Loading...
02 - Pueblo West Incorporation Study Comprehensive Fiscal and Sustainability Analysis for a Proposed Incorporation of Pueblo West October 2019 Deb Hinsvark James Mann Mike Anderson Graham Anderson Paul Wisor Pueblo West Fiscal and Sustainability Study 2 | P a g e Contents Section 1: Background ............................................................................................................................ 5 Section 2: Executive Summary ................................................................................................................. 7 Table I. Comparable Cities – Population and Tax Revenue .................................................................. 7 Option 1: Non-Modified Current Structure ......................................................................................... 8 Option 2: Sustainable Metropolitan District ........................................................................................ 8 Option 3: Home Rule Incorporation ..................................................................................................... 8 Table II. Property Tax Impact of the Three Options ............................................................................. 9 Graph I. Graph of the Per Capita Tax Impact of the Three Options ................................................... 11 Section 3: Study Methodology ............................................................................................................... 12 Population Projections ........................................................................................................................ 12 Table III. PWDMD – Projected Population ......................................................................................... 13 Table IV. PWMD – Projected Housing Units ...................................................................................... 13 Economics and Demographics ............................................................................................................ 13 Commercial Development ................................................................................................................... 14 Comparable Municipalities and Benchmarking .................................................................................. 14 Section 4: Non-Modified Current Structure ........................................................................................... 16 Table V. Comparable Cities – Population and Tax Revenue .............................................................. 16 Table VI. Type of Tax Matrix............................................................................................................... 17 Graph II. Per Capita Tax Impact of the Non-Modified Option ........................................................... 17 Observations and Conclusions ............................................................................................................ 18 Table VII. General Fund Snapshot – Non-Modified Option ............................................................... 20 Graph III. Allocation of General Fund Balance – Non-Modified Option ............................................ 21 Section 5: Sustainable Metropolitan District ......................................................................................... 22 Civic Center .......................................................................................................................................... 22 Fire Station No. 2 ................................................................................................................................. 22 Market Rate Salaries ........................................................................................................................... 23 Staffing Levels .................................................................................................................................... 23 Table VIII. Comparable Cities and PWMD Staffing Size ..................................................................... 24 Table IX. Staffing Allocation Per Operational Indicators .................................................................... 25 Table X. Cost Matrix to Increased Staff Recommendations............................................................... 25 Observations and Conclusions ............................................................................................................ 26 Table XI. Sustainable Model Matrix of Required New Revenues....................................................... 27 Pueblo West Fiscal and Sustainability Study 3 | P a g e Table XII. General Fund Snapshot – Sustainable District Model ........................................................ 28 Graph IV. Allocation of General Fund Balance – Sustainable District Model .................................... 29 Section 6: Incorporation ........................................................................................................................ 30 Operations ........................................................................................................................................... 31 Table XIII. Municipal Function Matrix ................................................................................................ 32 Policing Services ................................................................................................................................. 33 Office of Emergency Management .................................................................................................... 33 Municipal Courts ................................................................................................................................. 34 City Clerk ............................................................................................................................................. 34 Community Development/Plannig & Zoning ...................................................................................... 34 Traffic Engineer ................................................................................................................................... 35 Staffing Costs for Incorporation .......................................................................................................... 35 Table XIV Increased Staff for City Functions Department and Cost ................................................... 35 Water and Wastewater ...................................................................................................................... 36 Partial Incorporation ........................................................................................................................... 36 Alternative Police Department ............................................................................................................ 37 Incorporation Process ......................................................................................................................... 37 Table XV. Differences/Metro District, Statutory City and Home Rule City ........................................ 38 Procedure for Incorporation ................................................................................................................ 39 Table XVI. Timeline for Incorporation ................................................................................................ 42 Observations and Conclusions ............................................................................................................ 43 Costs of Incorporation ......................................................................................................................... 44 Table XVII. Table of New Revenue Required Through Incorporation ................................................ 45 Table XVIII. General Fund Snapshot – Incorporation Model ............................................................. 47 Graph V. Allocation of General Fund Balance – Incorporation Model .............................................. 48 Section 7: Other Issues ........................................................................................................................... 49 Stormwater ......................................................................................................................................... 49 Potable Water ..................................................................................................................................... 50 Aging Infrastructure/Capital Needs .................................................................................................... 50 Aquatic Center ..................................................................................................................................... 51 Unpaved Roads ................................................................................................................................... 51 Transit ................................................................................................................................................ 51 Appendix A - Current Population Estimate and 10-Year Population Projection for Pueblo West Metropolitan District: 2019-2029 .......................................................................................................... 52 Pueblo West Fiscal and Sustainability Study 4 | P a g e Appendix B – Summary of Candidate Municipalities ............................................................................. 53 Appendix C – Non-Modified Current Structure 10-Year Financials ........................................................ 54 Appendix D – Sustainable Metropolitan District 10-Year Financials ...................................................... 55 Appendix E – Incorporation 10-Year Financials ...................................................................................... 56 Pueblo West Fiscal and Sustainability Study 5 | P a g e Section 1: Background In May 1969, McCulloch Properties, Incorporated, filed a service plan with Pueblo County announcing its intention to develop 25,990 acres of range land into a master planned community. The Forward of that plan described the community as a “complete and soundly based structure for its future inhabitants by careful economic and sociological planning.” In 1972, the District amended its Service Plan to modify standards and projections “necessary for carrying out its original intent and purposes.” The 1972 modifications a dded 4,000 acres to the District’s land mass. The 1969 plan called for parks, a variety of housing options and commercial centers, and the 1972 amendment confirmed those objectives. In 1972, population estimates for the District were projected to be 39,000 by 2020 and the assessed valuation of properties (with present (1972) practices of Pueblo County’s Assessor combined with inflation) was projected to be $428,900,000 by 2010. Today, with a population of 31,704, the District has reached 81% of its population projections, but with an assessed value of about $270,000,000, property values are only 60% of those early expectations. The District’s AV is around $158 million short of the mark. One major modification cited in the 1972 Service Plan had to do with the originally contemplated extensive use of well water to supply residents with potable water. By 1972, it had become apparent that the provision of water to the District would be problematic and trans-mountain water rights must be sought. Water capacity continues to be a risk for the District. The Pueblo West Metropolitan District has operated on around 20 mills of property tax and zero sales tax for over 30 years, and many of the original plans for the District remain incomplete while costs to construct improvements have skyrocketed. The District includes approximately 200 center lane miles of unimproved roadway, some homes are still on septic systems and there is no comprehensive stormwater system. This is a radical difference from Lake Havasu City, Arizona, which was also founded by Robert McCulloch as a sister-development to Pueblo West. Lake Havasu was formed as a District in 1963. In 1964, the 16,520 acres of Lake Havasu had only one improved road. The District incorporated as a City in 1978, and today is home to over 53,000 people and has a thriving tourism industry that attracts over 775,000 visitors annually. In 1971, Mr. McCulloch installed the London Bridge at Lake Havasu to entice visitors. His enthusiasm paid off in Lake Havasu, and if he had lived a bit longer – he died in early 1977 – it is likely he would have invested even more in Pueblo West and would have ensured Pueblo West Metropolitan District incorporate as a City at some point. On January 22, 2019, the Pueblo West Metropolitan District Board of Directors approved Resolution 2019-026 engaging Ehlers’ to complete a fiscal sustainability analysis of the current state of the District and to evaluate the benefits and costs of incorporating. To complete th e study, Ehlers assembled a team that included the municipal advisory firm, Ehlers’ Inc. (Deb Pueblo West Fiscal and Sustainability Study 6 | P a g e Hinsvark and Jim Mann), the economics firm of Anderson Analytics, LLC (Mike Anderson and Graham Anderson) and the law firm of Garfield & Hecht, PC (Paul Wisor). Our scope of service included providing projections of population and future commercial growth, obtaining data from Comparable Cities to serve as a benchmark and developing a financial model that provides multiple optional scenarios to the District regarding the sustainability of the district in its current form and the cost and benefit of incorporation. The team’s initial effort was to familiarize itself with the District’s financial and operational structure and goals. To that end, we reviewed many of the District’s originating and current documents. Our library is listed in Section 2 Methodology. In late February, the team met with each PWMD department director to better understand the operations, successes and challenges of each area. Due to the complexity of the water department and Colorado Water Law, we found we needed to meet a second time with the Utility department to ensure our information was in sync with the department’s. Individually, each of the team has arranged to meet with members of the PWMD staff, with Directors and with members of the community as needed to complete the study. The data reviewed and combined with the District’s current financial status leads Ehlers to present three options that are available to the District: Non-Modified Current Structure, Sustainable Metropolitan District and Home Rule Incorporation. Each scenario is discussed fully in its individual chapter later in this report. These three scenarios are examples that provide the community with plans for moving forward, but they are not absolutes, nor are they designed to be limiting to the District. The District’s elected board along with District staff must determine what is or is not in the best interest of the District. Pueblo West Fiscal and Sustainability Study 7 | P a g e Section 2: Executive Summary Throughout our review