Salem High School with construction to begin in the spring of Parks Projects Planning, specifically the planning, design and/or coordination of the development of the city s public green infrastructure including parks, streetscape improvements, wetlands, and required improvements on private developments. The city intends to focus on grant opportunities for improving its existing parks and greenspaces in and pursue additional cooperative agreements with the Salem- Keizer School District.. Urban Forest Management, namely the care, maintenance, and perpetuation of the city s 140,000 trees located along the city s right-of-ways, publicly-owned areas, and developed parks. About 90 percent of the funding for the urban forest management program comes from dedicated gas tax revenue, indicative of the fact that 90 percent of the trees managed under this program are street trees. Parks and Open Space Maintenance for the city s 1,606 acres of parks, natural areas and public open spaces; 169 acres of undeveloped future park sites; and 56 acres of arterial-collector streets and landscape areas. This year, Salem is maintaining the State Lands Youth Ballfield Community Park and the Harry and Grace Thorpe Neighborhood Park for the first time.. Financed by system development charges, Geer Community Park opened this year and provides two full-size soccer fields, and two 90-foot baseball fields, and supporting community park amenities. Finally, because the Salvation Army chose Salem as a site for a Ray and Joan Kroc Community Center, Page 8

9 somethe proceeds from the sale of land to the Salvation Army (about $1 million) willmay be used to help develop the community nature preserve adjacent to the site. Since its adoption in May of 1999, Thus far, the Community Services Department has been following the 1999 Comprehensive Park System Master Plan. completed a draft Comprehensive Park Master Plan for FY to FY The Master Plan identifies eight classifications of park facilities: Neighborhood, Community, Large Urban, School, Special Use, Historic, Natural Resource Areas, and Connector Trails. The primary components of the park system are the neighborhood, community, and large urban parks, which together provide the basic recreational opportunities to Salem residents. Specific levels of service were identified in the 1999 Park Master Plan for each three of these park classifications. The levels identified were 2.5 acres of neighborhood park, 2.5 acres of community park, and 3 acres of large urban park for a total of 8 acres for every 1,000 residents of Salem. Because the population inside the Urban Growth Boundary (UGB) is expected to reach 218,860 by 2020, land acquisition and development activities have been targeted to these growth areas. 8 With the defeat of the proposed park bond and levy iin November of 2002, these levels of service and park funding priorities rely almost exclusively upon system development charges. Al though additional funds are being regularly sought from state, county, and federal grants, private donations, and other financing options, system development charges remain the sole significant and reliable funding source, as depicted on the chart on below. Proposed Funding Summary By Funding Source Source FY FY FY FY FY Federal Grants $125,000 $0 $0 $0 $0 SDC- Parks $3,370,000 $1,151,000 $2,019,000 $1,286,000 $829,000 In terms of recreation in Salem, the Community Resources and Recreation Division will continue to maintain current programs and services, including allocation of a Community Development Block Grant, funding to support softball tournaments, replacement of computers, and other recreation/neighborhood activities. In , the division will ceased selected maintenance and capital outlay projects for the its poolss it operates and its senior centers The development of future neighborhood parks should occur when population densities reach 50 percent or greater within an identified park service radius. Page 9

10 Local Parks, Trails and Greenspace Funding Funding sources outlined in this section include voter-approved property taxes, bonds, assessments by local improvement districts, and the creation of and special districts that serve as financing mechanisms. 9 Other funding mechanisms that are used in Oregon and that do not require voter approval include franchise taxes, park and recreation user fees, and system development charges. This report also analyzes mechanisms traditionally not utilized for parks and greenspace, specifically the specific tax and urban renewal funds. Appendix F to this report contains a chart summarizing these local funding mechanisms and Appendix G summarizes the local funding options available for trails. In terms of funding mechanisms that require approval by the electorate or by property-owners, since 1989, there have been over 40 conservation finance measures comprised of the following: 26 general obligation bond measures, of which 13 were approved by voters; 12 property tax measures, of which voters approved 4 local option levies exclusively for the operation and maintenance of parks and open space; 10 1 specific tax measure pursuant to a charter amendment which failed; and 1 statewide measure that dedicated lottery proceeds to parks, beaches, wildlife and watershed protection (Measure 66) that was approved by Oregon voters. Appendix A of this report contains a chart summarizing these conservation finance ballot measures for parks and greenspace throughout Oregon. Property Taxes In many cities in Oregon, the property tax is the largest source of revenue and funds only local (not state) government programs. Property taxes raised more than $3.9 billion for local governments in fiscal year , an increase of 3.7 percent from the previous year. 11 The increase is primarily attributable to growth in assessed property values and to growth in local option levies. Schools receive the largest share of property tax revenue (40 percent of the total), followed by cities (22 percent), counties (19 percent), and special districts (11 percent). Property taxes are composed of four primary parts: 1. Permanent (operating) rate imposed by counties and municipalities subject to a limitation of $10 per $1,000 of assessed value. 9 Nationwide, other common funding sources include the sales tax and real estate transfer taxes. However, Oregon does not impose a sales tax and local jurisdictions in Oregon are prohibited from imposing a real estate transfer tax These figures include 8 known local option levy measures, though there are most likely more local option levy measures that have been voted upon in Oregon. 11 Oregon Property Tax Statistics, FY , Research Section, Oregon Dept. of Revenue, at 3 to 4 (revised May 2006), Oregon Property Tax Statistics Supplement, FY , Research Section, Oregon Dept. of Revenue,(revised June 6, 2006), at 06.pdf Page 10

