Fiscal Impact of Annexing Roads End

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Following is an analysis of the fiscal impacts to the City of annexing Roads End.Also included is a brief analysis of the net effects of taxes and utility bills on theaverage Roads End property. This is a preliminary report, and comments andcorrections will be considered at least until September 24, 2010. Comments andsuggested corrections should be directed to the City Manager [email protected] with a copy to the City Recorder at [email protected]



L i n c o l n C i t y, O r e g o n

P R E L I M I N A RY R E P O RT:

FISCAL IMPACTS OF ANNEXING ROADS END

Prepared by:

ECONOMIC & FINANCIAL ANALYSIS1409 Franklin Street • Suite 201 Vancouver, WA 98660

20 August 2010



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TABLE OF CONTENTSINTRODUCTION ___________________________________________________________________________

GOVERNMENTAL ACTIVITIES _______________________________________________________________

Additional Revenues ........................................................................................................ 5 Tax Revenues from the Permanent Tax Rate ....................................................................................... 5 Tax Revenues for Open Space Bonds .................................................................................................. 5 Franchise Fee Revenues ....................................................................................................................... 6 Transient Room Tax ............................................................................................................................. 6 State-Shared Revenues ......................................................................................................................... 6

Additional Costs ............................................................................................................... 8 Public Safety (Police) ........................................................................................................................... 8 Streets ................................................................................................................................................... 9 Library ................................................................................................................................................ 10 General Government Services ............................................................................................................ 10

BUSINESS-TYPE ACTIVITIES ________________________________________________________________12

Sewer ............................................................................................................................. 12

Water ............................................................................................................................. 13

NET FINANCIAL EFFECTS OF ANNEXING ROADS END ________________________________________ 1

Net Effects on Lincoln City ............................................................................................. 13

Net Effects on Average Roads End Property ................................................................. 14

L I S T O F TA B L E STable 1 Description of Roads End Area .................................................................................................... 1

Table 2 Lincoln City Departments or Funds & Sources of Revenues (FY 2009-10) ................ ................ 4

Table 3 Impact of Roads End Annexation on Open Space GO Bond ................ .................. ................. .... 5

Table 4 Summary of State-Shared Revenues ............................................................................................ 8

Table 5 Projection of State-Shared Revenues ............................................................................................ 8

Table 6 Miles of Roadways by Type & Condition .................. .................. ................. .................. ............. 9

Table 7 Lincoln County Population by City ................ .................. ................. .................. .................. ..... 10

Table 8 General Government Services Cost per Capita .......................................................................... 11

Table 9 Calculation of Net Development Costs & Revenues ................. ................. .................. .............. 12

Table 10 Sewer Rate Revenues ................................................................................................................. 13 Table 11 Sewer Utility Net Result ............................................................................................................. 13

Table 12 Water Rate Revenues .................................................................................................................. 13

Table 13 Summary of Net Effects of Annexation on City & Roads End Area Residents ................. ........ 14

Table 14 Net Effect on Average Roads End Property Taxes & Utility Bills.......................... ................. .. 15



Preliminary Report: Fiscal Impacts of Annexing Roads End 20 August 2010

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I N T R O D U C T I O N

The City is evaluating the fiscal impacts of annexing the Roads End area that borders the City’s northernlimits. This unincorporated area is largely developed with single-family houses and a few multiple family

houses. Annexing the area will increase demands for City services and affect revenues the City collectsfrom taxes and from providing services. In this analysis, EFA identifies the measurable short-term andlong-term fiscal impacts of annexation.

The Roads End area shown in Figure 1 encompasses 349.32 acres that are divided into 917 tax lots, withan estimated population of approximately 860. The City already provides sewer service to 619 customersin this area, and water service is provided to 714 customers (1.2 persons per account). Ninety-fiveresidents purchase water from the City but use individual septic systems for sewage disposal. The areaalso includes one state park.

