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2. 7.20.21 FINAL - Finance Committee MinutesFINANCE COMMITTEE MEETING TUESDAY, JULY 20, 2021 HYBRID IN-PERSON/VIRTUAL MEETING Finance Committee Meeting, July 20, 2021 1 | 5 1. ROLL CALL PRESENT- Finance Committee: Markian Feduschak and Dee Wisor in-person. Committee Members Craig Ferraro and Linn Brooks joined virtually. Town Council: Councilmember Scott Prince and Mayor Sarah Smith Hymes Town Staff: Finance Manager Amy Greer, Finance Director Scott Wright, Town Manager Eric Heil, General Government Manager Ineke de Jong and General Government Intern Emily Myler ABSENT- Committee Member Steve Coyer LATE ARRIVAL- Committee Member Linn Brooks The meeting opened at 5:15 p.m. 2. APPROVAL OF JANUARY 2021 MINUTES Committee Member Dee Wisor moved to approve the minutes from the January 28, 2021 meeting and Committee Member Markian Feduschak seconded the motion. The motion passed unanimously. 3. PUBLIC COMMENT There was no public comment. 4. STAFF UPDATES ON FINANCIAL RESULTS THROUGH JUNE 2021 Finance Director Scott Wright presented the year-to-date revenue through the end of May 2021. Sales Tax has increased from the last three years. He expressed that the increase is good, but not as large as it seems since 2020 had low revenues. Sales Tax in all industries were higher than last year besides construction materials. He said that new Town ordinances have increased tax revenue from online shopping and short-term rentals like Air BnB and VRBO. Something for the Committee to discuss is how to project these new revenues with an unpredictable post-pandemic economy and keep budgetary growth smooth over time. Town Council and staff have been traditionally very conservative in preparing budgets but it may be time to budget with a reasonable amount of revenue growth in mind, based on trends. Committee Member Linn Brooks joined via Zoom at 5:30 p.m. Town Manager Eric Heil added that there needs to be better understanding of actual expenditures. It is hard to predict every anomaly, but with the Town expecting reliable surpluses in the coming years, it is easier to handle. It’s healthy to be conservative, but budgets can now assume there will be more revenue than projected for most years. The Committee commented/inquired: A. Is it possible to change the fiscal year to better take advantage of peak revenue months in the winter? B. There isn’t a perfect way of doing it. Keeping a reserve fund is the most important thing. C. Maintenance costs are higher than anyone expects and are vital or infrastructure becomes unsafe. D. It’s good to be optimistic, but the effects of COVID-19 have not fully played out. There still could be shutdowns coming up. E. The labor shortage could have major effects on Town revenues. F. One scenario to consider is that 2021 is an anomaly in a pattern of economic strife caused by any FINANCE COMMITTEE MEETING TUESDAY, JULY 20, 2021 HYBRID IN-PERSON/VIRTUAL MEETING Finance Committee Meeting, July 20, 2021 2 | 5 disaster from wildfires to floods to pandemics. It’s important to use the surplus to protect the Town from these eventualities. G. How do the 2020 economic impacts compare to other recessions the Town has faced? H. How much of the accommodations tax increase is attributed to the new short-term rental taxes vs. only increased tourism? I. Maybe the Town should look at restricting short-term rentals in favor to long-term rentals to house the workforce. J. Could Avon reduce its marketing aimed at drawing in tourism to combat unaffordability for locals? Financial Director Wright said he has been with an organization that changed the fiscal year and it made sense in theory but was problematic in practice. The Town could potentially track a “ski year” vs. the rest of the year but it is also seeing tourism growth in the summer. He said compared to other economic downturns the post-pandemic recovery has been much faster. It’s hard to say exactly how much the new short-term accommodations tax impacted lodging revenue, but it is likely significant. Town Manager Heil said building the reserveS is more important than paying off debt right now and Financial Director Wright agreed. Over the past year, the Town planned for the worst during the pandemic and instead ended up with a surplus. It is a good time to calculate how much it will cost to better maintain current assets rather than find new assets to build, although there are some important projects coming up now to keep up with growth. The Town is expecting an increase in property taxes as prices skyrocket as well, although new changes to assessment rules may reduce that. The Town has not seen evidence that a large number of long-term rentals are being converted to short-term, but there have been conversations about whether to take steps to restrict short-term renting in favor of long-term rentals to support the workforce. Avon already has very little tourism marketing, however he agreed that marketing shouldn’t focus on drawing anyone to Town but can focus on promoting visitors who share the Town’s values such as care for the environment. 5. STAFF PRESENTATION: USE TAX Finance Director Wright presented a proposed use tax. He said previous use tax proposals have failed in Council or election so the Town has focused on using the sales tax to collect on items a use tax usually covers, which works but is difficult administratively. The proposed sales tax is simply a change in the collection and administration of the same money that keeps funds local. There are three use tax options to consider: • A Consumer Sales Tax is paid on items bought outside Avon and brought in, such as online purchases. However, there is already a precedent for non-local businesses to begin remitting local sales tax once it has done $100,000 of business in the state, so a Consumer Use Tax is not very effective and not recommended. • A Motor Vehicle Use Tax is paid on vehicles bought outside of Town but registered here. It can raise a substantial amount of revenue but is not recommended because it is a brand new tax that is shouldered by the average Avon voter. • A Construction Use Tax is paid on construction materials used in local Avon development. The tax is paid based at the permitting phase of a project based on 4 percent of 50 percent of anticipated construction value. Developers then are exempt from paying sales taxes on the materials they buy for the project, even if the purchase is outside of town. All other municipalities FINANCE COMMITTEE MEETING TUESDAY, JULY 20, 2021 HYBRID IN-PERSON/VIRTUAL MEETING Finance Committee Meeting, July 20, 2021 3 | 5 in Eagle County have this tax and it is recommended by