and analysis of the data, it became clear that the operations of the District at its current revenue will not sustain ordinary operations and challenges of a community of this size. The status of District operations and logistical delivery of services will deteriorate over time, and likely very rapidly, without a significant overhaul in the District’s revenue stream. Consider the table below which compares the District with its Compara ble Cities in both Population and General Governmental Funds Tax Revenue. This table is a perfect illustration of the District’s revenue picture. While the District is larger than Windsor, Fountain and Yucca Valley, each of these cities generate significantly more tax revenue than the District. Totals shown in the chart consist of both sales and property taxes - general government tax. Table I. Comparable Cities – Population and Tax Revenue Source of tax revenue: 2018 CAFR for each entity; Statement of Activities, General Revenue Taxes, Governmental Activities. Pueblo West Population from Anderson Report. The Chart above demonstrates the District’s inability to have a normal, progressive plan for District operations, maintenance and improvements as compared to similar communities. While the District continues to have significant development potential, which leads to a natural generation of new revenues, there are limiting factors that will dictate whether that development is allowed or can occur. One of these primary considerations is the availability of water resources to serve an expanded community. Further, limiting revenue generation opportunities while at the same time experiencing growth of ongoing operating and capital needs is another concern. It is a common Colorado municipal understanding that residential rooftops do not pay for themselves with a property tax alone – the cost of infrastructure maintenance outpaces residential property tax. The goal is to have residential development generate the demographics that enable retail success. Retail development then will provide, via a sales tax, enough funding to pay for basic municipal services. In Pueblo West, there are mostly rooftops and proportionately little retail. Even if more retail existed, there would be limited value to the District since there is no sales tax available to the District. Municipality Population General Government Taxes Per Capita Tax Town of Yucca Valley, California 21,483 11,936,885$ 555.64$ Windsor 23,386 26,154,538$ 1,118.38$ Fountain 28,799 19,038,490$ 661.08$ Pueblo West Metropolitan District 31,704 5,875,409$ 185.32$ Lake Havasu City, Arizona 53,463 39,049,359$ 730.40$ Rio Rancho, New Mexico 93,317 41,304,341$ 442.62$ Arvada 115,320 89,680,000$ 777.66$ Pueblo West Fiscal and Sustainability Study 8 | P a g e These observations and comparable analysis drew us to three conceptual paths for the District, which are summarized here: Option 1 – Non-Modified Current Structure In Non-Modified Current Structure, the District continues as it is now with its 20.23 mill property tax, doing what it can to satisfy the community needs. Currently, Pueblo West Metropolitan District operates under Title 32 of the Colorado Revised Statutes and has the power to provide fire protection, mosquito control, parks and recreation, traffic safety controls, security, sanitation, street improvements, TV translator services, water and wastewater services, solid waste disposal, enforcement of covenants and design review. The District actively provides m any of these services to the extent feasible within its budget and manpower. The report will provide data that demonstrates that the District is understaffed and underfunded to continue to provide services that have previously been expected. Deferring maintenance is a common practice, and facilities are in a sad state. Revenues of the District are not going to keep up with expenditures. Community leaders of Pueblo West will be faced with decisions to drop “optional” services such as road grading or park and playground maintenance in order to provide basic public safety in this Non-Modified Current Structure environment. Additionally, in this mode the District cannot address the need for a new Fire Station nor can it construct a new Civic Center without ultimately reducing services. While we are providing the community the option to remain in the Non- Modified Current Structure, we do not believe this to be a sustainable direction. Option 2: Sustainable Metropolitan District Recognizing that remaining a District does not preclude the District from refining its current operations and expanding and improving its infrastructure, the District might look at enacting a Sustainable Metropolitan District model. In this scenario, the District would address its near- term capital needs of a new Civic Center and Fire Station, address operational needs of equipping and operating the new Fire Station, undertake a plan to bring wages up to market standards, and bring staffing levels to an average level of Comparable Cities identified in the study. It is recommended that the District implement this change before entertaining Incorporation as an option. The changes suggested under the Sustainable Metropolitan District option allow Pueblo West to operate as a fully-functioning, sustainable, metropolitan district without having to formally change its government structure. Option 3: Home Rule Incorporation The final scenario is Home Rule Incorporation. To establish Home Rule, the District will enact the changes of the Sustainable Metropolitan District model and further finance required municipal staff and operations of a City. While the District already serves its community in many city-like ways, incorporation would necessitate the provision of policing services, municipal courts, community development and planning, emergency preparedness planning and administrative assistance to go with the increased staff and functions. Incorporation would provide the community with the authority needed to manage growth as the community desires. Currently, the County controls planning and zoning decisions in the District. Pueblo West Fiscal and Sustainability Study 9 | P a g e It can determine, for example, how many marijuana dispensaries are allowed in Pueblo West and where they are located. Incorporation would turn all planning and zoning decisions over to the newly incorporated City. Incorporation would also prevent the City of Pueblo from attempting to annex lucrative commercial areas of the District into the City. Because there are points in Pueblo West where the City is contiguous, the City could reach out and “flagpole” annex any part of the District. The City’s sales tax, then would be charged in those annexed areas. District residents would be paying a good portion of every PWMD retail sales’ tax to the City of Pueblo. And with the Wayfair decision, which requires internet sales to be taxed and those taxes sent to the location of the internet order, it is possible the City would consider annexing some residential portions of Pueblo West as well. By remaining in a Metro District format, the community is limited in the ways it can use sales tax – a Metropolitan District cannot use sales tax as it chooses for any governmental purpose; use is limited to streets and safety issues. The incorporated City can consider sales tax a general- purpose revenue. Also, by becoming an Incorporated City, the community would double its conservation trust fund revenues which are available for parks. The impact of each of the studied options and recommended revenues to accomplish each and maintain a general fund unassigned balance of 25% of expenditures as is the District Board Policy, is depicted in the chart that follows: Table II. Property Tax Impact of the Three Options NON-MODIFIED SUSTAINABLE INCORPORATED BASE MILLS/ CUMULATIVE 20.23 mills 20.23 mills 39.4848 mills SALES TAX One Cent to Build and Operate Fire Station #2 Two More Cents for a total of Three Cents ADDITIONAL MILLS No Additional 19.2548 mills for operations 7.1637 mills for operations TOTAL MILLS/ CUMULATIVE 20.230 mills 39.4848 mills 46.6484 mills CUMULATIVE PROPERTY TAX PER MONTH FOR AVERAGE $31.22/Month $60.93/Month $71.99/month Pueblo West Fiscal and Sustainability Study 10 | P a g e HOMEOWNER ($259,000) Assumes Median Home Price in PWMD = $259,000 without escalation. Sales Tax: It is assumed that in 2020, one-cent of sales tax per $1 spent will generate $1,500,000 for the District. This is woven into the financial forecasts to enable the construction of Fire Station #2 and then operations of the Fire Department. It is further assumed that if incorporated, the new Home Rule City of Pueblo West would assess an additional two-cent sales tax, bringing the total to three-cents, in order to offset the need to raise the mill levy more than necessary to cover the incremental costs of incorporation. As a District, Pueblo West can only use sales tax for specific purposes: public safety, roads and transportation. An incorporated City considers sales tax as a general revenue for any purpose of the City unless it is restricted to specific purposes by the voters of th e City. This analysis assumes the two-cent sales tax received as an incorporated City has general purpose power. Currently, purchases made in the Pueblo West Metropolitan District are taxed at a rate of 3.9% while purchases made in the City of Pueblo are taxed at a rate of 7.6%. Pueblo West has the capacity to go from a sales tax base of zero to one, two or even three cents without exceeding the rate paid in the City of Pueblo. At this point, the true value of a year’s worth of sales tax is an educated guess. Our view is that the finance office’s budgeting of $1,500,000 should a one- cent sales tax be approved is the most educated guess, and that is the basis of the revenue for this study. It is recommended that the District observe and be sure of the amount a one-cent sales tax generates in its Sustainable Mode so it fully understands how much additional property tax it needs in the Incorporation Model. It is possible that, if the $1,500,000 is a very low estimate, and actual collection exceeds that number, the additional two-cent sales tax might cover all costs associated with Incorporation. The chart that follows shows the Tax Cost Per Capita (General Tax Revenue/Population) impact of the three options that we financially modeled in comparison to the Comparable Communities. Pueblo West Fiscal and Sustainability Study 11 | P a g e Graph I. Graph of the Per Capita Tax Impact of the Three Options *PWMD full Incorporation data is taken from projected year 2022. The tax information for each entity on the chart includes all governmental taxes , including both sales and property taxes, received by each. As you will note, any of the scenarios maintains the District or the newly Incorporated City as a municipal value while bringing it more in-line with the Comparable Cities. Although the increase to the Pueblo West taxpayer may be significant, the monthly overall cost to secure the future of the District in the hands of the residents may be ultimately a small price to pay. A three-cent sales tax and incremental property tax of $40.77/month for the average taxpayer (owner of a home valued at $259,000) will move the District from today’s unsustainable position to Incorporation and provide the community with home rule autonomy. And with incorporation, the Pueblo West community could ensure that these tax dollars are spent in and to the benefit of the Pueblo West community. As noted in Section 7, serious consideration will need to be given to the limiting factor of water supply, when growth is considered. While we do not believe that the supply of water necessarily dictates one of the study options being better than the other, we simply note that the water factor will need to be considered in any decision-making process respecting growth in the future. Water issues, along with other considerations, are presented in Section 7. $- $200 $400 $600 $800 $1,000 $1,200 Town of Yucca Valley, California Windsor Fountain PWMD Non-Modified PWMD Sustainable Metro PWMD Incorporation * Lake Havasu City, Arizona Rio Rancho, New Mexico Arvada Pueblo West Fiscal and Sustainability Study 12 | P a g e Section 3: Study Methodology To familiarize ourselves with the District, the team reviewed the May 1969 Service Plan and the April 1972 Revised Service Plan; the 2016, 2017, and 2018 Comprehensive Annual Financial Report; a 2019 finance department document addressing employee salaries in comparison to other local entities; the 2018 and 2019 Budget; the Intergovernmental Agreement for Public Roads and Highways in the Pueblo West Metropolitan District dated August 27, 2002; an August 2, 2018 memo from Pueblo County identifying the Pueblo West roads subject to the aforementioned IGA; the 2019 Pueblo West Drinking Water Quality Report; the 2017 Annual Report; the PWMD Community Comprehensive Plan Phases 1-12; the PWMD Parks and Recreation Master Plan dated December 2014; the PWMD Strategic Transportation Investment Plan, Final Draft February 2012; the Pueblo County Sheriff’s Office – NIBRS Agency Crime Overview, 2018; the GIS mapping of PWMD Real Estate Lots Overview December 4,2018; the Water and Wastewater Comprehensive Assessment, 2011; the Water Conservation Plan dated August 1, 2012; the Emergency Services Community Planning Committee Goals & Methodology, undated; the Utility Fund 10-Year Capital Improvement Projects worksheet, 2018; a Lands Sales Listing, December 5, 2018; the PWMD Water and Wastewater Financial Plan, August 8, 2017; the Stormwater Master Basin Planning Study, Phase I & Phase II – 2013 Revised Final; and, a Technical Appendix – Stormwater Master Basin Planning Study, January 2013. Population Projections A cornerstone to any future evaluation of a community with growth potential is the development of a population projection. Anderson Analytics’ research indicate that current (March 2019) population of the District is 31,704 persons, and the total number of housing units is 11,954 of which 11,575 are occupied and 379 vacant. A very general rule of thumb, according to Anderson Analytics, is that a vacancy rate of 2% to 4% represents a healthy housing market, thus this vacancy rate of 3.17% places Pueblo West solidly in a healthy position. The population estimate reflects a total population change of 2,226 persons since the 2010 Census, however over half of that growth has occurred since 2016. To identify the potential growth of the District over the next decade, Anderson Analytics April 17, 2019 report titled “Current Population Estimate and 10-Year Population Projection for Pueblo West Metropolitan District: 2019-2029” (Appendix A) provides the methodology and conclusions that were drawn respecting population. As part of the process, they interviewed several Pueblo West homebuilders, community leaders and members of the District staff to formulate and hypothesize about expected growth factors, trends, and overall outlook. Based on t he above analysis and coordinating with expected County growth projections, and future anticipated