Table 1 Description of Roads End Area

Land Area, acres 349.32Number of Tax Lots 917Number of Buildings 761Number of Housing Units (developed lots with City water service) 714

Population, estimate (1.2 persons per housing unit) 860

Real Market Value $429,094,177Assessed Value $228,307,936Assessed Value per Tax Lot $249,000

Source: City of Lincoln City, GIS Department / Finance Department




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Figure 1 Roads End Impact Area

Source: City of Lincoln City, Planning Department




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Table 2 lists the City’s budget categories, which we divided into Governmental Activities and Business-Type Activities. We highlighted the activities that will be affected by annexation of Roads End.

The following sources of revenue are not specifically listed in Table 2, but they are used to pay forvarious Governmental Activities and will be affected by the annexation:

Tax Revenues from Permanent Tax RateState Shared Tax RevenuesFranchise Fee Revenues

This report is based primarily on historical data from fiscal year 2009-10, the most recent year for whichreliable data exit.




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Table 2 Lincoln City Departments or Funds & Sources of Revenues (FY 2009-10)

Department or Fund Taxes Other Total

G o v e r n m e n

t a l

A c t i v i t i e s

General Fund $3,768,566 $6,980,228 $10,748,794City Council 0 0 0City Administration 0 0 0Finance 0 0 0Information Technology 0 0 0Library 0 0 0Municipal Court 0 0 0City Attorney 0 0 0Planning 0 0 0Building Inspection 0 0 0Recreation Department 0 0 0General Fund Non-Departmental 0 0 0

Lincoln Square Operations 0 415,994 415,994Facilities Capital Fund 0 464,469 464,469Public Safety (Police) 0 3,765,182 3,765,182Public Safety – Dispatch 9-1-1 0 756,954 756,954D.A.R.E. 0 5,895 5,895Government Access 0 37,850 37,850Agate Beach Lf 0 803,874 803,874% For Art 0 100,593 100,593Affordable Housing 0 742,155 742,155Housing Rehab 96-97 H96035 0 2,832 2,832Community Development Block Grant 0 300,000 300,000Transient Room Tax 0 4,214,000 4,214,000Visitor & Convention Bureau 0 1,065,174 1,065,174Visitor & Convention Bureau 08 Bm 0 567,162 567,162Parks Fund 0 1,018,105 1,018,105Parks Playground 0 11,248 11,248Parks SDCs 0 962,971 962,971Parks Open Space 0 972,042 972,0421999 Open Space Bonds 279,000 37,982 316,982Unbonded Assessment Fund 0 737,484 737,484Street Fund 0 1,847,541 1,847,541

Street Capital Fund 0 874,993 874,993Transportation Development Fund 0 194,834 194,834N Hwy 101 Improvement Program 0 94,552 94,552Intersection Improvement 0 128,406 128,406Bond Redemption Fund 0 777,059 777,059Internal Service Fund 0 228,482 228,482Storm Drainage Development Fund 0 77,766 77,766

B u s i n e s s - T y p e

A c t i v i t i e s

Water Fund 0 3,246,957 3,246,957Water Capital Fund 0 1,431,164 1,431,164Water Construction Fund 0 0 0Sewer Fund 0 3,355,192 3,355,192Sewer Capital Fund 0 4,853,214 4,853,214Sewer Construction Fund 0 7,836,304 7,836,3042005 Sewer Bonds 744,000 732,711 1,476,7112006 Water Refunding 0 308,182 308,1822007 Water Bonds 0 449,808 449,808

Total $4,791,566 $50,399,359 $55,190,925

Source: City of Lincoln City, 2009-10 Adopted Budget




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G O V E R N M E N TA L A C T I V I T I E S

Governmental Activities are those expected to produce benefits to all citizens of the City, rather than

services sold at cost. In contrast, the Business-Type Activities are services sold to customers with theintent for the activity to be financially self-supporting. Many of the Governmental Activities havededicated sources of revenues (e.g., state shared gas tax revenues for the Street Fund) and some of theseactivities do produce enough revenue to be self-supporting (e.g., development fees that pay for BuildingInspections).

