HomeMy WebLinkAbout03142011 City Council Work Session Notes - Library/Museum Alternative FundingI
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CITY OF SEWARD �UY ��- 6!6q
STAFF RESEARCH ON TOBACCO AND ALCOHOL TAXES IN ALASKA
City Council Worksession 3/14/11
TOBACCO
(a) Rate converted from mill to dollars; example: 110.3 mills equals 11.3 cents per cigarette; 50 mills = 5 cents per cigarette
(b) Applied to wholesale or retail price of taxable non -cigarette tobacco products
(c) Data from entity's Code of Ordinances is inconsistent with Alaska Taxable data (sometimes due to CPI adjustment)
(g) Grandfathered tax, which allows for variable general sales tax rate on alcohol as single item
(R) Tax on retail sale
(W) Tax on wholesale sale
Source: State of Alaska, "Alaska Taxable 2009", January 2010
Recommendation:
Sales tax rather than excise tax.
Sales tax on the wholesale buyer rather than at the retail level.
- Fewer taxpayers, less paperwork, better enforcement, dealing with businesses which are solely in the business of distribution.
Estimatedrevenues unknown, due to lack of available, credible data.
However, based on unsubstantiated information:
Potential revenues from 10% tax on -alcohol = $2.8M x.10 = $280,000
Potentia[ revenues from 10% tax on tobacco = $2.OM x.10 = $150,000
Cigarette
Cigarette
Non-
ALCOHOL
Tax per
Tax per
Cigarette Excise
2009
Tax Excise or
2009
cigarette
pack
Tax Rate or
Collections
Rate Sales tax
Collections
Entity
(a)
(b) Sales Tax
Population
Municipality of Anchorage (c)
$ 0.1103
45% Excise (W)
$
16,524,753
284994
City of Barrow
$ 1.00
12% Sales (R)
$
134,795
3%
$
179,281
4054
City of Craig (c)
5% Sales (R)
$
103,666
1117
City of Dillingham
10% Sales (R)
$
218,711
2347
City of Fairbanks
8% Excise (W)
$
620,617
5% Sales (R)
$
1,571,876
30367
Fairbanks North Star Borough
8% Excise (W)
$
1,077,166
5% Sales (R)
$
1,384,230
89896
City & Borough of Juneau
$1.00
45% Excise (W)
$
525,000
3% Sales (R)
$
840,000 (g)
30427
City of Kotzebue
6%
$
36,166
3126
Mat-su Borough (c)
$ 0.0529
45% Excise
$
4,600,675
82515
St. Marys
3%
$
2,472
541
City & Borough of Sitka
$ 0.05
45% Excise (W)
$
469,762
8615
(a) Rate converted from mill to dollars; example: 110.3 mills equals 11.3 cents per cigarette; 50 mills = 5 cents per cigarette
(b) Applied to wholesale or retail price of taxable non -cigarette tobacco products
(c) Data from entity's Code of Ordinances is inconsistent with Alaska Taxable data (sometimes due to CPI adjustment)
(g) Grandfathered tax, which allows for variable general sales tax rate on alcohol as single item
(R) Tax on retail sale
(W) Tax on wholesale sale
Source: State of Alaska, "Alaska Taxable 2009", January 2010
Recommendation:
Sales tax rather than excise tax.
Sales tax on the wholesale buyer rather than at the retail level.
- Fewer taxpayers, less paperwork, better enforcement, dealing with businesses which are solely in the business of distribution.
Estimatedrevenues unknown, due to lack of available, credible data.
However, based on unsubstantiated information:
Potential revenues from 10% tax on -alcohol = $2.8M x.10 = $280,000
Potentia[ revenues from 10% tax on tobacco = $2.OM x.10 = $150,000
SEWARD CITY COUNCIL
LIBRARY/MUSEUM FUNDING DISCUSSION
ESTIMATED (BEST -CASE) TIMELINE:
Timeline for Alcohol and Tobacco Tax Option:
February: Research Alcohol and Tobacco tax options
Research various mechanisms for taxing alcohol and tobacco
Present potential options to City Council in work session
Once specific mechanism is determined, research estimated tax revenues
March 14 — Council work session to discuss potential taxation methods
March 21— Council selects specific tax mechanism
March 28 — advertise Ordinances to impose alcohol and tobacco tax
April 4 — Ordinances are introduced
April 18 — Ordinances are adopted
April 22 - -Staff submits application to Alaska Municipal Bond Bank
May 30 — Referendum period ends for new ordinances
July — Alaska Municipal Bond Bank Board takes action on bond application
September (or when cash flow is needed) Bonds are issued
January 1, 2012 — New tax takes effect (to give time for businesses to prepare, etc.)