staff because it replaces the current sales tax on construction material, keeping taxation fairly stable while relieving administrative burdens on the Town and preventing leakage. The construction use tax would go before council in August, 2021 and, if approved, go on the ballot for the November 2021 election. The Committee commented/inquired: A. Does the Town think it’s leaving money on the table with the current sales tax? B. The use tax would be paid on only 50 percent of the total construction cost because it is assumed that is the cost of materials vs. labor for most projects. What happens if some projects pay more or less than 50 percent of the total costs on supplies? C. Besides easier administration, what are the other benefits of this tax? D. Who is ultimately responsible for paying the tax? E. Can the Town do more audits on the current construction material sales tax? F. Would the Town refund money if costs are lower than predicted? G. Are community housing projects exempt from this tax? H. Tax exemptions up front are easier than refunds after the fact I. How much of the estimated construction value in Town last year came from big developers vs. private projects? J. Can the tax pay for staff working on community housing projects? K. Would part the revenue from the tax go towards community housing or all of it? Town Manager Eric Heil said it seems like over $200,000 of sales tax every year is not being collected because of difficulties tracking who needs to pay what. In that regard, the use tax would likely collect more than the sales tax. The sales tax means tracking down vendors from all over the country to collect sales tax from them. The elevator speech for the tax is that the funds will be dedicated to community housing, which is a pressing and costly investment. Yes, deed restricted full-time residential housing projects already have tax exemptions in the Town Code. He suggested the tax language allows revenues to be reallocated by Council in an emergency but otherwise go towards community housing initiatives. It can pay for soft costs like consultants, but likely not for Town staff to work on community housing. The whole tax revenue should go towards housing, even if it takes away money from the general fund. $600,000 a year is only a start for housing. Finance Director Wright said at the end of the project, there may be a settle up based on differences between projected and actual material costs. The builder is responsible for paying the tax in most cases. Audits have been successful but its inefficient compared to the use tax. For any small projects that does not require a permit (e.g. DIY re-tiling a bathroom) there will be no use tax but sales tax for the locality where supplies are bought will apply. He wasn’t sure how much of local construction value is part of big development projects vs private homeowners. Short-Term Rental Accommodations Tax Town Manager Heil also said the Town is considering an additional accommodations tax just for short- term rentals to encourage more long-term rentals to house the workforce and add to the Town’s community housing fund. He thought the voters might be more willing to pass this tax as there is FINANCE COMMITTEE MEETING TUESDAY, JULY 20, 2021 HYBRID IN-PERSON/VIRTUAL MEETING Finance Committee Meeting, July 20, 2021 4 | 5 widespread public concern over the housing shortage and prevalence of vacation rentals. The Committee commented/inquired: A. With most of Avon already developed, that use tax revenue would slow down in the upcoming years. B. How are short-term rentals differentiated from hotels? C. What is the likelihood that the accommodations tax would pass an election? D. The use tax will likely bring in less revenue than short-term rental tax and will be harder to pass an election. E. Some communities have taxes on second homes that sit empty, although there are challenges. F. It seems that Colorado is the only state that doesn’t charge higher property taxes on second homes G. The short-term rental tax makes more sense than the use tax. H. It is hard to pass new taxes in Avon. I. Should both taxes go on the ballot or one? If only one, which should go on it first? J. It’s probably best to keep it simple on the ballot. The accommodations tax is the easiest to understand. K. Workforce housing is reaching a crisis point. People are seeing this and will vote for programs that fix the problem. L. Pair the tax ballot question with other community housing ballot questions to get people in a mindset to vote yes M. The accommodations tax is the least controversial and voters are in a mood to support it. N. The use tax is more time sensitive. If it’s passed later the Town will lose revenue from big projects coming up soon, so it would be beneficial to put it on the ballot first. The accommodations tax has higher likelihood of passing but is less pressing right now. O. The public will want to know what specific projects the revenues will fund. Right now the language is too vague. P. Even though the use tax is replacing the construction material sales tax, people will view it as a new tax and disapprove. Q. If the use tax fails in 2021, can it go on the ballot again in 2022? R. Is there time to identify exactly what projects the tax will fund? S. Approving a ballot initiative like this is in the public’s self interest as the housing shortage will eventually impact the economy and the face of the Town itself. Town Manager Heil said he believes the accommodations tax would pass relatively easily. He thinks the use tax can generate a lot of revenue in the Village at Avon, and it increases efficiency for Town staff. Council can have a work session on both taxes and decide which one will go on the ballot. The use tax doesn’t increase taxes much but replaces a current tax. The accommodations tax is an all-new tax however the voters are currently against short term rentals so they might still support it. Yes, the use tax can go on the ballot multiple times until passed. If both are passed, the Town could make a real difference in the housing situation. The situation is far worse than it ever as been, so hopefully the public is incentivized to fund projects to fix it. The Town can be clear about the projects it is considering while campaigning for this tax. 6. REVIEW OF CLEARGOV Finance Director Wright said he wouldn’t go into a lot of detail about ClearGov as Committee members can explore it on Avon.org. FINANCE COMMITTEE MEETING TUESDAY, JULY 20, 2021 HYBRID IN-PERSON/VIRTUAL MEETING Finance Committee Meeting, July 20, 2021 5 | 5 7. ADJOURNMENT The meeting adjourned at 6:57 p.m. Respectfully Submitted by Emily Myler General Government Intern