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					Memorandum
City of Tempe
To:      Charlie Meyer, City Manager
From:    Revenue Enhancement Results Team
Subject: Revenue Options Report
Date:    December 21, 2009
Copy:    Revenue Enhancement Results Team Members
_______________________________________________________________________________


The Revenue Enhancement Results Team was assembled to analyze and develop possible
revenue sources to alleviate structural deficits indicated in the General Fund long range financial
plan.

Team Chair, Debbie Bair
Vice Chair, Mark Richwine
Team members: Aaron Peterson, Alex Smith, Amber Wakeman, Diana Kaminski, Rick Rager,
                 Rich Woerth and Tom Mikesell

When analyzing potential revenue options, to diversify revenue streams, the team took into
consideration such variables as:
    • Elasticity-responsiveness/dependency to economic variables
    • Viability-reasonable chance of successful implementation and legality
    • Sustainability-recurring versus one time
    • Revenue potential
    • Implementation
    • Operating impacts

Over 80 items of the following revenues categories were reviewed:
                Sales Tax
                Secondary Property Tax
                Transient Lodging Tax
                Fines, Fees and Forfeitures
                Special Events
                Charge Back or For Profit

Other long term policy issues that were brought to the revenue team: Cost of Services Fee
Analysis, Arizona State University, Cost / Benefit Analysis of Services Agreements, Sponsorship
Opportunities, Government Property Lease Excise Tax (GPLET) and Use of Collection Services.

Each team member volunteered to research a revenue category, met with City experts,
developed options, gathered benchmark data, developed pros and cons and disclosed known
operating impacts.

A matrix of submitted ideas is also included for additional research and future consideration.




                                                -1-
Revenue Outline

                                                                       Annual
 Revenue Categories                                                    Amount                 Timeline
   • Sales Tax
        o Four Options                                         $4,100,000 to $5,500,000     -subject to vote

    • Secondary Property Tax
         o Highway User Revenue Fund Debt                                   $1,035,000          FY 2010-11
         o Engineering Charge Back                                            $200,000          FY 2010-11

    • Transient Lodging Tax                                               * $1,000,000      -subject to vote

    • Fines, Fees & Forfeitures
         o Business Registration Fee                                          $200,000          FY 2010-11
         o Residential Rental Housing Fire
             Inspection Fee                                                   $350,000          FY 2010-11
         o Accident Reimbursement                                             $200,000          FY 2010-11
         o Defensive Driving Increase                                         $120,000          FY 2010-11

                                                                                                   -contract
    • Special Events                                                        $1,300,000          negotiations

    • Charge Back or For Profit
         o Digital Display Panels ($100,000/site)                           $1,000,000           FY 2010-11
         o Cell Towers                                            $288,000 to $480,000           FY 2010-11
        o Property Assets                                                     Unknown     -subject to market
        o Town Lake Casino Boat                                               Unknown              Unknown

                               Total Potential Revenue        $8,793,000 to $10,385,000

*not included in total as already part of the balance plan.

Policy Outline

    •    Cost of Service Fee Analysis
             o Credit Card Transaction Fees
    •    Arizona State University
    •    Cost / Benefit Analysis of Services Agreements
    •    Sponsorship Opportunities
    •    Government Property Lease Excise Tax (GPLET)
    •    Collection Services

Matrix of Submitted Ideas
This is a listing of revenue generation ideas were submitted from a variety of sources both
internal and external. The Team reviewed each concept in terms of: elasticity, viability,
sustainability, potential revenue, implementation, and operating impacts. Several of these ideas
were referred back to Departments for future consideration. Some ideas are already in progress.
Other ideas were not applicable to the General Fund, but relevant to other funds such as Water
or Transit and were also referred back to the respective Departments.




                                                     -2-
Sales Tax

Requirement for Implementation: Vote by Electorate.

The City sales tax, known formally as the transaction privilege tax, is derived from a 1.8% tax on
a variety of financial transactions, including retail sales, rental payments, contracting sales, utility
and telecommunications services, hotel/motel rentals, and restaurant sales.

Tempe and most Arizona cities, have adopted the Model City Tax Code which is a uniform sales
and use tax act. This model code provides cities with authorized options to exempt or tax certain
activities. Tempe currently exempts the following:
     1. Job Printing for Publishers
          This activity is a sale-for-resale, which Tempe does not tax.
     2. Rental of Real Property to Nonprofit Health Care Facilities
          Tempe currently has only two such facilities, Friendship Village and Westchester, and has
          not pursued taxing these activities. Support for taxing this activity is unknown.

Tempe’s sales   tax of 1.8%, allocation and history:
      1.2%       General Fund             FY 1993-94 increase from 1.0% to 1.2%
       .5%       Transit Fund             FY 1996
       .1%       Performing Arts Fund FY 2001

Benchmarking with other Arizona East Valley cities reveals that the City of Tempe is ranked 4th,
the same rank as Peoria. Gilbert and Chandler are the lowest at 1.50% (or 20% lower) and
Glendale the highest at 2.2% (or 22% higher). Breakdown is as follows:

                  City                 Sales Tax Rate             Ranking
                  Gilbert*                 1.50%                     1
                  Chandler                 1.50%                     1
                  Scottsdale               1.65%                     2
                  Mesa                     1.75%                     3
                  Tempe                    1.80%                     4
                  Peoria                   1.80%                     4
                  Phoenix                  2.00%                     5
                  Glendale                 2.20%                     6

                 * Note: The Gilbert Citizens Budget Committee is recommending a three
                   year public safety sales tax increase of one quarter of one percent to 1.75%.

Comparison of dedicated General Fund sales
tax with other Arizona East Valley cities shows                                        General Fund
Tempe with an average ranking the same as Mesa,                                City         Sales Tax Rate
Phoenix and Glendale. There are two cities,
Scottsdale and Peoria, with a lower rate of 1.00%,                             Scottsdale            1.00%
and two cities Gilbert and Chandler, with a higher                             Peoria                1.00%
rate of 1.50%.                                                                 Mesa                  1.20%
                                                                               Tempe                1.20%
                                                                               Phoenix               1.20%
                                                                               Glendale              1.20%
                                                                               Gilbert               1.50%
                                                                               Chandler              1.50%



                                                      -3-
Sales Tax

A preliminary Comparison Cost of Services Report (of Property and Sales tax) from the Budget
Office indicates that as of November 1, 2009 the City of Tempe is ranked fifth for average annual
total household expenditures of property and sales tax. This ranking is based on the estimated
annual amount the average single family Tempe household would pay for property and sales tax
and then compares this to the estimated property and sales tax cost of neighboring communities
utilizing the same tax basis.

A one tenth of one percent increase from 1.80% to 1.90% in sales tax would not alter the City of
Tempe’s ranking and would result in an estimated average annual increase of $37.21 per single
family Tempe household.

Further, the City of Tempe could raise sales tax to 2.00% or two tenths of one percent and still
retain its ranking with an estimated average increase of $74.42 per single family Tempe
household.


City Comparison                                  Property            Sales          Total of Property
    Ranking                                         Tax*             Tax**           and Sales Tax
1. Mesa               Rate                        $0.2977             1.75%
                      Annual Cost                  $60.52            $556.63             $617.15

2. Scottsdale         Rate                        $.7432              1.65%
                      Annual Cost                 $142.93            $613.96             $756.89

3. Gilbert            Rate                        $1.1500             1.50%
                      Annual Cost                 233.80             $558.14             $791.94

4. Chandler           Rate                        $1.1814            1.50%**
                      Annual Cost                 $232.82            $638.15             $870.97

5. Tempe              Rate                     $1.4000           1.80%
                      Annual Cost              $273.67          $669.77                  $943.44
                          One tenth of one percent sales tax - 1.90%
                      Annual Cost              $273.67          $706.98                  $980.65
                         Two tenths of one percent sales tax - 2.00%
                      Annual Cost              $273.67          $744.19                 $1,017.86

6. Phoenix            Rate                        $1.8200            2.00%**
                      Annual Cost                 $352.87            $704.39            $1,057.26

7. Peoria             Rate                        $1.4400            1.80%**
                      Annual Cost                 $288.50            $774.07            $1,062.57

8. Glendale           Rate                        $1.5951             2.20%**
                      Annual Cost                 $319.25            $919.99            $1,239.24


*Combined primary and secondary property tax rate. Rate per $100 assessed valuation
** The sales tax rate for specific taxable activities may be higher or exempt from taxation




                                                    -4-
Sales Tax

The team reviewed several options:
       1. one tenth of one percent increase from 1.8% to 1.9%
               $5,500,000 annually for every one tenth of one percent increase
       2. one tenth of one percent increase from 1.8% to 1.9% for three years
               $5,500,000 annually for every one tenth of one percent increase
       3. One tenth of one percent increase from 1.8% to 1.9% for Public Safety
               $5,500,000 annually for every one tenth of one percent increase
       4. One percent increase from 1.8% to 2.8% for Amusements,
           Restaurants and Bars.
               $4,100,000 annually for every one percent increase

1. Permanent-One tenth of one percent increase from 1.8% to 1.9%

        Pros
        City’s largest revenue source and could generate $5,500,000.
        Decision by the voters can be an indication of the value placed
        on services and quality of life in Tempe.
        This increase would not put Tempe at the top of the range for
        sales tax.