11 2. Local option levies imposed by local taxing districts other than school districts and which may be imposed for no more than five years, except for a levy for a capital project which may be imposed for the lesser of the expected useful life of the capital project or ten years. 12 Capital projects include the acquisition of land. 13 Local option levies are subject to the $10 per $1,000 of assessed value limitation. In addition, these levies must be approved by a majority of voters in the tax district at a general election in an evennumbered year or at an election with at least 50 percent voter participation (doublemajority). 3. Bond levies utilized to pay the debt service for bonds and not subject to the $10 per $1,000 of assessed value limit (covered in more detail in the bond section of this report, beginning on page 16). 4. Urban renewal special levy imposed by an urban renewal agency and not subject to the $10 per $1,000 of assessed value limit. 14 The permanent property tax constitutes 78 percent of all property taxes imposed statewide. Bond levies comprise 14 percent of total property taxes imposed in Oregon. As stated above, the maximum allowable property tax for government operations is $10 per $1,000 of assessed value (and $5 for public school funding) and includes local option levies (Measure 5). 15 Property taxes imposed to pay debt service for bonds are not subject to the $10 per $1,000 of assessed value limitation. The assessed, or taxable, value of real property is equal to 90 percent of its real market value and the assessed value of real property may not increase more than three percent (3%) per year, except for new construction and annexations (Measure 50). 16 Because of the requirements placed on assessed values, the exercise of setting property tax rates and any property tax increases are effectively local option levies, bond levies, or urban renewal special levies. 17 When property tax rates exceed the Measure 5 limitation, the imposed taxes are reduced proportionately ( compressed ) to conform to these requirements. The reduction in taxes due to compression is equivalent to the difference between what taxing districts wished to raise through property taxes (tax extended) and the amount they actually raised (tax imposed). The amount by which tax revenue is reduced on a property is called compression loss. Local option taxes are compressed before all other property tax rates are adjusted such that districts with local options account for the majority of compression loss. 18 In recent years, the compression loss in Oregon has declined as increases in real market value have exceeded increases in assessed value. For example, in , compression reduced property taxes such that all districts in Oregon were extended by $ Or. Const. Art. XI, 11(4) and (8); to (4)(b). 14 Urban renewal special levies are imposed if the amount of revenue raised from the urban renewal excess value (total assessed value of property in urban renewal area in excess of the base assessed values when the plan areas were established) is below the agency s revenue raising authority. 15 Or. Const. Art. VI, 11b (Measure 5) (passed in 1990). 16 Or. Const. Art. XI, 11 (Measure 50) (passed in 1997). 17 With the passage of Measure 50, which provided that the assessed value is equivalent to 90 percent of the real market value and which limited the growth of assessed values each year, most property tax levies were replaced with permanent tax rates. As such, the exercise of setting property tax rates remains only for local option levies, bond levies, and urban renewal special levies. Oregon Property Tax Statistics, FY , Research Section, Oregon Dept. of Revenue, at 154 (revised May 2006). 18 K-12 school districts ($23.8 million), city districts ($16.1 million), and county districts ($13.2 million) accounted for nearly all compression loss in Page 11

