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5.6. SR 05-08-2006 City of EII< River Item Number REQUEST FOR COUNCIL ACTION 5.6. Agenda Section I Meeting Date Prepared by \Y/ orksession ~jlav 8, 2006 Scott Clark, C011Ul1UnitV Dev. Director Item Description Reviewed by Lalld LT se Financial :tvIanagelllellt Plall Introduction Staff is seeklllg disctlssion alld actioll ftOlD tlle City Council regardlllg enterulg lllto a "Land LT se Financial Plan" \vitil Ehlers and ..c\.ssociates per a scope of \vork dated .l\pril 26, 2006. Discussion .r\ttaclled is a staff ll1el110 date IvIay 3, 2006 detailing tlle purpose, process and costs associated \vitll tlle proposed Plan. Financial Impact TIle Plan cost is an alTIOUllt up to $15,000 alld tile 2006 PlallniJ.1g budget llas tlus alll0l1nt under rile professiollal serv"ices line itelll. Attachments . Staff 111.elTIOrandull1 dated J\lay 3, 2006 regardlllg Lalld Lise Financial Plall . Elllers and .t\.ssociates "Land Use Finallcial Plan Draft Scope of\\Iork" dated i\pril26, 2006 Action Requested Staff reC01TI1nellds appro'Tal of Ehlers' "Land Use Financial Plall Draft Scope of \Y/ork, dated .L~pril 26, 2006 alld to proceed \"Vitll tlle dev'eloPlnent of tlle Plan as presented. Council Action j\,Iotiol1 bv Second by \~ote Follow Up S:\Communit}'Deve!opment\Scott Cbrk\ Valuation Study\Request Council ~'\ction I\fay 8 2006.doc MEMORANDUM TO: Mayor and City Council FROM: Scott Clark, Community Development Director DATE: May 3, 2006 SUBJECT: Land Use Financial Plan Summary and Purpose of the Valuation Study Over the next several years the Community Development Department will be responsible for a whole series of studies including, but not limited to: Gravel Mining Area Reuse, Land Fill Reuse, Policies on the Development of the Gateway Business Park, review of Economic Development Policies, Highway 10 Reuse Vision Study and the "North of 10 Downtown Redevelopment Plan." The obvious commonality of all these studies will be the strategies involved in determining end land uses. The question that is not obvious is what is the correct balance of land uses that will achieve economic health for the City. The concept of economic health means that once the City is completely built, per the current policies of the Comprehensive Plan, will there be sufficient market valuation to generate an appropriate tax. base to pay for City services at a reasonable tax. rate. In order to determine the appropriateness of land uses some type of financial management planning model needs to be developed to test future revenue generation to needed expenditure levels for a City built-out to a population of 36,000. Why Should the City Enter Into A Financial Modeling Plan? 1) On January 28, 2002 the City completed a Financial Management Plan that included the following adopted policies: a. (2.4)- The City will seek a balanced tax. base through support of a sound mix of residential, commercial and industrial development. b. (1.6).. . All planning must recognize the relationship between finance and community development.. ., The concept of determining an appropriately balanced tax base, in order to meet future needs, can only be achieved through some level of quantifiable modeling. 2) In 2005, the City Council reviewed a 10-year revenue expenditure model that was very general in nature. This modeling was done to better understand the impacts of a pavement management plan and the strategies associated with how to pay for the same. The proposed "land Use Financial Plan" will be of the same style but will run for 20 years and be very specific in nature. 3) Unlike Metropolitan communities that can rely on Fiscal Disparities as an equalization method, if market value revenue falls short of service needs, Elk River will need to stand alone on its' final build-out level. 4) Most cities that have a population base of 36,000 have a geographic area to service of between 8 to 12 square miles. Elk River will have to service a community that is 45 square miles which could translate to a higher per capita cost for basic services. 5) At the present time, the City has significant revenue infusions that may not be available at the time of final build-out including land fill fees, payment -in-lieu at the NRG and significantly less permitting fees. Although all of these revenue sources do not directly go into the general fund they still represent a value that is equal to 20% of the general fund budget. 6) A valuation market study, depending on the detail, could be structured to understand and better budget for future needs such as capital improvements, equipment and facilities, reserves, pavement management, personnel additions or modifications based on when growth will happen and the type of revenue generated. 7) A study relating to timing and the type of value being generated is important to the overall financial review of servicing the northern area of the City (gravel mining area and commercial reserve) in light of needed infrastructure improvements that will carry significant debt. 8) The final and most important reason for this study is to determine if a valuation problem exists and if so, what types of policies should be initiated to achieve the values necessary to support appropriate services. A prime example of this will be the opening of the gravel mining areas for development and the commercial reserves located in the northern half of the City on the east side of 169, respectively. The City's planning studies would normally look at appropriate land uses based on typical organizational assumptions such as roads, proper land use transitions and on-going City policies of density, product type, etc. However, if a valuation gap does exist it could lead to modifications as to the appropriate land use and the timing of when development could occur. Another example of how this type of study could assist the City is engaging the EDA in discussing whether employment or project value should be the prime motivators for future assistance. Methodology Staffhas asked EWers & Associates to prepare a draft scope of work (attached and dated April 26, 2006) to assist the City in developing a "Land Use Financial Plan". Staffhas had a series of discussions with Ehlers and the proposed scope of work will have department heads doing a significant amount of work in preparing their projections. Ehlers will assist department heads through the necessary processes. I will be doing the analysis. The second key part will be developing scenarios for the gravel mining area and testing how various scenarios affect the City's overall financial picture. Budgeting For Valuation Study The City's Planning budget has $16,500 established for professional services. It was anticipated that these funds would be a start of the "Gravel Mining Area Review" land use studies, but as stated in the summary section, an overall City financial picture should be constructed prior to starting the process of developing land uses in the northern portion of the City and elsewhere. Land Use Financial Plan Draft Scope of Work Ehlers & Associates April 26, 2006 City of Elk River Land Use Financial Plan Overview The City of Elk River has requested that Ehlers & Associates submit a proposed scope of work for a Land Use Financial Plan (LUFP). The purpose of the LUFP is to build upon the work already completed for the City including: 1. Comprehensive land use plan completed in 2004. 