        Cons
        Does not diversify existing revenue streams and the City
        would be further dependent on sales tax revenue.
        Elastic revenue stream; demand is more likely to be affected
        by economic circumstances.
        The City would be in the upper tier of sales tax in the East
        Valley.
        No additional services will be provided for this increase.
        If the initiative does not pass, then additional cuts would be
        necessary.
        Might compete with a possible State sales tax increase
        initiative.

2. Temporary-One tenth of one percent increase from 1.8% to 1.9% for three years

        Pros-continued from option #1
        Additional revenue will temporarily alleviate fiscal issues as the
        City addresses structural deficit.

        Cons-continued from option #1
        Short term solution and puts the City in a precarious position
        if long term structural deficits are not addressed.

3. Permanent-One tenth of one percent increase from 1.8% to 1.9% for Public Safety

        Pros-continued from option #1
        This tax has been implemented by other neighboring cities of
        Glendale (.50%), Phoenix (.10%), and Scottsdale (.10%).
        Would alleviate the budget burden of Public Safety which is
        56% of the General Fund budget.



                                               -5-
         Cons-continued from option #1
         Limits flexibility of general funds to be allocated for all general
         fund expenses.
         Could create future inequities for budget reduction as a
         segment of funds would be dedicated to a specific area.
         If this incentive does not pass then the associated cuts would
         have to be implemented in Public Safety.
         Could possible result in additional Public Safety expenditures
         since funds are designated for a specific purpose.

4. Permanent-One percent increase from 1.8% to 2.8% for Amusements, Restaurants and Bars

         Pros-continued from option #1
         This tax has been implemented by other neighboring cities
         (see matrix below).
         Would place the tax burden on leisure activities which can be
         discretionary in nature.
         Would spread the tax burden to both residents and non-
         residents.
         This revenue stream is less elastic than other taxable
         activities.

         Cons-continued from option #1
         Would be a specialized tax which burdens specific segments of
         businesses.

As illustrated below, Chandler has .30% higher sales tax rate for restaurants and bars; Glendale
and Peoria have a 1% higher rate for amusements, restaurants and bars.

                                                                    Restaurants
            City           Sales Tax Rate       Amusements          and Bars
            Gilbert                 1.50%             1.50%               1.50%
            Chandler                1.50%             1.50%              1.80%
            Scottsdale              1.65%             1.65%               1.65%
            Mesa                    1.75%             1.75%               1.75%
            Tempe                  1.80%             1.80%               1.80%
            Peoria                  1.80%            2.80%               2.80%
            Phoenix                 2.00%             2.00%               2.00%
            Glendale                2.20%            3.20%               3.20%

Operating Impacts would be the same for each option.

           Operating Impacts
           If this not on a general election ballot, then the cost of a special
           election would be $176,000.
           Minimal operating expenses for new forms; no additional long
           term workload.




                                                 -6-
Secondary Property Tax

Changes in Legislation

Requirement for Implementation: Amend State Constitution.

Changing the Secondary Property Tax to use funds for operations requires amending Article 9
Section 19 of the State Constitution. Constitutional Amendments require either:
    1. A Legislative referendum with a majority vote
    2. A statewide initiative on the November ballot

         Pro
         This would give cities and towns more flexibility and local
         control of these funds.

         Cons
         This is a long term solution and the best estimate is that it
         would not pass the current legislature or a public vote.
         Arizona Tax and Research Association might view this as an
         “open checkbook” for cities and towns to use funds for
         operations.
         If a statewide initiative was needed, the cost would be in the
         millions.
         Rolling up the secondary property tax into the primary tax
         (which has a constitutional increase of 2% plus inflation and
         construction) decrease the City’s capacity to bond for capital
         projects.

Bond Counsel Advice on Operating Impacts

The City collects secondary property tax for the purposes of servicing debt for capital projects.
Bond counsel reviewed the potential to use bond capacity for the purpose of temporary operating
and maintenance expenses after the completion of construction and acceptance of the project by
the City.

Bond counsel has provided the following opinion:

Although this is an accounting question, we think that a year is too long to fund bond funded
projects through the capital budget O&M costs. If you use the capital budget O&M longer than
necessary for the start-up costs of a project it starts to raise state tax law and federal tax law
questions. Under federal tax law, the working capital issue is raised if you use the bond proceeds
longer than the reasonable start up time. A reasonable start-up period for bond funded projects
through the capital budget O&M is approximately 90 days, but can vary.

Based on the above opinion, the use of secondary property tax for temporary operation and
maintenance expenses does not appear to be a viable alternative.

Highway User Revenue Fund Maintenance of Effort Transfer

Requirement for Implementation: Policy Review.

The City annually receives Highway User Revenue Funds (HURF) based on a formula that
includes City population and origin of gasoline sales. The allocation for FY 2009/10 is budgeted at



                                               -7-
Secondary Property Tax

$10 million. To qualify, the City is required to use local revenue for street and highway
maintenance, which is known as “maintenance of effort”, based on average expenditures during
1981/82 through 1985/86.

Of note, local revenue does not include state or federal grants, interest income, bond proceeds,
HURF monies, Local Transportation Assistance Fund, or monies collected for debt service.

It is recommended that qualified expenditures from the following be used to satisfy the City’s
“maintenance of effort” reducing the annual transfer:
     • Transit Fund maintenance expenditures for bus stop and bikeway maintenance, signage,
         planning, landscape maintenance;
     • Sanitation Fund expenditures for after events street cleaning and maintenance;
     • Solid Waste Fund expenditures to maintain streets; and
     • General Fund Parks and Recreations expenditures to maintain medians and rights-of-
         ways.

In order to hold this fund harmless, the annual debt service payment should be reduced by an
equal amount.

In 2002, the Legislature enacted an emergency measure that suspended the maintenance of
effort requirements for three years. Correspondence with the League of Arizona Cities and
Towns, Deputy Director Tom Belshe, stated that in 2002 Arizona Department of Transportation
brought forward the suspension of the maintenance of effort and “not interested” in bringing this
forward again at this time.

         Pros
         This would reduce maintenance of effort transfer from the
         General Fund to Highway User Revenue Fund resulting in
         $1,035,000 in expenditure savings.
         Debt Service fund balance as of June 2009 is $37.5 million
         which exceeds the reserve policy of 8.0% of total outstanding
         general governmental debt by 6.6% (14.6% of outstanding
         debt).
         Ease of implementation.

         Cons
         This is not a long term solution.
         Will need to find qualified expenditures to satisfy the City’s
         obligation.
         Will reduce the debt service fund balance.


Engineering Charge Back

Requirement for Implementation: Revisions to Ordinance.

The Engineering Division assesses a 1% fee to capital improvement projects (CIP) construction
costs to cover engineering permit fees. This assessment offsets approximately $650,000 annually
from the general fund. Based on an analysis by the Engineering Division, this offset is being
evaluated to more accurately reflect all Engineering employee time devoted to CIP projects. This
analysis suggests the offset should increase by approximately $200,000 and an


                                                -8-
Secondary Property Tax

enterprise fund established to better track this function using higher fees against the total CIP
project costs. Other fees such as interactivity charges, utility fees (including shared revenue) and
private development fees would also contribute to the overall cost recovery of Engineering . The
Engineering Division, working with Financial Services, will finalize and put forward a proposal that
could establish Engineering as an “Enterprise Fund”.

Other Departments, such as Financial Services Budget and Accounting, should analyze work
product dedicated to CIP projects for a similar charge back recovery of costs.




