1. Impact Fee Analysis: Maintaining the Public’s Trust

2.  Continuation of a Process that is related to all other financial issues  Unfortunate Situation during a Hectic time  Lack of Structure, Accountability, Experience, and Trust  Long Lasting Implications  Interfund Loans  New Impact Fee Law 2 CFO Perspective

3.  Impact Fee Fund Deficits and No Interfund Loans Recorded  Fire Impact Fee Fund Deficit = $4+M  Transfers instead of Loans  FY 2010 Budget showed a $4M+ Transfer Out from the Library Impact Fee Fund  “Paid Cash for City Hall”  Limited Discussions of Financing Decisions with City Council 3 Warning Signs

4. Scope of Work  Verify accuracy and consistency with current Impact Fee study  Project Funding (Growth vs. Non-Growth)  Accuracy of project costs, scope, etc.  Verify Accounting and Budget Practices  Use of “Home Fund”  Transfers between funds 4 Consultant Analysis

5. Outcomes  Preserve Integrity of Impact Fee Program  Accurately report the City’s Financial Condition  Document the Priorities and Strategies of the Current City Council 5 Consultant Analysis

6. Project Evaluation Steps Summarized Historical Activity Evaluated 2006 Study Approach Was project included in study? What approach was used? Growth-related /’ non-growth portion Where / How was it funded? Development Fee Funds General Fund / Operations MPC Compare Calculated Allocation to Historical Funding 6

7. Examples  City Hall  Public Safety Headquarters  2003 MPC Debt Service Allocation 7 Consultant Analysis

8. Flow of Funds-Development Activity 11 Impact Fees (Growth Projects) 8 Police General CIP Fund Non-Growth Projects General CIP Fund Non-Growth Projects Fire Public Works Public Works Wastewater General Gov’t Library Parks Rec Water Production Water Resource Water Resource Reclaimed Water Roads General Fund One-Time Revenues: Permits, One-Time Revenues: Permits,Construction Sales Tax, etc. General Fund One-Time Revenues: Permits, One-Time Revenues: Permits,Construction Sales Tax, etc. Portion of One-Time Revenues

9. $61M City Hall-Should Have Been General Government Impact Fee Fund City Hall: -$35M General Government Impact Fee Fund City Hall: -$35M City Hall’s growth costs (future needs) of $35M, or 57% 9 General CIP Fund City Hall: -$26M General CIP Fund City Hall: -$26M City Hall’s non-growth costs (existing needs) of $26M, or 43%

10. $61M City Hall-Actually Recorded General Government Impact Fee Fund City Hall: $0M General Government Impact Fee Fund City Hall: $0M 10 General CIP Fund City Hall Costs: Non-Growth -$26M Growth -$35M Total -$61M General CIP Fund City Hall Costs: Non-Growth -$26M Growth -$35M Total -$61M Because incorrectly recorded in General CIP Fund, the fact there were insufficient funds in the General Government Impact Fee Fund as masked.

11. $61M City Hall-Proposed Action General Government Impact Fee Fund City Hall: $0M General Government Impact Fee Fund City Hall: $0M 11 General CIP Fund City Hall Costs: Non-Growth -$26M Growth -$35M Total -$61M General CIP Fund City Hall Costs: Non-Growth -$26M Growth -$35M Total -$61M Interfund Loan

12. $61M City Hall-Proposed Action General Government Impact Fee Fund Growth -$35M Loan From $35M General Government Impact Fee Fund Growth -$35M Loan From $35M 12 General CIP Fund City Hall Costs: Non-Growth -$26M Growth -$35M Loan To $35M General CIP Fund City Hall Costs: Non-Growth -$26M Growth -$35M Loan To $35M

13. $61M City Hall-Proposed Action General Government Impact Fee Fund Growth -$35M Loan From $35M General Government Impact Fee Fund Growth -$35M Loan From $35M 13 General CIP Fund City Hall Costs: Non-Growth -$26M Loan Repayment +$35M *** OPPORTUNITY *** General CIP Fund City Hall Costs: Non-Growth -$26M Loan Repayment +$35M *** OPPORTUNITY *** Repayment of Loan

14. Example – Public Safety Building Fee Area Square Feet PercentComponents Fire16,50017.2%Fire Admin / Training Center Police46,00047.9%Police Admin / Shooting Range / Training Center Gen. Gov.33,50034.9%Court / Prosecution / Broadcast Center Total96,000100.% 14

15. Example – Public Safety Building Service UnitsPercent Allocation Fee AreaUnitsExistingFutureTotalGrowthNon-Growth Fire Res. / Emp. Pop 133,065174,778307,84356.8%43.2% PoliceTrip Ends260,888202,264463,15243.7%56.3% Gen. Gov Res. / Emp. Pop 133,065174,778307,84356.8%43.2% 15

16. Example – Public Safety HQ Fee Area Net Funded – $ M (1) Growth % Growth - $ M Within Fund (2) Due (to) / from Fund Fire$2.5656.8%$1.45$0($1.45)Gen. Capital Police$7.1343.7%$3.11$0($3.11)Gen. Capital Gen. Gov$5.1956.8%$2.95$0($2.95)Gen. Capital Subtotal$14.87$7.51($7.51) Funded in single fund with multiple funding sources (1)Total expenditures all sources less any MPC debt funding which is addressed through debt service repayment. (2)Amounts funded within the separate development fee funds. 16

