City Likely to gut COSADC to Fund Streets

 

City Councilman Don Vardeman took aim at the budget of the City of San Angelo Development Corporation (COSADC) Tuesday, targeting the budget as a possible source to fund the Council’s desire to rehabilitate the streets on a pay-as-you-go basis. COSADC proponents say that Vardeman’s proposal would gut future projects of the economic development arm of the city.

Just about every city in Texas has an economic development effort. The state of Texas allows municipalities like San Angelo to dedicate 0.5 percent of the sales tax towards economic development projects if the voters approve a ballot initiative authorizing it.

Sales tax collected just about everywhere in Texas is 8.25 percent. Of that, 6.25 percent goes to the state of Texas. In Tom Green County, 0.5 percent goes to the County government, and the remaining 1.5 percent is sent to the City. State law does not allow a sales tax rate that exceeds 8.25 percent.

From the City’s 1.5 percent share, San Angelo voters approved dedicating 0.5 percent of it to fund COSADC in 1999, leaving the remaining 1 percent in the general fund.

In the 2010 renewal of the half-cent sales tax initiative by voters, two ways to spend the money were approved. In brief, the funds can pay for what the City calls “ballot projects” like the improvements made to the Concho River banks near downtown recently, new buildings for the stock show and rodeo at the fairgrounds, and paying a portion of the debt service to the Hickory water project. The other approved expenditure can go towards recruiting new businesses to San Angelo, promoting the City’s tourism, and etc., in addition to the COSADC payroll and operations expenses as dictated in a contract with the City.

Vardeman’s proposal is to dedicate 0.125 percent of the 8.25 percent sales tax, taken out of COSADC’s half-cent sales tax entitlement, to fund streets for the next four years. The effect of this would redirect approximately half of COSADC’s discretionary funds, meaning funds not already spoken for by current ballot projects, towards street maintenance during the term.

Vardeman's idea will require a ballot initiative in November.

How this is calculated

Assistant City Manager and CFO Michael Dane explained to Council Tuesday that Vardeman’s proposal would reduce COSADC funding by approximately $650,000 to $800,000 based upon current sales tax receipts.

Dane explained that COSADC’s revenue from the half-cent sales tax today is approximately $2.15 million. Of that, 72 percent is spoken for. That is, the COSADC is required to finance current ballot projects and pay a portion of the Hickory bond payments. That leaves $1.55 million for operations overhead, industry recruitment, and whatever new projects COSADC decides to finance.

Vardeman’s proposal would redirect about half of that $1.55 million towards streets.

Vardeman said that sales tax revenue projections show receipts increasing rapidly, and since his proposal is for a percentage of the overall sales tax to be cut from COSADC’s percentage and redirected to street repairs, the actual dollars cut from COSADC’s budget may not be as severe as Dane projected.

Streets Need $77 Million to Fix

City Manager Daniel Valenzuela said that getting all of San Angelo’s streets into shape is a seven-year, $9 million to $11 million per year proposition, or $63 million to $77 million total.

Redirecting COSADC’s sales tax receipts will yield less than 10 percent towards that amount.

Dane agreed. “This [0.125 percent sales tax] is not going to solve all of our street problems. We’re going to have to bring multiple weapons to the front to conquer this problem,” Dane said.

Council discussed with staff that the Council had already approved spending $1.7 million on streets from the general fund this year, made more flush from record sales tax receipts.

Mayor Dwain Morrison expressed support for Vardeman’s proposal.

Councilwoman Charlotte Farmer was against it. “I’m not in favor [of] messing with the half-cent sales tax that the voters have already approved and it’s set. I am in favor of finding monies to work on our streets immediately because the pay-as-you-go is not working,” Farmer said.

Councilman Johnny Silvas said, “I hate to wait until November. I wish we were in November already.” He was referring to the earliest day of an election for voters to approve the ballot initiative.