                                               -9-
Transient Lodging Tax Increase

Background

The City of Tempe has a Transient Lodging Tax (Bed Tax) of 3%. The current tax is shared
under an agreement with the Tempe Visitors and Convention Bureau (TCVB). The City formed
the TCVB to promote Tempe as a tourist destination and dedicated 1% of bed tax revenue for
that purpose. Additional 1% revenue from a successful special election was directed to the TCVB
for the purpose of promoting Tempe as a youth and amateur sports destination. The remaining
1% collected by the City is placed into the General Fund.

The City and TCVB desire to hold an election and place before the voters of Tempe a request to
increase the bed tax by 2% to a total of 5%. Should the election be successful, the Council and
TCVB will need to renegotiate the existing operating agreement to determine how any additional
revenues will be divided between the two organizations.

         Pros
         The parties responsible for payment of the bed tax tend to be
         visitors to Tempe rather than residents of the community.
         The current bed tax rate of 3% is below market for similar
         sized communities that are tourist destinations.
         By raising additional revenues, the City and TCVB can focus
         on using them to attract more tourism and with increased
         tourism hopefully stimulate lodging development and more
         revenue.

         Cons
         An increase in bed tax rates could position Tempe at a
         competitive disadvantage when compared to surrounding
         communities with lower bed tax rates.

         Operating Impacts
         A bed tax referendum will need to be referred to the ballot by
         the City Council. The date of the election should be scheduled
         with concurrent election activity to avoid additional expenses
         to the City.
         Should the election be successful, the City and TCVB should
         negotiate the specifics of the distribution of the proceeds and
         formalize the expectations of each party through an
         amendment to the current agreement. The agreement should
         contain clearly defined and measurable outcomes for
         performance annually.




                                             - 10 -
Fines, Fees, and Forfeitures

Business Registration Fee

Requirement for Implementation: Revisions to Ordinance.

The City of Tempe currently has a transaction privilege tax license (sales tax) fee of $50 annually
for those businesses conducting a taxable sales activity. The City does not require similar
business fee for those businesses in non-taxable activities such as service oriented, labor only,
and professional services (e.g. doctors, accountants, lawyers, and consultants). In the matrix
below, other East Valley cities require a business license, covering those businesses that do not
conduct a taxable activity.



    City        Chandler              Glendale                Scottsdale                 Peoria
Type of         All businesses    Transaction Tax,     Transaction Tax,           Transaction License,
Licenses        required to       Professional         Business, Occupation and   Occupational
                obtain            License, Specialty   Professional (service      (Business) License,
                Privilege & Use   License,             oriented) License,         Specialty License
                Tax License       Transient License    Specialty License
Application            $15                 $0                      $12                     $20
Fee
Annual Fee           $25                  $50           $50 - $200 depending on            $55
                                                         number of employees

The City of Chandler is unique in its simplified approached that all business, regardless of their
nature, are required to obtain Privilege & Use Tax License.

This fee is within the purview of the Model City Tax Code, would not require a code change and
could be implemented with minimal operating impact.

The fees for these licenses are similar to the transaction privilege tax license. Based on the
estimated number of businesses and existing fee structures, this program would generate
approximately $200,000 in revenue for a $50 annual license fee and a $20 initial application
processing fee.

           Pros
           Similar fee currently charged for transaction privilege tax
           license.
           This tax has been implemented by other East Valley cities.
           All business entities would pay the same fee.
           Enhanced tracking of business demographics.
           Ease of implementation and minimal operating impact.

           Cons
           Has been proposed before and did not have support.
           Might discourage future businesses from locating in Tempe.




                                                   - 11 -
Fines, Fees, and Forfeitures

Residential Rental Housing Fire Inspection Fee

Requirement for Implementation: Revisions to Ordinance.

Currently, the City requires a sales tax license for all residential rentals with a one-time
application fee of $20 and annual license fee of $50.

In accordance with City Code, Art. II. Fire Prevention Code, §§ 14-16—14-49, smoke detectors
shall be installed in all existing non-owner-occupied dwellings which would include residential
rental housing.

        Also, the owner shall be responsible for the installation, replacing the battery annually (if
        battery operated), and maintaining appropriate records of required smoke detectors.
        Upon termination of a tenancy in any rental unit, the owner or owner's agent shall
        ensure that any required smoke detectors are operational prior to re-occupancy of the
        unit. The occupant shall be responsible for periodic maintenance and reporting, in
        writing, to the owner or owner's agent of any operational defects of required smoke
        detectors.

Currently, Fire Prevention Division of the Fire Department does not have adequate staffing to
monitor and enforce this Code in the over 7,220 properties in the Tempe data base with 4,884
accounts/landlords. Many of the rental housing units are managed as commercial enterprises
with companies/individuals who own 20-or-more properties; two of these own more than 90
properties each.

Assessing an annual $50.00 Residential Rental Housing Fire Inspection Fee for smoke detector
inspections would generate revenue of $350,000. A reduced fee of $25.00 for follow-up self-
inspections for those properties initially found in compliance would reduce the costs to the
property owner, and free up Fire Prevention staff for public education and/or inspections.

State Statute ARS §9-1304 significantly limits licensing and building inspection fees of residential
rental properties. Statute does not prohibit a city or town from assessing a Fire Inspection Fee.
However, further review by the City Attorney would be needed if this idea were to be expanded
to include building code inspections.

         Pros
         Similar fee currently charged for transaction privilege tax
         license.
         Smoke detectors are mandated by City Code.
         Ease of implementation and minimal operating impact.

         Cons
         Has not been proposed before and support is unknown.
         Resistance from multi-unit housing groups.
         Staffing level in Department is not adequate to implement.
         New concept and revenue estimate may be over stated.




                                                - 12 -
Fines, Fees, and Forfeitures

Accident Reimbursement

Requirement for Implementation: Revisions to Ordinance.

Accident reimbursement enables the Fire Department, through a third party billing company, to
recoup expenses resulting from at-fault accidents in Tempe by non-residents. Under this plan,
accident reimbursement recovers expenses from non-residents so Tempe taxpayers would not be
subsidizing the expense associated with service to non-residents. Individuals would not be billed;
rather the insurance companies of the parties involved in the incident billed.

Revenue is estimated at a range of $150,000 to $300,000 per year and assumed $200,000 for
this report.

Assumptions
      For calendar year 2008, 1,640 motor vehicle incidents occurred
      A private cost recovery company provided an industry collection range of 50% to 73%
      for motor vehicle incidents
      For this estimate a conservative 50% collection rate (or 820) was used
      Private cost recovery companies generally do not charge for their services but they retain
      approximately 20% of fees recovered
      There are a variety of fee schedules that could be established such as: flat fee, tier time
      system to time-on scene
      Fee schedules of various private vendors vary considerably. For purposes of this
      proposal we are using a moderate base of $250 per incident
      Fire Department response fee programs are not uncommon around the country which
      may result in less resistance from insurance companies


                Pros
                Non-residents would pay for use of City fire services.
                3rd party company would directly bill insurance companies.
                Fee has been charged in other States (California and Texas).
                City of Phoenix is currently reviewing this concept.

                Cons
                May erode mutual/automatic aid contracts.
                Ease of implementation is unknown.
                Record tracking for billing would have to be enhanced.
                Staffing level in Department is not adequate to implement.
                New concept and revenue estimate may be over stated.




                                              - 13 -
Fines, Fees, and Forfeitures

Defensive Driving Increase

Requirement for Implementation: Notification to Supreme Court’s Administrative Office of the
Courts. Enabling legislation already exists.

An individual cited with a civil traffic offense has three options: 1) pay the complaint; 2) contest
the complaint and set for a hearing; or 3) attend a defensive driving school diversion program if
he/she has not previously attended in the past 24 months.

The total cost to attend defensive driving school for dismissal of a designated minor traffic
complaint consists of four amounts: 1) the municipal court diversion fee which varies from court
to court; 2) the state fee ($45.00); 3) the state surcharge (84 percent of the base amount
imposed); and 4) a defensive driving school fee (in Maricopa County this fee ranges from $20.00
to $70.00).

Those individuals choosing to attend a defensive driving school diversion program must pay all
related fees to the school prior to participating in the course.

The court diversion fee may change in October and April of each year.

The following is a breakdown of the court diversion fee for comparable municipal courts in the
Valley.


                                            Court
                                          Diversion
                  Court                      Fee            Ranking
                  Peoria                   $162.00             1
                  Phoenix                  $105.00             2
                  Chandler                 $105.00             2
                  Glendale                 $100.00             3
                  Scottsdale                $95.00             4
                  Gilbert                   $93.00             5
                  Mesa                      $90.00             6
                  Tempe                    $88.00              7

            *Note: All figures are as of October 1, 2009. Modifications to the fee are
            statutorily authorized but can only occur in October and April of each year.