Following is a description and estimation of the additional revenues to Governmental Activities that canbe expected as a result of the proposed annexation of the Roads End area. Following the discussion of revenue impacts, we discuss the likely increases in costs to Governmental Activities affected by theproposed annexation.

Additional RevenuesTax Revenues from the Permanent Tax Rate

The City’s permanent tax rate is $4.0996 per $1,000 of assessed property value (net of reductions due tourban renewal districts). Lincoln County’s 2009 tax records list Lincoln City’s assessed property value at$959,653,655, and the assessed value (AV) of properties in the Roads End area is $228,307,936.Annexing the Roads End area will increase the City’s assessed value from $959,653,655 to$1,187,961,591. The additional tax revenues from this increase will be approximately $935,971—a23.8% increase over the current year’s revenues of $3,934,200.

Tax Revenues for Open Space Bonds

The City has an outstanding general obligation bond to acquire and develop land for open spaces.Each year the City levies a tax equal to 100% of the annual debt service. This bond will be fully repaid inFY 2013-14. As shown in Table 3, the Roads End annexation will reduce the future tax rate by an averageof about $0.042/$1,000 AV on the remaining 4 years of debt service. It will cost Roads End propertyowners between $0.075/$1,000AV to $0.227/$1,000 AV per year.

Table 3 Impact of Roads End Annexation on Open Space GO Bond 1

2010 2011 2012 2013

2011 2012 2013 2014

Open Space GO Bond Debt Service $275,312 $274,032 $272,150 $99,655

Tax Rate w/o Roads End 0.279 0.269 0.260 0.092Tax Rate w/ Roads End 0.227 0.219 0.211 0.075

Difference ($0.052) ($0.050) ($0.048) ($0.017)

1 Assumes the current assessed value increases 3% per year




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Franchise Fee Revenues

The City also assesses a franchise fee on the sales of utilities that operate in the City—Northwest NaturalGas Company, Pacific Power & Light Company, Centurytel (telephone company), Charter (cable TVcompany), and North Lincoln Sanitary Service (solid waste collection). These companies operate in theRoads End area and their fee payments to the City will increase. The City estimates the annual franchise

fees from Roads End will be approximately $30,000.

Transient Room Tax

The City collects a 9.5% Transient Room Tax (TRT) on short-term rentals such as hotels, motels, bed &breakfast inns, and short-term rental (less than 30 days) of single-family and beach vacation houses.Upon annexation, the houses used for this purpose in Roads End area will be taxed at a 0.5% higher ratethan the County’s 9.0% TRT rate.

The City expects to collect $4,175,813 in 2009-10 from its 9.5% room tax. The County expects to collect$77,500 from its 9.0% room tax in the Roads End area. Assuming no new rooms in this area will besubject to the City’s TRT, the City can expect to collect about $81,375 per year from Roads Endproperties—a 2% increase over its current TRT revenues.

State-Shared Revenues

The distribution of state-shared revenues from motor fuel (gas), liquor, tobacco, and 9-1-1 taxes is largelybased on the population of a city relative to all other cities in the state. The state uses data published bythe Portland State University Population Research Center to determine statewide, county, and citypopulations. The most current population estimate for Lincoln City is 7,930. This estimate is based onthe permanent population and excludes tourists.

Motor Fuel Tax

The motor fuel tax is $0.24 per gallon. The State distributes the revenues by formula to itself, and tolocal governments based primarily on population.

The League of Oregon Cities estimates the motor fuel tax allocation will average about $41.00 percapita in FY 2009-10, increase to $50.04 in 2010-11, and to $58.89 in 2011-12. This additionalrevenue per capita results from the Legislature approving a $0.06 per gallon increase that will beginno later than January 1, 2011, and increases in vehicle title and registration fees and weight-mile feespaid by truckers.

