2008/10/15 Council Agenda Packet

CITY OF EVERETT FISCAL ANNEXATION ANALYSIS The main reason for the somewhat negative projected result of annexation as compared to no- annexation scenario is that the cost of serving the potential annexation areas would be more than the expected revenue generated. The majority of the annexation areas are primarily residential, which generally does not provide enough operating revenues to pay for the cost of City services. And for those areas in the MUGA that are largely commercial, the specific demographics of those areas call for high levels of service which are not fully covered by the projected revenues. Facilities. Preliminary discussions with City staff suggest that impacts to City Hall are likely to be manageable as the City currently has additional available space to absorb the projected staffing increases. Facilities for police, however, are currently at or exceeding capacity and would require additional investment The cost of additional police facilities is not included in the model as it is dependent upon City decisions of facility location and financing. Transition Costs. Also not included are transition costs, which may be significant, in particular for police and fire. Although this analysis assumes full staffing and full revenues received by the City on the first day of annexation, in reality there will likely be a transition period for provision of police and fire services. This transition will likely include costs that are not explicitly identified in this analysis, such as training and other hiring-related expenses and will likely have a material impact on the financial outcome of the first few years of annexation. The City of Everett would have a considerable amount of hiring to complete in order to staff the police and fire services for the annexation area. This process would take time, either to hire and train staff, or to find fully-trained staff that can be brought into the City. During this transition period, the City may choose to contract with the entities currently providing these services (the Snohomish County Sheriffs Office and Fire District 1). It may also be possible to hire the staff already providing services in these areas, dependent upon their level of training and the current labor agreements. 6.2 Sales Tax Credit Since Everett is located in a county with a population of more than 600,000, the City would qualify for the State sales and use tax credit (see Section 1.2 for more detailed description). Scenario 3 (including Eastmont, Hilton Lake, and Rugg's Lake) is estimated to contain approximately 10,500 people, over the 10,000 person limit to qualify for 0.1% sales tax credit. Scenario 4 (including all areas in Scenario 3 plus Larimer) contains approximately 20,800 people, over the 20,000 limit to qualify for the 0.20/0 credit. The statute allows the City to recoup the loss due to annexation up to the maximum 0.1% or 0.2% of sales tax revenues. However, considering Everett's large sales tax base, estimates show that in both Scenarios 3 and 4, the City would not be taking advantage of the full possible credit in any year (as City losses are estimated to be less than the potential credit). Exhibit 15 shows the approximation of maximum state sales tax credit available for both scenarios and the portion that is estimated to be used during the ten-year transition period. EL Final Report:October 2008 Page 24