Effective April 1, 2010, the Tempe Municipal Court’s diversion fee will increase to $105.00. This
will result in at least $120,000 in additional General Fund annual revenues.




                                                  - 14 -
Fines, Fees, and Forfeitures

Downtown Tempe Community Parking Administration of Mill Avenue District

Requirement for Implementation: Revisions to Ordinance.

Though no formal proposal has been submitted, the Downtown Tempe Community (DTC) has
expressed interest in managing a parking program in the Mill Avenue District that might include
parking enforcement and the issuance of complaints by DTC-contracted personnel, payment of
violations to the DTC, and some form of an appeal/hearing process.

The concept is premised on a program construct that would utilize a portion of paid parking
violations to fund DTC operations for parking enforcement and payment of violations.

Currently, the fine for a typical parking complaint is $29.00. For every paid complaint $15.76 is
transferred to the City General Fund and $13.24 is transmitted to the State Treasurer for related
state surcharges.

According to the City Attorney’s Office, ARS 12-116.01 and 12-116.02 have been carefully crafted
so that the entire amount that a municipality assesses for a parking violation is subject to state
surcharges. If the municipality plays any role relative to parking enforcement (i.e. issuing a
complaint, collecting monies, adjudication, or receiving revenue from said violations) the state
surcharges must be imposed.

It should be noted that the City of Phoenix was the subject of legal action brought forth by the
State of Arizona in 1999. The suit alleged that the City of Phoenix did not properly assess and
remit state surcharges on parking violations. As a result, The City of Phoenix paid over $6.4
million to the State as part of a settlement agreement.

At this time, given the advice of City Attorney staff and the lack of a formal written DTC proposal,
the Revenue Enhancement Results Team does not recommend DTC parking administration of the
Mill Avenue District.




                                               - 15 -
Special Events

Requirement for Implementation: Contract Negotiation.

Background
The City of Tempe permits numerous seasonal and annual community events within the policy
provisions established by the Council under City Ordinance 5-2. The Parks and Recreation
Department administers the permit process with the assistance of many of the operating
departments within the City.

In FY 2008/09, the direct expenses submitted by departments, who provide support to events,
overseen by the Special Events Task Force was $2,408,191. Of the total direct expenditures,
$1,021,607 was paid by the various events to reimburse the City for services rendered, and has
been placed into operating budgets of various departments providing support towards events or
was charged for various permits and rental fees associated with the events. Direct expenses in
excess of reimbursed or budgeted allocations were $1,386,584 in FY 08/09.

These figures do not include expenses for programs and activities produced or supported by
individual departments that are not tracked by the Special Events Task Force. Examples include
ASU and Tempe Union High School District (TUHSD) athletic events, Diversity events, Public
Works events, Parks and Recreation events, etc. Additionally, the expenses reflect only direct
expenses related to events. A significant amount of staff time is involved in the permitting
process and is not reflected in the expenses charged to promoters. Similarly, the revenues
accruing to the City do not reflect sales taxes or bed taxes collected by the City from
expenditures made by event attendees.

There are currently three major events: July 4th Festival, PF Chang’s Rock n Roll Marathon,
Insight Bowl and Block Party. There is one smaller event: ASU Homecoming Parade and Block
Party that the City has either entered into agreements for the production and/or has traditionally
sponsored. In FY 08/09, unbudgeted City support of the events totaled $1,371,773.

In determining the charges for City services, two pricing strategies are used. Public Safety
departments use a rate structure that reasonably captures anticipated overtime and associated
overhead expenses related to staff time at the event. All other departments use the budget
office developed Interactivity Job Cost Allocation Charges Labor Hourly Rates schedule. These
rates are developed by the Budget Office specifically for the type of purpose used in billing
outside entities for services provided by various staff within the City beyond their normal duties.
While the differences are not significant, there is both lost income to the City and reduced base
budget adjustments made to the Public Safety (Police and Fire) departments.

The team reviewed numerous options and has proposed the following:

Recommendations
   1. Renegotiate the financial provisions of the associated with events in which the City has
      contractually obligated itself. The City has contractual obligations with three major
      events: July 4th Festival, Insight Bowl and Block Party, and PF Chang’s Rock n Roll
      Marathon. Successful renegotiation of the financial aspects of the agreements could
      reduce the total fiscal impact to the City. The City should also develop a more accurate
      economic impact tool to use in the negotiations. As events could have significant indirect
      economic impact, contracts should consider the economic impact of the event in valuing
      the level of financial assistance the City is willing to invest in each event.




                                               - 16 -
Special Events

2. Have the Budget Office with Departmental input develop a fair and consistent
   determination of the value of City services (employees and equipment) used in special
   events. All departments should use the same instrument in determining the true cost to
   the City. A more accurate schedule of values will allow proper reimbursement for
   services provided and provide a more accurate accounting of the financial support being
   provided to events.
3. Develop a policy regarding activities that occur within the City, but which are not
   permitted as events. These include ASU and TUHSD athletic events for which the City
   provides services but is not reimbursed. The impact of these services is borne primarily
   by the Police and Fire departments. If past practice is to continue, the City should be
   knowledgeable of the value of the services it provides to these agencies.
4. The existing policy of charging for only direct expenses should be reviewed. The Budget
   Office should conduct a cost of services study for the indirect time involved with
   administering the event process. After determining the cost of service, action should be
   considered on adjusting permit fees of other charges related to events to recover a
   portion of the indirect expenses.

           Pros
           The City should seek a more equitable financial position with
           all events including assessing the economic impact of larger
           events.
           The City should provide a more consistent approach to
           determining cost for services provided.
           The City should develop a more consistent and fair approach
           to which activities it considers events, especially those for
           which services are provided and did not receive compensation.

           Cons
           The cost of doing events may preclude some events from
           continuing in Tempe.
           This has been previously proposed with little support for
           change.




                                         - 17 -
Charge Back or For Profit

Digital Display Panel

Requirement for Implementation: Request for Proposals.

On November 11, 2009, the City amended the sign ordinance to allow digital display panels to be
placed at specific areas along freeway corridors through a development agreement, which
includes removal of legally non-conforming signs located within Tempe.

There are two revenue options from digital display panels:
   • Option one is immediately implementable with the recent code amendment, through any
        approved Development Agreements.
   • Option two would require some additional research and planning, including a Request for
        Proposals to lease City property for digital displays.

Regardless of which option is used, the following applies:
   • The new digital display panel generates approximately eight times more revenue than a
       passive billboard, depending on location and size.
   • Landowner revenues for leasing property are typically 15-30% of the annual advertising
       revenue.
   • A local vendor in Phoenix is reportedly increased profits by 36% in 2007, leading to an
       aggressive increase in product roll-out in 2008.
   • Rents to digital display panels rents are increasing at approximately 10% per year, with
       the costs to pay off a construction loan with normal amortization within 7-10 years.
   • A local vendor’s website provided the following information: The Phoenix network runs
       eight 8-second spots played once every 64 seconds, 17 hours per day for a month
       ($5,500 for 1 spot for 4 weeks).

                                                                    Estimated Property
                                     Local Vendor Billing                Revenue
              1 Digital Board             $528,000                   $79,200-158,400

Option One
The Development Agreement is for private property being leased to a company, in exchange for
removal of non-conforming signs elsewhere in the City. Disclosure of the projected revenue and
lease agreement could determine any additional fees assessed through the contract negotiation.
For example, if the operator is making $500,000 and the property owner gets 20% (or $100,000)
then Tempe might require 7% (or $35,000) of the net profits as part of the agreement, with
audits conducted to ensure full payment.

Option Two
Using a development agreement for City owned property being leased to a company, in
exchange for revenue, economic development and public service announcements. The following
information on pre-existing agreements could be used to determine lease rates:

        The existing display panels at the Tempe Diablo Stadium are contracted through a lease
        agreement with the Los Angeles Angels of Anaheim. This revenue is contracted so that
        the first $25,000 is a flat rate to be used for maintenance on-site, the remainder is a 50-




                                               - 18 -
Charge Back or For Profit

          50 split of net profits after expenses. The estimated annual revenue from these passive
          boards is $150,000. Using this number, it would seem reasonable to expect lease rates
          for digital displays along the freeway to gross greater lease rates, possibly as high as
          $180,000 per side per location.