Lincoln City expects to receive $313,767 in shared fuel tax in FY 2009-10. Assuming the City’spopulation will increase by 860 after annexation, the per capita distribution of fuel tax revenues toLincoln City will increase $43,000 in FY 2009-10 and $50,600 the following year. These revenuescan be used only for transportation-related purposes.

Tobacco TaxThe tobacco tax is $1.18 per 20-cigarette pack, .65% of the sales price of cigars, and $1.78 per ounceof chewing and related tobacco products. The tobacco tax is allocated to the State, and to localgovernments based largely on population.

The League of Oregon Cities estimates the tobacco tax allocation to cities will average $1.43 percapita in FY 2009-10, decrease to $1.34 in 2010-11, and to $1.32 in 2011-12.




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Lincoln City expects to receive $11,183 in shared tobacco tax in FY 2009-10. Assuming a populationincrease of 860 from the Roads End annexation, the City’s annual average increase in tobaccorevenues will be about $1,200. There are no restrictions on the City’s use of these revenues.

Liquor Tax

The state liquor tax is based on alcohol content and volume. Distribution of liquor tax revenues tolocal governments is based on two separate sets of criteria: 20% is allocated on a per capita basis, and14% on a combination of consolidated property tax rates, per capita income, and population relativeto statewide averages for all cities.

20% AllocationThe League of Oregon Cities estimates the 20% liquor tax allocation will average $13.60 percapita in FY 2009-10, increase to $14.00 in 2010-11, and to $14.25 in 2011-12.

Lincoln City expects to receive $107,848 from the 20% per capita distribution of liquor tax in FY2009-10. The annexation of Roads End will increase Lincoln City’s share of the 20% allocationof liquor revenues an average of about $12,000 per year. There are no restrictions on the City’suse of these revenues.

14% Allocation (State Revenue Sharing)The 14% allocation of liquor tax revenues shared with cities is also referred to as State RevenueSharing. The City expects this revenue to be $92,854 in FY 2009-10, and annexing the RoadsEnd area will likely affect future allocations to Lincoln City. In order to forecast that amount,EFA would need to know the consolidated tax rates, personal income, and population for all othercities in Oregon, which is beyond the scope of this analysis.

We assume the amount will not decrease below $92,800 per year, and likely will increase due tothe increase in Lincoln City’s population from annexation. By how much is difficult to assess,but the population increase will be about 11%. It is unlikely that this population increase willresult in an 11% increase in shared revenues because of the other criteria used in the allocation—personal income and consolidated tax rate. Personal income in the Roads End area may be higherthan the City’s current average income, which would effectively offset the 11% populationincrease. The consolidated tax rate will not change appreciably, but will decrease because of theaddition of the Roads End assessed value. As a rough estimate, we discounted the 11% increasein expected revenues by 50% and came up with an increase of 5.5% in the allocation to LincolnCity—an increase of $5,035 per year.

Telecommunicat ions Tax (9-1-1)

The State taxes telecommunications companies to fund the 9-1-1 emergency call centers in the State.These tax revenues are shared with local governments based on population. The State is notexpecting to make any significant changes in the allocation formula. The League of Oregon Citiesforecasts this allocation will decrease from $5.05 per capita in FY 2009-10 to $4.99 in 2010-11, and$4.93 in 2011-12.

The City expects to receive $40,047 in shared 9-1-1 tax in FY 2009-10. After annexation of RoadsEnd, these revenues will increase about $4,300 per year. These revenues are restricted to 9-1-1dispatch services.




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Summary of Sta te-Shared Tax Revenues

The City’s tax revenues will increase each year for the next 3 years, as shown in Table 4, assumingthe current population remains at 7,930 and the Roads End population of 860 is added to the City.Most of the increased revenue is due to the statewide increase in motor fuel taxes and theLegislature’s allocation to local governments.