2. The 10 year financial management plan completed by Ehlers and City staff in 2005. The data from these studies will be utilized as a starting point for the LUFP. The 2005 financial management plan looked at the tax rate implications of very specific capital projects on the horizon for the near term in the context of a projected tax base and operating expense budget. This study did not examine the impacts of different types of development on the future tax base. The Comprehensive Land Use Plan laid out general categories of uses and general densities for much of the undeveloped portions of the City. However, within those broad land use categories is a potential for great variation in values, densities, and specific uses. This is especially true in the gravel mining and commercial reserve areas. For example, in today's market land guided as commercial or even mixed use could have dramatically different valuations per acre. A small office/warehouse on a large parcel of property could have 1/10 the market value of a mixed use retail/housing property on the same parcel or 1/5 the value of a three story office building. The study will not attempt to determine exactly what type of development will go where. Rather, it will serve as a financial blueprint for both the future property tax revenue stream for the City and for the associated expenses. This blue print will illustrate the differences in future tax rates given different types and densities of development. This is not just a revenue based equation. The mixed use retail/housing use in the example above will obviously have higher infrastructure and public safety service needs than low density office. The LUFP will also offer insight into the level of the service costs and staffing needs for the City. Scope of the Project The purpose oftrus project is to study the following factors: 1. The future service needs and budget for those needs over the next 20 years given development and population projections. Service needs include public safety, administration, recreation, and public works efforts to maintain or enhance service levels for Elk River citizens. 2. Future capital needs including street maintenance and reconstruction, equipment, facilities, and parks. 3. The future tax base for the City. 4. Mix of types and valuations of different development, particularly in the gravel mining area and the commercial reserve. The process will include participation from all of the City department heads and the city manager. Department heads will forecast infrastructure costs and staffing needs for the future development. Department heads will also be individually be encouraged to select two or three cities in a similar development pattern or are more fully developed to give specific examples of development types and resulting service impacts. For example, can staffing levels be a function of a per capita analysis, per capita and number of s.f. of retail analysis, or is another model more viable? Are there efficiencies that other larger cities are using at this time? Other cities can also offer insights into options to pay for some of the infrastructure development that the City of Elk River may not be utilizing. Ehlers will work with department heads to gather the data and organize it into a manageable spreadsheet for comment by all parties involved. There is a danger in these types of studies that participants begin to suffer from information overload due to the difficulties in "predicting the future". We will avoid this information overload by narrowing the scope of future scenarios to a maximum of three. For example, the scenarios could include: 1. Build-out in 15 years and Future Development Mix of 50% Higher Value Commerical/20% Residential/30% Industrial. 2. Build-out in 20 years and Future Development Mix of 50% Residential/20% Industrial/30% Higher Value Commercial 3. Build-out in 10 year and Future Development the Same Mix and Values as Current Development Types Project Steps and Timeframes Month 1. Establish General Approach to the Project and Further Define the Scope of Work and Responsibilities with City Staff )- Meet with City department heads to set scope of work, address questions and concerns and lay out time frame and responsibilities for the study. ;.. Assemble list of potential development scenarios ;.. * Begin to inventory benclunarks for staff and infrastructure needs with or without various scenarIOS Month 2. Gather Data, Form First Draft of Numbers, and Update Council in Work Session >-- Meet to update the methodology of the study ;.. Refine development scenarios ~ Prepare for and meet with City Council to gather feedback on scope and intent of work ~ Prepare format for calculations and presentations Month 3. Refine Data and Choose Three Development Scenarios ~ Choose three specific development scenarios with associated service and infrastructure costs ~ Continue regular meetings ~ Begin first draft of text to accompany calculations Month 4. Gather Final Data, Finalize Report, Presentation to Council ~ Final meeting with department heads confirming data ~ Meet with Council to present draft report ~ Refine report based upon Council feedback );;> Complete analyses It is our understanding that the City of Elk River staff will be primarily responsible for supplying to Ehlers the estimates for the build-out of the entire city, service and capital costs associated with the various development scenarios. Ehlers will analyze the capital and service costs and develop land use scenarIOS. Estimated Cost Mr. Mark Ruff and Mr. Sid Inman will be the primary financial advisors and main contact for the project. Other Ehlers' financial advisors and staff will also assist in the analysis and report writing for the project. We estimate that 21 hours per month will be required to accomplish this project including 4 hours per month for meetings and 17 hours per month for collecting data, analyzing data, producing various scenarios, and writing the report. For a four month process, this estimate is 84 hours times $180 per hour for a total estimated cost of$15,000. If the actual hours are less, the cost to the City will be reduced accordingly.