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Mayor's viewpoint on pool, Nov. 1999

Mayor’s Viewpoint (November 1999)

Mayor Gina Brusatori

Financing the El Cerrito Swim Center - Decisions and Choices

On November 15, the City Council will discuss how to finance the pool with a tax measure on the March 2000 ballot. The ballot measure requires 2/3 voter approval to pass. Thus, the tax measure must be widely acceptable and not generate organized opposition.

The council has received estimates that rebuilding and renovating our streets will cost over $10 million. Other projects, including renovating our public safety building and pursuing other long-deferred capital improvements for 30-40 year facilities, boost the total price tag up to $30 million.

On the March 2000 ballot, I favor a parcel tax for up to 20 years and up to $5.3 million in net proceeds for specified capital improvement projects at the swim center and the Canyon Trail, Huber, Poinsett and Harding clubhouse facilities.

I also want the ballot measure to include a low-income exemption, fundraising by the pool users, the obligation by the council to use of cost savings to fund a maintenance and reconstruction fund for the swim center, the distribution of several swim tickets per year (for at least an initial period) to encourage community support and the obligation of the council to use real estate property transfer tax proceeds to fund a maintenance and reconstruction fund for civic capital improvements, including the swim center.

As background for my proposal, I present below the various aspects of a tax measure with the pros and cons of each, based upon what I have read and heard to date.

Net Amount of Proceeds: $5.3 million

Pros: The $5.3 million net proceeds from a tax measure includes $4.9 million for the rebuild of the two existing pools, new locker rooms, new pump room and a small meeting room in the community center adjacent to the pools. The swim center is 37 years old and does not meet current health and safety codes.

The tax would also fund approximately $400,000 for several park projects. These would include rebuilding the Canyon Trail Clubhouse that has been closed for 2 years due to structural problems, and replacing restrooms at the Poinsett, Huber and Harding park clubhouses with ones that are accessible to the disabled.

By combining the swim center with some clubhouses, residents will enjoy newer facilities in various neighborhoods. This should help garner additional support for the tax measure. The additional $400,000 will cost about $5/year on a 20 year parcel tax.

Cons: The swim center costs much more than expected. The swim center consultant was asked, "how much would it cost to replace the swim center and bring it up to code?" We did not ask, "if we cap the cost at $2.5 million for example, then what type of swim center can we have, including bringing the facility up to code?" We also did not seek a second opinion. If capping the cost at a lower figure were possible, it would make the tax measure more affordable and more likely to pass.

Term: 20 years

Pros: A 20 year term will lower the annual tax payment and spread the cost of the swim center and other facilities over existing and future property owners. A lower annual cost makes the tax more affordable and increases the possibility that voters are able to pay for and therefore presumably approve future taxes to finance our streets, public safety building and other community projects.

Both current property owners and people who purchase homes or other property within the next 20 years will contribute toward the cost of the facilities. Since the swim center and other facilities are expected to last more than 20 years, existing and future property owners would pay as they benefit from them.

Cons: A 20-year term will significantly increase the total cost of financing because more interest will have to be paid over time. The accumulated cost of financing would effectively more than double. While the total cost of financing is less visible, it is still a factor.

Type: Parcel Tax

Pros: Assessed values have little to do with actual values. Under Prop. 13, property is either based upon a starting point in the mid-70’s with a maximum 2% annual increase or its purchase price if it changed ownership. Like any tax system, there are inequities. One home can be assessed at $300,000 while the neighboring home is assessed at $100,000. Newer residents whose homes are assessed at $300,000 pay more than $3,000 per year in property taxes. Their neighbors, who have owned their homes prior to 1978, pay about 80% less or $400-600 per year in taxes.

A parcel tax would cost every homeowner about $55 per year. An ad valorem would cost about $40 per year for owners of homes assessed at $100,000 and $125 per year for owners of homes assessed at $300,000.

Yet all homeowners would benefit from the new swim center as it makes El Cerrito a better community. Long-time residents may use the pool less than may newer residents with young families. However, they likely supported the initial ballot measure to build the swim center in 1962 and consider the swim center fundamental to their "quality of life" in El Cerrito these past 37 years. We should not worsen the inequities with an ad valorem tax.