Factors   that determine the amount paid for leasing property
    1.    Type of sign
    2.    Traffic count
    3.    Sign visibility
    4.    Number of existing signs in the area
    5.    Advertisers demand for coverage in the area
    6.    Demographic data including annual average income of commuters viewing sign

Considerations for lease agreements
       Exclusive rights to all five sites for 15-20 years.
       $100,000 per site (five sites = $500,000) for first year; the low initial lease rate to offset
       construction investment made by contracted group.
       Minimum of $180,000 annual per site or 30% of net profit after expenses, whichever is
       greater after the first year, to guarantee a minimum rate of return on the lease (five sites
       = $1,000,000 annual minimum).
       No transfer of lease agreement or sublease to other provider, to control agreement.
       Control content, negotiate 10% of board time dedicated to public service
       announcements, advertising City events, Amber Alert notifications, etc, a 5% of board
       time available for non-profits, and a 20% rate discount offered to all Tempe Chamber of
       Commerce members (to promote in-City business use of signs), no advertising for major
       mall or auto dealer competitors (like Mesa Riverview or Chandler Mall), no political
       messages, no adult-oriented businesses, etc.
       Include disclosure of revenue and annual audit to insure full lease rate is met.
       Construction, Maintenance and Repair agreement.
       Restriction on flashing or distracting elements, and possibly limiting the total number of
       changes per minute to reduce distractions. (This reduces the number of spots, possibly
       to six, which would allow 10 second viewing per minute).

Energy Efficiency/Cell Tower Integration
One concept would be to consider this a demonstration of energy efficient, outdoor advertising
and maximize the value of the site through additional visibility generated by a unique product
offering. The suggested sign type would be variable light level (brighter during day, dimmed at
night when less light is needed to prevent glare) digital 20’ x 60’ (1,200 sf) boards. Boards could
be turned off from midnight to 5 am, but allowed extended hours for major events. The 50-foot
high V-shaped structures (double sided signs angled to maximize freeway visibility) would be
shielded with a cap to prevent glare into night sky; this cap could be used to install photovoltaic
panels that would provide power for the signs. A cellular tower could be integrated into the
design as a stealth tower element, also generating revenue (an additional estimated $24,000 per
location minimum, depending on height).




                                                - 19 -
Charge Back or For Profit


            Pros
            A long term sustainable income source with no capital outlay required.
            Opportunity to expand City communications through public service
            announcements and promotion of events to larger audience.
            Opportunity to promote Tempe businesses through discounted
            advertising rate to Tempe Chamber of Commerce members.
            Control of location and content of signs through contract.
            Diversifies revenue.

            Cons
            Market-based revenue source.
            Could be copied by adjacent communities with less sensitivity to
            location, or competing locations.
            Risk management concerns over public safety from distractions caused
            by digital display panels (research would need to be done to determine
            real risks or case law related to this).
            Resident dislike for digital display panels and historic philosophy to
            restrict or eliminate digital display panels as blight.
            By not tying this to an exchange program, it allows more locations for
            digital display panels, and might create a legal challenge as to why all
            sites are not available.

Sites Suggestions
Possible suggestions offering the greatest traffic counts and sign visibility for site location of City
leased outdoor display boards:

        Parcel 12420006E south of 202, east of Priest in North Bank Linear Park (could create an
        entry feature)
        Parcel 13231005B south of 202, north of lake in retention park east of Rural Rd
        Parcel 12488701 east of I-10, south of Salt River adjacent to new bus facility
        Parcel 12456049 east of I-10, south of 10th Place
        Parcel 12331002 east of I-10, south of Broadway
        Parcel 13436004W east of 101, north of Broadway
        Parcel 30149001C west of 101, north of the Western Canal
        Consider purchasing properties within the north County Island along the freeway, to
        enable clean up of the most visible entry into the downtown from the east, and open up
        other display opportunities that we control.

Municipal Service Fee

A municipal service fee delineated on the utility bill would generate proceeds going to the
General Fund for general services or a specific service (e.g. Public Safety). The City Attorneys’
Office has opined that this is an improper tax, that a fee should be identified with an associated
service rather then a re-coup of already provided services or general services.




                                                 - 20 -
Charge Back or For Profit

Cellular Towers

Requirement for Implementation: Request for Proposal.

With the evolution of wireless technology, there are ongoing efforts with wireless providers to
secure leases within the City for new cell towers. Tracking of permits indicates in the City there
are 105 built facilities and another 25 sites approved yet to be built. Many private property
owners, churches and schools have recognized the financial benefits of leasing with leases
ranging from $14,000 to $24,000 annually for approximately 200 square feet of land.

These vertical elements, as tall as 80 feet high, are being sought on a grid across the entire City,
every half mile apart. The monopalm “stealth” wireless sites are proliferating the landscape with
exclusive facilities that cannot be co-located with other carriers. As a result, each new carrier that
needs coverage then applies for their own monopalm. We are beginning to see multiple artificial
trees clustered in some areas of the City. The Federal Communications Commission has recently
opened up airspace for band wavelengths higher than the existing 60-foot range. Building taller
facilities provides a greater radius of coverage, but may have aesthetic impacts if not properly
integrated into a site. Competition for sites is increasing with changes from 3G to 4G technology,
and it is expected that demand will continue to grow.

Conceptually, there are two options with cellular tower leases on City properties:
   • Option one is to identify all City properties that would be eligible to host wireless
       technology.
   • Option two is to identify all City properties at the boundaries of the City that might
       provide opportunities for vertical public art projects that disguise the cell towers in
       unique stealth designs that become monuments defining our boundaries to the
       community.

Option one
A property inventory is currently being conducted to identify all properties that might be eligible
for leasing to wireless providers. It is estimated that there might be approximately 25 sites for
further study. This list will take into account existing uses, surrounding uses, accessibility, and
general location marketability.

        Steps for this process:
        1.          Host a community meeting to discuss the site merits and identify any sites
                   that are publicly not supported.
        2.          Use permit process could be done in advance of seeking contracts, to get the
                   entitlements in place.
        3.          Request for Proposals could be issued for a primary carrier (at a discounted
                   lease rate) to build the infrastructure large enough to support 3 or 4 providers.
                   This would keep the towers from being exclusive use, reducing the need for
                   more facilities in near proximity. Expedited processing and extra height could
                   be incentives for attracting carriers.

It is estimated that 20 sites with one carrier would provide between $288,000 and $480,000
annually depending on the lease agreements. Additional carriers sharing a facility would provide
additional revenue per location annually.




                                                - 21 -
Charge Back or For Profit

           Pros
           A long term sustainable income source with no capital outlay required.
           Short time frame for implementation.
           Control of location and content of signs through contract.
           Diversifies revenue.

            Cons
            Public may have concerns with placement and/or design.
            May compete with private interest.
            Time sensitive due to competition.


Option Two
This second concept is not being considered as a significant revenue generator due to the
upfront investment needed for public art to house the wireless equipment.

Property Assets

A suggestion was made to consider selling City real estate assets to replenish the General Fund’s
reserve balance. Previous reorganizations and staff reductions have left a gap in property
inventory management; although many departments have partial lists of resources, there was no
comprehensive list identifying all City-owned property. As a result of this inquiry, a property
inventory was initiated to determine the potential availability of underutilized property, either for
the purpose of leasing or selling real estate for revenue. However, the potential other uses of this
list became evident after discussions with staff:
         Risk Management – needs to value all City properties for insurance purposes
         Public Works – needs to identify maintenance costs for all City properties
         Engineering/Land Services – needs to keep track of all properties
         Public Safety – needs accurate addressing for emergency response
         Accounting & Financial Services – needs complete list of properties purchased, sold and
         maintained, and needs to track original funding sources of purchases to make sure State
         or Federal funding requirements are met with any future use of a site and associated
         property tax levy is correct.

The City of Tempe owns approximately 800 identified parcels of land, excluding un-numerated
rights-of-way; the acreage has not yet been totaled. The inventory is ongoing and will require
cross-referencing between departments to verify recent sales or unrecorded changes of
ownership.

There are two potential revenue sources from property assets: leasing opportunities or property
sales.

Option one
The City might include soliciting vendors seeking start-up opportunities, right-of-way visibility,
etc. such as mobile food carts, which are currently not allowed on public property or rights-of-
way. Other leasing opportunities might include digital display panels or wireless cellular providers,
which are addressed in separate parts of this report. With Tempe’s land-locked status, leasing
might provide a long-term revenue opportunity, but will require time to determine what type of
leases appropriate. The land inventory will include a brief assessment of market viability per




                                               - 22 -
Charge Back or For Profit

location. This option is recommended, contingent upon the results of the land inventory and
whatever public processes are necessary to make sites available for lease.