12 million, or 19 percent less than the $69.6 million compression loss in and 31.1 percent less than the $81.6 million compression loss in The Property Tax in Salem The property tax generates the majority of funding for Salem s general fund at $44.7 million, or 46 percent of general fund revenues, and provides $6 million for debt service. Salem is located in Marion and Polk Counties, with the majority of the city s assessed real property (85 percent) falling in Marion County. In , Salem is projected to have an assessed value of $8 billion, of which $6.8 billion is in Marion County and $1.2 million in Polk County. 19 Salem imposes a permanent property tax of $ per $1,000 of assessed value and a bond rate of $0.7760, for a total city property tax rate of $ per $1,000 of assessed value, as illustrated on the table below. 20 Marion County imposes a property tax of $3.0249, while Polk County imposes a permanent property tax of $ per $1,000 of assessed value (and $ bond rate). Salem Property Tax Rates (per $1,000 of assessed value) Salem Perm Salem Bond County Perm Tax County Bond Total Tax Salem/Marion County $ $ $ $0 $ Salem/ Polk County $ $ $ $ $ Other taxing districts in Salem also impose property taxes. Some of these tax districts include the Salem Urban Renewal Agency ($ property tax rate), Suburban East Salem Water district (bond rate of $0.4871), the Salem Area Transit District ($ property tax rate), and the Salem Suburban Rural Fire Protection District ($ property tax rate). The average tax rate imposed by these districts is $1.16 and the median rate is $1.19. Neighboring cities to Salem have an average total property tax rate of $ per $1,000 of assessed value, as illustrated in the table below. Salem has the highest property tax rate amongst the cities. In comparison to Portland, Salem has a lower property tax rate. Portland has a total property tax rate of $ per $1,000 Property Tax Rates of Neighboring Cities (per $1,000 of AV) City County Permanent Tax Rate Local Option Bond Rate Total Prop Tax Sublimity Marion $ $ $ Keizer Marion $ $ Turner Marion $ $ Stayton Marion $ $ $ Monmouth Polk $ $ $ Dallas Polk $ $ Silverton Marion $ $ $ Aumsville Marion $ $ $ $ Independence Polk $ $ $ Salem Marion/Polk $ $ $ Oregon Property Tax Statistics Supplement, FY , 44 (revised June 6, 2006). 20 Budget, FY , at FS5. Page 12

13 of assessed value, which is comprised of a $ permanent rate, $ local option levy, $ gap bond rate, 21 and $ bond rate. Using the Local Option Levy for Parks, Trails and Greenspace Local option levies allow local governments to raise revenue beyond the permanent rate amounts. Until the passage of Measure 5 in 1990, Salem had utilized a local option levy to fund park operation and maintenance. The cities of Hillsboro, Portland and Aumsville impose local option levies for parks operation and maintenance and all three levies were approved in November Salem could once again impose a local option levy to raise a substantial amount of money on an annual basis for the acquisition, construction, operation and maintenance of parks, trails and greenspaces. A local option levy for operation and maintenance may not exceed five years, while a local option levy for capital projects may not exceed the lesser of the expected useful life of the project or ten years. Because local option levies are subject to the permanent property tax limitation of $10 per $1,000 of assessed value, the portion of Salem falling in Marion County has $ left in remaining capacity and the portion of Salem located in Polk County has $ in property tax capacity. Without considering any property tax compression, the chart below illustrates the estimated revenue and cost of various local option levies per $1,000 of assessed value as it affects residential properties in the city. For instance, a local option levy of $0.25 could generate an estimated $2 million a year at an annual household cost of $38. Estimated Revenue and Cost of Local Option Levy Local Opt Assessed Annual Cost / Year/ Cost / Ave./ Cost / New / Levy* Valuation Revenue $100K House House** House*** $0.10 $8,027,743,280 $802,774 $9.00 $15.13 $23.30 $0.25 $8,027,743,280 $2,006,936 $22.50 $37.82 $58.26 $0.30 $8,027,743,280 $2,408,323 $27.00 $45.38 $69.91 $0.35 $8,027,743,280 $2,809,710 $31.50 $52.94 $81.57 $0.50 $8,027,743,280 $4,013,872 $45.00 $75.63 $ $0.60 $8,027,743,280 $4,816,646 $54.00 $90.76 $ *Per 1,000 of assessed valuation. **Based on median home value of $168,075 ($151,268 assessed value). ***Based on 2005 average price of new home $261,161 ($235,045 assessed value) Process for Implementation of Local Option Levy 22 Local option levies may be imposed each year at a substantially uniform rate throughout its imposition period or computed annually. 23 They must be approved by a double majority of voters, or a majority of those voting must approve the local option levy at an even-numbered general election or at an 21 A gap bond refers to principal and interest obligations of a taxing district which are payable from the operating revenues rather than from the proceeds of a bond levy to (1). Page 13