demographic changes, it is expected that the District’s population will grow by 9,445 people over the next 10 years with a total of 3,573 new housing units added during this timeframe. Pueblo West’s projected population and housing units for the next 10 years are depicted in the Tables that follow. Pueblo West Fiscal and Sustainability Study 13 | P a g e Table III. PWDMD – Projected Population Pueblo West Metropolitan District – Projected Population YEAR 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 ESTIMATED POPULATION MARCH 1 31,704 -- -- -- -- -- -- -- -- -- -- PROJECTED POPULATION JULY 1 31,883 32,394 32,957 34,008 35,057 36,105 37,152 38,252 39,216 40,181 41,149 ANNUAL POPULATION CHANGE -- 511 563 1,052 1,049 1,047 1,047 1,100 964 965 967 Source: Anderson Analytics Report attached as Appendix A. Table IV. PWMD – Projected Housing Units Pueblo West Metropolitan District – Projected Housing Units (July 1) YEAR 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 NEW HOUSING UNITS -- 193 213 398 397 396 396 416 365 365 366 TOTAL HOUSING UNITS 12,022 12,215 12,428 12,826 13,223 13,619 14,015 14,431 14,796 15,161 15,527 OCCUPIED HOUSING UNITS 11,641 11,828 12,034 12,420 12,804 13,187 13,571 13,974 14,327 14,681 15,035 Source: Anderson Analytics Report attached as Appendix A. It should be noted that new residential development, a driver of population growth, will be dependent on a variety of factors outside the control of Pueblo West Metropolitan District. Most notable is a downturn or an upturn in the economic health of the nation, state and the community. It is further noted, emphasis added, that new growth will be impacted by the limiting factor of potable water supply. Any reliance on housing units and ultimate population growth estimates should be balanced with the ability to provide adequate potable water resources. Economics and Demographics The methodology used to project population and housing is described fully in the report included in its entirety as Appendix A. Of specific interest is the fact that, when adjusted for inflation, wages of Pueblo County residents have increased since 1990 from an average annual pay of under $40,000 in 1990 to above $40,000 in 2018, about a $5,000 increase. Additionally, unemployment rates in the Pueblo West CDP, while generally higher than the State’s overall rate, are consistently lower than Pueblo City Pueblo West Fiscal and Sustainability Study 14 | P a g e and Pueblo County. As an example, in 2017 the unemployment rate for Pueblo West CDP was 6.6%, Pueblo City was 10.3%, Pueblo County was 9.3% and the State of Colorado was 5.2%. When research for population projections for the Incorporation report was completed, it was noted that housing prices were stagnant in Pueblo County and certain in -migration in Pueblo West occurred because Front Range homeowners could sell a home north of Pueblo for significantly more than it cost them to replace it with a similar home in Pueblo West. The June 29, 2019 Denver Post article, titled “Pueblo 10th among hot housing markets in the U.S.” emphasized the fact that the housing market in the region is gaining momentum. It remains to be seen the effect of a rapid rise in housing costs in Pueblo West. However, it is likely that home construction in Pueblo West will increase because profits can now be made on the sale of the home. The above conclusion is somewhat contradicted based on conversations with home builders in the spring indicating that construction costs were rising, but housing prices were not, so in their opinion construction at that time was slowing. While these two factors are contradictory, it is anticipated that as the front range continues to experience significant growth, that growth will expand south to envelop the County and the District. Commercial Development Non-residential property values have remained relatively flat in the District over the last three years. From 2017 to 2019 Commercial property values in PWMD increased 7% and State Assessed properties increased 9%, but industrial properties decreased 10.8%. These three categories make up the bulk of the non-residential property values in the District. Agricultural property, while it has increased 160% in the same time period, makes up only 4.5% of the non - residential total assessed value in the District, therefore it has little impact on the overall total. In interviews with local builders, Anderson Analytics learned of no significant new commercial construction activities in the District pipeline. A self-storage project has pulled a building permit but is now stalled, and a bowling alley is under construction. Neither of these projects is expected to move the commercial assessment needle greatly. Based on the above, the projections for non-residential development was limited, and should remain so until more concrete conceptual or actual development plans are available. As an observation, it must be noted, that for a commercial enterprise to settle into Pueblo West, it must be satisfied with just what’s there. The District has no way to entice or incent commerce, which in turn would inspire other commercial growth. Comparable Municipalities and Benchmarking To evaluate the requirements of operating the District in a more formal/municipal mode, it is important to gather data from Comparable Cities to identify operations that will be necessary if the District moves to a city structure. The comparison of the District to other similar communities gives a broad picture of not only how the District is currently performing, but also provides a view into the framework that would likely need to be in place if incorporation were to occur. Pueblo West Fiscal and Sustainability Study 15 | P a g e Anderson Analytics narrowed the potential list of cities for this purpose to eleven within the state and eleven outside the state. The Comparable Cities were selected based on population, location, area, demographic, geographic, and ideological/political factors. After understanding the attributes of each, the District selected these six cities: • Lake Havasu, Arizona. Lake Havasu was formed by McCulloch Properties Inc., the organization guided by Robert P. McCulloch that developed Pueblo West. Their design and build-out closely match Pueblo West. They have a similar focus on tourism and recreation, similar demographics such as language, poverty rate, unemployment rate and similar political climate. • Rio Rancho, New Mexico. Rio Rancho has many unpaved roads, very low density, some semi-rural residential areas and a similar political climate. • Yucca Valley, California. Yucca Valley also is similarly low density with semi -rural residential areas that have unpaved roads. Yucca Valley also has some traditional suburban subdivisions, and it compares well with Pueblo West’s age and race demographics. • Fountain, Colorado. Fountain is similar in population size and incomes, unemployment rate and poverty level. Some parts of the community have a rural feel, and the ci ty is near a larger city, much as Pueblo West is near Pueblo. • Arvada, Colorado. Arvada connected to Pueblo West through the nature of its residents. It has similar demographics including age, language, military, race, immigration/place of birth, education and retirees. It is, however, larger and has a more diverse economy than Pueblo West. • Windsor, Colorado. Windsor is similar in population and density. It is a growing community that has retained some of its rural roots. It has similar political clima te, age, language and household demographics. With the selection of the above comparable communities, the study team was able to more clearly understand the number of employees needed to carry out new duties, and appropriate salaries, capital and operating costs associated with the new activities. Pueblo West Fiscal and Sustainability Study 16 | P a g e Section 4: Non-Modified Current Structure In Non-Modified Current Structure mode, the District continues to operate as it does now with its 20.23-mill property tax, doing what it can to satisfy the community needs. Currently, Pueblo West Metropolitan District operates under Title 32 of the Colorado Revised Statutes and has the power to provide fire protection, mosquito control, parks and recreation, traffic safety controls, security, sanitation, street improvements, TV translator services, water and wastewater services, solid waste disposal, enforcement of covenants and design review. The District actively provides many of these services to the extent feasible within its budget and its manpower. The ability to provide services and maintain assets is in direct correlation with the amount of revenue the District receives. It bears repeating that the District is underfunded when compared to six select , Comparable Cities. Again, consider the chart below which compares the District with its Comparable Cities in both Population and total General Governmental Funds Tax Revenue, including both sales and property taxes. While the District is larger than Windsor, Fountain and Yucca Valley, each of these cities generate significantly more tax revenue than the District does currently. Table V. Comparable Cities – Population and Tax Revenue Source of tax revenue: 2018 CAFR for each entity; Statement of Activities, General Revenue Taxes, Governmental Activities. Pueblo West Population from Anderson Report. Municipality Population General Government Taxes Per Capita Tax Town of Yucca Valley, California 21,483 11,936,885$ 555.64$ Windsor 23,386 26,154,538$ 1,118.38$ Fountain 28,799 19,038,490$ 661.08$ Pueblo West Metropolitan District 31,704 5,875,409$ 185.32$ Lake Havasu City, Arizona 53,463 39,049,359$ 730.40$ Rio Rancho, New Mexico 93,317 41,304,341$ 442.62$ Arvada 115,320 89,680,000$ 777.66$ Pueblo West Fiscal and Sustainability Study 17 | P a g e The types of taxes collected in each of the Comparable Cities are more diverse than Pueblo West as shown in the next Table. Table VI. Type of Tax Matrix Type of Tax Yucca Valley Windsor Fountain Pueblo West Lake Havasu Rio Rancho Arvada Property Tax X X X X X X X Specific Ownership/Motor Vehicle X X X X X Sales & Use Tax X X X X X X Franchise Tax X X X X X Transient Occupancy Tax X Transportation Tax X The graph that follows demonstrates the per capita effect of general tax revenue divided by each entity’s population. Graph II. Per Capita Tax Impact of the Non-Modified Option Data indicate Pueblo West residents and businesses contribute significantly fewer tax dollars to their community than any of the Comparable Cities. In a community the size of Pueblo West, this limited annual funding indicates that there is substantial deferral of maintenance and other issues going on at budget time. In the future, deferred maintenance and deferred purchases of 0 200 400 600 800 1000 1200 Town of Yucca Valley, California Windsor Fountain Pueblo West Metropolitan District Lake Havasu City, Arizona Rio Rancho, New Mexico Arvada Tax Revenue Per Capita Non-Modified Current Structure Pueblo West Fiscal and Sustainability Study 18 | P a g e essential capital items will cost much more than they do today. Additionally, when the District is not keeping up with salary obligations as they relate to market conditions, allowing this gap to grow can make the resolution insurmountable. The District has little revenue volatility because it relies on property tax as its primary revenue source. Unfortunately, 69% of its tax base is residential which continues to see a drop in the ratio of assessment. In 1982, when the Gallagher amendment was passed, the residential assessment ratio was 21%. Today only 7.15% of a residential property’s value is assessed for tax levying purposes. While residential home values have increased during this time, the ratio a djustment has caused a 66% drop in residential assessment values. In fact, if residential property were still assessed at the 21% rate, Pueblo West would have exceeded Robert McCulloch’s 1972 property value projections. Essentially, while the cost of providing services and major infrastructure has risen for the District, its ability to pay for it has decreased based on a singular revenue source – this reliance only on property tax. When the Non-Modified Current Structure financial scenario for the District is constructed, if everything currently occurring continues as is, meeting the assumed inflation percentages for both revenue and expenditures, and if residential growth meets projections, District finances begin to show the effects of expenditures outpacing revenues. Unassigned General Fund Balance trends downward through the next ten years, and, while our best-case scenario shows a small positive balance in 2029, any hiccup would throw this balance into a negative figure. This occurs with operations unchanged; in Non-Modified Current Structure the District will not be able to build a Fire Station, nor can it operate the same. Further, District Admin istration would be without a home and the District without headquarters. Also, the District will be subject to staff burn-out as data indicates current staff are in many instances underpaid and short-staffed. Finally, the District would have no capacity to handle emergencies or economic downturns . Observations and Conclusions Examination of current District operations reveal an unrealistically tight operating model when compared to the Comparable Cities, and there are no locally generated funds for infrastructure. The data suggests that the limited operational budget has not been meeting the overall demands of the community and ultimately will be challenged even further by revenue shortfalls as demands grow. While maintaining the Non-Modified Current Structure is an option, it is not a viable one. There are ultimately issues that would need to be addressed by the District to fulfill its obligations to provide services to the entire District. Those services will not come without cost and will certainly impact the District’s ability to continue operating under the Non-Modified Current Structure. Further, those costs, when deferred, grow exponentially over time. As noted, the District currently has miles of unimproved roadways, residences remaining on septic systems and there is a lack of stormwater management. The cost of accomplishing these and other infrastructure improvements will continue to rise as will demand. The District is further stressed because not Pueblo West Fiscal and Sustainability Study 19 | P a g e only have costs risen due to inflation, but also building requirements and standards have increased. While there is no way to accomplish the construction of Fire Station in this Non-Modified Current Structure, let’s look at it as an example of construction inflation. T he fire station replacement that is currently being planned at a cost of $2,000,000 was originally constructed in the first phase of the District build-out somewhere between 1969 and 1979 for a cost of $40,000. There are two variables that cause a a $40,000 facility to be replaced by a $2,000,000 facility – inflation and construction requirements. Today’s construction requires materials and amenities that inflate its