         Pros
         Long term sustainable revenue.
         Keeps assets for future uses.
         Short timeframe to implement.

         Cons
         Perceived competition with private property.
         Potential increase in liability depending on use.

Option Two
The sale of City assets; is a one-time opportunity that is not sustainable for long-term revenue
generation. Some properties might be ideal for selling, but require investment in relocation of
existing uses prior to sale. These sites would require up-front funding that is not currently
available. Some properties might be ideal for selling, but have deed restrictions, which would
need to be vetted out prior to listing as sale-eligible. Any disposition of property should be
carefully planned to maximize revenue return during peak market demand, not sold off during a
real-estate slump. This option is not recommended at this time, but should be considered as part
of a long-range real estate management strategy.


         Pros
         Immediate revenue from sale.
         Disposition of parcels not needed.
         Eligible for property taxable.
         Property status for a higher use.

         Cons
         One time income source, not sustainable.
         Land is a finite resource, land locked condition limits future
         expansion.
         Market is low now, should wait until strong market.


Town Lake Casino Boat

The City owns the Tempe Town Lake and has many opportunities to lease land or water for
entertainment and attractions in and around the area. One such opportunity that requires further
legal research is leasing space in the marina and lake for a Tribal owned and operated casino
boat or boats. This would be a small venue, possibly hosting 100-150 people with a uniquely
designed boat with gaming amenities.

This unique boat might be booked specifically for parties, or operate for walk-up traffic. If it were
sponsored by a nearby operator, it might be part of a larger tour package, offering shuttle
services from nearby hotels or casinos, to the lake for special gaming attractions.




                                               - 23 -
Arizona law requires that gaming be owned and operated by Tribal communities. It is unclear at
this time if the law explicitly prohibits the ownership of mobile gaming facilities operated on
bodies of water off tribal land. There may be a need to clarify existing legislation with specific
riverboat legislation to assure the viability of this option.

The next steps for this concept would be to:
       further research the legalities
       conduct some market research on potential interest
       ensure federal compliance with funds received for the lake
       issue a Request for Proposals to local Tribal communities; and
       negotiate a lease agreement with the selected gaming operator.

The lease agreement could be structured for a flat lease rate or a percent of the net earnings,
whichever is greater. This would enable us to have a minimum known and sustainable revenue
source, and potential for greater income as the venue matures as an attraction. This concept
helps activate the lake, generates revenue, generates jobs, and provides a unique attraction
promoting tourism and providing entertainment.

Additional information-Other States
According to internet research, there are casino boats on many rivers back east, 14 riverboats on
the Ohio River and more on the Mississippi. In 1990, the Riverboat Gambling Act legalized
riverboat gambling in Illinois. The Act allows for riverboat gambling upon any water within or on
the border of the State of Illinois, other than Lake Michigan. Chicago area riverboats are located
on the Des Plaines, Fox, Illinois and Mississippi Rivers. In 1993, Indiana legalized riverboat
gambling. Indiana allows riverboat gambling on Lake Michigan and the Ohio River. Iowa legalized
riverboat gambling in 1989. Chicago Traveler features one casino in Iowa, located in Bettendorf
on the Mississippi River. Each of these states prohibit boarding by any person under 21 years of
age and wagering must be cashless, so tokens and chips are used. All of the casinos offer slot
and video machines with various levels of wagering. Table games typically include blackjack,
poker, craps, roulette and baccarat.




                                               - 24 -
Policy Issues

Cost of Service Fee Analysis

Background
The City of Tempe establishes numerous discretionary fees for services provided to the
community. These fees are adjusted periodically as approved by Council through Resolutions.
Currently, those fees established in support of Enterprise Services result from recommendations
made as the result from comprehensive cost of service studies. However, most other fees are
set through a variety of methods.

A consistent methodology across all services for determining fees should be implemented. The
model currently used for Enterprise Funds could be applied to other services. After determining
the cost of service, fees could be established on a desired level of direct and indirect cost
recovery should be established and set forth in Council policy. A periodic schedule for fee review
and adjustment should also be established to assure that target recovery levels are being
maintained.

The process for determining the desired level of recovery could be determined by the exclusivity
of the benefit of the service to the individual. A sample conceptual approach could be:

“Public Services”

Target Recovery Rate – 0-50% of direct cost
Services which are generally considered fundamental or “basic.” Everyone benefits equally. Public
services are those which tend to:

    •   preserve and promote a high quality of life;
    •   foster the preservation of limited open space, and natural systems;
    •   assist in promoting and celebrating the heritage of Tempe;
    •   provide for the general safety of the public;
    •   promote awareness to groups with limited ability to provide for themselves such as the
        young, the aged, and the disabled.

Examples of a Public Service are park maintenance and historical museum.

“Merit Services”

Target Recovery Rate – 25-100% of direct cost
Services which are made available to the community and whose primary benefit accrues to the
citizenry in general and partially to the individual. Since the community receives some indirect
benefit by having the City administer services there should be a balanced approach to
determining the level of subsidy to the user. These services are characterized as being available
to all, but multiple factors may limit their use.

Examples of Merit Services are CPR classes, plan reviews, and fire permits.




                                              - 25 -
Policy Issues

“Private Services” or “Special Interest Programs”

Target Recovery Rate – 50-100% of direct, indirect and allocated cost
Services whose primary benefit accrues directly to the individual(s) consumer and only indirectly
benefits the general public. Since the community receives minimal benefits, there should be a
more focused approach in having the consumer of the service pay, to the fullest extent possible,
the cost of providing the service.

Examples of Private or Special Interest Program Services are kids zone and recreation classes.

“Non-Departmental Services”

Services or programs organized by non-City organizations and/or businesses in the community.
Fees should be applied to cover all costs associated with providing the program or service to the
community including the opportunity costs associated with the potential loss of resources.
However, wherever possible, the economic impact of the program or service should be used to
offset any fees or other associated costs.

An example of Non-Departmental Services is special events.


         Pros
         There would be a more consistent approach to pricing services
         for which the City has the sole discretionary authority to set
         fees across all funds.
         There would be better accountability and transparency with
         the public on the true cost of City services.

         Cons
         Some fees, which may not have been adjusted for some time,
         may increase.

         Operating Impacts
         Fees are approved by Council Resolution. A calendar of fee
         reviews should be established by the budget office and
         periodic audits should be performed by the City auditor’s
         office to ensure that the operating department is in
         compliance with the approved council policy of target
         recovery.


Credit Card Transaction Fees

There are transactional fees associated with credit card processing. For FY 2009-10 the General
Fund expense is budgeted at $220,000. While credit cards are a convenient means of payment
for those doing business with the City, additional consideration should be given as to whether
these associated costs should be passed on in the form of an additional fee, calculated into
departmental cost modules and/or factored into overall service delivery.




                                              - 26 -
Policy Issues

For example, in 2010 the Tempe Municipal Court will participate in the State Supreme Court’s
Fines/Fees and Restitution Enforcement (FARE) Program. As a result of enabling legislation, each
defendant will be assessed a $7.00 per charge fee that will be transmitted to the State Judiciary
and $35.00 when the case is referred for collection. In return, the Administrative Office of the
Courts will provide and maintain web and phone based payment systems. Cover all credit card
transactional costs associated with payment via the web and interactive voice response systems,
administer the program, and provide an interface to the Motor Vehicle Division’s Traffic Ticket
and Enforcement Assistance Program (TTEAP); which places registration holds on owners’
vehicles where there is overdue court obligation(s) as the result of being found responsible for
certain civil traffic violations. Those obligations must be paid in full before the TTEAP hold is
lifted and the vehicle can then be registered.

Arizona State University (ASU)

The City of Tempe is home to Arizona State University, the largest university in the nation with a
student enrollment of 55,592-Tempe Main Campus. ASU has on-campus housing of 10,460
available beds (or 19% of total housing needs), which results in the majority of students living
off-campus. This segment of Tempe's population is considered to have high vulnerability and risk
as the Center for Campus Fire Safety estimates that the risk of fire-related injury is significantly
higher in off-campus residential facilities with almost 80% of fire-related deaths in student
housing occurring in off-campus facilities.