14 election with at least 50 percent turnout. Specifically, the city may call an election 24 for the purpose of approving a local option levy to be held on the following dates: second Tuesday in March; third Tuesday in May; third Tuesday in September; or first Tuesday after the first Monday in November. 25 The ballot title for a measure authorizing the imposition of local option taxes shall contain the following additional statement placed after the question on the ballot title: This measure may cause property taxes to increase more than three percent. 26 If the ballot is not placed before voters at an even year general election, the first statement of the ballot title summary must provide as follows: This measure may be passed only at an election with at least a 50 percent voter turnout. 27 If the election is to be conducted by mail, the front of the outer envelope in which the ballot title is mailed shall state, clearly and boldly printed in red, CONTAINS VOTE ON PROPOSED TAX INCREASE. 28 As part of the question, the ballot title for a measure authorizing the imposition of local option taxes must state the length in years of the period during which the proposed local option tax will be imposed and the first fiscal year in which the proposed local option tax will be imposed. 29 The ballot title must also contain a statement not exceeding 175 words explaining the chief purpose of the measure, reasons for the measure, and the fiscal details, as follows: 30 For levies that are uniform throughout its term, the purpose must also state the total amount of money to be raised by the proposed local option tax, in dollars and cents. If the statement in the ballot title for the measure submitted includes an estimated tax impact, it shall be based on the most current estimate of assessed value from the county assessor. The measure shall bear the statement: The estimated tax cost for this measure is an ESTIMATE ONLY based on the best information available from the county assessor at the time of estimate. For local option levies that are computed each year, the chief purpose must contain an estimate of the total amount of money to be raised for each year of the proposed local option tax shall be stated in dollars and cents. If the levy raises more money than estimated, the excess collections above that estimate shall be considered a budget resource for the levy fund in the next fiscal year. 24 The order, resolution or ordinance, as the case may be, pursuant to which the election is called and held, shall set forth (1) the purpose for which the funds to be provided by the tax levies are to be expended; (2) the estimated total outlay for such purpose; and (3) the period of time for which the levy will be imposed ; (4). The required statement is not considered for purposes of the word count limitations under Section , which requires that (i) the caption be not more than 10 words and reasonably identifies the subject of the measure, (ii) the question be not more than 20 words and plainly phrases the chief purpose of the measure so that an affirmative response to the measure corresponds with an affirmative vote on the measure, and (iii) a concise and impartial statement of not more than 175 works summarizing the measure and its major effect (3) (5) Page 14

15 If more than one proposal to impose local option levies is submitted to the electors at the same election, the several ballot measures shall be voted upon separately. However, not more than four separate ballot measures proposing local option levies may be submitted to the electors within a single calendar year. 31 Local option levy ballots for capital projects with a term greater than five years must be submitted to the electors separately than local option taxes with a term of five years or less. 32 A ballot measure authorizing the local option levy may also state that the taxing district may issue bonds payable from the levy and voter approval of the local option levy constitutes voter approval of the bonds (4)(a) (5). Page 15

16 Bonds To raise funds for capital improvements, such as land acquisition or building construction, counties and cities may issue bonds. In Oregon, there are three types of bonds: (1) general obligation ( GO ) bonds, which are guaranteed by the local taxing authority; (2) limited tax bonds; and (3) revenue bonds that are paid by project-generated revenue or a dedicated revenue stream such as a particular tax or fee. Generally, bond proceeds are limited to capital projects and may not be used for operations and maintenance purposes. 34 As such, funding alternatives for operation and maintenance costs, such as a property tax, specific tax, local improvement district assessment, or general fund allocation, would need to be considered. General obligation bonds 35 With the passage of Measure 5 in 1990 and Measure 50 in 1997 by Oregon voters, general obligation indebtedness is restricted to voter-approved capital construction or capital improvements. 36 To pay the debt service on these bonds, bond levies may be imposed. Such bond levies are not subject to the Measures 5 limitation upon property tax rates. Cities in Oregon are statutorily limited to a legal debt margin of three percent of the real market value of all taxable property within its boundaries, after deducting from outstanding bonds such cash funds and sinking funds as are applicable to the payment of the principal thereof. 37 In addition, as a matter of policy, Salem holds its debt service tax rate at or below $2.42 per $1,000 of assessed value. Salem presently has four general obligation bonds outstanding that fund transportation and pedestrian safety projects. As of June 30, 2007, however, the general obligation bonds outstanding will total $66.9 million, which is well below the legal debt margin of approximately $214 million. To pay the debt service on these bonds, for FY , Salem imposes a bond levy of $ per $1,000 of assessed value (or $69.84 per year on a house with an assessed value of $100,000). Communities in Oregon that have approved the issuance of general obligation bonds for park, recreation and greenspace purposes include Corvallis, Eugene, Metro, Lake Oswego, Roseburg, Silverton, and West Linn. At the recent November 7, 2006 election, voters in Metro Portland approved a $227.4 million GO bond and Eugene voters approved a $27.5 million GO bond on their respective ballots to parks and greenspaces. Issuing GO Bonds for Parks, Trails and Greenspace In November 2002, the city of Salem asked its voters to approve a proposed park general obligation bond and property tax levy, but the voters rejected the measures. Salem could consider asking its voters to approve a park, trail, and greenspace general obligation bond. The chart below illustrates the estimated annual debt service, required bond levies (property tax increase), and annual household cost of various general obligation bond issue amounts. For example, a 34 Federal regulations governing the issuance of tax-exempt bonds limit the use of proceeds to capital purposes such that only a small fraction (up to five percent) of bond funds may be used for operation and maintenance directly related to the funded facilities. Treasury Reg (d)(3)(ii)(A)(5). State and local laws may further limit the use of bond proceeds. In Oregon, general obligation bonds may not be used for maintenance and repairs and supplies and equipment not intrinsic to the capital project. Or. Const. Art. XI, 11(11) to Or. Const. Art. XI, 11(5), (11), (13); Or. Const. Art. XI, 11b(2)(d) Page 16