Where the City gets more money will be an ongoing discussion and debate. Dane did not rule out researching using a bond to finance street repairs. However, Councilman Rodney Fleming has stated that he wants to see alternatives that do not include going into debt to fix the streets first.

Reaction

Matt Lewis, who heads the San Angelo Area Foundation today, was once the head of COSADC. His concern was that the money gained from cutting the COSADC budget would not be near enough to solve the street maintenance and repair problem. Then, at the end of the four-year fund redirection, Lewis said, San Angelo would be left with no viable economic development program and the competitive disadvantages with other cities that come with that, and the streets will still be in the same relatively poor shape that they are in today.

Phil Neighbors, President of the San Angelo Chamber of Commerce echoed Lewis’ concerns:

“The Chamber is anxious to see the options that city staff will bring back for consideration. Although we share a strong interest in catching up on street improvement and maintenance, the Chamber leadership wants to see what possibilities exist for accomplishing those street improvements.

“A potential concern we have about the Street Maintenance Sales Tax is that if $650,000 - $800,000 is removed from COSADC's budget, that the economic development programs and support for existing and prospective employers will be greatly reduced. That is troubling in light of the strategic goals being supported by these programs, and because San Angelo is underfunded in its economic development expenditures already in comparison to similar-sized benchmark cities in Texas.

Council instructed city staff to provide a ballot initiative to vote upon by the next meeting. If the Council approves it, San Angelo will vote to approve or disapprove funding COSADC with 0.375 percent and street repair with 0.125 percent of the 8.25 percent sales tax in November.

Analysis

If the vote were held today, the chances are probable that Council will approve the ballot initiative. For: Morrison, Silvas, Vardeman; Against: Farmer; Swing votes: Marty Self appeared skeptical; Fleming wants more options before he decides; Wardlaw was absent, but Wardlaw has never expressed support for economic development in the past.

Silvas and Fleming are facing opposition in the May 10 election and may not be on Council the next meeting. Wardlaw is retiring and will be replaced by Liz Grindstaff or Phil Skinner. Odds are that Grindstaff will be a vocal proponent of COSADC. Silva's seat, whoever occupies it, will favor streets over COSADC. The Fleming vesus Aquirre contest is a toss-up.

Of course, the mayor can call for a special meeting before the May 20 swearing in of new members if it starts looking like he doesn't have the votes to pass this with the new members.

Four votes are needed for this to pass.

If the measure goes to the voters in November, there are not enough vocal proponents of the benefits of COSADC, and financing of incentives to large companies to move here, to fight a populist argument about fixing the streets. Our prediction is that voters will approve this kind of measure overwhelmingly.

Also, see the 10 Worst Streets in San Angelo.