Timeline f6r Variable Sales Tax Option:
March 14 — Council elects variable sales tax rate
March 28 — Staff submits application to Alaska Municipal Bond Bank (keep in mind that
as currently proposed, the variable sales tax falls short of covering operating costs of new
library/museum by $161,000 and weakens the City's application for financing)
April 28 — Referendum period ends for variable sales tax
July — Alaska Municipal Bond Bank Board takes action on bond application
September (or when cash flow is needed) Bonds are issued
January 1, 2012 — New sales tax rates take effect
Seward Library/Museum Funding Discussion Page 1
Important Considerations:
-. General Obligation bonds pledge the full faith and credit of the City, so if identified
revenue source is insufficient to cover costs, City must be willing to raise taxes to pay
bonds (or other take other measures necessary to make payment)
-. Bonds will be subject to the State's intercept provision which means that in the event
the City is unable to make bond payments, the State has the ability to intercept payments
coming to the City in the form of revenue sharing, raw fish tax, etc.
-. The City's application to the bond bank is weakened if-
We
fWe fail to identify funding source to pay both debt costs andoperating costs;
We submit an application without having firm commitments in place for all
remaining construction funding (failure to have $500K Murdock and $500K
fundraising commitments in -hand will adversely impact application). The City
would have to show how it intends to reduce the project scope or fund shortfall.
-. The Bond Bank would like to package our deal with another City's funding request
due to the size of our proposed bond issue (economies of scale)
-. Tobacco alone, is not a strong pledge due to concerns about the elasticity of demand.
However, because the City's bond issue is a general obligation of the City, the Bond
Bank is protected by the pledge of the City against its taxation ability.
Council Questions/Answers:
-. It is possible for the City to issue bonds for a shorter period (say 7 years). This would
reduce interest cost to approximately 2% (down from the 4.5% estimated for a 25 -year
GO bond). Annual payments would be $575,000; total interest costs over 7 years is
$290,000. This is compared to the total interest costs of $2,53000 for the 25 -year bond
option.
-. We can issue callable bonds to have the flexibility of paying bonds off earlier, but the
added costs of doing so are up to 100 basis points (1 %), so rather than 4.5% bonds, the
interest rate would be approximately 5.5%. The added cost of this flexibility is
approximately $26,000 per year, with an overall additional interest cost over the life of
the bond, of $658,000.
-. As of 12/31/10 the Motor Pool has a cash balance of $675,000. Existing outstanding
capital leases of the motor pool include: $309,888 (fire truck), $287,488 (loaders);
$9,507 (fire air packs), for a total outstanding debt of $606,883. You may recall that we
reduced contributions to the motor pool by half in 2010 and 2011.
-. As of 3/31/10 the General Fund has a cash balance of $6,777,490; estimated
undesignated fund balance is $3,313,422. Undesignated Fund Balance Policy requires 3-
6 mos' reserves equal to between $2,128,957 and $4,257,912.
Seward Library/Museum Funding Discussion Page 2
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Additional Questions Currently Beim Examined:
1. What is the impact on the Kenai Peninsula Borough, of a variable tax on.
tobacco/alcoh6l by the City? The Borough is not able to collect the variable tax
on tobacco/alcohol on behalf of the City due to a number of factors, including
software which is not able to handle variable tax on specific items; the'impact of
budget cuts on staffing; etc.
2. What is the impact on the Kenai Peninsula Borough, of a seasonal sales tax?
-. The Borough's software is not capable of handling a seasonal tax rate without
significant challenges.
-. Seasonal sales tax in Se'ldovia is problematic for KPB.
-. KPB is unsure whether they have the capability of implementing a variable tax
rate; they may be able to establish variable TCA codes for Seward for
each different tax rate. Likelihood of success is unknown.