17 $25 million general obligation bond has a debt service of $2 million a year. Such a bond issuance would cost the typical household in Salem an average of $38 a year and homeowners with new houses an estimated $58 a year. Salem GO Bond Financing Costs Assumes 20-year bond issues at 5% Interest Rate Total Assessed Value = $8 billion Annual Cost/ Year/ Cost/ Ave./ Cost / New / Bond Issue Debt Svce Bond Levy* $100K House Household** House*** $5,000,000 $401,213 $ $4.50 $7.56 $11.65 $10,000,000 $802,426 $ $9.00 $15.12 $23.29 $15,000,000 $1,203,639 $ $13.49 $22.68 $34.94 $25,000,000 $2,006,065 $ $22.49 $37.80 $58.24 $45,000,000 $3,610,916 $ $40.48 $68.04 $ $50,000,000 $4,012,129 $ $44.98 $75.60 $ *Per $1,000 of assessed value. **Based on median home value of $168,075 ($151,268 assessed value). ***Based on 2005 average price of new home $261,161 ($235,045 assessed value) The property tax estimates assume that the city would raise property taxes to pay the debt service on bonds. 38 This annual property tax on property owners will decline slightly as the tax base grows with new construction and annexations (subject to Measure 50, which limits the increase in assessed values to three percent a year, the tax base may not increase annually to reflect increases in the valuation of real property in the city). In , Salem s assessed property values increased by five percent compressed to three percent per Measure 50 and two percent due to new construction and annexations. 39 Process for implementation for GO Bonds The governing body of the city may, without a charter amendment, issue bonds upon approval of the majority of electors voting upon the question of issuance. 40 The bond ballot title must contain the following statement immediately after the ballot title question: 41 Question: (herein the question is stated) If the bonds are approved, they will be payable from taxes on property or property ownership that are not subject to the limits of sections 11 and 11b, Article XI of the Oregon Constitution ( Notwithstanding any other law, the governing body of each city shall ascertain and levy annually, in addition to all other taxes, a direct ad valorem tax on all the taxable property within the city that.will be sufficient to pay when due the principal and interest on all outstanding general obligation bonds issued by the city. ). 39 Proposed Budget, FY , at R5. In September and November 2006, Salem voters will face a total of almost 70 annexations on which to vote (by voter approval, each annexation must go to a vote of the people) Section also requires that the ballot title of any measure, other than a state measure, to be initiated and referred must consist of a (i) caption that is not more than 10 words and reasonably identifies the subject of the measure, (ii) a question that is not more than 20 words and plainly phrases the chief purpose of the measure so that an affirmative response to the measure corresponds with an affirmative vote on the measure, and (iii) a concise and impartial statement of not more than 175 words summarizing the measure and its major effect. Page 17

18 The ballot title statement must also contain a reasonably detailed, simple and understandable description of the use of proceeds. If the bond election is to be conducted by mail, the front of the outer envelope in which the ballot title is mailed shall state, clearly and boldly printed in red, CONTAINS VOTE ON PROPOSED TAX INCREASE. A majority of registered voters must vote on the bond measure, except for measures on the ballot of general elections in even-numbered years in which case majority approval of the bone measure us required. As mentioned earlier in the property tax section, ballot measure authorizing a local option levy may also state that the taxing district may issue bonds payable from the levy and voter approval of the local option levy constitutes voter approval of the bonds. Limited Tax Bonds Limited tax bonds are general obligation bonds payable from property taxes that have not been approved by voters. These bonds fall under the tax rate limitation for government operations of $10 per $1,000 of assessed value. Due to tax rate compression concerns, this report does not delve further into limited tax bonds as a funding mechanism for parks, trails and greenspace. Revenue Bonds Cities in Oregon may also issue revenue bonds for any public purpose and which are secured by revenues either pledged or designated to be payable for such public purpose of the public body. 42 Such revenues may include fees, excise taxes, assessment, property taxes, and all other taxes. Revenue bonds constitute a borrowing solely upon the credit of the revenues received or to be received by the city, town, or county and do not constitute an indebtedness or pledge of the full faith and credit of the issuing body. Most revenue bonds in Salem are issued for water, sewer, and storm utility purposes. Before issuing any bonds under this section, a city must adopt a resolution authorizing the issuance of revenue bonds with a provision that city electors may file a petition asking that the question of issuing the bonds be referred to a vote (the city may also refer the bond question to voters on its own initiative). 43 The bond question must be placed on the ballot of the next legally available election if at least five percent of the city electors sign the petition. In addition, the city must give public notice of its intent to issue revenue bonds in at least one newspaper of general circulation. The table to the right provides annual debt service estimates for various revenue bond issues. As detailed on page 33 of this report, revenue generated by Salem s existing park and recreation user fees (approximately $820,000) could support the annual debt service on a $10 million revenue bond for a 20-year term Revenue Bond Financing Costs Assumes 5.5% Interest Rate Interest Years to Annual Bond Issue Rate Maturity Debt Svce $5,000, % 10 $663,339 $5,000, % 20 $418,397 $10,000, % 10 $1,326,678 $10,000, % 20 $836,793 $25,000, % 10 $3,316,694 $25,000, % 20 $2,091,983 $50,000, % 10 $6,633,388 $50,000, % 20 $4,183,967 Page 18