cost above the cost of construction inflation. Simple construction inflation is a high enough standard to meet, but in addition, no longer is a garage and a bathroom (as comprises the earlier structure) adequate infrastructure for a fire station. If Fire Station #2 had been built in 1975 with today’s building requirements, it would have cost $394,193, according to RSMeans Construction Cost Indexes, instead of the $40,000 it cost at that time because today’s fire station requires much more structurally and physically than did a fire station in the 70’s. As other items of infrastructure first constructed in Pueblo West in the early 70’s, including roads, require replacement, it can be expected that similar structural escalations and associated costs will be required. Costs to the District are quickly outpacing available revenues, especially the cost of infrastructure. Remaining in the current non-modified mode does not appear to be a sustainable option for Pueblo West. An abbreviated General Fund forecast is depicted on the next page and is followed by a graph of projected fund balance. Pueblo West Fiscal and Sustainability Study 20 | P a g e Table VII. General Fund Snapshot – Non-Modified Option PUEBLO WEST METROPOLITAN DISTRICT, COLORADOFinancial Management Plan Non-Modified Current StructureDashboardBudget2017201820192020202120222023202420252026202720282029RevenuesTaxes5,377,052 5,875,409 7,271,361 6,185,847 6,315,498 6,675,119 6,878,716 7,203,577 7,416,582 7,769,992 7,979,016 8,329,054 8,548,996 Intergovernmental1,459,467 1,634,320 1,871,796 1,894,232 1,932,117 1,970,759 2,010,174 2,050,378 2,091,385 2,133,213 2,175,877 2,219,395 2,263,782 Other revenues364,003 378,201 375,334 357,320 359,723 361,697 364,594 365,750 366,903 370,859 374,998 376,934 378,548 Total Revenues7,200,522 7,887,930 9,518,491 8,437,399 8,607,337 9,007,575 9,253,485 9,619,704 9,874,871 10,274,064 10,529,891 10,925,383 11,191,326 ExpensesCurrent Expenses5,988,028 6,929,153 9,257,977 8,128,296 8,453,428 8,791,565 9,143,228 9,508,957 9,889,315 10,284,888 10,696,283 11,124,134 11,569,100 NEW: Fire Station Operations- - - - - - - - - - - - - NEW: Salary Adjustments- - - - - - - - - - - - - NEW: Staffing Additions Sustainable District- - - - - - - - - - - - - NEW: Staffing Additions Incorporation- - - - - - - - - - - - - Debt Service191,298 312,482 190,989 190,988 77,727 53,228 51,251 36,377 36,377 36,377 36,377 34,481 - Capital Expenses- - 415,000 - - - - - - - - - - Total Expenses6,179,326 7,241,635 9,863,966 8,319,285 8,531,155 8,844,793 9,194,478 9,545,334 9,925,692 10,321,264 10,732,660 11,158,615 11,569,100 Revenues Over/(Under) Expenses1,021,196 646,295 (345,475) 118,114 76,182 162,782 59,006 74,371 (50,821) (47,200) (202,769) (233,233) (377,774) Other Sources/(Uses)Transfers In/(Out)(347,678) (272,788) (918,204) (333,813) (354,813) (385,188) (404,938) (429,063) (125,000) (125,000) (125,000) (125,000) (125,000) LeaseDebt Proceeds- 395,676 - - - - - - - - - - Sale of Fixed Assets82,325 394,611 - - - - - - - - - - - Total Other Sources/(Uses)(265,353) 517,499 (918,204) (333,813) (354,813) (385,188) (404,938) (429,063) (125,000) (125,000) (125,000) (125,000) (125,000) Ending General Fund Balance3,727,870 4,891,664 3,627,985 3,412,287 3,133,657 2,911,251 2,565,320 2,210,628 2,034,807 1,862,607 1,534,838 1,176,605 827,969 Ending Unassigned Fund Balance3,219,903 4,662,290 3,398,611 3,150,334 2,865,348 2,633,533 2,277,112 1,911,894 1,724,662 1,540,595 1,200,484 829,473 468,522 % of Total Expenses52%64%34%38%34%30%25%20%17%15%11%7%4%General Fund SummaryActualProjected Pueblo West Fiscal and Sustainability Study 21 | P a g e Graph III. Allocation of General Fund Balance – Non-Modified Option More detail is included in the 10-year financial plan for Non-Modified Current Structure is attached as Appendix C. 0% 10% 20% 30% 40% 50% 60% 70% 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Allocation of General Fund Balance Nonspendable Restricted (TABOR Emergency Reserves) Assigned (Equipment)Unassigned Fund Balance as a % of Expenditures Pueblo West Fiscal and Sustainability Study 22 | P a g e Section 5: Sustainable Metropolitan District Recognizing that remaining a District does not preclude the District from refining its current operations and expanding and improving its infrastructure, the District might look at enacting a Sustainable Metropolitan District model. In this scenario, the District would address its near- term capital needs of a new Civic Center and Fire Station, address operational needs of equipping and operating the new Fire Station, resolve understaffing issues and bring wages up to market standards. The following is an explanation of the immediately needed facility and operational needs in this scenario: Civic Center Aside from its essentiality for conducting District or City business, town halls are a point of pride in most communities. Due to a natural disaster earlier in 2019, the District is currently housed in a temporary location that does not meet the long-term needs of the District. District administration have analyzed the cost of a new administrative facility/general purpose civic center and have estimated that cost to be approximately $7,150,000. Our model assumes that the funding for the Civic Center includes a $1,000,000 DOLA grant , $850,000 of insurance proceeds and a $6,000,000 financing. The debt service for the financing will be paid 40% by the Water Fund, 13% by the Wastewater Fund and 47% by the General Fund. By financing the Civic Center over 20 years, there will be no need to increase revenues to pay the debt service so long as the mill levy to increase staff wages and numbers is implemented. If th at was not the case, the mill needed would be 0.6875. Since the model can accommodate the debt service via the staffing mill levies, this debt service mill levy was omitted from the financial projections. Fire Station No. 2 The new Fire Station is expected to cost $2,000,000. The District has determined via polling that the Community may be amenable to a one-cent sales tax for the purpose of Public Safety. This one-cent will be used to first, build the new Fire Station #2 and then to operate this station as well as offset other fire safety costs. Fire Station- Operating Costs Following the cost of construction of Fire Station No. 2, the District will be required to furnish equipment and operate the station on an annual basis. The District estimates that the total annual operational costs will be approximately $1,400,000 per year. The increased cost represents 29% of Pueblo West taxes budgeted for 2019 , and further represents more than half of the current annual Streets Budget. Adding a fire station without increasing revenues will necessitate reductions in other services. The solution to this necessity is found in the one-cent sales tax request that will be on the Pueblo West Metropolitan District ballot this fall. ADDING ANY ADDITIONAL FACILITIES OR SERVICES WITHOUT INCREASING REVENUES WILL NECESSITATE REDUCTIONS IN OTHER SERVICES. Pueblo West Fiscal and Sustainability Study 23 | P a g e Market Rate Salaries The salaries paid to government employees are always subject to public scrutiny and are some of the most restrained, tamped-down, sometimes neglected, often overlooked factors in a public entity. Employees are quick to point out when wages drop behind market standards, but the local government rarely feels the real need to increase wages to the market level until it begins to lose skilled and valuable employees to other local governments. As this working group reviewed the information gathered from the Comparable Cities, it recognized that Pueblo West employees are not competitively paid. When there are several competing government entities within easy driving distance of the District, not compensating employees at market rates can be problematic. Good employees, when faced with the need to increase their salaries to a market scale, will search out and find new employment. Eventually, the entity not tending to these issues of inequity will either have all new employees, or employees that are unable to find better employment and likely not the best or most skilled workers. People may be the District’s most important asset given that none of the Districts’ services could be delivered without them. And research shows that satisfied employees lead to positive customer service and in a government setting that means more confidence and trust in the government. There are many factors that contribute to employee satisfaction, and salary is only one of them, but when wages are lower than market, all other considerations pale. According to data compiled by Bolt Insurance, when dissatisfaction gets so high that employees jump ship, it can cost an average of one-fifth of the employee’s salary to find a replacement, not to mention the loss in productivity. Current staff salaries have been compared with those of Pueblo City, Pueblo County, Canon City and the City of Fountain and found that overall salaries are approximately 18% below the named nearby entities who are all competing for the District’s skilled employees. We have created a financial model that demonstrates the additional cost to the District to close this compensation gap. Staffing Levels When Ehlers met with Department Heads to discuss operational challenges, we had good conversations about procedures, methods of prioritization and a general acceptance of the inability to do all that, in each Department Head’s vision, was needed. While there was a consistent buzz of regret at not being able to do more, there was not a loud song of complaint about being understaffed. Perhaps this was because to complain was a futile exercise since all Department Heads were aware of long-term budget constraints. Subsequent meetings proved that assumption correct – Department Heads had stopped requesting additional staff, regardless of the need, because requests were consistently turned down. Data shows that the District is significantly understaffed. Pueblo West Fiscal and Sustainability Study 24 | P a g e Understaffing can lead to the same level of employee dissatisfaction that underpayment creates. Each worker wants to feel successful in his job, and when an employee never feels they have an ability to accomplish all that can be done and done well, they become disengaged. Gallup, in a July 7, 2016 Blog cited employee disengagement as a problem that costs “state and local governments, conservatively, up to $100 billion” a year. The article asserts that governments can’t afford not to address this problem. The Table below identifies average staffing size for the Comparable Cities and Pueblo West. Table VIII. Comparable Cities and PWMD Staffing Size City Arvada Rio Rancho Lake Havasu Pueblo West Fountain Windsor Yucca Valley Average Total FTE* 441.05 429 351 86 147.7 110 34.5 228.46 Population 115,320 93,317 53,463 30,734 28,799 23,386 21,483 52,357 FTE Per 1,000 3.825 4.60 6.57 2.80 5.13 4.70 1.61 4.36 *FTE is total without Public Safety staff. Police FTEs are eliminated from this analysis because the Incorporation model assumes Pueblo West contracts for police services. Fire is eliminated because not every Comparable City has a fire department, and Fire needs are addressed separately in this report. Source: 2018 CAFR Statistical Section for each entity Pueblo West is staffed at 2.80 FTE per 1,000 community members. To bring the District up to the average level of 4.36 FTE per thousand, the district would need to add 48 staff, bringing its total to 134. The Incorporation Model assumes the addition of 11 employees to bring on some new Incorporation duties that are included in the Comparable City staffs. Therefore, the District with its current obligations is on average 37 FTE short-staffed. Using Operational Indicators for each area, such as miles of road for Streets, acres of parks for Park & Rec, water consumption for the water utility, data shows that the shortfall is across departments. The table below shows the suggested increases per Department based on statistical operational indicators provided in each city’s Comprehensive Annual Financial Report. Pueblo West Fiscal and Sustainability Study 25 | P a g e Table IX. Staffing Allocation Per Operational Indicators Department Operational Indicator(s) Average per “X” Where “X” is the Operational Indicator Additional Employees required General Government Population One FTE per every 1,750 Population 4.5 Park and Recreation Miles of Trail, Acres of Park and Facilities Average FTE per the three indicators combined (2.25 employees per mile of trail, .10 employee per acre of park, 1.02 employees per facility) 15 Streets and Engineering Miles of roadway and traffic signals Average FTE per indicator combined (.18 employees per mile of road, 3.02 employees per traffic signal) 17.5 Water/Wastewater Gallons of Water Consumed, Gallons of Daily Sewage Treated Average FTE per combined (Pueblo West’s total employees exceeded the average of 32 employees.) 