October 28, 2014 Infrastructure Committee Memorandum

Infrastructure Committee Memorandum

October 28, 2014

Background

The Infrastructure Committee was constituted by the Village Council in 2012 to make recommendations about the maintenance and repair of the Village’s infrastructure (streets and curbs, water lines, sanitary and storm sewers), and to identify external sources of funding to help pay for any necessary work. That year the Committee, then chaired by Briggs Hamor, put together a successful proposal for a $665,000 zero-interest loan from the Ohio Public Works Commission (OPWC), through its State Capital Improvement Program (SCIP), to make Ohio EPA-mandated repairs to the sanitary sewer system. The cost of servicing that loan, about $22,000 a year over 30 years, has been absorbed into the Village’s operating budget.

However, the Village also needs to replace its streets, curbs and water lines, and to make significant repairs and upgrades to its storm sewer system. The street base, water lines, and storm sewers are as old as the Village itself (1920s vintage), and the street surface and curbs date from the early 1980s. All are at or near the end of their expected useful life. At the Committee’s request Burgess and Niple, the engineering firm with whom the Village contracts for work of this kind, has identified twelve distinct alternatives for how this work could be done, ranging in estimated cost from about $2.1M to $6.2M depending on the nature and extent of the repairs that are made to the street base and curbs (four alternatives) and whether storm sewers, water lines, or both are included (see attachment).

At its June 2014 meeting Council agreed that it would be foolish to replace the street surface without doing the storm sewer and water line work at the same time, since those systems run under the streets and it would be wasteful to dig up a new street surface to repair them later. There is also concern that the heavy equipment used for street resurfacing would place stress on the water lines and hasten their demise. Council agreed that the lower-cost alternatives for replacing the street surface and curbs would be of uncertain durability and wouldn’t fully address the existing drainage problems. Council therefore endorsed the second most expensive alternative (Alternative 2 with storm and water lines included), with an estimated cost of $5.35M. The Committee recommends that Council keep Alternative 1, with an estimated cost of $6.2M, “on the table” since Alternative 2 will be more disruptive to residents and we don’t yet know how successful the Village will be at securing funding.

External funding options

The most promising alternative for external funding is the OPWC/SCIP program mentioned above, which provides grants and no-interest loans for infrastructure improvements. Our chances of success will of course depend on what other applications are made in a given year and how much funding those projects require, but a preliminary look at how our application would be likely to score seems to place us in the ballpark of recent successful applications. Our project would be on the high end of what SCIP typically awards, especially for a municipality of our size, and this may hurt our chances. However, the staff at the Mid-Ohio Regional Planning Commission (MORPC), which administers SCIP in Franklin County, have encouraged us to apply and don’t seem to think that the amount that we would be requesting is prohibitively high. We’re in a position to apply in multiple consecutive years if necessary.

SCIP provides grants for street, curb and storm sewer work only. This means that in the best case scenario the Village would receive a grant from the state of $3.5-4M, and a zero-interest loan of about $2M (the cost of the water lines). Servicing that loan would come to about $65,000 per year over 30 years, which is about a third of the Village’s current operating budget. We may decide to ask for a larger loan amount in order to improve the score that our application receives, in which case the cost to the Village would be proportionally higher up to a maximum of about $200,000 per year. Additional revenue will be required whatever mix of grants and loans we pursue, since the SCIP application requires that we show an ability to service whatever loan amount we request.

Revenue options

There are three options available to the Village to generate revenue on this scale: an assessment, a property tax levy, and a municipal income tax. Council will need to decide which option, or which combination of them, to pursue. The basic terms of each are outlined below.

1. Assessment
   An assessment on property owners can be imposed by a vote of Council. Property owners could choose to pay the assessment as a lump sum up front or to spread it out over the life of the project, in this case 30 years. Since we’re applying for a zero-interest loan there would be no additional cost for choosing the latter option. However many mortgage programs (e.g. FNMA and FHLMC) treat an assessment as an encumbrance on the property, meaning that if the property were sold the balance of the assessment would need to be paid off in full. This would complicate home sales and potentially depress property values.In order to service a $2M loan the average assessment would need to be about $8,700 per property ($2M/230), or about $290 per year over 30 years ($8,700/30). At $6M the average assessment would need to be about $26,000 per property, or about $870 per year over 30 years. The actual amount would be higher or lower depending on the property. The standard method of calculating assessments for a project of this nature is by curb frontage, with corner lots paying for only one side of their frontage. Council could also choose to use another method, such as property value, to calculate assessments. An independent appeals board would adjudicate objections from property owners about the amount of their assessment. Needless to say, this could be a protracted and contentious process. The Village itself would be responsible for intersections and for 2% of the overall cost of the project, which would place a burden on the already strained Village budget.
2. Property tax levy A property tax increase in the necessary amount can be placed on the ballot for voter approval. This wouldn’t create an encumbrance on properties as an assessment would, and the levy could cover 100% of 3 the cost of the project. Each mil of additional property tax would bring in about $25,000 from all properties taken together, based on current valuations. The risk of going this route is that the levy might not pass, as has happened before in Riverlea, most recently in 2007.
3. Municipal income tax Council can impose a municipal income tax of up to 1% without voter approval. Any higher rate would need to be placed on the ballot for voter approval. The tax could be designed in one of two ways. First, the Village could allow residents to claim a reciprocal tax credit against any tax that they pay to another municipality. In that case only residents who work in Riverlea, or who work in a municipality that has a lower tax rate than the one that the Village imposes, would be subject to an additional tax. This is how Worthington, Columbus, and most other Franklin County municipalities handle their income tax. Alternatively, the Village could choose not to provide a reciprocal tax credit, in which case all residents who earn eligible income would be subject to the tax.The biggest advantage of a non-reciprocal tax is that the rate could be much lower (about 1/10th) since it would be applied to all residents with earned income. The revenue stream would also be more stable since it would be spread over a larger base. This could also be considered more fair, since all residents will benefit from the infrastructure improvements. An estimate prepared by the Ohio Department of Taxation (ODT) suggests that the Village would bring in about $60,000 for each .25% of income tax if there were no reciprocal tax credit. It’s harder to estimate how much revenue an income tax would generate if there were a reciprocal tax credit since we don’t know how many residents earn income in the Village or how much they earn. During the annexation proceedings in 2011 the City of Worthington estimated that Riverlea would generate about $75,000 of additional revenue at their 2.5% tax rate, discounted for reciprocity.