19 System Development Charges 44 Salem presently imposes a Parks System Development Charge (SDC) that funds park and recreation capital improvements and acquisitions in areas of residential growth. 45 Though the Park SDC is projected to generate over $2 million a year in Salem, the city s rate has not increased since Salem is updating its master plan and is in the initial stages of considering a Park SDC rate increase to account for the population and housing growth in the city and the increased cost of land and capital improvements. System Development Charges in General Cities, counties and special districts in Oregon may impose system development charges for capital improvements, which include parks and recreation facilities but not operation and maintenance costs or replacement costs for existing infrastructure capacity. A SDC is a one-time fee charged on new development and certain types of redevelopment to help pay for existing and planned infrastructure to serve the development. It is assessed or collected at the time of increased usage of a capital improvement or issuance of a development permit, building permit or connection to the capital improvement. SDCs are collected from builders who may include the costs in their charges. System development charges are utilized in at least 25 cities and six park and recreation districts in Oregon to fund park and recreation facilities. Park SDC rates in select cities and park and recreation districts across Oregon range from $1,000 to $8,029 for single-family residences (average $3,130.25), as depicted on the chart in Appendix B to this report. A recent Metro analysis of Park SDCs in the Portland metropolitan area found that most of the jurisdictions spent their SDC revenue as they collect the SDCs. 46 A few jurisdictions accumulate fund balances that are disproportionately large in comparison to the annual revenues flowing into their respective SDC or Capital Development Funds. These jurisdictions accumulated their Park SDC revenue for a variety of reasons, including saving for significant capital projects or land acquisitions or other economic factors. The Metro analysis is attached to this report in Appendix C. System development charges are only one component of an overall parks and recreation funding strategy. For example, in Corvallis, Parks SDCs have contributed 12 percent of the revenue needed since 2000 to fund park and recreation improvement projects, with the remainder of parks and recreation funding came from grants, donations, property taxes, city general fund, and general obligation bond proceeds. In addition, because they depend directly upon the level of new residential construction activity, SDCs are an unpredictable revenue sources. Moreover, because land values in Oregon have increased substantially in the past few years, a fully-loaded Park SDC is politically infeasible and increases to the rate cannot plausibly keep pace with land value inflation. Types of SDCs A SDC may be an improvement fee, reimbursement fee, or a combination of the two. SDCs utilized for parks and recreation facilities are generally improvement fee SDCs to.314. System development charges have been in use in Oregon since the mid-1970s for water and sewer improvements. State legislation regarding SDCs was not adopted until 1989 and limits the used of SDCs to water, wastewater, drainage, flood control, transportation and parks and recreation capital improvements. 45 As part of this report, Transportation SDCs were considered for trail funding. However, in examining Salem and other cities Transportation SDCs, it appears that Transportation SDCs are not utilized for recreational trails beyond bikeways located on streets. 46 GPAC Finance Report: Part 1--Existing Financial Environment, prepared for Metro Greenspace Policy Advisory Committee (May 25, 2006). Page 19

20 Improvement fee SDCs may be charged for new capital improvements that will increase capacity and includes debt service payments. The improvement fee must be calculated such that it funds the portion of the cost of capital improvements that meets the projected need for increased capacity for future users. In addition, the ordinance or resolution must provide for a credit against such an improvement fee for the construction of a qualified public improvement. Revenues generated by improvement fee SDCs may be expended only for capital improvements identified in a required Capital Improvement Plan. Improvement fees are established or modified by ordinance or resolution setting forth a methodology that is available for public inspection and demonstrates consideration of: (a) The projected cost of the capital improvements identified in a capital improvement plan that are needed to increase the capacity of the systems to which the fee is related; (b) The need for increased capacity in the system to which the fee is related that will be required to serve the demands placed on the system by future users. To calculate an improvement fee Parks SDC, most cities in Oregon start with the Level of Service (LOS) standards for existing citywide average level of service for facilities that are then used to determine future capital facility needs. In other words, fees are calculated to include all of the capital costs associated with providing new parkland. Once calculated, the jurisdiction then sets the percentage of cost recovery anticipated for its fee. The jurisdiction has complete discretion to set the rate of cost recovery at its discretion and as a matter of policy. Appendix C to this report contains information of the cost capture rate anticipated for communities in the Portland metropolitan area (ranges from 33 to 100 percent cost recovery, though the cities reporting 100 percent cost recovery in actuality recover 50 to 85 percent of the costs). Reimbursement fee SDCs may be charged for the costs of existing facilities if excess capacity is available to accommodate growth and includes debt service payments. Reimbursement fees ordinarily do not apply to park and recreation SDCs. 47 Reimbursement fees must be established or modified by ordinance or resolution setting forth a methodology based on: (a) Ratemaking principles employed to finance publicly owned capital improvements; (b) Prior contributions by existing users; (c) Gifts or grants from federal or state government or private persons; (d) The value of unused capacity available to future system users or the cost of the existing facilities; and (e) Other relevant factors identified by the local government imposing the fee. The methodology for establishing or modifying a reimbursement fee must promote the objective of future system users contributing no more than an equitable share to the cost of existing facilities and be available for public inspection. Finally, a local government may establish and impose a system development charge that is a combination of a reimbursement fee and an improvement fee, if the methodology demonstrates that the charge is not based on providing the same system capacity. 47 See, e.g., City of Corvallis Municipal Code, ; System Development Charges: Methodology Update Report, Portland Parks & recreation, at 2 (Oct. 15, 2004). Page 20

