2008/10/15 Council Agenda Packet

CITY OF EVERETT FISCAL ANNEXATION ANALYSIS Another objective of the model is to factor in the new sales tax credit funding. Since this funding is designed to assist eligible cities that annex by 2010 by providing support for up to ten years, the model runs through 2027, several years past the last possible year of sales tax credit funding support. The model estimates the maximum sales tax credit and the eligible annexation deficit to determine the amount of potential revenue from this source, as well as providing information on the fiscal impact of annexation once the tax support is no longer available. Development Assumptions In the model, factors in the land base (such as population, employment, and commercial activity) drive both demand for services and the tax base. Depending on a jurisdiction's scope of services and choices regarding level of service, demand for services leads to costs, and depending on a jurisdiction's choices regarding fiscal and taxing policy (limited by tax laws), its tax base will lead to tax and fee revenues. The Berk model is flexible and will capture anticipated development in the City and annexation areas over time and how these changes affect the underlying local tax base. In particular the following elements are explicitly specified: (1) development assumptions including type, scale and timing of new development, (2) type and mix of tenants, associated employment and business income levels, (3) housing mix (single-family and multi-family) and density, and (4) productivity of new retail activity. Look at City With and Without Annexation The model looks not just at the annexation areas alone, but instead analyzes the impacts of annexation by comparing the fiscal outlook for the City of Everett under two alternative futures: (1) the future of the current City with boundaries unchanged and (2) the future of a larger version of the City that includes one of the annexation scenarios. Analysis of these two alternative City futures provides a truly comprehensive look at the annexation impacts: it is possible that the City with annexation could be deemed "a net fiscal loser," but would actually improve the City's fiscal future by narrowing the potential fiscal deficit for the entire City when compared to no annexation. Economies of Scale When thinking about annexation, it is likely that the City of Everett will enjoy certain economies of scale in delivering City services. The City will not be required, for example, to hire a second City Administrator, or a second Police or Fire Chief upon annexation. These savings mean that the average cost-per-resident of providing many city services will tend to decrease as the City of Everett becomes larger. In practical terms, Berk&Associates' model reflects economies of scale in two ways: • The model identifies positions that will not be affected by annexation (e.g. annexation will not trigger the need to hire a new Fire Chief). • For certain direct positions (those positions that are directly affected by increased demand for services from annexation or growth) the "elasticity"of the position with regard to the new source of demand (demand-driver) may be less than 100%. Elasticities in relation to a given demand- driver may be set at, say, 60%, which means that for every 10% change in demand introduced by the annexation, the need to expand staffing for the position will increase 6%. 1:a Final Report: October 2008 Page 5