Table 4 Summary of State-Shared Revenues

Motor Fuel Tobacco Liquor 9-1-1FY $/capita % ∆ $/capita % ∆ $/capita % ∆ $/capita % ∆

2009-10 $41.00 $1.43 $13.60 $5.052010-11 $50.04 22.0% $1.34 -6.3% $14.00 2.9% $4.99 -1.2%2011-12 $58.89 17.7% $1.32 -1.5% $14.25 1.8% $4.93 -1.2%

Source: League of Oregon Cities, 2010 State Shared Revenue Estimates , Salem, Oregon

Table 5 Projection of State-Shared Revenues

Liquor

FY/Area Motor Fuel Tobacco20%

Allocation14% Allocation(State Sharing) 9-1-1 Total

2009-10 Current City $325,130 $11,340 $107,848 $92,854 $40,047 $577,218

2010-11Current City 396,817 10,626 111,020 92,854 39,571 650,888Roads End 43,034 1,152 12,040 5,035 4,291 65,553

Total Annex $439,852 $11,779 $123,060 $97,889 $43,862 $716,441

2011-12Current City 466,998 10,468 113,003 92,854 39,095 722,417Roads End 50,645 1,135 12,255 5,035 4,240 73,310

Total Annex $517,643 $11,603 $125,258 $97,889 $43,335 $795,727

Source: Economic & Financial Analysis

Additional Costs

Adding the Roads End population to the City will increase demand and cost for some GovernmentalActivities—primarily police, streets, and general government services.

Public Safety (Police)

Public Safety (police) costs will increase because of the increase in population. Currently the CountySheriff’s Department provides patrol to the Roads End area, and although the City police department alsoresponds to incidents in the area, it primarily serves as a backup to the County. After annexation, theroles of the two policing agencies will be reversed—the City police will have primary responsibility and




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the Sheriff will provide backup. The City will patrol an additional 8 miles of residential roadways,answer police calls, and investigate crimes.

Currently, the City of Lincoln City has more police officers per capita than most other cities in the state of Oregon. A 2009 survey by the Oregon State Police, Law Enforcement Data System (LEDS), shows 3.28officers per 1,000 population compared with a state average of 1.71 officers per 1,000 for cities withpopulations between 5,000 and 10,000. 2 Lincoln City’s summer population is almost double itspermanent population, and it is home to the largest gaming facility in the state. 3

Taking this transientpopulation into account, the average number of officers per capita likely drops to about 1.50 per 1,000population and tourists.

Assuming that public safety costs increase with population, the 860 people in Roads End would justifyabout 1.33 full-time equivalents (FTE) police officers (1.5 officers/1,000 pop x 860/1,000). The salary of a sworn police officer plus 40% overhead is $70,500. Assuming the salary for a 1.33 FTE officer is splitbetween part-time officers and overtime pay, the total annual cost to the City for additional policepersonnel will be $93,860 (1.33 FTE x $70,500). A new fully equipped patrol car amortized over 4 yearsplus fuel, servicing, and maintenance averages $21,440 per year. 4

Streets

At 1.33 FTE, the cost to serve theRoads End area will be about $115,300 per year ($93,860 for personnel and $21,440 for patrol cars).

The Roads End area contains about 8 miles of roadways that require annual maintenance. The roadwaysare below the City’s standard and a majority are in poor condition. Over time they will need to beupgraded.

The City Public Works staff estimate the annual cost of repair and maintenance will be about $110,300.

Table 6 Miles of Roadways by Type & Condition

Condition (Miles)

Roadway Type Good Fair Poor Unfinished Totals

GravelMiles 0.00 0.00 2.72 0.00 2.72

% 0% 0% 100% 0% 33.6%Paved

Miles 1.68 0.54 3.01 0.15 5.38% 31% 10% 56% 3% 66.4%

Total RoadsMiles 1.68 0.54 5.73 0.15 8.10

% 21% 7% 71% 2% 100%

Source: City of Lincoln City, Public Works Department

2 Lincoln City (3.28), Seaside (3.09), which also has a large seasonal tourist trade, and the City of Hood River (2.02) have thehighest ratio of officers to population.