21 Credits to Improvement Fee SDCs for Qualified Public Improvements The local government may give a credit to a developer for the construction of a qualified public improvement (also known as developer exaction). A qualified public improvement is a capital improvement that is required as a condition of development approval, identified in the capital improvement plan, master plan, public facility plan o comparable plan, and either (a) not located on or contiguous to property that is the subject of development approval or (b) located in whole or in part on or contiguous to property that is subject of development approval and required to be built larger or with greater capacity than is necessary for the particular development. A qualified public improvement could also include agreements for long-term maintenance of park facilities within the city. 48 If the cost of that portion of the qualified public improvement exceeds the local government s minimum standard facility size or capacity needed to serve the particular development project or property, the developer may receive a credit from the city. If the credit exceeds the improvement fee, the credit may be carried forward for ten years. The developer bears the burden of demonstrating that a particular improvement qualifies for a credit. Modification of SDCs Prior to the establishment of a SDC by ordinance or resolution, 49 a local government must prepare a capital improvement plan, public facilities plan, master plan or comparable plan that includes a list of the capital improvements that the local government intends to fund and the estimated cost, timing and percentage of costs eligible to be funded with revenues from the SDC for each improvement. The local government may modify the plan and list at any time. A local government that proposes to modify a SDC must maintain a list of persons who have made a written request for notification prior to adoption or amendment of a methodology for any SDC. Written notice must be mailed to persons on the list at least 90 days prior to the first hearing to modify a SDC, and the methodology supporting the SDC must be available at least 60 days prior to the first hearing. Legal action intended to contest the methodology used for calculating a SDC may not be filed after 60 days following modification of the SDC ordinance or resolution by the local government. If an improvement fee will be increased by a proposed modification of the list of capital improvements in the plan to include a capacity increasing capital improvement, the local government must provide notice at least 30 days prior to the adoption of the modification to the persons who have requested written notice. If the local government receives a written request, it must hold a public hearing on the proposed modification within seven days of the date the proposed modification is scheduled for 48 See Portland Municipal Code, at (BB)(6). 49 The League of Oregon Cities developed a model ordinance SDC at Page 21

22 adoption. The decision of a local government to increase the system development charge by modifying the list may be judicially reviewed by writ of review or appeal. A change in the amount of a reimbursement fee or an improvement fee is not a modification of the SDC methodology if the change is based on either a change in the project cost of materials, labor or real property or the periodic application of a cost index. GO Bonding with Parks SDCs System development charges may be pledged by the city to pay debt service on general obligation bonds for parks and recreation facilities. 50 Such bonds are known as General Obligation Bancroft Bonds, which are expended only for payments duly authorized for construction or expansion of systems development. 51 The GO bonds may be comprised of the following: 1. GO bonds authorized in an amount not to exceed the unpaid balance of all SDCs, plus necessary financing costs; 2. GO bonds approved by the electorate payable from property taxes but from which SDC payments have been deducted; or 3. Limited tax bonds. A city may not incur indebtedness for general obligation bonds that are secured and payable from SDCs in an amount greater than three percent of the latest real market valuation of the city (same as for general city GO bonds, or approximately $214 million in Salem). Challenges to SDC Expenditures Local governments must adopt administrative review procedures allowing any citizen or other interested person to challenge an expenditure of system development charge revenues. Such procedures must provide that challenges are to be filed within two years of the expenditure of the system development charge revenues. In the past few years, SDCs were reduced in Bend and Newberg after builders associations filed legal challenges. In contrast, a court found in favor of the methodology used by the Tualatin Hills Parks and Recreation District to calculate current levels of service and application of SDCs to new developments. Utilizing Park SDCs for Trails Park SDCs may be imposed in response to an increased burden on public facilities created by a new development. As such, in order to use SDCs for trail acquisitions, a system of trails must preexist the new development and new residents must impact the existing trails such that a need for additional trails exists (2) ( The provisions of ORS to [System Development Charges] shall not be applicable if they are construed to impair bond obligations for which system development charges have been pledged or to impair the ability of local governments to issue bonds or other financing as provided by law for improvements allowed under ORS to ) to.295 (Bancroft Bonding Act). Page 22