0.0 According to the minimal operating indicators available among the Comparable Cities, Water and Wastewater are appropriately staffed. The unique characteristics of Pueblo West and its water issues, however, should be researched further to determine if circumstances require a perspective apart from what is ordinary or average. Assuming these missing positions are not managerial in nature, and using the Salary Survey conducted and created by the Finance Department of the District in 2019, the salary and benefit burden caused by adding these 37 employees to the staff is as follows: Table X. Cost Matrix to Increased Staff Recommendations DEPARTMENT REPRESENTATIVE POSITION AVERAGE ANNUAL SALARY MIDPOINT SALARY WITH BENEFITS* TIMES NUMBER OF EMPLOYEES GENERAL GOVERNMENT Accounting Technician $41,440 $52,629 $236,830.50 PARKS & RECREATION Park Maintenance Technician I $36,358 $46,175 $692,625.00 STREETS AND ENGINEERING Heavy Equipment Operator $43,741 $55,551 $972,142.50 TOTAL $1,901,598.00 *Benefits are calculated at 27% of salary. Pueblo West Fiscal and Sustainability Study 26 | P a g e In addition to new salaries, each new position will require tools to do the job assigned and will need space to work. Operationally, each new position is anticipated to increase the cost of operations on average by $39,000 each annually. This is the average operating cost generated by each of the eleven employees contemplated to be added under incorporation. The increased annual cost of operations upon adding 37 employees is estimated to be $1,443,000 annually. Observations and Conclusions As noted in our analysis of the Non-Modified Current Structure option, District operations are limited based on current revenues. Therefore, without a new revenue source, or a combination of sources, when increased staff, salary adjustments and fire station #2 operations are added to the General Fund, the fund balance goes in the red immediately. Adding the Civic Center simply adds to the financial stress. Internal Service’s Net Position is negative in 2020 as is the Community Development Fund. The Swimming Pool fund manages to stay in the black thanks to increasing transfers from the General Fund. Only the Water and Wastewater Funds can handle the increases without going into a deficit, but it is unclear if the additional costs do not impact the funds’ capital plans. As is true in any service industry, investing in staff is necessary for the health of the entity. The District’s front-line in all dealings with its residents, is its employees. In this era of public distrust of government, that front-line is capable of building trust. As one member of the research team put it after many interviews with District staff, “Without the employee increase and wage adjustments, all the rest is moot.” Maintaining the status quo is a losing proposition. To avoid employee burn-out and to enable the District to hire qualified employees – to be able to even entice qualified individuals to apply for jobs – a change must occur in staffing and wages. The District, without regard to incorporation, and with resolution for only these issues, requires new revenue in order to remain solvent and functional – to be sustainable. A combination of sales tax, a property tax increase, and a Civic Center financing paid by multiple funds is recommended to accomplish this sustainable position for the Metropolitan District. The Chart that follows identifies the impact of the recommended tax structure changes to Pueblo West’s budget and its taxpayer. Pueblo West Fiscal and Sustainability Study 27 | P a g e Table XI. Sustainable Model Matrix of Required New Revenues Purpose for New Revenue Mill Levy Taxpayer Cost per $259,000 home Sales Tax First Year Revenue Generation Fire Safety One Cent $1,500,000 Civic Building $0.00 $0.00 (Grant funds and transfers from Water and Wastewater supplement revenue for this debt.) Staff Salaries 3.3761 $5.21/Month $ 891,891 Increased Staff & maintain 25% FB 15.8787 $24.51/month $4,194,804 Total 19.2548 $29.71/month One Cent $6,586,695 An additional 19.2548 mills will immediately bring the District to its policy goal of ending the year with an unassigned general fund balance equal to 25% of expenditures. In future years, this level of assessment enables the district to transfer between $500 thousand and $700 thousand to the capital projects fund annually, and still maintain a 25% of expenditures fund balance . The transfers will provide the District with the opportunity to begin to address deferred maintenance issues that have prevailed in the District for years. The items on the following pages are first, a snapshot of the General Fund for 10 years assuming revenues are increased to accommodate the immediate capital needs of the District as well as increasing salaries and adding staff. Second is a graph showing fund balances (general fund) for the 10 years that are projected. Pueblo West Fiscal and Sustainability Study 28 | P a g e Table XII. General Fund Snapshot – Sustainable District Model PUEBLO WEST METROPOLITAN DISTRICT, COLORADOFinancial Management Plan Sustainable Metro DistrictDashboardBudget2017201820192020202120222023202420252026202720282029RevenuesTaxes5,377,052 5,875,409 7,271,361 7,685,847 12,932,181 13,634,231 14,031,045 14,663,781 15,077,383 15,764,158 16,168,191 16,846,462 17,269,750 Intergovernmental1,459,467 1,634,320 1,871,796 2,894,232 1,952,117 1,991,159 2,030,982 2,071,602 2,113,034 2,155,294 2,198,400 2,242,368 2,287,216 Other revenues364,003 378,201 375,334 1,207,320 359,187 372,747 381,105 389,594 398,556 406,722 417,081 426,662 436,774 Total Revenues7,200,522 7,887,930 9,518,491 11,787,399 15,243,485 15,998,137 16,443,132 17,124,977 17,588,973 18,326,174 18,783,673 19,515,492 19,993,740 ExpensesCurrent Expenses5,988,028 6,929,153 9,257,977 8,128,296 8,453,428 8,791,565 9,143,228 9,508,957 9,889,315 10,284,888 10,696,283 11,124,134 11,569,100 NEW: Fire Station Operations- - - 2,000,000 1,400,000 1,456,000 1,514,240 1,574,810 1,637,802 1,703,314 1,771,447 1,842,304 1,915,997 NEW: Salary Adjustments- - - - 728,518 757,659 787,965 819,484 852,263 886,353 921,808 958,680 997,027 NEW: Staffing Additions Sustainable District- - - - 3,344,598 3,478,382 3,617,517 3,762,218 3,912,707 4,069,215 4,231,983 4,401,263 4,577,313 NEW: Staffing Additions Incorporation- - - - - - - - - - - - - Debt Service191,298 312,482 190,989 576,926 465,040 436,716 435,786 422,380 422,790 422,977 422,937 420,626 385,345 Capital Expenses- - 415,000 - - - - - - - - - - Total Expenses6,179,326 7,241,635 9,863,966 10,705,223 14,391,584 14,920,322 15,498,735 16,087,848 16,714,876 17,366,747 18,044,458 18,747,008 19,444,782 Revenues Over/(Under) Expenses1,021,196 646,295 (345,475) 1,082,176 851,901 1,077,815 944,397 1,037,129 874,097 959,427 739,215 768,485 548,958 Other Sources/(Uses)Transfers In/(Out)(347,678) (272,788) (918,204) (376,521) (399,230) (1,132,956) (998,400) (1,068,688) (966,624) (914,165) (754,227) (756,475) (658,813) LeaseDebt Proceeds- 395,676 - 6,000,000 - - - - - - - - Sale of Fixed Assets82,325 394,611 - - - - - - - - - - - Total Other Sources/(Uses)(265,353) 517,499 (918,204) 5,623,479 (399,230) (1,132,956) (998,400) (1,068,688) (966,624) (914,165) (754,227) (756,475) (658,813) Ending General Fund Balance3,727,870 4,891,664 3,627,985 3,388,187 4,046,135 4,194,243 4,344,044 4,517,067 4,629,339 4,879,499 5,069,364 5,286,031 5,379,609 Ending Unassigned Fund Balance3,219,903 4,662,290 3,398,611 3,114,657 3,602,014 3,734,259 3,866,708 4,022,057 4,115,518 4,346,123 4,515,656 4,711,247 4,783,868 % of Total Expenses52%64%34%17%25%25%25%25%25%25%25%25%25%General Fund SummaryActualProjected Pueblo West Fiscal and Sustainability Study 29 | P a g e Graph IV. Allocation of General Fund Balance – Sustainable District Model More details and funds are included in the 10-year financial plan for the Sustainable Metropolitan District is attached as Appendix D. 0% 10% 20% 30% 40% 50% 60% 70% 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Allocation of General Fund Balance Nonspendable Restricted (TABOR Emergency Reserves) Assigned (Equipment)Unassigned Fund Balance as a % of Expenditures Pueblo West Fiscal and Sustainability Study 30 | P a g e Section 6: Incorporation The final scenario is Home Rule Incorporation. Incorporation delivers to the community the authority to conduct planning and zoning as it desires, it provides the community with tools to attract and support commerce and it forestalls the City of Pueblo from annexing select areas of the District for revenue purposes. This might be the appropriate place to point out to the District that if the City of Pueblo had been successful in annexing the Pueblo West Walmart, as was reported in recent years, Pueblo West residents would be paying 7.6% tax on their purchases and seeing the increased 3.7% portion of the tax go into City of Pueblo coffers - not benefitting the community in any way. The commercial developments along Highway 50 must be very tempting to the City of Pueblo, and the District might consider incorporation for the singl e reason of keeping its tax dollars in the community. According to City of Centennial staff, that was the driving reason for Centennial’s incorporation. This study assumes incorporation would only occur after the remedies suggested in the Sustainable Metropolitan District were made; or that the incorporation include solutions to the issues identified in the Sustainable Metropolitan District option. To incorporate without resolving infrastructure and staffing issues would only exacerbate operational problem s that would need immediate attention once incorporated. While the District already serves its community in many city-like ways, in addition to resolving the issues addressed in the Sustainable Metropolitan District option, incorporation would necessitate the addition of policing services, municipal courts, community development and planning, emergency preparedness planning and administrative assistance to go with the increased staff and functions. These services wouldn’t necessarily need to be done 100% in- house, but they are all services that a typical incorporated jurisdiction would provide residents. As a fully functioning Metropolitan District, Pueblo West’s optional powers are almost as complete as a city’s, and as the district has matured, it has adopted means to fulfill as many community expectations as the budget will support. Therefore, although understaffed, its general government operations are covered. The District’s Administration includes a district manager and an in-house attorney. Elected positions remain filled. The finance office regularly meets industry standards for a Comprehensive Annual Financial Report (CAFR) and an annual budget, complete and on-time. The District has an IT staff. Public Works has staff to cover streets, stormwater and engineering to the level of work that the budget can support. Attention is paid to fleet and facilities. Fire is expected to grow with a new station and additional firefighters. Parks provides recreation activities in the community – and an added bonus of incorporation is that Conservation Trust Fund revenues will double for Parks’ use . Of course, these operations remain at risk as District revenues stretch to cover increasing costs. Pueblo West Fiscal and Sustainability Study 31 | P a g e Operations In addition to the areas where the District is already providing services, most incorporated communities provide more than a basic level of services. The cost of providing those services will vary from community to community, based on the level of service and the method of providing that service (i.e. on a contract basis or on an in-house basis). There is no single correct methodology to providing service other than what is in the best interests of your group of residents. Cities adopt services for a variety of reasons. Some are statutorily required, others may develop to fill a community gap, still others may be created by a group with a “cause” or by direction of the elected officials. The table on the next page contains a list of municipal functions that are basic to the District and the Comparable Cities. The services that are highlighted in orange under the District are those we would consider essential: Prosecution, Licensing and Permitting, Municipal Court, Plann ing & Zoning, Building Permits, Emergency Management, Traffic Engineering, and Policing Services. Pueblo West’s Comparable Cities have chosen to staff a few areas that the Ehlers team deems not required for incorporation. If you look at the Table on the next page, the gold highlighted areas represent those services. Sales Tax Administration is a department that will be required if Pueblo West incorporates as a home rule city and votes to collect a sales tax in-house. These offices, when well-managed, pay for themselves through audits of vendors. They tend to be a “wash” on the books of the government, and therefore are not part of this analysis. If at some point in the future, Pueblo West decides to have a Sales Tax Administration office, it will likely not add to the entity’s costs any more than it garners in new revenue. Ambulance transport, while a required service, has not been included in the staffing analysis because the service is now contracted with a third-party, private entity, and that is expected to continue. In the parks area, forestry, Senior Services and a museum are part of some of the Comparable Cities, but only selectively and they are not necessities at this juncture. And Transit, Safety and Environmental Services are only supported in a few cases. See the table on the next page for a full compendium of services provided by the Compara ble Cities and Pueblo West. Pueblo West Fiscal and Sustainability Study 32 | P a g e Table XIII. Municipal Function Matrix Municipal Service/Function Lake Havasu Rio Rancho Yucca Valley Fountain Arvada Windsor Pueblo West City Manager/Administration x x x x x x x Elected Officials x x x x x x x Public Communications x x x x x x x City Attorney x x x x x x x Corporate x x x x x x x Prosecution x x x x x Litigation x x x x x x x City Clerk x x x x x x x Licenses and Permits x x x x x Records x x x x x x x Elections x x x x x x x Municipal Court x x x x x Finance x x x x x x x General Accounting x x x x x x x Payroll x x x x x x x Sales Tax Administration x x x Budget x x x x x x x Purchasing/Procurement x x x x x x Human Resources x x x x x x x Employment x x x x x x x Compensation/Benefits x x x x x x x Planning & Zoning x x x x x x Land Development Review x x x x x x Comprehensive Planning x x x x x x Zoning/Code Enforcement x x x x x x x Building Permits x x x x (IGA)x x Economic Development x (Contract)x x x x x x Fire x x x x Fire Supression x x x x Rescue x x x x EMS x x x x Paramedic Services x x x x Ambulance Transport x x Dispatch x (IGA w/Sheriff) Fire Marshall Prevention x x x x (IGA w/Sheriff) Emergency Management (OEM)x x x x x Parks & Recreation x x x x x x x Park Maintenance x x x x x x x Forestry x x x Recreation/Sports x x x x x x Aquatics x x x x x Senior Services x Museum x Library x Public Works x x x x x x x Streets x x x x x x x Stormwater x x x x x x Engineering x x x x x x x Traffic Engineering x x x x x x Transit x x Fixed Route x (contract) ADA Paratransit x x Police x x x (contwSheriff)x x x Patrol x x x (contwSheriff)x x x Traffic x x x (contwSheriff)x x x Investigations x x x (contwSheriff)x x x Records/Evidence x x x (contwSheriff)x x x Detention x x(contw/Sheriff)x (contwSheriff)x(contract)x(contract)x Dispatch x x x (contwSheriff)x (IGA w/Sheriff)x x School Resource Officer x x x (contwSheriff)x x x Court Marshal x x x x x Animal Control x x x x(contract)x x Internal Services Support x x x x x x x Information Technology x x x x x x x Enterprise Systems x x x x x x x GIS x x x x x x Desktop Services x x x x x x x Public Safety Systems x x x x x x Fleet x x x x x x x Facilities x x x x x x x Risk Management x x x x x x x Safety x x Environmental Services x Pueblo West Fiscal and Sustainability Study 33 | P a g e Policing Services One of the key services that incorporated communities are required to provide is police services. The provision of police services can be accomplished by either funding a police department or by contracting with another entity. The two most logical outside departments to look to for contracting would be the Pueblo County Sheriff’s Office (PCSO) Department and the City of Pueblo Police Department. In 2017, 13,069 of the total 29,518 calls for service at the PCSO were from the District, which represents approximately 44% of all calls in the County. Of the 2,631 traffic stops that occurred in the County 32% or 850 occurred within the District. The PCSO Department currently employs 112 sheriff deputies, with the PCSO estimating 50, or 44% are needed to patrol or respond to the District, which is indicative of the calls for service percentage that fall within the District. In our interviews with Pueblo West staff and community, we heard no complaints about the level of service provided by the PCSO. Therefore, it is recommended that before incorporating Pueblo West negotiate a contract with PCS O for continued service in the incorporated municipality. We would recommend having a