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I am in favor of Don Vardeman's proposal as well. Although, it is true that with economic development, the city would increase it's tax base. However, economic development is future hopes and dreams of enticing businesses to relocate or expand in our town. At that, it will take months or even years for the city to see the benefits of such development. With increased development, the need for viable roadways is also increased. We may be putting the cart before the horse focusing on development first. Our streets need attention now. In my mind, economic development is not one thing. Rather, all things included. Phil Skinner Candidate for City Council Single Member District 5
I'm certainly not a city manager or have much interest in that art, but are any of these seemingly random motions based on any sort of larger planning perspective - not something we bring up every friggin election season. I'm all for contributing money toward growth, development, and city sustainability, but if we're going to have this discussion again in 5 years because we didn't think it through, then I would rather spend my money on developing a 5-year plan that captures the priorities effectively.
Bill Richardson, Thu, 05/08/2014 - 11:49
"Section 4B Projects Which Are Not Required to Create or Retain Primary Jobs. (2) certain targeted infrastructure projects necessary to promote or develop new or expanded business enterprises, limited to streets, rail spurs, water and sewer utilities, and electric, gas utilities, drainage, site improvements, and related improvements, telecommunications and Internet improvements and beach remediation along the Gulf of Mexico." Section 4A and 4B Sales Tax, Riley Fletcher Basic Municipal Law Seminar, Lubbock, Texas February 24, 2006 Page 7 Requires a ballot proposition.
No way, Joe. Especially if the voters are educated. Here's my take: As Immediate Past Council Member for SMD-1, I have strong views about this subject. There is no such thing as growing money out of thin air, and that is what this proposal is attempting to do. The funds it seeks to cut into are our 1/2 cent economic sales tax that the voters approved to spend on a specific list of projects. Those projects have been implemented, including the river improvements along the North Concho River downtown. Our city owes money on loans taken to fund construction of those projects, and now we are making monthly payments just like a homeowner makes on their home. We use the 1/2 cent sales tax funds to make those payments. The reality is, if we take away a fourth of our economic sales tax to fund streets (1/4 of 1/2 = 1/8), we have to come up with funds to pay our loans. We are exactly where we started- having to come up with funding. Another fact to consider is that 72% of our 1/2 cent sales tax funds goes to water projects. Take away 25% of those funds, and that leaves us with 3% to go towards all those loans I just wrote about. This plan is an exceptionally bad idea and it gives me the idea that the council members, as a group, do not understand how the half-cent sales tax works. Charlotte Farmer DOES know. She needs support to let the others know to spend their time more wisely. Not only that, elections cost $25,000 to $40,000 dollars. Let's save that money! -Paul Alexander
Bill Richardson, Fri, 05/09/2014 - 00:00
Mr. Vardeman's proposal is to use a percentage of the 4B sales tax for street repairs. As I stated earlier, infrastructure up keep such as street repair is considered a part of the economic development process. The money to pay our debts is still there. It is time our money is invested in what we have instead of being handed out to out of area business owners. Perhaps it is you who do not understand the 4B sales tax or Mr. Vardeman's proposal. We are all familiar with Charlotte Farmer's million dollar path and COSADC's waste of our tax dollars. Most recently wanting to give a about a quarter of million dollars to Texas Pacifico Railroad just to be nice. It is time COSADC's spend is reeled in and put better use for the citizens of San Angelo. Tax incentives to business do not work. http://www.forbes.com/sites/taxanalysts/2014/05/02/sad-pragmatism-and-tax-incentives/ Other projects the 4B sales tax can be used for include the repair of Bell Street because it leads to a sports complex. The 4B sales tax can also be use for brush control in the Twin Buttes Reservoir water shed. Clearing the brush will help to fill the reservoirs when we have rain. Water is far more import than fancy downtown park or a million dollar walking path.
It makes a nice headline but the truth is that a street maintenance sales tax would not gut SADC or greatly impact economic development. (Their name was officially changed to just the San Angelo Development Corporation officially a few years ago although everyone still calls them COSADC.) There are some numbers that might not be clear for what was presented at the last council meeting and repeated here in your article. The total revenue from the 4B 1/2 cent sales tax is just shy of $8million. (look at http://www.slideshare.net/brian.groves/san-angelo-city-council-11-513-economic-development-budget for a break down.) the 72% committed to projects is from that $8mill, which leaves about $2.2mill uncommitted and money for SADC special Economic Development projects. If 1/8cent were approved by the voters, and the sales tax revenue stayed the same that is where you would get the $650k to $800k possible reduction in revenue for this year. Still leaves them with a significant amount of income for the year. What is not said is that there is plenty of money still available for economic development projects. One source will be the fact that the Martifer contract never came close to meeting its job creation goals. Because of the claw back provisions that the are in that contract (as they should have been), that money will be used for other economic development projects. That will amount to several million dollars. If it makes sense for the city to offer incentives to attract or grow a particular business that money clawed back from Martifer can be used. There is also other money available, there are tax abatements and similar incentives that can also help. The SADC will be able to keep on helping the local economy grow. SADC will not be "gutted" no matter what some may think. We do need to be able to use that 1/8 cent from the 1/2 cent optional sales tax to fix our roads. And we need to be able to use it to fix the roads that aren't tied to some "economic development" project. We were able to use 1/2cent sales tax money to fix 50th street (Lakeview Heros Drive) because it was tied to the Spur arena, a legitimate sales tax project. We can't use it to fix 29th or South Chadbourne or any other street that is not part of a 4B project. Going before the voters and getting to use that roughly $2mill per year for 4 years to fix roads with the possibility to keep renewing that every 4 years will not solve all our road maintenance problems but it will help. And it doesn't have to die in 4 years. It just has to be put before the voters every 4 years. If the voters like it, it can continue for 4 year increments until the decide they don't need it any more. And just for some added information, there are already over a hundred cities in Texas with the street maintenance sales tax. The vast majority of those cities that tried it have voted to continue it. It's not a total solution to bad streets but it is part of the solution. And the truth is that the best thing the city can do to really promote economic development is to remove the road blocks, fix the roads, and get out of the way.
live, Thu, 05/08/2014 - 17:20