3 The National Bureau of Economic Research shows that Indian Casinos (and all other casinos) increase the crime rate of an area.The social and economic impact of native American casinos , William N. Evans and Julie H. Topoleski, 2002, working paper9198.

4 The purchase price plus equipment is about $23,320 amortized over 4 years at 4.25% is $6,440 plus 30,000 miles per year at$0.50 per mile is $15,000.




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Library

The City owns the library in Lincoln City and pays all of its ownership and operating costs. LincolnCounty has a library district with a tax base of $0.2485/$1,000 AV, plus a local-option tax rate of $0.09/$1,000 AV. The District is composed of all of the unincorporated areas of Lincoln County plus theincorporated cities of Waldport, Siletz, and Depoe Bay. Those in the District are taxed at the combined

rate of $0.3385/$1,000 AV and the tax produces about $1,142,300 (FY 2009-10).

The District allocates about 70% of these tax revenues to the five libraries in the County, includingDriftwood Library in Lincoln City. Allocation of the tax revenues to libraries is based 35% on therelative operating expenditures of each library and 65% on the relative circulation of library materials toDistrict residents. The District codes each library card to determine who lives in the District.

Lincoln City expects to receive $226,910 from the District in FY 2009-10. Annexing Roads End willreduce both the tax revenues it receives and the transfer payments to the libraries. The District’spopulation is 21,710, according to the PSU Population Research Center, and the Roads End annexationwill reduce the District’s population by 860, or about 4%. If this percentage also represents the relativedrop in assessed value, then the District will experience a 4% reduction in total tax revenues. Since the

allocation of revenues is 65% dependent on the circulation of library materials to District residents, theannexation of Roads End will likely result in a larger than 4% reduction in revenues from the District.EFA cannot estimate with any confidence how much the revenue from the District will decrease. We usean estimate of 10% in this analysis—a loss in revenue of approximately $22,700.

Table 7 Lincoln County Population by City

City/Unincorporated Area(shaded areas are in Library District) 2009 Population %

Yachats 815 2%Siletz 1,190 3%

Depoe Bay 1,420 3%Waldport 2,145 5%Toledo 3,645 8%Lincoln City 7,930 18%Newport 10,600 24%Unincorporated 16,955 38%

Total Lincoln County Population* 44,700 100%

Current Library District Population^ 21,710Less Roads End Population 860 4%

Net Library District Pop. After Roads End Annex 22,570

Source: Portland State University, Population Research Center, July 1, 2009

General Government Services

General government services are composed of City planning, building inspection, administration, Cityattorney, finance, non-departmental, and information technology. Annexation increases demands forthese governmental services, but since the services are largely provided without fees, the cost per unit of service is not readily available. We use estimating techniques to arrive at a reasonable cost per service.




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Table 8 shows the budget for each of the services and an estimate of the percent and amount of the budgetattributable to general government services. The Planning and Building departments collect revenues fromapplicants, though the fees only cover a portion of the total annual cost of these departments. The averagenet Planning and Building subsidies are included in Table 8 for these departments. Table 9 shows a 4-yearhistory of expenses and revenues and the net paid from the General Fund.

For Administration, Finance, Non-Departmental, and Information Technology, about 25% of the totalbudget is paid from the General Funds of the City rather than from funds such as sewer, water, SDCfunds, and transportation funds. About 35% of the City attorney’s costs are paid from general revenues of the City. All of these departments respond to the general demands of citizens that are not specificallyaccounted for through fees. The main sources of revenue to pay the net costs are the City’s revenues fromits permanent tax rate and from some state-shared revenues.