Cons: The parcel tax is based on a 5.50% interest rate vs. a 5.25% rate for an ad valorem tax, reflecting the latter’s perceived lower risk to bondholders. Under an ad valorem tax, the city is committing to exercise its taxing authority to the bondholders, no matter what.

Other Considerations:

Setting the Tax Rate: For parcel taxes, the tax on residential units would be about $55 per year. Tax rates for multi-family units and commercial parcels would likely be set on an acreage basis at one rate while vacant parcels and open space parcels such as the golf course and cemetery would be based on an acreage basis at a lower rate. For an ad valorem tax, the amount of the tax would be based on the value of each owner’s property, such as about $.40 per $1,000 or $40 per $100,000 of assessed value.

Low Income Exemption or Reduced Tax Payments: Under a parcel tax, the city could provide a partial exemption for lower income residents, with eligibility based upon whether the homeowners are eligible for lifeline utility rates. Linking the eligibility to existing programs reduces administrative costs.

Fund Raising: I favor a tax measure that requires that the city, together with the swimming pool users, to raise at least $500,000 or about 10% of the cost of the swim center through grants, contributions and fundraising. The monies could be used to finance amenities, reduce the size of the bond issue, or if the bonds have already been issued, prepay the debt. This would save interest costs and demonstrate good faith to the voters who will be asked to support tax measures to finance other capital improvements in the future.

Additional Inducement to Vote "Yes": Voters could be given several swim tickets each year to be used for lap swim, water aerobics and public swim. This would encourage usage and help offset the cost of the parcel tax or increased fees charged at the new facility. The swim ticket distribution could be limited to the first few years or continue through the life of the debt financing.

Sharing the Cost of the New Swim Center with Non-Residents: Only about 10% of El Cerrito households use the swim center. These include children of all ages who may use the pool because they are enrolled in the city-operated child care centers, Portola Middle School or El Cerrito High School. Moreover, they comprise about 50% of the pool patrons overall. The other 50% represent childcare participants and middle-school and high-school students or adults who live in neighboring communities and attend El Cerrito swimming programs.

In conjunction with the tax measure, we need to review our policies regarding fees charged non-residents and direct or in-kind exchanges with the West Contra Costa School District for the use of our swim center as part of their athletic programs and swim meets.

Use of Real Estate Property Transfer Tax Proceeds: I favor a tax measure that would obligate the Council, effective January 1, 2000, to establish an additional designated and restricted maintenance and reconstruction fund for capital improvement projects, including the swim center. The fund would be financed with proceeds from the city’s real estate property transfer taxes.

The real estate property transfer tax of $7.00 per $1,000 imposed in 1991 is relatively painless, and does not exceed the rates charged by neighboring communities. The tax helps to recoup some of the property taxes forgone under Prop. 13.

The amount of the real estate property transfer tax collected each year varies widely because it depends upon the number of home sales and prices of homes sold. In El Cerrito, recent tax proceeds have ranged from less than $400,000 two years ago to $1.2 million in the current fiscal year. It therefore makes more sense to designate proceeds for maintenance and capital expenditures than for operating expenses. The current high level of tax proceeds could be used to reduce the size of the tax measure for the swim center, thereby reducing the cost to the El Cerrito taxpayers.

Linking the real estate property transfer tax to infrastructure spending greatly increases the chances that the tax can be preserved. El Cerrito voters have pent-up demand to fund capital improvements that they consider need renovating or replacing due to years of deferred maintenance and sheer age. Given the widespread support for infrastructure spending, voters will be more willing to ensure this tax continues if it funds capital expenditures only.

Conclusion: I believe the tax structure outlined above will be adopted by my fellow council members because it will have the best chance of being approved by 2/3 of El Cerrito voters in the March 2000 election.

It is time to join together and address a near term need to finance our swim center and parks, and lay the groundwork to finance our many other capital improvement needs including our streets and public safety building in the future.

I invite anyone interested in sharing their views about funding the swim center and other capital improvements and in working on a March 2000 tax measure to attend the council meeting on November 15^th.