23 SDC Expenditure Outside of City Limits A Parks SDC may fund neighborhood parks, community parks, community gardens, habitat, urban parks, regional parks, botanical gardens, and trails. Ordinarily, because Parks SDC funds are generated only when new development occurs, SDC acquisitions and park development occur in the parts of the city experiencing growth such that a rational nexus exists. 52 Whether SDCs may be used for park acquisitions and development outside of city limits and the city s urban growth boundary is not clear (and no examples have been found of other cities using their SDCs outside of their boundaries). The pertinent state statutes provide only that capital improvements funded by Park SDCs must be listed in the capital improvement plan, 53 master plan, comprehensive plan, 54 or other similar plan, which arguably could include land outside of the city limits and urban growth boundary. However, a recent Oregon Land Use Board case seems to state that a city may not expend Parks SDCs outside of its boundaries. 55 In addressing a contention that Eugene s Park, Recreation and Open Space Plan (PROS) could not include planning areas outside of the city s municipal limits and urban growth boundary, the Land Use Board found that Eugene did not include extraterritorial land in the plan and sought only to coordinate acquisitions with the county to encourage connectivity and integration of park, recreation facilities, and open space. Interestingly, in the case, Eugene asserted that the PROS Plan did not give the city governmental authority to acquire lands for parks, recreation and open space outside its city boundaries and urban growth boundary. Salem should pursue the question of expending its Park SDCs outside of its boundaries with its SDC methodology consultant and the city attorney. 52 At the heart of the rational nexus test is the concept of proportionate share, which is defined as that portion of cost of existing and future system improvements that is reasonably related to the demands of the new development. 53 A local government may identify land inside an urban growth boundary for which the local government intends to provide urban services within the next five to seven years. The local government may evidence its intent by adopting a capital improvement plan reasonably designed to provide the urban services (1). 54 Comprehensive plan means a generalized, coordinated land use map and policy statement of the governing body of a local government that interrelates all functional and natural systems and activities relating to the use of lands, including but not limited to sewer and water systems, transportation systems, educational facilities, recreational facilities, and natural resources and air and water quality management programs. Comprehensive means all-inclusive, both in terms of the geographic area covered and functional and natural activities and systems occurring in the area covered by the plan. General nature means a summary of policies and proposals in broad categories and does not necessarily indicate specific locations of any area, activity or use. A plan is coordinated when the needs of all levels of governments, semipublic and private agencies and the citizens of Oregon have been considered and accommodated as much as possible. Land includes water, both surface and subsurface, and the air (6). 55 See Home Builders Assoc. v. City of Eugene, 2006 Ore. Land Use Bd. App. LEXIS 124, at *49-52 (Aug. 9, 2006). Page 23

24 Park SDCs in Salem Salem has imposed a Park SDC since 1992 and currently charges a $2,963 Park SDC on a new singlefamily residence, $1,937 on a multi-family housing unit, and $2,165 for a manufactured house. Its Park SDC rates consider the type of park being funded-- neighborhood parks, community parks, and large urban parks as depicted below. In its budget, Salem had $4.63 million in its Park SDC beginning fund balance. 56 With the addition of $2.25 million in Park SDCs to be collected in , Salem has a total Park SDC fund of $7.35 million to be allocated to the $6.25 million in proposed park projects, as detailed in the table to the left. A listing of park projects to be funded by SDCs in FY is contained in Appendix D to this report. Salem Park SDC, FY Source of Funds Beginning Fund Balance $4,630,000 Interest Earnings 136,000 Grant (unidentified) 335,000 Park SDC Fees 2,252,000 TOTAL $7,353,000 Total Project Costs (6,253,000) Unappropriated Balance $1,100,000 Salem s Park SDC rates are based on a methodology report from 1999 and have increased minimally over the years to account for inflation. 57 The 1999 Park SDC rates were $2,275 Park SDC on a new single-family residence, $1,487 on a multi-family housing unit, and $1,662 for a manufactured house and were based on the park standards contained on the chart below Salem Park SDC Rate Assumptions Park Type Proposed Acres per 1,000 Pop. Acquisition Cost per Acre Development Cost per Acre Neighborhood Park 2.5 $70,000 $67,000 Community Park 2.5 $60,000 $63,000 Large Urban Park 3 $60,000 $63, Costs $130,000 $156, Proposed Budget, FY , at 213 to Preliminary Parks System Development Charge Methodology, Economic & Financial Analysis, City of Salem, (June 2, 1999) ( adopted by Resolution ). Page 24