City staff estimate they spend about 10% of their time responding to issues in unincorporated areas.Since the unincorporated areas are in part serviced by the City already, we deduct this estimated amountfrom the total costs that are not allocated to other funds. The net amount not allocated and net of unincorporated areas is $823,369. The current population imposes these costs on the City at the rate of $104 per capita per year. This average, however, probably does not apply to the next increment of population that enters the City. In essence the City’s costs do not increase proportionate to populationgrowth. The City benefits from some economies of scale as it grows. We estimate this to be 50%. Thenext population increment will increase the City’s costs per capita only 50% of the current cost per capita,or $52 per capita. Roads End has a population of 860, which will impose a cost of general governmentalservices of $44,720 per year.

Table 8 General Government Services Cost per Capita

Not Allocated to Other FundsGeneral Government Department City Budget % $

Costs

Planning $298,405Building 134,495Administration $484,652 25% 121,163Finance 617,677 25% 154,419Attorney 146,758 35% 51,365Non-Departmental 286,461 25% 71,615Information Technology 333,566 25% 83,392

Total Costs $1,869,114 $914,854

AdjustmentsCost of Services to Unincorporated Areas 10% (91,485)

Net Cost $823,369

Net Cost Per CapitaCurrent Population 7,930Cost per Capita/year $104Economy of Scale 50% (52)

Net Average Cost Per Capita/year $52




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Table 9 Calculation of Net Development Costs & Revenues

Not Allocated to Other FundsGeneral Government Department City Budget % $

CostsPlanning $298,405

Building 134,495Administration $484,652 25% 121,163Finance 617,677 25% 154,419Attorney 146,758 35% 51,365Non-Departmental 286,461 25% 71,615Information Technology 333,566 25% 83,392

Total Costs $1,869,114 $914,854

AdjustmentsCost of Services to Unincorporated Areas 10% (91,485)

Net Cost $823,369

Net Cost Per Capita

Current Population 7,930Cost per Capita/year $104Less Economy of Scale 50% (52)

Net Average Cost Per Capita/year $52

B U S I N E S S - T Y P E A C T I V I T I E S

The City’s sewer and water utilities are its Business-Type Activities. These utilities, each represented bymultiple funds, are expected to produce enough revenue from sales of sewer and water services to cover

their total annual costs.

Sewer

The City provides sewer service to 691 Roads End area customers. The City collected $2,589,506 insewer rate revenues in 2008-09, of which 14% ($363,967) came from Roads End customers, whocurrently pay an outside-city sewer rate that is double the in-city rate. On annexation Roads End sewerrates will decrease by 50%, resulting in a revenue loss of approximately $181,983 from these customers(Table 10).

This loss of revenue is largely off-set, however, by the additional property taxes Roads End customerswill begin paying on an outstanding sewer general obligation bond. In fiscal year 2008-09 the City paid

62% of the debt service on this bond by assessing a property tax of $0.70/$1,000 AV, and 38% fromsewer rate revenues. After annexation Roads End property owners will also pay the sewer bond tax,which will increase the City’s property tax revenues $159,816 . The increase in property tax revenues andthe decrease in sewer rate revenues results in a net loss to the sewer utility of $22,167 (Table 11).




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Table 10 Sewer Rate Revenues

2008-09 After Annex Loss to City

Sewer Base 290,091 145,046 (145,045) Sewer Volume 73,876 36,938 (36,938)

Totals $363,967 $181,984 ($181,983)

Source: City of Lincoln City, Finance Department

Table 11 Sewer Utility Net Result

2008-09 After Annex Net Gain (Loss)

Sewer Bond Tax 159,816 159,816Sewer Revenue 363,967 181,983 (181,983)

Totals $363,967 $341,799 ($22,167)

Water

The City provides water service to 714 Roads End customers. The City charges these non-residentproperties 212% of the in-city water rate. Data available on water rates and charges shows the Citycollected about $346,347 in rate revenues from outside-city customers over a 12-month period .