ASU can be considered a smaller city within the City of Tempe and a case can be made that this
population places additional service delivery impacts upon Tempe, especially in the areas of
public safety (police and fire) and public works (streets, sanitation, water and transit).

Police
         Although ASU has a police force of 41 officers, it does rely on the City of Tempe Police
         force for: events staffing (City streets), specialized investigations/incidents, and
         homeland security issues. These services are provided without reimbursement from ASU.
Fire
         ASU does not have a fire department and relies on the Tempe Fire Department for all
         emergency responses such as Fire, EMS or Hazardous Material. Although the frequency
         of calls is low (1,811 for 2009) they are high risk due to the nature of the calls and
         impact on Fire resources. For example the Memorial Union fire had an estimated damage
         cost of $48 million which did not include the cost of 30 fire units (120 firefighters) who
         responded. Some buildings do not have sprinkler systems, like the Hayden Library. This
         results in higher risks because of the magnitude of combustibles, multiple stories and
         access over a tunnel system that will not support fire apparatus. Other buildings with
         laboratories have unknown chemicals and hazardous materials.

Public Works
        The Streets Division incurs costs of traffic control (barricades), street and
        sidewalk cleaning, and trash removal after major ASU events such as football games and
        homecoming. The Sanitation Division also has costs associated with event clean-up.
        The Transit Department does have an intergovernmental agreement for transit services,
        which covers the cost of the services provided, but does not cover additional security
        needed for bus and light rail during events.




                                               - 27 -
Policy Issues

Water and Sewer
       Because of issues related to access and unknown structural conditions the
       Water Utilities Department would prefer to deed over on-campus infrastructure and
       maintain the perimeter water and sewer system.

The Revenue Results Team recognizes that an intergovernmental agreement with ASU for
reimbursement for services is a long term policy issue. The team did receive several
suggestions:
    • Charge ASU a Fire Fee
    • Charge a College Tuition Tax-would require a change to the Model City Tax Code
    • Charge every ASU student a $5 or $10 public safety fee upon registration
    • Implement a City Activity Fee for all ASU students
    • Student Housing Licensure (fee to cover increased calls for service)
    • Institute a Public Safety surcharge on all event tickets

Cost / Benefit Analysis of Services Agreements

Background
The City of Tempe has entered into various agreements for service with not-for- profit
organizations. Generally, the agreements provide for specific City resources to be provided to the
group or organization without similar specificity or measurement for the return to the City. The
City should work with the oversight department, Budget Office and not-for-profit to determine a
more equitable and measurable methodology and incorporate necessary changes into the
agreements as appropriate.

The measurement of benefits provided under the terms and conditions set forth in the agreement
should be reported annually during the budget process. Expansion and contraction of City
support should be tied to the measurements of the benefits being exchanged by the parties.


         Pros
         There would be a more consistent approach to service
         agreements and for the setting of desired outcomes through
         the City’s involvement and investment in services.
         There would be better accountability and transparency with
         the public on what benefits the City is receiving by entering
         into the agreement.
         Annual accountability during the budget process will allow the
         City to expand or contract.
         Agreements based on the measurement of mutually agreed
         conditions.

         Cons
         Not-for-profit outcomes are more difficult to measure.

         Operating Impacts
         Each of the agreements should have a very definable schedule
         of benefits received for the services being provided by the
         City. Changes to the agreements are formally approved by
         Council.


                                              - 28 -
Policy Issues

Sponsorship Opportunities

Background
The City should take the opportunity to examine potential business partnerships with the private
sector that may result in new revenue streams for the City. An example of one opportunity
would be for the exclusive presentation and sale of branded beverages at City facilities, programs
and contractual special events. Other cities have made successful use of business partnerships
to grow non-traditional revenues.

These revenue streams typically result from agreements where the City provides a benefit to the
private party in exchange for financial remuneration. A potential agreement will require a Council
policy decision on the fair exchange between the City and private party.

Recommendations
Form a business partnership team to explore opportunities to leverage City assets with private
parties for financial compensation. A model format is being developed by Community
Development for the exclusive presentation of beverages at various City locations.


         Pro
         The City should have annual financial considerations for the
         exclusive presentation of private business products to
         employees, and where applicable, citizens of community.

         Con
         Commercializes what have traditionally been public resources.

         Operating Impacts
         A business partnership team should be formed and work with
         Procurement staff for the solicitation of proposals as
         appropriate. Proposals worthy of consideration should be
         developed into agreements and forwarded to Council for
         consideration.


Government Property Lease Excise Tax (GPLET)

Article 5 of the Arizona Revised Statutes provides for a Government Property Lease Excise Tax on
a government property improvement for which a certificate of occupancy has been issued, for
which the title of record is held by a government and that is available for use for any commercial,
residential rental or industrial purpose, including, but not limited to, office, retail, restaurant,
service business, hotel, entertainment, recreational or parking uses. The statute also allows for
an abatement of the tax for up to eight years after the certificate of occupancy is issued. To be
eligible for abatement the improvement needs to be located in a single central business and
result in an increase in property value of at least one hundred percent.

The value of the GPLET, whether abated or at the rate, is based on the difference between the
GPLET and the estimated ad valorem tax. The ad valorem tax is estimated based on the building
use, construction cost and the ad valorem tax on comparable properties. These factors are
derived from public sources and a pro forma obtained from the developer of the project. Other




                                               - 29 -
Policy Issues

than the requirement for 100 percent increase in property value, there are no requirements for a
financial return. The property value increase is easily met by almost any significant development.

The City has recently selected a number of financial/development consultants to help the City
understand the implications of various income streams, markets, provide financial/property
analysis, parking/use analysis and financial modeling. The consultants all have extensive
experience in analysis and development of vertically integrated mixed-use projects that include
hotel and conference/convention/event uses in addition to retail, office, and residential uses. The
consultants are capable of providing a demand analysis of proposals and give the City
recommendations on there viability and possible return.

Their duties may include, but are not limited to:

    1. Financial Analysis/Modeling: Formulate analyses to include tax analysis and modeling,
       rate of return requirements, risk assessment, projected cash flows, costs, ground lease
       terms and structure.

    2. Financial Negotiations: Recommend favorable terms for the City and structure of the
       final deal considering all financial aspects of negotiation including tax liability, income
       forecasts, risk factors, and understanding of financial terms within agreements and other
       financial documents.

There is no periodic analysis to ensure the on-going benefit to City of the abatement of property
tax.




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Policy Issues

GPLET properties are tracked by Tax and License Division they are as follows:

          Tenant Name                      Property Street Address               Abatement End Date
 The Buttes                           2000 W Westcourt Way                           24-Dec-94*
 CenterPoint Plaza                    730 S Mill Ave                                 27-Oct-01*

 My Big Fat Greek Restaurant          525 S Mill Ave                                 09-Oct-03*
 Urban Outfitters                     525 S Mill Ave                                 15-Nov-03*
 Café Instanbul                       1310 E Apache Blvd                             17-May-07*
 Harkins Valley Art Theatre           509 S Mill Ave                                 16-Nov-08*
 ASUF Brickyard LLC                   Artisan Court - 30 E 7th St                     13-Jan-10
                                      Bank of America Bldg - 699 S Mill
 ASUF Brickyard LLC                   Ave                                             16-Jan-10
 ASUF Brickyard LLC                   Orchid House - 21 E 6th St                      28-Mar-10
 Hayden Ferry Lakeside LLC            68 E Rio Salado Pkwy                            21-Jun-10
 CH Realty III/Hayden Ferry I LLC     80 E Rio Salado Pkwy                           21-Aug-10
 Hayden Ferry Lakeside, LLC           60 E Rio Salado Pkwy                            01-Feb-15
 Leavitt-Wolff Tempe Holdings
 LLC                                  1721 W Rio Salado Pkwy                          09-Jan-14
 Leavitt-Wolff Tempe Holdings
 LLC                                  1821 W Rio Salado Pkwy                          31-Jan-14
 Leavitt-Wolff Tempe Holdings
 LLC                                  1921 W Rio Salado Pkwy                          31-Jan-14
 Leavitt-Wolff Rio LLC                2021 W Rio Salado Pkwy                          20-Mar-15
 Leavitt-Wolff Rio LLC                1621 W Rio Salado Pkwy                         24-May-15
 Target Corporation                   1800 E Rio Salado Pkwy Ste 110                  29-Jun-15
 Vestar TM-OPCO, L.L.C.               2000 E Rio Salado Pkwy                          29-Jun-15
 Kempe & Kell, L.P.                   555 N Scottsdale Rd                             31-Jul-15


*Properties are paying GPLET rate as the City still has title to the property.