They practically have the votes: Morrison, Silvas, Vardeman are for. One more is all they need. And if it's on the ballot, it has a very good chance to pass.

Also, from my understanding, Dane said that all of the ballot projects, including Hickory contributions (not all of Hickory, just COSADC's contracted piece of it) are covered by 72% of COSADC's existing revenue intake.

Legally, all of the 4B, 1/2 cent sales tax is SADC's. By statute they manage the whole (currently almost $8mill) and have to approve all expenditures, even for the Hickory Aquifer, the river projects or the auditorium renovations. All of the 4B, 1/2 cent sales tax revenue is COSADC money. The 72% is out of the total $8Mill, before the economic development dollars get split out. That $2.2 mill is after the Hickory and other ballot projects are paid for. That is straight out of the last ballot language put before the voters. Hickory doesn't take 72% of that $2.2mill. Hickory was taken out off the top. The $2.2mill is what's left over for Economic Development and future projects. One last thing to also remember is that many of the voter approved projects are nearing completion and pay off. We've pretty much finished the river projects and the auditorium is in the home stretch. They will be complete and paid for before the 4 years of a street maintenance sales tax, and that means that in a couple years you could be looking at a 1/2 cent optional sales tax split of 1/4 cent going to water development (including helping to pay on the hickory project), 1/8 cent to streets and 1/8th to economic development projects. Seems like a workable split to me. Good roads help make the economic development dollars more effective.
Used a few more words than I needed to on my last post. Apologies to all the readers here.
Paul, you need to remember that the water development portion of the last sales tax vote was not set at 72%. That was what it could possibly grow to once the other sales tax projects were completed and if the voters didn't get a chance to approve any other uses. Right now the payments for all the 4B sales tax projects, including water, is in that 72%. The rest is left for Economic development and future projects. The loans will still get paid (by Statute they have to) from 4b sales tax money. A street maintenance sales tax can't stop a 4B project from being paid for by the 4B sales tax.
I have always felt that giving taxpayer money for privately owned companies under the guise of bringing jobs is just wrong. What If a business can't or won't provide those jobs? Who pays for it? Certainly not the company rewarded with taxpayer money. A true free market would require a business invest it's own money or borrow it to be payed back. Risk should never be a burden placed on taxpayers. A sufficient water supply should be number one on the list of priorities, then other city services such as fire, police, sewer and well maintained streets to drive on. If people visit cities that have horrible streets, no water and no decent paying jobs, how in the world would that help economic development? I can understand having all the nice city events and beautiful river but shouldn't these be secondary? All these special catagories for money mean absolutey nothing to me. Its all taxpayer money. It's just a guess but I think that a lot of hard working citizens who don't have time to follow the activities of local government wouldn't approve of where all their money goes.
Johnson, I agree. The best thing a city can do for business is fix the streets, provide the basics like water, keep taxes low and get out of the way.

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