Annexation will result in Roads End water revenues decreasing to about $163,371—a loss to the City’swater utility of about $182,976, or approximately 6.5% of the $2,824,968 revenues the City collected inFY 2008-09. No tax effects will offset this loss. To make up the difference, the City would have toincrease water rates about 6.5%.

Table 12 Water Rate Revenues

2008-09 After Annex Loss to City

Water Base 281,538 132,801 (148,737) Water Consumption 64,808 30,570 (34,238)

Total $346,347 $163,371 ($182,976)

Source: City of Lincoln City, Finance Department

N E T F I N A N C I A L E F F E C T S O F A N N E X I N G R O A D S E N DNet Effects on Lincoln City

Table 13 is a summary of the fiscal effects of annexing the Roads End area. After annexation, the Citywill net approximately $606,849 after paying all direct expenses for the newly annexed area. Notice thatthe loss of sewer rate revenues is offset by the additional property taxes collected to pay debt service onthe sewer GO bonds.




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Table 13 Summary of Net Effects of Annexation on City & Roads End Area Residents

Revenues/Costs Increase (Decrease)

RevenuesProperty Taxes

Permanent Tax Rate $936,000Sewer GO Bond 159,816Open Space GO Bond -

Transient Room Tax 81,375State-Shared Revenues 57,564Franchise Fees 30,000Water Rate Revenues (182,976)Sewer Rate Revenues (181,983)

Net Effect on Revenues $899,796

CostsPolice (115,300)Streets (110,300)

Library (22,700) General Government (44,647) Net Effect on Costs ($292,947)

Total Net Effect $606,849

Net Effects on Average Roads End Property

Table 14 shows the net financial effects after annexation on the average valued property in Roads Endthat is currently connected to the City’s sewer and water systems. These net effects consider onlyproperty taxes and utility bills. However, other economic benefits that were not considered in this

report—such as more frequent police patrols and a more responsive government to urban land use anddevelopment issues—should be given consideration in the annexation decision.

TaxesThe property taxes are shown in the top half of Table 14, and are based on a property assessed value of $249,000. The City’s permanent tax, sewer GO bond tax, and open space tax rates will apply to theannexed properties. The Library District taxes will cease to be assessed. The net of new anddiscontinued taxes is $4.686/$1,000 AV on the annexed properties. The net additional annual taxes willadd $1,167 to the average Roads End property tax.

The County charges a 9% transient room tax for vacation rentals and the City charges 9.5%. Thoseproperty owners who have vacation rentals will pay an additional 0.5% tax on their rent receipts. TheTRT tax is not included in Table 14 since most properties in Roads End do not pay this tax.

Utility BillsThe second half of Table 14 shows the annual effect of lower sewer and water rates. Outside-city sewerand water rates are approximately double the in-city rates. Assuming the average property uses 500 cubicfeet of water per month, the average combined sewer and water bills will be reduced by $476 per year.




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Six hundred ninety-one Roads End customers purchase both water and sewer services from the City. Only23 customers purchase water only and use septic tanks for sewage disposal.

Table 14 Net Effect on Average Roads End Property Taxes & Utility Bills

Taxes

Taxes †

Tax Rate(per $1,000

AV) Before

AnnexationAfter

AnnexationNet Annual

ChangeLincoln City Permanent Tax $4.100 - $1,021 $1,021Sewer GO Bond Tax $0.700 - 174 174Open Space GO Bond Tax $0.225 - 56 56Library District Permanent Tax $0.249 62 - (62)Library District Local Option Tax $0.090 22 - (22)

Total Property Taxes/year $84 $1,251 $1,167

Utility Bills ‡ Utility BillsSewer Charges (see below)^ 485 248 (237)Water Charges 452 213 (239)

Total Utility Bills/year $937 $461 ($476)

Net Annual Change in Taxes & Utility Bills (Transient Room Tax not included) $691

†Average Assessed Value $249,000‡Average Monthly Usage (in cubic feet) 500

Documents

Fiscal Impact of Annexing Roads End