conditional contract with the PCSO in place before starting public incorporation discussions. An example of a successful incorporation/contracted policing services is the City of Centennial. The City of Centennial began as a “virtual” city contracting out almost all its municipal functions. The city has gradually brought most of the functions in-house, but the Arapahoe County Sheriff continues to provide police service for the city on a contract basis. If Centennial had created its own police force, Arapahoe County would have had the difficult task of reducing staff and possibly facilities due to the loss of operational jurisdiction. Arapahoe, like Pueblo is a very large county. It does dedicate a certain number of officers to patrol the city on a regular basis under the contract with Centennial, but it also uses these and other officers to respond to calls in any part of the county including the City of Centennial. Reducing staff would have reduced the County’s presence in the unincorporated parts of the county. The County was amenable to negotiating a win/win contract with the city, and we believe Pueblo West could find the same with the Pueblo County Sheriff. We have estimated the cost of contracting policing services at approximately $2.5 million. This would provide a basic level of services commensurate with what the District currently enjoys. Alternately, if the newly incorporated District were to offer full-time, full-service police services, we estimate the cost to provide the administrative personnel, patrol personnel, investigatory personnel, facilities and equipment to have a cost between $5.5 M and $6.0 M. Please refer to the section titled Alternative Police Department later in this chapter to see the mill levy impact of fully funding a police department. Office of Emergency Management Our research indicates that an Office of Emergency Management is needed in the newly incorporated City for the purpose of planning for and addressing emergency issues that may Pueblo West Fiscal and Sustainability Study 34 | P a g e arise. This office works across the City to ensure that appropriate disaster re covery plans are in place. The position manages emergency situations and is the spokesperson when there is an emergency. We also suggest that this civilian (as opposed to uniformed) employee liaison between Fire and Police functions and manage the contract with policing services. Municipal Courts As part of incorporation, the home rule city would be required to enact a series of municipal laws, that would require enforcement and prosecution. It logically follows that the city would be required to operate a Municipal Court to address municipal citations. If policing services are contracted, the Court duties would be limited and likely part-time. The operations could be covered with a contract municipal judge and city prosecutor and a part time court clerk who would also work with the City Clerk’s office. City Clerk Typical cities require licenses and permits for various businesses and activities. Governing this process requires a staff that is usually housed in the City Clerk’s office. City Clerks are invaluable record keepers for the organization and generally coordinate elections, document city council meetings, maintain minutes and all city records according to record retention laws of the State. Much of this work is already being done in the District Manager’s office by the Assistant to the District Manager (ADM). We recommend that the ADM position transition to the new City Clerk with expanded duties and staff to include licenses and permits adding that to the current ADM responsibilities of records and elections. Community Development/Planning & Zoning While Pueblo West has remained an unincorporated District, Pueblo County has had authority over and has managed the District’s Community Development activities. As an incorporated City, Pueblo West would be fully responsible for planning and zoning activities within the City’s boundaries. There is a benefit to this in that the community then hold the authority to see development occur when and where it desires, but there is a cost. This action requires a planning department to develop the zoning and development codes necessary to ensure the maintenance and enhancement of the community’s value. Planning procedures must be in place and the transition from County approved projects to City projects will be crucial. The Distric t has developed relatively well under the County’s watch, so it is probable the transition could be simple and current community staff can be incorporated into the new structure. In fact, since covenants of the District run with the land, this group could continue to perform a necessary role of covenant enforcement. Building permitting and inspection departments that enforce aspects of community development are often government “enterprises”. Enterprises are designed so that permitting fees cover costs, and it is assumed the regional Building Department will continue to manage this municipal function for the new City. No new costs have been added for the Building Department function since it is assumed fees will cover costs. Pueblo West Fiscal and Sustainability Study 35 | P a g e Traffic Engineer Traffic engineering is an additional activity that often gets overlooked, however it is very important as the area continues to grow. The Traffic Engineer will be responsible for reviewing traffic flow issues throughout the community and evaluat ing proposed parking areas for commercial development. As the District grows, the Public Works Department, which has generally a reactive maintenance focus now, will benefit from the addition of a Traffic Engineer to manage these activities proactively. Staffing Costs for Incorporation Based on the above, the chart below represents the additional staffing considerations that the team developed to provide adequate services to the incorporated city: Table XIV Increased Staff for City Functions Department and Cost # of FTE Department Fund Salary & Benefits Operating Expenses Total Incremental 0.50 Administration Gen $48,341 $36,881 $85,222 1.00 City Clerk’s Office Gen $72,992 $34,199 $107,191 0.50 Municipal Court Gen $48,341 $96,058 $144,399 1.00 Finance Gen $77,142 $34,199 $111,341 1.50 Office of Emergency Management and Fire Dept Gen $93,830 $24,545 $118,375 0.50 Human Resources Gen $33,160 $30,010 $66,170 2.00 Public Works Gen $139,808 $49,438 $188,246 0.00 Public Safety Gen $0.00 $2,500,000 $2,500,000 7.00 SUBTOTAL General Fund Gen $513,614 $2,805,330 $3,318,944 1.00 Information Technology Internal Services $163,290 $146,007 $309,297 3.00 Community Development/Planning Community Development $211,448 $75,354 $286,802 11.00 GRAND TOTAL $888,352 $3,026,691 $3,915,043 Public Safety and Municipal Court Operating expenses include contracts for municipal judge, prosecutor and police services. Pueblo West Fiscal and Sustainability Study 36 | P a g e Furniture, computers and phones to complete workstations for new employees are expected to cost $107,000 in the start-up year. Water and Wastewater The team was asked to consider the best position for the Water/Wastewater Utility - inside the incorporated city or as a stand-alone water/wastewater district. There are various pros and cons in either case. Having a separate Utility as its own distinct district enables the Utility to have a mono-focused board. Board members need only consider the operations and issues surrounding water and wastewater. It also allows the metro district or the incorporated home -rule city to more clearly separate the cost of water from the cost of its general fund operations. Although these costs are separated now, formally and with the use of separate Funds, the idea that the General Fund can supplant the Utility Fund and vice-versa is a common misperception among taxpayers. If the Utility were on a stand-alone basis, the understanding that rates and charges of the enterprise are the only way it can receive revenues and that increased rates and charges do not support the general fund - street repair and parks for instance - are made clearer. Also, it would not be the City alone asking the community for both an increase in utility rates and an increase in taxes; there would be two separate entities. On the other hand, maintaining the Utility under the governance of the city or metro district, eliminates the stratification of governmental entities (which adds administrative costs) and simplifies some functions. Overall the combined structure can be more responsive to the planning aspects of the community. City Council or the District Board as its governance body may have more say over whether a development moves forward or not if water issues become a sticking point. One way to accomplish a compromise position is for the District Board or the City Council to appoint a separate Utility Board to make decisions for the Utility within a set structure of authority. City Council can delegate final decision making to the Utility Board or can maintain the final approval on some or all decisions with Council. Partial Incorporation The team was asked if there is a benefit to partial incorporation, and that is a possibility, but first, it might be helpful to understand the process of dissolution. The District cannot legally partially dissolve. To fully dissolve, it would need to file a Petition for Dissolution with the district court. The petition would include a plan for disposition of the assets of the District. This alone makes it logical to incorporate before dissolution in order to have an entity, the newly incorporated City, to transfer assets to. If there was a partial incorporation, those parts of the district outside the new City would need an entity like the County willing to take control of and responsibility for those assets. Pueblo West Fiscal and Sustainability Study 37 | P a g e In addition, the terms of the District’s current lease obligations and any future debt obligations would need to be reviewed to determine if a reduction in size, and a resulting reduction in revenue, would be allowed. Based on the above information and the logistics behind incorporating a smaller portion of the District, the negatives outweigh the positives in our opinion. However, the district might hold a series of town hall meetings or focus groups to determine if there are portions of the community that would not want to be part of the incorporated City and are strong enough to influence ballot outcome. From there, the District could explore how to disengage this section from the District. Perhaps a new district could be formed, or the County might agree to take responsibility for the area as an addition to unincorporated Pueblo County. Alternative Police Department It is entirely possible that the city will choose to staff its own police department at some point in the future, if not at the outset. This section provides information to support a Pueblo West PD. Using the comparable cities as a guide, the following staff list is necessary for a city of 30,000: 1 Police Chief 2 Administrative Assistants 5 Lieutenants 5 Police Service Representatives 11 Sergeants 1 Detective 19 Officers 10 Dispatchers 3 Record Techs More time added to the Prosecuting Attorney, Municipal Judge and Court Clerk roles Total anticipated cost for this payroll is $4,748,698. To that amount, the city can add $800,000/year to finance a facility and fleet. That puts the total at $5,550,000 annually. The plan already accommodates a $2.5 million payment to PCSO, so the need for an additional $3,050,000 would require an additional 10.88 mills of property tax in 2022 according to current anticipated assessed valuation at that time. Total mills in this case would then be 57.5284 mills. The homeowner of a $259,000 home would be paying $88.78/month. Incorporation Process Incorporation can take the form of a Statutory City (not a Town; the District is too large) or a Home Rule City. The District has expressed a desire to form in a Home Rule fashion and the Ehlers team agrees. On the next page is a chart showing some of the differences among a Metro District, Statutory City and Home Rule City. Pueblo West Fiscal and Sustainability Study 38 | P a g e Table XV. Differences/Metro District, Statutory City and Home Rule City Powers Metropolitan District Statutory City Home Rule City Governance Five-member Board unless petition with government that formed the district and county court to grow to seven. Typically engage a district manager to oversee operation. Mayor and Council govern. To establish a Council-Manager form of government requires voter approval, which most municipalities do. Charter establishes size of Council, Mayoral power, and City Manager authority. Administrative Board Replacement, Committees, Provision of services to include: Fire Protection, Elimination and control of Mosquitos, Park and Recreation, Traffic Safety controls and devises, Sanitation Services, Street Improvements, TV Translator Services, Transportation, Water and Wastewater services, Solid Waste Disposal. Fill board vacancies, provide ambulance, hospital and other services much like the Metropolitan District. Statutory Cities have a broad range of powers as prescribed by the General Assembly to address their needs through self- governance. Home rule charters provide the greatest authority to regulate local and municipal matters. In general, home rule ordinances supersede any law of the State in conflict therewith unless the issue is one of state-wide concern. Police May provide security services and enforcement of covenants. Required to enforce local laws. Required to enforce local laws. Land Use Covenant Enforcement and Design Review Statutory powers to manage land use and growth. Greatest authority over land use and over types of businesses allowed and location. Financial Powers May levy property taxes, excise taxes on the first sale of marijuana, a sales tax may be levied if the Metro District provides Safety, Street, or Transportation services and does not exist within a corporate boundary. The District has the power of eminent domain. Similar to Metropolitan District, but broader authority to impose sales tax. Sales taxes collected by the State. The same financial powers, but the home rule city may self- collect sales taxes. This enables the City to require business licenses and to audit businesses for confirmation of their sales tax liabilities. Broader excise tax powers allow for collection of admissions, entertainment, tourism and lodging taxes. Pueblo West Fiscal and Sustainability Study 39 | P a g e The procedures for incorporation are provided in state statutes. The following steps are followed to 1) incorporate 2) elect officials 3) enact a charter and 4) vote on TABOR tax questions. PROCEDURE FOR INCORPORATION STEP 1: Prepare a petition for incorporation that includes the following information: A. The name of the proposed town; B. Proof of the number of residents within the proposed town based on the latest federal census count, as updated according to county records; C. Proof that the proposed town has an average of at least 50 