-. Very challenging for local businesses; up to six different tax rates per year•,
possibly two different TCA codes during the year; poses problem for
businesses due to the timing of the sale (when the tax rate may be lower)
versus the timing of the service (when the tax rate is higher) (or vise
versa); costs of software modifications; accounting challenges for small
businesses.-
3.-
usinesses.3. Is the Borough required to collect this tax on behalf of a City within the borough?
The Borough is required to collect sales tax on behalf of the City, but when the
Borough is not capable of collecting tax on the City's behalf, the issue becomes a
challenge for both entities to resolve.
4. How much lead time is required by the KPB to'implement a change in tax
structure? The Borough will require a minimum of six months' notice to
implement. The City can expect to be billed for the Borough's time and expense
associated `with modifying software, training businesses, revising forms, etc.
5'. What are the constraints on the City's ability to collect an alcohol/tobacco tax?
The Borough will not collect this tax for the City. This will place additional
burden on the staff and.will likely involve implementation of software. The
extent of burden will depend on whether the tax is on the wholesaler or retailer,
the extent of audit requirements, etc.
6. What are the various forms of alcohol tax and tobacco tax currently used mi
Alaska? {See attached sheet provided to the City Council}
7. What is the potential impact on tobacco/alcohol sales that can be expected from:
imposition of a tax? (this is important in assessing the level of estimated revenues
to be collected) 'The taxation levels in Anchorage are quite high'. The impact on
demand for tobacco and alcohol will depend on the extent of the tax.
Notes:
Keep in mind that this schedule presents the best -case scenario for timing of a bond issue.
If the Bond Bankrequests additional information or additional funding guarantees, there
will be additional time needed to receive funding, approval, which will push out the
timelines.
Seward Library/Museum Funding Discussion Page.3
c?.. , . k .�......uSOLMFPOJEi 51IN1AGE �N
CONSTRUCTION COST ESTIMATE'
Original
Revised
Proposed
$
4,700,000
CITY BOND
MAXIMUM ALLOWABLE CONSTRUCTION COST (MACC)
$
9,801,761
$ 7,200,000
$ 7,300,000
$
7,200,000
DESIGN FEES AND CONSTRUCTION'PHASE SERVICES
35% DESIGN (14%)
65% DESIGN (21 %)
95°/x/100% DESIGN (38%)
BIDDING (2%)
CONSTRUCTION (24%)
FINAL (1%)
14% .
21%
38%
2%
24%
1%
12%
120,960
181,440
328,320
17,280
207,360.
8,640
864,000
$ 864,000
$
$
$
$
$.
147,000
292,728
365,992
41,000
288,000
ADDITIONAL SERVICES
$ 377,519
Plug # (5% of Construction Cost)
$ 41,000
in above
Would need to be confirmed
in above
$
864,000
$ 50,000
PROFESSIONAL SERVICES
$ 9,000
$ 30,000
Confirm this is accurate (Tank)
PROJECT MANAGEMENT
PLAN REVIEW / PERMITS / SPECIAL INSPECTION
GEOTECH
$ 23,000
4%
288,000
50,000
40,000
.$ 288,000
$ 50,000
$ 20,000
$
$
$
288,000
50,000
9,000
OTHER PROJECT COSTS
$ 500,000
$- 40,000
SITE ACQUISITON
$'- 20,000'
$ 823,728
$ 8,780,904']';..
SITE PREPARATION (DEMOLITION)
CMGCDESIGN PHASE SERVICES
REIMBURSABLE EXPENSES
FURNITURE, FIXTURES, & EQUIPMENT (FF&E)
EXHIBITS (DESIGN AND CONSTRUCTION)
300 KVA TRANSFORMER
RELOCATION'COSTS
O:`wner.;Cont Reduces to 5%
50,000
45,000
220,000
500,000
-
$ 50,000
,$ 20,000
$ 200,000
$ 250,000
$
$
$
$
$
$
$
30,000
39,000
20,000
200,000
500,000
40,000
.20,000
SUBTOTAL
9,257,000'
9,042,000.:
9,530,720
PROJECT CONTINGENCY
8%
740,560
$ 730,000-
' $
58
TOTAL PROJECT COST ESTIMATE:
$ 9,997,560
$ 9;772,000
10,293,178
Total bond costs
BUILDING COMMITTEE
$•
200,0(12
STATE GRANT
$
4,700,000
CITY BOND
$
3,700,000
RASMUSSEN GRANT
$
500,000
NEH GRANT$
MURDOCKGRANT -n(*aV 6"V-&W`Q
$
500,000
400,000
ADDITIONAL FUND RAISING
$
500;000
4L PROJECT
$
10,500.000'
uono issue zii TUU
bond reserve •$ 235,000
cap i $ 156,632
k. $ 431,632
Date
Forecast
Currently Available
In hand
$200,000
$200,000
In hand
$4,700,000
$4,700,000
9/1/2011
$3;726,192
Contractors E&O Ins.