The GPLET rate is based on the number of stories, gross square-footage, use and age of the
building. The rate falls to 80% of calculated rate 10 years from the issuance of a certificate of
occupancy. Between 20 and 30 years of the calculated rate, the tax is 60%; between 30 to 40
years, the tax is 40%; between 40 and 50% years the tax is 20; over 50 years the tax is 0%.




                                                - 31 -
Policy Issues

Use of Collection Services

Requirement for Implementation: Contracts in place. Requires interface between
City/Department and Collection Agency.

On August 1, 2005 following a Request for Proposal process and a multiple-disciplinary review by
representatives of various City departments, contracts were awarded to Progressive Financial
Services and Risk Management Alternatives (later obtained by NCO Financial Systems) to provide
collection services to the City of Tempe. Pursuant to those contracts, T-05-094-01 and T-05-094-
02 respectively, debt obligations can be referred by any City department to collection agencies
for recovery. The debtor bears the cost of the service, which is 15 percent of the referred
obligation(s), and that amount is an assessment in addition to the amount that is originally
referred; all of which is subjected to collection activity. The agencies are paid proportionally to
the monies collected and don’t receive total compensation until the referred debt is also paid in
full.

The original contract was awarded for five years with up to three one-year extensions. The
current extension is through July 31, 2010. There is one more extension available on the existing
contracts, but these services will need to be rebid prior to July 31, 2011.

The Tempe Municipal Court has successfully used collection agencies in the past. For example,
since the implementation of collections protocols in January 2006, the Court has recovered over
$13 million in past due debt for court fines and fees that was, in turn, transmitted to the City and
the State. The positive results are, in part, attributable to the efforts of the collection agencies.




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Matrix of Submitted Ideas

Revenue generation ideas were submitted from a variety of sources both internal and external,
creating more than 80 possible opportunities. The Team reviewed each concept in terms of:
elasticity, viability, sustainability, potential revenue, implementation, and operating impacts.
Some ideas are already in progress. Other ideas were not applicable to the General Fund, but
relevant to other funds such as Water or Transit. Non-General Fund ideas, if implemented, could
directly impact the General Fund for instance the reimbursement of start up funds from the Rio
Salado fund. Below is a summary of ideas the Team did not further vet and results of the team
comments.

                       Description                                     Team Comments
 Charge vendors for placing vending machines in City            Current contract is being
 buildings.                                                     reviewed by Parks & Recreation
                                                                Non-General Fund; referred back
 Shut down or lease out Rolling Hills Golf Course.              to Department
                                                                Non-General Fund; refer back to
 Privatize City golf courses.                                   Department
                                                                Non-General Fund; refer to
 Look into selling 20 electric buses that were purchased and    Transit; buses must be sold under
 placed in storage without ever being used.                     Federal guidelines
                                                                Non-General Fund; refer back to
 Lease out 3rd floor of new transit building. (note: proceeds   Transit; already in process;
 would go to the transit fund).                                 currently seeking tenants
 Allow Sanitation to bid on commercial refuse collection;
 also allow Sanitation to bid on roll off collection on City    Non-General Fund; refer back to
 renovation projects and bill back to CIP.                      Department
 Impose a fee on Orbit riders. (2,418,416 annual ridership x    Non-General Fund; refer to
 $.50 ride)                                                     Transit for review
                                                                Refer to Police Department & Risk
 Add $10 fee for all moving violations.                         Management Division for review
 Impose a $100 inspection fee upon individuals for traffic
 accident reports that require City staff to assess damages
 (20-30 incidents per year).                                    Refer to Police Dept

 Accept donations to fund specialized units, like Mounted,       501(c) has been created for the
 Bikes and K9.                                                  Police Department

 Charge ASU a Fire Fee.                                         Long term policy issue
 Charge every ASU student a $5 or $10 public safety fee
 upon registration.                                             Long term policy issue

 Charge $5 to $10 for Tempe residents to get a library card.    Refer to Department
 Sell headphones, jump drives, reading glasses, cdr's dvr's
 etc. at the library.                                           Refer to Department
                                                                Long term issue; Cost/benefit
 Build a multi-story garage at library and charge for           would need to determine if this is
 parking.                                                       a profitable venture
                                                                Long term issue; City was
 Sell naming rights for signature buildings.                    unsuccessful in the past




                                               - 33 -
                        Description                                  Team Comments

Rent City facilities when they are not being used.            Currently being done
                                                              Contract with third party vendor
Open a surplus inventory store at Mills Mall.                 to sell surplus assets

Sell or lease Diablo Stadium.                                 Cost/benefit analysis is needed
                                                              Contract with third party vendor
Dispose of surplus assets on e-Bay.                           to dispose of surplus assets
Implement a City Activity Fee for all ASU students.           Long term policy issue
Student Housing Licensure (fee to cover increased calls for
service)                                                      Long term policy issue with ASU

The Town Lake CFD will generate surplus revenue
beginning July ’09. In July ‘09, approx. $750,000 could be    Fund does not have surplus
paid to GF or contributed toward Rio Salado debt service      revenue to reimburse the General
obligation, which is currently funded by GF.                  Fund
Relax the City advertising policies to allow for tasteful
advertising (buses and bus shelters); also consider selling   Non-General Fund; refer to
advertising on the City's Home Page and in Tempe Today.       Transit for review Refer to Transit
Bring back the $75 re-inspection fee previously charged by
Code Enforcement.                                             Refer to Development Services

Increase code enforcement and nuisance violation fees.        Refer to Development Services
                                                              No other City charges a fee;
                                                              disadvantage small businesses;
                                                              result in protests-influences who
                                                              can apply; reduces competition-
Charge $100 for each vendor who submits a proposal to         higher costs; conflicts with open
Purchasing.                                                   competition
                                                              Already being done; fees raised in
Charge Fire Inspection Fees.                                  2008

Institute a Public Safety surcharge on all event tickets.     Long term policy issue

Impose a clean-up fee on all vendors in the Mill Avenue
Arts Fair.                                                    Long term policy issue with DTC

Compare fees and service levels in other cities and
increase fees to competitive or slightly higher levels than   Committee recommends a City-
other communities.                                            wide fee structure
Institute a tax on alcohol sales.                             Sales tax options were reviewed
Consider a fixed contribution to TCVB instead of a
percentage of bed tax.                                        Long term policy issue
Find sponsors for the MLK and Tardeada events.                Already being done
Set-up special events downtown similar to the Arts
Festivals, with shared tax licensing paid by the promoter.    Refer to Department
Reduce the percentage of Bed Tax distributed to the
Tempe Convention and Visitors Bureau.                         Long term policy issue



                                                - 34 -
                        Description                                    Team Comments
Request reimbursement from the DTC for all maintenance
that the City provides in excess of what is provided in other
areas of the City.                                              Long term policy issue with DTC

Charge fees to all families sufficient to cover full Kid Zone
costs                                                           Refer to Department

Re-assess the value of providing free Kid Zone to school
district employees.                                             Refer to Department
Check to make sure that all Tempe companies are current
on their sales taxes before we issue an accounts payable        Need follow up with Department
check to them.                                                  if this is feasible

Improve collections of unreported and uncollected sales
taxes.                                                          Being reviewed with Department
                                                                Engineering does verify that a
                                                                vendor is in good standing (no
Create 10% retention account for all City construction          outstanding taxes due) with Tax
contracts over $500,000 and don't release funds until all       and License before issue a
sales taxes are paid.                                           contract.

Recover electricity costs by charging for nighttime use of
facilities.                                                     Already being done

Non-Resident Fee Adjustments                                    Need more information to pursue
Audit the fee assistance program and have a cap allowed
per family to prevent abuse.                                    Need more information to pursue
Chicanos Por La Causa agreed to repay City for grant
application fees. At least $90,000 should have been repaid
from initial grant application process.                         City is receiving reimbursement

Have Rio Salado and Golf funds repay the General Fund for       Funds do not have a surplus to
start-up costs. Consider selling a golf course.                 reimburse the General Fund
                                                                Refer to Transit; it was agreed
                                                                that the transit fund would pay
                                                                for the relocation costs of the
                                                                East Hill employee parking lot
                                                                (Transportation Center site). The
                                                                relocation costs included land
                                                                acquisition and construction costs
The Transit Fund should pay the General Fund for the use        for new employee parking lot at
of the land on which the Transit Center was built.              Apache and Price.




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