registered electors per square mile of area within the boundaries of the proposed town; D. Description of the proposed town boundaries; E. Accurate plat or map of the proposed town; F. An allegation that the proposed municipality is greater than 320 acres, and thus may be within 1 mile of the any boundary of an existing municipality; G. A bond, in an amount set by the court, to cover costs if the incorporation is ineffective; H. If desired, a request to initiate proceedings for the adoption of a home rule charter (which will be needed to become a home-rule municipality); I. If desired, a request that any matters arising under the TABOR be referred to the voters of the proposed town at the incorporation election; J. An allegation that the petition signatories are registered electors, landowners, and residents of the proposed town; K. An allegation that all owners of undivided parcels of 40 acres or more have consented to the petition, and, ideally, including the signature of such owners; L. Signatures of at least 150 registered electors within the proposed town limits who are also landowners and residents of the proposed town. If a home rule charter is pursued at Pueblo West Fiscal and Sustainability Study 40 | P a g e the time of incorporation, the signature requirement increases to 5% of the registered electors who are landowners and residents of the proposed town1 (C.R.S. § 31-2-209(2)); STEP 2: File the completed petition with the district court of the county in which the proposed town is located. STEP 3: Obtain an order from the district court finding that the area to be incorporated and the petition itself meet all statutory requirements and appointing 5 -9 election commissioners to handle the logistics of the incorporation election. Within ten days of appointment, the petitioners must file with the district court an affidavit of each appointed commissioner signifying his or her intent to serve as a commissioner. STEP 4: Within 10 days of accepting their position, the election commissioners set, by resolution, the date and time of the incorporation election. Said election must be held not later than 90 days after the date of the resolution. However, if a TABOR issue is to be presented to the registered electors at the incorporation election, the election must be held at the time and in the manner required by TABOR. The commissioners must also provide notice of the election as required under the Colorado Municipal Election Code. STEP 5: The election commissioners establish 1 or more precincts and a polling place for each precinct. Once the precinct boundaries are set, the commissioners certify those boundaries to the county clerk and recorder. STEP 6: Conduct the incorporation election, including any TABOR or home rule charter questions, according to the Colorado Municipal Election Code as modified by TABOR, if applicable. The home rule questions to be presented at the incorporation election are whether a charter com mission should be formed and who should be elected to the 9-member commission. STEP 7: Report the results of the election to the district court within 3 days of the election. The court must then determine whether the incorporation election was “substantially regular and fair” and whether the majority of votes cast on the issue were for incorporation. If the court decides that the answer to both questions is “yes,” the court shall issue an order finding the petition and election to be valid. The court clerk must then publish notice of the court’s determination in a local newspaper and provide certified copies of the notice and other documents to the county clerk & recorder, the division of local affairs, and the Colorado secretary of state. STEP 8: If home rule is sought at the time of incorporation, the election and/or charter commissions must perform the following tasks. If a charter is not sought, skip to Step 11. A. The charter commission must organize itself within 20 days of the incorporation election; develop a proposed charter; hold at least one public hearing regarding the proposed 1 If a home rule charter is pursued after incorporation has occurred, the charter petition must include the signatures of 5% of registered electors, but those electors need not be landowners. Malmgren v. Copper Mountain, Inc., 873 P.2d 44, 46 (Colo. 1994). Pueblo West Fiscal and Sustainability Study 41 | P a g e charter; and submit a proposed charter to the election commission within 180 days of the incorporation election. B. Within 30 days of submission of the proposed charter, the election commission must set an election for approval thereof. Said election must occur within 60 -180 days of the date notice of the charter election is published. C. A majority of the registered electors voting in the election must vote to approve the proposed charter in order for the charter to be adopted. STEP 9: The Election Commission sets a date for the first election of officers of the new town. A. The election must be at least 4 weeks after the setting of the election. B. Candidates for elected offices are to be nominated through the petition process set forth in the Colorado Municipal Election Code. C. Notice of the election must be provided at least 20 days before the date of th e election. Incorporation is complete after the court clerk has filed all necessary paperwork with the necessary entities (see Step 9) and the first election of town officials has occurred. If only incorporation of a new town is sought, the incorporation process could, in theory, be completed within 130 days of filing a petition for incorporation with the district court. However, that 130 - day time period does not take into account the time it would take for the district court to enter the necessary orders identified in Steps 5 and 9. As such, a minimum of 180 days is more realistic. If a home rule charter and/or any TABOR issues are presented at the incorporation election, the time frame for incorporation would expand significantly, especially in light of T ABOR’s limits on election dates. The year 2022 is a General State Election, so the timeline on the following page is structured to coincide with the November 2022 election for the incorporation question and then May 2023 for the Charter and Officials election: Pueblo West Fiscal and Sustainability Study 42 | P a g e Table XVI. Timeline for Incorporation Complete Conditional Contract with PSCOFall 2021 •The contract can be conditioned upon the successful incorporation election and the date upon which the incorporated city begins. •Having the cost determined will inform the incorporated city budget and the TABOR election question. Begin the Incorporation Election ProcessJanuary 2022 •Construct the budget, required increase in revenues, message for community; create petitions. •Collect Petition signatures in February and March. •File petitions with the district court by April 2022. •Create incorporation question that identifies the method of transition from District to City and the date that the City becomes active. •TABOR questions regarding new taxes required to support the incorporated City are also asked as a separate question. Ballot Questions to the County ClerkAugust 2022 •Since this is a coordinated election time, the process begins in June when you alert the County Clerk of the upcoming election issues for the District and in August, submit the two ballot questions. Election and Creation of Charter CommissionNovember 2022 •Immediately after a successful election, create a Charter Commission. •From December to March, the Commission meets, evaluates other Charters and forms a draft charter for the new City. •At least one public hearing is held Charter Election; Election of OfficersMay 2023 •In a special election, the new City holds an election that approves the Charter and elects officers. •An Election Commission will be the responsibility of the District/City this time, and one should have been formed immediately after the November election for this purpose. New City beginsJuly 2023 •Elected officers are sworn in, and the new City is in action. •Depending on the TABOR question, it is possible that new sales tax will start on July 1, 2023 and new mill levies on January 2024. Pueblo West Fiscal and Sustainability Study 43 | P a g e Observations and Conclusions There are many reasons to incorporate. One benefit of incorporation would be to have access to tools that spur economic development. Currently, a business considering locating in Pueblo West, must be confident that what exists in the community will be enough to support all its needs; there is little room for negotiation and no ability to incent. Tools such as the following are used by cities to incent commercial growth with an expectation that the incented projects create interest that generates organic growth without the need to incent. • Urban Renewal Authorities (URA), governed by a city, employs Tax Increment financings to spur development. Under state statute, the taxing entities would have to approve the TIF Plan, but the base that is currently being collected on these properties is not impacted. The taxing entities continue to receive taxes on base values; only the increment above the base, created by new development, is used to finance public improvements. Additionally, TIF Plan areas have only a 25-year life. At their expiration, all the taxes, including the incremental new values generated, flow to the taxing entities. • City sales tax can fund an economic development arm that, then, has the resources to incent commercial and industrial endeavors. Using sales tax as a direct incentive can take many forms. The city can dedicate a percentage of all sales tax collected in the city for the purpose of creating an economic development arm or a city can work with a new commercial development to provide payments to the developer that closely mirror the amount the new entity will be paying to the city in sales tax. Cities can also a llow their URA to collect sales tax increment in a TIF Plan area. Every individual case is different. • Business Improvement Districts (BID) enabled by a city, and governed by the businesses themselves, are used to improve and enhance customer experience in concentrated business areas. They build or repair sidewalks and parking areas as well as provide landscape improvement and maintenance. BIDs are formed via election of the business owners within the proposed BID area; it’s supported by taxes levied to the businesses and its tax levying power is limited to the BID area. • General Improvement Districts (GID) are special districts that are managed by the city and governed by the city’s governing body. These districts, like BIDs, have tax levying power within the boundaries of the GID. As with any new tax in Colorado, the levy must be voted on by property owners in the district. Funds can be used for public improvements for both residential and commercial ventures. • Local Improvement Districts (LID) are usually described in an incorporated city’s charter and follow state statutes. They can be declared by the city public works director or they can be petitioned by the residents. In either case, the LID is formed after a public period if no more than half of the affected property owners protest. These districts are used to complete a desired amenity, like a sidewalk on a residential or business street with the cost shared on a reasonable basis, such as linear feet of sidewalk on the property owner’s Pueblo West Fiscal and Sustainability Study 44 | P a g e property, among all participants as a tax assessment. Assessments are legal debts of the property and unpaid assessments result in liens against property. As previously noted, the Gallagher Amendment has made non-residential assessed property values more important to Colorado cities, towns and metro districts. Non-residential properties such as commercial businesses are assessed at 29% of their actual value as determined by the county assessor. Under the Gallagher Amendment, residential property in the State of Colorado (statewide) can pay no more than 45% of the total of property taxes in the state. TABOR has driven down property taxes, and at the same time some strong population centers such as the Denver Metropolitan Area have seen residential growth and increased residential values to the point that residences easily fill the 45%. In 1982, the year Gallagher was passed, the residential property assessment rate was 21%, since then it has dropped dramatically. For most of the 2000’s the rate was 7.95%, but in 2018 and 2019 it dropped to 7.2% and in 2020 it drops again to 7.15%. This assessment rate reduction is felt more deeply by entities such as the District for whom the bulk of property tax revenue is attributable to residential properties. In 2019, 69% of the District’s total assessment was Residential. A new $300,000 house in PWMD will bring the District an extra $434 in 2019. A new $300,000 business property would generate a tax bill to the District of $1,760. The desire to obtain additional tools to spur commercial growth and the resulting commercial property taxes in the district is a strong reason to incorporate. Another reason to incorporate is to obtain all authority as it relates to growth and development in the community. Currently, Pueblo County is responsible for Planning & Zoning functions within the District. In our interviews, it was clear that there hav e been disagreements regarding the County’s perception of growth vs. what the residents of the District desire. As a home rule city, Pueblo West would have ordinance authority over the types of businesses allowed and the location of those businesses within the City. Finally, and perhaps most important is the need to forestall the City of Pueblo from annexing commercial sections of the District. The City per statute can annex areas that are contiguous to City boundaries. Pueblo can reach out to any part of Pueblo West because a portion of the District abuts City boundaries. As Pueblo West commerce grows, and even now with the commerce along Highway 50, the temptation to enhance City revenues must exist. As was reported to the team, the City of Pueblo entertained the idea of flagpole-annexing Pueblo West’s Walmart. Imagine paying City Sales Tax on purchases made in the community without seeing any benefit of the city portion of the tax payments in the community. Again, this was the overriding issue that drove the incorporation of the City of Centennial, but Centennial waited until annexation by surrounding cities began before they acted. Costs of Incorporation Based on the above needs for additional services required of incorporation and the commensurate staffing that goes along with those services, and assuming policing services can Pueblo West Fiscal and Sustainability Study 45 | P a g e be contracted for $2.5 million, the newly formed City of Pueblo West (if that is the community’s choice for a name) will be able to cover costs with an incremental 2-cent sales tax and an increase in the mill levy of 7.1637 mills. Incorporating this cost of incorporation with the earlier cost of sustainability would result in the