awarded
awarded
$500,000
Added Risk Contingency 4%
8/1/2012
$500;000
8/1/2012
$50011000-
$10,726,192 '$4,900,000
rumpSS£esnB
oil tlIA • xlt�
Committed.
Forecast
Comments
$ 7,200,000
$ 45,465
Contractors E&O Ins.
$ 304,919
Added Risk Contingency 4%
$ 147,000
$ 292,728
$ 377,519
Plug # (5% of Construction Cost)
$ 41,000
in above
Would need to be confirmed
in above
$ 288,000
$ 50,000
$ 9,000
$ 30,000
Confirm this is accurate (Tank)
$ 16,000
$ 23,000
$ 20,000
'
$. 200,000
$ 500,000
$- 40,000
.'
$'- 20,000'
$ 823,728
$ 8,780,904']';..
$ 439;045
O:`wner.;Cont Reduces to 5%
Projected Savings D/B Approach
$ 10,043,677.
"$. 249,501
1/20/2011
Library/Museum Project -Funding Alter
nativ
Updated: 3/11/11Y �;� -`duff
car >N
(1) Annual Additional Operating Costs $ 260,828 N
(2) Annual Additional Debt Service Costs *
Debt Costs Ol
Estimated annual revenue from new tax
0.78
Bonding Level. $1.5 million
0.62
$1.5M; 5 years, 2%
$ 334,985 $
$1.5M; 10 years, 3.15%
$ 190,910
$1.5M; 20 years, 4.57%
$ 128,644 $
$1.5M; 25 years, 4.75%
$ 115,763 $
Bonding Level. $2.5 million
2,080,000
$2.5M; 5 years, 2%
$ 553,450 $
$2.5M; 10 years, 3.15%
$ 314,564 $
$2.5M; 20 years, 4.57%
$ 212,442 $
$2.5M; 25 years, 4.75%
$ 190,906 $
Bonding Level:. $3.5 million
7.81.1.
$3.5M; 5 years, 2%
$ 771,371 $
�- $3.5M; 10 years, 3.15%
$ 438,940 $
$3.5M; 20 years, 4.57%
$ 293,867 $
$3.5M; 25 years, 4.75%
$ 265,981 $
<ry: Revenue source sufficient to cover annual debt only
Revenue source sufficient to cover debt & operating costs
Total Seasonal Tax 10% Alcohol Sales Tax Property Tax Bed Tax
Prin+ Int Apr-Sept+l% & Tobacco (current 7% (current 3.12 mills (current 4%
Costs I Total Costs lCosts (Life) Oct -Mar -1 % Tax plus below) plus below) plus below)
260,828 $ 595,813
260,828 $ 451,738
260,828 $ 389,472
260,828 $ 376,591
260,828 $ 814,278
260,828 $ 575,392
260,828 $ 473,270
260,828 $ 451,734
260,828 $ 1,032,199
260,828 $ 699,768
260,828 $ 554,695
260,828 $ 526,809
$ 348,000 $ 430,000
I% Seasonal 0.5% Seasonal Project cuts Project cuts
Sales Tax Sales Tax needed if full needed if only
April -Sept April -Sept $7M raised $6M raised
$ 624,000 $ 312,000
0.66
:,. ,
0.50 1.51 6.36
1 . , - 0.43 1.30 5.49
0.42 1.26 5.30
6 0.90
0.64
k
' 0.53
0.50
kssumptions:
Proposed project costs (excluding capital financing costs) $10;293,178 (see RISE Alaska 1/20/11 data sheet)
Maximum construction cost $7,200,000
Economic climate does not result in increased material costs
Interest rates are consistent with AK Muni Bond Bank recent issues (5 yr 2%; 10 yr 3.15%; 20 yr 4.57%; 25 yr 4.75%)
"Bonding Level" reflects costs available for project; debt service includes bond issuance costs in excess of costs available for project.
