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REPORT TO THE MAYOR AND CITY COUNCIL OF PALOS VERDES ESTATES FROM THE SPECIAL CITIZENS’ COMMITTEE TO EXAMINE FINANCING OPTIONS FOR THE FIRE/PARAMEDIC SERVICES CONTRACT

November 6, 2006

On July 25, 2006, the Palos Verdes Estates City Council adopted a resolution (attached) to establish a Special Citizens’ Committee (the Committee) to assess the city’s current and future financial position and to recommend to the Council the best means to ensure continued financing of the City’s fire and paramedic protection contract for the residents of the city. The committee held three open and noticed meetings, examined extensive material provided by the City Manager and staff, requested additional information from the staff, reviewed all available alternatives and prepared the following report.

The Present Situation

1. The Los Angeles County Fire Department has provided fire and paramedic services under contract to Palos Verdes Estates since 1986, when the City’s Fire Department was closed due to budget constraints. The City’s contract with L.A. County Fire was recently renegotiated and will expire June 30, 2016.

2. Prior to the enactment of the current special tax for the 2001-2007 period, the fire and paramedic services contract was funded by a benefit assessment that appeared on the property tax bill from 1991-2001. Since 2001, this contract has been paid for by a special tax, which is restricted in its use, covers 100% of the contract cost and appears on the property tax bills. The special tax was unanimously recommended by a prior Citizens’ Committee, unanimously approved by the City Council, and endorsed by an overwhelming majority of the City’s voters (87%) at the 2001 municipal election. The current special tax expires June 30, 2007.

3. The Fire and Paramedic Services Special Tax includes a flat per parcel cost of $240 plus 13.7 cents per square foot of building, both residential and commercial. The cost for a median size home is about $598 a year.

4. The cost of fire and paramedic services in FY 06-07 is about $3.3 million a year and represents 25% of the City’s operating budget. Under the new contract, cost increases are capped at a maximum 4.2% per year during the first five years of the agreement (2011). For the second five year period ending 2016, the maximum allowable cap will be the average of the preceding five years’ actual County Fire contract annual percentage increase, plus one (1) percent.

Options Available to Finance Fire and Paramedic Services Contract

The main options available to the city, together with the advantages and disadvantages of each are listed below and include the Committee’s rationale for their recommendation on each option.

Option 1 (a benefit assessment district) is not recommended. Due to changes in state law, it can only cover fire protection costs thus, other taxes would be necessary to fund paramedic services, which are an essential service for the city’s residents. This is why the 2001 Citizens’ Committee recommended a special tax as the finance mechanism instead of an assessment district.

Option 2 (a general tax) is not recommended because the taxes, other than a utility tax, would not raise sufficient funds to cover the cost of fire and paramedic services. The only method of raising sufficient funds would require a utility tax in excess of 13%. There were objections in the past when the City levied a 10% utility tax to finance storm drain improvements in that the tax is hidden; is not tax deductible and is not related to benefits received.

Option 3 (Mello Roos Community Facilities Act) was considered but is not realistically attainable because it is intended as a mechanism to fund new public capital facilities and/or services. Although fire and paramedic services are eligible costs under Mello Roos, the funds may only be used to finance new or expanded services. It could not be used to finance any costs associated with current services under our existing contract as provided by Fire Station #2 at City Hall.

Option 4 (a special tax) is the current finance mechanism for our fire and paramedic services contract and has been in place since 2001 when it was approved by 87% of the City’s voters. The special tax is restricted and can only be used to pay for the contract cost. The proceeds are deposited into, and paid from, a separate fund. Under state law, the City Council receives an annual report on the monies collected and their use. The method of a flat per parcel charge means all parcels, including vacant lots, share in the cost of fire protection and the cost per square foot of building improvement ensures that costs are reasonably allocated based on the value of a potential fire loss.

In addition, by examining and reviewing all possible finance alternatives, the committee rejected as either infeasible or inadvisable due to the potential adverse effect on the City’s fiscal health, the following: an assessment by the Palos Verdes Homes Association; issuing debt financing; using “surplus” operating funds or using current City fund balances (either restricted or unrestricted). Drawing on current City reserves would only finance 1 or 2 years of the 10-year contract and would leave the City unable to finance capital improvements or respond to financial emergencies.

Recommendations

After considerable discussion, the committee therefore recommends Option 4 – continuation of a special tax – to finance the City’s fire and paramedic services contract with the Los Angeles County Fire Department. The following actions by the City Council are recommended to fulfill the Committee’s recommendation:

1. Adopt a special tax ordinance to be submitted for voter approval at the March 6, 2007 Municipal Election that would cover the cost of fire and paramedic protection, according to the same method we now have; flat per parcel charge plus an additional cost per square foot of livable building improvement. The tax is simple and tied to benefits received. The City Council would need to approve such an ordinance no later than their November 28, 2006 meeting, unless a special meeting is called after that date.

2. Public buildings, including schools, libraries, churches, and city-owned property should remain exempt; as they were under the benefit assessment and as they are now under the current special tax. These buildings represent only 3.37 percent of total square footage in the city.

3. The special tax should have a sunset clause and expire in ten (10) years to allow voters an opportunity to vote once again on future funding; to coincide with the expiration of the current fire/paramedic contract and to coincide with the City’s regular election cycle, in order to avoid the expense of a special election.

The committee members express their thanks to the city staff, especially James Hendrickson, City Manager, and Judy Smith, Assistant Manager/Finance Director, for their considerable effort in preparing material to be reviewed; answering questions and doing further research requested by the committee. Their assistance was of considerable help and made our task much easier.

Respectfully submitted,