tax structure charted below. Table XVII. Table of New Revenue Required Through Incorporation New Revenue/Purpose Mill Levy Taxpayer Cost per $259,000 home Sales Tax First Year Revenue Generation Fire Safety One Cent $1,500,000 Civic Building $0.00 $0.00 (Grant funds and transfers from Water and Wastewater supplement revenue for this debt.) Staff Salaries 3.3761 $5.21/month $891,891 Increased Staff & Maintain 25% FB 15.8787 $24.50/month $4,194,804 Incorporation 7.1637 11.05/month $2,008,508 Incorporation Two Cents $3,060,000 Total to Reach Sustainability and Incorporate 26.4185 $40.77/month Three Cents $11,655,203 Grand Total (with today’s 20.23 mills) 46.6484 $71.99/month Three Cents $17,327,148 This mill levy ensures that in the first year of incorporation, the city continues to meet the policy goal of a general fund unassigned fund balance equal to 25% of expenditures. In the years following incorporation, this levy allows the city to move from $700,000 to $1.6 million to the Capital Fund annually, continuing to provide funds needed to maintain city assets. When consideration is given to the current mill levy and the immediate needs of the District via the Sustainable Metropolitan District model, the overall impact to the average property taxpayer at incorporation would be an increase of 26.4185 mills. The owner of a home with an actual Pueblo West Fiscal and Sustainability Study 46 | P a g e value is $259,000 would pay an additional $40.77/month. Sales tax would be paid for the sale of tangible property in the community, but both Pueblo West residents and others including regional shoppers and visitors, would share that burden. It is also possible that the projected sales tax revenues are low. They are conservative because they are somewhat hard to estimate. If the Pueblo West residents vote to adopt the one-cent sales tax as the means to build and operate the Fire Station, the District will have the opportunity to gauge the true value of a penny sales tax, and that would help determine future revenue plans. When fully loaded with both Sustainable Metropolitan District costs and incorporation, Pueblo West’s tax revenue per capita is comparable to Rio Rancho and Yucca Valley, the two Cities that most resemble Pueblo West in terms of density and unpaved roads. This is again demonstrated on the graph below (also seen on page 8). *PWMD full Incorporation data is taken from projected year 2022. On the following pages are first, a snapshot of the General Fund under this scenario over the next 10 years and then a graph depicting the impact on fund balance. $- $200 $400 $600 $800 $1,000 $1,200 Town of Yucca Valley, California Windsor Fountain PWMD Non-Modified PWMD Sustainable Metro PWMD Incorporation * Lake Havasu City, Arizona Rio Rancho, New Mexico Arvada Pueblo West Fiscal and Sustainability Study 47 | P a g e Table XVIII. General Fund Snapshot – Incorporation Model PUEBLO WEST METROPOLITAN DISTRICT, COLORADOFinancial Management Plan IncorporationDashboardBudget2017201820192020202120222023202420252026202720282029RevenuesTaxes5,377,052 5,875,409 7,271,361 7,685,847 12,932,181 18,702,738 19,221,025 20,018,885 20,558,711 21,422,136 21,952,397 22,807,534 23,362,321 Intergovernmental1,459,467 1,634,320 1,871,796 2,894,232 1,952,117 1,991,159 2,030,982 2,071,602 2,113,034 2,155,294 2,198,400 2,242,368 2,287,216 Other revenues364,003 378,201 375,334 1,207,320 359,187 372,747 395,121 403,941 412,765 422,645 434,208 443,569 452,617 Total Revenues7,200,522 7,887,930 9,518,491 11,787,399 15,243,485 21,066,644 21,647,128 22,494,428 23,084,510 24,000,075 24,585,005 25,493,472 26,102,154 ExpensesCurrent Expenses5,988,028 6,929,153 9,257,977 8,128,296 8,453,428 8,791,565 9,143,228 9,508,957 9,889,315 10,284,888 10,696,283 11,124,134 11,569,100 NEW: Fire Station Operations- - - 2,000,000 1,400,000 1,456,000 1,514,240 1,574,810 1,637,802 1,703,314 1,771,447 1,842,304 1,915,997 NEW: Salary Adjustments- - - - 728,518 757,659 787,965 819,484 852,263 886,353 921,808 958,680 997,027 NEW: Staffing Additions Sustainable District- - - - 3,344,598 3,478,382 3,617,517 3,762,218 3,912,707 4,069,215 4,231,983 4,401,263 4,577,313 NEW: Staffing Additions Incorporation- - - - - 3,628,241 3,794,188 3,975,412 4,165,357 4,364,446 4,573,123 4,791,852 5,021,120 Debt Service191,298 312,482 190,989 576,926 465,040 436,716 435,786 422,380 422,790 422,977 422,937 420,626 385,345 Capital Expenses- - 415,000 - - - - - - - - - - Total Expenses6,179,326 7,241,635 9,863,966 10,705,223 14,391,584 18,548,563 19,292,924 20,063,259 20,880,233 21,731,193 22,617,581 23,538,860 24,465,902 Revenues Over/(Under) Expenses1,021,196 646,295 (345,475) 1,082,176 851,901 2,518,081 2,354,205 2,431,169 2,204,276 2,268,882 1,967,424 1,954,612 1,636,252 Other Sources/(Uses)Transfers In/(Out)(347,678) (272,788) (918,204) (663,323) (697,504) (1,443,161) (2,408,662) (2,491,854) (2,203,211) (2,164,710) (2,019,288) (1,644,124) (1,146,462) LeaseDebt Proceeds- 395,676 - 6,000,000 - - - - - - - - Sale of Fixed Assets82,325 394,611 - - - - - - - - - - - Total Other Sources/(Uses)(265,353) 517,499 (918,204) 5,336,677 (697,504) (1,443,161) (2,408,662) (2,491,854) (2,203,211) (2,164,710) (2,019,288) (1,644,124) (1,146,462) Ending General Fund Balance3,727,870 4,891,664 3,627,985 3,388,187 4,046,135 5,240,707 5,414,392 5,583,602 5,815,791 6,152,239 6,333,726 6,485,975 6,801,786 Ending Unassigned Fund Balance3,219,903 4,662,290 3,398,611 3,114,657 3,602,014 4,668,666 4,823,231 4,969,330 5,177,010 5,487,929 5,642,824 5,767,435 6,055,411 % of Total Expenses52%64%34%17%25%25%25%25%25%25%25%25%25%General Fund SummaryActualProjected Pueblo West Fiscal and Sustainability Study 48 | P a g e Graph V. Allocation of General Fund Balance – Incorporation Model More detail is included in the 10-year financial plan for Incorporation which is included as Appendix E. 0% 10% 20% 30% 40% 50% 60% 70% 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Allocation of General Fund Balance Nonspendable Restricted (TABOR Emergency Reserves) Assigned (Equipment)Unassigned Fund Balance as a % of Expenditures Pueblo West Fiscal and Sustainability Study 49 | P a g e Section 7: Other Issues Stormwater In 2007, the District commissioned a storm water plan to be developed that was then updated in 2013. The plan contains a financial requirement of $45 million (in 2007 dollars) to fully implement. Since this is an issue that concerned the District enough at one time to have a study done, perhaps to satisfy requirements of its MS4 permit – and then again to have it updated, we believe that this will be an issue worth resolving. It is surely an issue that will not just go away on its own. The District was created before planning and engineering departments focused on stormwater management in the development process, and our research revealed that there are around 280 locations in the District where water flows over the road in heavy precipitation periods. The Public Works Department confirmed that extensive time is required after every major storm to make the roadways fully passable. Today’s developments include stormwater infrastructure in the start-up costs so the bulk of the costs for stormwater infrastructure are paid in the price of a home or in a District debt financing that is supported with a mill levy. Because much of the development of the District has already occurred, the option of returning to the development for these costs no lon ger exists. As an alternative, and as most local governments have implemented, ongoing stormwater capital expenses and operations are generally addressed with a stormwater fee. The fee is charged on each square foot of impervious surface on the owner’s pr operty. For example, if a house has a footprint of 1,000 square feet and a driveway and patio totaling another 1,000, this property owner would be charged a rate-times-2,000. Most homes in Colorado communities that charge stormwater fees pay total stormwater fees of around $25-$35/year. Using this model and assuming 12,000 homes at $30/year and 400 business at $100/year because they have more impervious surface, the District or incorporated City of Pueblo West would only generate approximately $460,000 in the first year with slight increases in subsequent years. This amount is likely adequate to run a program of repair and maintenance on stormwater infrastructure, but it is no t remotely close to resolving the construction of the infrastructure as identified in the planning documents. To address the overall needs of the stormwater plan, the District, or an incorporated City would need to adopt a storm water plan, and likely be looking towards a fee and specific levy or sales tax for the purpose of producing adequate funding to address the needs. New developments could have stormwater requirements as part of the Community Development Planning Codes. While we raise this issue, we did not add the cost of the addressing the storm water plan into the financial models. Pueblo West Fiscal and Sustainability Study 50 | P a g e Potable Water The population projection for Pueblo West is based on economic, demographic and social factors, and has not considered the supply of water as a limiting factor on growth. Should population growth occur as projected in this report, Pueblo West will likely need to achieve significantly more than just the goals set in its 2012 Water Conservation Plan in order to avoid the possibility of water consumption restrictions and/or construction moratoria sometime during the next decade. Based on estimated average annual yields uncovered in Anderson Analytics’ research, Pueblo West has potable raw water supply sufficient for about 30,704 people. This is not sufficient for its current and future population. A full report on the water issue can be found in Anderson Analytics’ report “Current Population Estimate and 10-Year Population Projection for Pueblo West Metropolitan District: 2019-2029.” The report is attached to this report as Appendix A. Aging Infrastructure/Capital Needs This year the District experienced a natural disaster that took the roof off an aging administrative building. In addition, many of the District’s paved roads were completed in the 70’s and without curbs or shoulders making them vulnerable to erosion. Water and sewer lines are aging as well. And the District probably has an inventory of facilities that have long experienced deferred maintenance, some to the point of replacement. As the District considers its future, it could include a full assessment of its infrastructure and an associated capital plan to bring infrastructure up to date and in full repair. There are no revenue dollars specifically factored into this report for facilities other than the replacement of Fire Station #2 and the Civic Center. In the Sustainable Model and Incorporation Model, sufficient mills are calculated to keep unassigned fund balance at 25% of expenditures. Excess revenues are generated in some years and transferred to the Capital Fund, but there is not enough informatio n at this time to ascertain how those dollars would be best used or if they are sufficient to meet the District’s growing needs. A complete capital plan needs to be constructed. Rio Rancho, New Mexico, one of the Comparable Cities, was incorporated in the 70’s and suffers similar issues to Pueblo West, especially related to regional/arterial roads. Voters in the city recently approved a plan to issue general obligation bonds every two years for road improvements, and to increase property tax to pay debt service. The former Rio Rancho City Manager who told us about this initiative mentioned that it took the residents being fully dissatisfied before action was taken. Paul Wisor reports that the District could establish a special improvement district (SID) within the boundaries of the District for the purpose of imposing an assessment to finance the construction of improvements. The SID would need 100% written consent from the property owners paying the assessment or approval of a majority of voters within the SID. Pueblo West Fiscal and Sustainability Study 51 | P a g e Aquatic Center It is the desire of the community to build a new aquatic center, and the plan to fund it, while logical at the time it was offered, may not be able to get it done. Aside from the new fire station and the Civic Center, no accommodations were made in the financial proformas to fund this Aquatic Center. Considering the District’s current financial situation, it might also be prudent to inform the community that the Aquatic Center cannot be constructed until there is a guarantee from the community that funds will be available for its care and maintenance without reducing funds from other services. Unpaved Roads There are miles of unpaved roads in Pueblo West. Since maintaining gravel roads, according to the Public Works Department, is less expensive than paved roads, this is only an issue if the community feels it is. In a phone conversation with a former Rio Rancho City Manager, we learned that the developer of Rio Rancho, much like Pueblo West’s developer, platted the district and sold lots without phasing. Many folks built on their lots and then expected the City to follow up with paved roads. Rio Rancho paves roads via special assessment when a group of residents come together on the need and the means of payment. This mechanism is similar to the Local Improvement District mentioned in the Incorporation Section 5 and the SID described in the previous section on Aging Infrastructure/Capital Needs. Pueblo County has a similar mechanism available through state statutes to accomplish road paving and might partner with the District to use this instrument to pave roads within the District. In each case, the cost of the road is assessed to the owners of properties along the road. Transit According to Anderson Analytics’ population report (Appendix A), Pueblo West is a community of commuters. Residents of Pueblo West work in the City of Pueblo (45.7%), El Paso County (10.6%) and Metro Denver and Northern Colorado (13.1%). To accommodate workers of the community, the District might consider a transit study. A study would detail the need for public transportation and where. A complete study would also provide ideas and financial projections regarding the options to the District for establishing a transit system through co ntract, P3 or District or Incorporated City of Pueblo West creation. Pueblo West Fiscal and Sustainability Study 52 | P a g e Appendix A - Current Population Estimate and 10-Year Population Projection for Pueblo West Metropolitan District: 2019-2029 Pueblo West Fiscal and Sustainability Study 53 | P a g e Appendix B – Economics and Demographics Pueblo West Fiscal and Sustainability Study 54 | P a g e Appendix C – Non-Modified Current Structure 10-Year Financials Pueblo West Fiscal and Sustainability Study 55 | P a g e Appendix D – Sustainable Metropolitan District 10-Year Financials Pueblo West Fiscal and Sustainability Study 56 | P a g e Appendix E – Incorporation10-Year Financials Pueblo West Fiscal and Sustainability Study 57 | P a g e Appendix F – Water Utility at Incorporation