17. Results– 2003 MPC Debt Service Fee AreaActual 07 - 10Corrected 07 - 10Difference Fire$ 794,800$ 485,571($ 309,229) Police1,896,109982,217(913,892) Parks & Rec7,639,4223,174,741(4,464,681) Gen Gov02,664,877 Sewer Sys. SPA 16,932,7185,828,627(1,104,091) Gen. Fund (1)2,004,6026,131,6184,127,016 Total$ 19,260,650 $ 0 (1)Remaining debt service not related to growth-related development fee projects are allocated to the general fund. 17

18. Interfund Loans: Opportunities and Challenges 18 FundAdvances FromAdvances ToNet Impact 1. General $2.7M-$6.8M-$4.1M 2. General CIP $45.1-$7.1$38 3. Fire and EMS $0.3-$4.3-4.0 4. Police $3.4 5. Parks and Rec $4.5-$4.7-$0.2 6. General Gov -$38.7 7. Public Works $4.6 8. Water Replen. $2.0-$0.1$1.9 9. Water System $1.5 10. Water Ops -$1.6 11. Sewer System $1.1-$9.5-$8.4 12. Sewer Ops $7.6 $72.8M-$72.8M$0

19. $38M net Due From Other Funds  Owes Police SDF fund $2.5 million and Public Works SDF fund $4.6 million because growth portion of facility was overstated  General Govt. SDF fund owes General Capital $36.0 million due to charging growth portion of City Hall and other facilities to this fund  Parks & Rec. SDF fund owes $4.7 million due to transfers exceeding non-growth portion of various projects charged to Gen. Capital  Fire/EMS SDF fund owes $4.3 million due to funds transferred from General Capital to cover deficit. 19 Summary: General Capital Fund

20. 1.No Money is Missing 2.Impact Fees were Used to Construct Growth Related Projects 3.Timing of funding-not usage causing $73 million disconnect! 4.Growth projects budgeted vs. spent Consultant Report Findings 20

21. Consultant Report Findings 5.JE’s lacked supporting documentation, explanation of intent, and approvals 6.Significant number of correcting journal entries 7.Three MPC Bond Issues were all recorded in the same fund 1. $3.4 M Deficit in 2000 MPC Bond Const. Fund 2. $4.0 M Excess in 2007 MPC Bond Const. Fund 21

22. 8.Bond Reserve requirements were not met 9.Restatement of $971K on financials 10. $3.9M bond issuance to cover a shortfall in pooled operating cash 22 Consultant Report Findings

23. Consultant Recommendations 1. Record $73M of Interfund Loans and other correcting entries 2. Journal entries should always be approved by appropriate staff and contain good supporting documentation including explanation of intent and outcome (e.g. transfers and loans) 23

24. Consultant Recommendations 3. The City should transfer funds into the 2007 Bond Reserve account to bring the balance up to the required $5M 4. Update the Impact Fee Study and fee calculations 24

25. 1. Who was responsible?  ALL involved could have done a better job 2. What does this mean to the City? 1.Growth pays for growth 2.General Fund’s Fund Balance $4.1M Reduction 3.$1M+ Increase in Debt Payments in General Fund 4.Bond Rating? 5.CIP: Opportunities and Challenges Questions 25

26.  How did SB 1525 effect Surprise?  After January 1, 2012, cannot charge or collect fees for specific projects defined in new statute  Limitation on fees collected and pledged for repayment of debt service for projects not allowed under the new legislation  Debt must be issued before June 1, 2011  Surprise “pledged” impact fees for interfund loan 26 New Development Fee Legislation

27.  How did SB 1525 effect Surprise?  Dev. Fee schedules will need to be revised  Funds collected up to Jan.1, 2012 must be spent in same fee category by January 1, 2020  Surprise will be impacted by this portion of the law---i.e. City Hall 27 New Development Fee Legislation

28.  Major Policy Change regarding Funding and Financing Infrastructure  More Narrowly Defines “Necessary Public Services”  Unclear, Unproven Language  Cities are Impacted Differently  Difficult for cities to issue new debt with impact fees as repayment pledge  Specific project types are not allowed to be paid by impact fees starting January 1, 2012 28 Major Changes in SB 1525

29.  Fees under new statute must be adopted by August 1, 2014  New requirements for Infrastructure Improvement Plan (IIP)  Includes existing infrastructure and available capacity  Identify service areas for “necessary public services”  Includes “land use assumptions”  Must be prepared by “qualified professionals”  Must be updated every 5 years 29 Major Changes in SB 1525

30.  New timelines for adoptions  Advisory committee vs. biennial audits  Additional reporting requirements  Required to demonstrate need to service new growth by “service unit” and “service area” requirements  Forecast growth related revenues to offset costs of new infrastructure/facilities 30 Major Changes in SB 1525

31.  New growth projects allowed  Must have a 3 or more year life expectancy  Must be owned or operated on behalf of municipality  Financing costs are allowed for growth related projects 31 Major Changes in SB 1525

32.  What is not allowed  General government facilities  Administrative, operating and maintenance costs  Limits projects for police, fire, parks and library  Increased level of service  Parks over 30 acres that do not show a direct benefit to new development 32 Major Changes in SB 1525

33.  Capacity can be reserved  Development fees MUST be assessed to all customer classifications and burden on new growth  Provides additional language for credits/reimbursements  Define time period for projects to be completed for new growth  Except for water & sewer, cannot exceed 10 years  Water and Sewer is 15 years 33 Major Changes in SB 1525

34.  On or after June 1, 2011 – No adoption or increase in TPT rate for construction or similar excise tax  Remains in place until July 31, 2010  On or after August 1, 2014 – Excess TPT above average TPT rate has to offset development fee calcs  Potentially could impact future development agreements 34 Major Changes in SB 1525

35.  Most important upcoming dates:  January 1, 2012  August 1, 2014  January 1, 2020 35 Summary of SB 1525

36. Comments and Questions 36