Estimated Annual Revenue from various sources:
New alcohol/tobacco tax (10%) - guesstimate $ 430,000
Seasonal sales tax +1% Apr -Sep; -1% Oct -M $ 348,000
Property tax - I mill $ 300,000
Sales tax - I% year -around $ 900,000
Bed tax - I% - year -around $ 71,000
Seasonal sales tax -I% April - Sept (est) $ 624,000
Seasonal sales tax - 0.5% April -Sept (est) $ 312,000
1,882,000
2,882,000.
s
0.78
1,974,000
0.62
1,983,000
2,983,000
1.58
0.59
kssumptions:
Proposed project costs (excluding capital financing costs) $10;293,178 (see RISE Alaska 1/20/11 data sheet)
Maximum construction cost $7,200,000
Economic climate does not result in increased material costs
Interest rates are consistent with AK Muni Bond Bank recent issues (5 yr 2%; 10 yr 3.15%; 20 yr 4.57%; 25 yr 4.75%)
"Bonding Level" reflects costs available for project; debt service includes bond issuance costs in excess of costs available for project.
Estimated Annual Revenue from various sources:
New alcohol/tobacco tax (10%) - guesstimate $ 430,000
Seasonal sales tax +1% Apr -Sep; -1% Oct -M $ 348,000
Property tax - I mill $ 300,000
Sales tax - I% year -around $ 900,000
Bed tax - I% - year -around $ 71,000
Seasonal sales tax -I% April - Sept (est) $ 624,000
Seasonal sales tax - 0.5% April -Sept (est) $ 312,000
1,882,000
2,882,000.
1,924,000
2,924,000
1,974,000
2,974,000
1,983,000
2,983,000
2.71
..............
11.47
918,410
1,918,410
1.92
8.10
940,602
1,940,602
1.58
6.67 y'
1,069,000
2,069,000
1.51
6.36
1,080,000
2,080,000
3.44
14.5(47,822)
952,178
2.33
9.8,
43,178
1,043,178
1.85
7.81.1.
133,178
1,133,178
t.76
7.42
176,178
1,176,178
A
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Seward Community Library Museum
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northeast view
81
Seward Community Library Museum
12.10.10
east view
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Seward Community Library Museum
12.10.10
southeast view
350,000
300,000
250,000
200,000
m 150,000
w 100,000
50,000
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Energy Usage Index
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Total Project Costs
$1043178 Budget per Kent C
$ 346,000 Bond Issue Costs per Kris E
$10389178
Total Project Budget
Construction Cost Estimate
Maximum Allowable Construction Cost (MACC)
$7200000
Design Fees & Construction Phase Services
Design Fees
$805,720
Construction
$220,000
Professional Services
Project Management
$288,000
Plan Review / Permits / Special Inspection
$50,000
GeoTech
$9,000
Other Project Costs
Site Preparation (Demolition)
$30,000
CMC Design Phase Services
$39,000
Reimbursable Expenses
$20,000
Furniture, Fixtures & Equipment
$200,000
Exhibits (Design & Construction)
$250000
300 KVA Transformer
$40,000
Relocation Costs
$20,000
Project Contingency
$871458
Total Construction Costs — Per Kent Crandall / RISE Alaska
$10043178
$ondFIssue Costs Kns clwn "er / ii Of Seward
V.40,000
Total Project Budget
$10389178
Total Funds Raised
$4,700,000 State
$3,730,000 Bonding
$1,000,000 Rasmuson & NEH Awards
$ 146,000 Outstanding Pledges
$ 191,000 Building Committee
$9,767,000
The Gap
$10389178 Project Budget
$ 9,767,000 Funds Raised
$ 622,178 Variance / Gap
The estimates below were presented to Council at the June 2010 work session.
Annual Operating Costs
2013 Projected Library/Museum costs per
Business Plan
$505217
Plus additional personnel costs underestimated
$63924
Plus utilities, heating, janitorial cost
$90750
Plus maintenance and repair
0
Total
$659891
2010 Library Budget
-$399363
Estimated additional annual operating costs
$260828