Title
2023 General Obligation Bond Program - Bond Committee Recommendations
Description
This report transmits the recommendations of the Citizens' General Obligation (GO) Bond Committee regarding a potential 2023 GO Bond Program for City Council consideration. Consistent with prior recommendations of the Fiscal Capacity Committee, and the direction of the City Council, the GO Bond Committee's recommendation totals $500 million.
THIS ITEM IS FOR DISCUSSION AND POSSIBLE ACTION.
Report
Summary
GO Bond programs provide a mechanism to fund construction and rehabilitation of City facilities and infrastructure such as parks, libraries, fire stations, police precincts, community centers, streets and storm drains, and arts facilities. Bond programs require voter approval, and cannot be used to fund operating costs like staff salaries or to fund assets not owned by the City. Since 1957, the City's approved GO Bond programs have totaled $4.6 billion. The most recent GO Bond program for $878.5 million was approved by voters in 2006. This 16-year gap is the longest in the City's bond program history, and has resulted in a significant amount of unfunded capital needs.
In March 2019, the Mayor and City Council appointed a Public Safety Bond Executive Committee to formulate recommendations for a potential November 2020 public safety bond election. In October 2019, the Mayor appointed a Public Safety Bond Fiscal Capacity Committee to identify the financial parameters for any bond program and to report its findings to the City Council. Committee meetings were held in December 2019 and January 2020 to formulate recommendations; however, the City paused these efforts as a result of uncertainty stemming from the COVID-19 pandemic. Subsequently, the City acquired the existing building at 100 W. Washington St. to replace Police Headquarters, addressing one of the most critical police-related public safety needs, and the Mayor and City Council expressed support for a broader scope of projects for a future GO Bond program. The Committee was renamed the Fiscal Capacity Committee and asked to assess the City’s capacity for a potential November 2023 GO Bond Program. The Fiscal Capacity Committee concluded its work in early 2022, recommending a $500 million bond program. The City Council appointed a Citizens' GO Bond Committee on June 1, and on June 7 upon review of the Fiscal Capacity Committee’s findings directed the Committee to identify the highest priority unfunded capital needs totaling $500 million for a potential November 2023 bond election.
Between August and November, the GO Bond Executive Committee and eight subcommittees held 34 hybrid in-person and virtual meetings open to the public. Committee members reviewed capital needs identified by staff, and heard proposals and input from the public, including non-profit partner agencies. The GO Bond Executive Committee’s recommendations totaling $500 million, informed by the work of the subcommittees, are detailed in Attachment A. The recommendations of the eight subcommittees are also included as Attachment B.
Fiscal Capacity Committee Recommendations
The principal and interest payments on GO Bonds are typically backed by secondary property taxes. Operations of City facilities are typically funded by General Funds and Special Revenue Funds. The City's financial ability to implement a GO Bond program is dependent upon:
- The amount of secondary property tax revenue projected to be available to fund additional GO Bond principal and interest, and when it will be available;
- Whether the City can fund additional operations and maintenance costs associated with new systems and facilities;
- Implications on the City’s credit ratings; and
- Constitutional debt limits.
The Fiscal Capacity Committee reviewed a property tax and valuation model provided by staff as well as various stress-test scenarios. Absent unanticipated Legislative changes, or severe economic impacts, the Fiscal Capacity Committee determined a $500 million bond program can likely be supported without any increase to the current secondary property tax rate of $0.8141 per $100 of net assessed valuation. Peak debt service is not anticipated to rise substantially beyond the status quo maximum annual debt service of $155 million, and a bond program of this magnitude is not expected to adversely impact the City’s bond ratings. The City’s debt would additionally remain below Constitutional debt limits.
Further, the Fiscal Capacity Committee advised this approach strategically positions the City for subsequent bond elections in five-year increments with values of approximately $500 million each. This would provide $2 billion in investment of City infrastructure over the next 20 years. Financial models indicate routine bond programs of this magnitude will continue to be sustainable without any material increases to property tax rates, assuming no significant legislative or economic changes.
Capacity for Ongoing Operations and Maintenance Funding
The City's General Fund (GF) pays for ongoing operating expenses to deliver core programs and services to the community. The primary property tax rate is currently maximized and is being fully utilized to pay for existing GF programs and services. The primary property tax rate could therefore not be used as a source of new operations and maintenance revenue for new systems and facilities, absent a corresponding reduction in existing programs and services. The City is required by statute to adopt a balanced GF budget each fiscal year where resources equal expenditures. In addition, the City has many competing demands for GF resources including: continued rising costs for pension and other fringe benefits; costs for facility maintenance, information technology, and vehicle acquisition; the need to offer sustainable and competitive salary and benefit packages for employees; and community demands for expanded or enhanced GF programs and services. At the June 7 Formal meeting, the City Council directed the GO Bond Committee to exclude project proposals that would result in net new ongoing operating costs, except in critical cases.
Additionally, overall future General Fund capacity will be impacted by uncertainties including the state of the economy and unpredictable revenue growth, future legislative actions such as the potential elimination of residential rental taxes, labor negotiations, and the need to phase-in results from the Classification and Compensation (Class and Comp) Study to ensure that the City can attract and retain a skilled workforce. The Executive Committee's recommendations totaling $500 million include an estimated $26.8 million in net new ongoing operating costs, primarily to operate new fire stations, parks and library facilities (Attachment A). Increases in operating costs associated with approved GO Bond projects will be incorporated into the proposed GF budget in the appropriate fiscal year. This information will be presented to the City Council as part of each applicable year's proposed budget for consideration. Staff will also incorporate estimated future costs of approved projects to the annual GF Five-Year Forecast for modeling purposes.
2023 GO Bond Program Development and Committee Recommendations
The City's bond processes have traditionally been community-driven. Accordingly, on June 1, the Mayor and City Council appointed a citizens' 2023 GO Bond Committee and eight subcommittees:
- Arts and Culture
- Economic Development and Education
- Environment and Sustainability
- Housing, Human Services and Homelessness
- Neighborhoods and City Services
- Parks and Recreation
- Public Safety
- Streets and Storm Drainage
City staff compiled a Capital Needs Study, identifying critical unfunded capital projects to serve as the starting point for committee work. Several factors were used to identify potential projects including: facility condition assessments; age and maintenance requirements of existing infrastructure; facilities that could pose a safety/liability risk to the City; key performance indicators such as service level data; and existing comprehensive plans approved by the City Council such as the Housing Phoenix Plan, Strategies to Address Homelessness, Climate Action Plan, and the Road Safety Action Plan. Cost estimates were based on existing estimates (if available) established from pre-design documents, or actual costs of recently completed comparable projects where possible. In the absence of such information, departments worked directly with the City Engineer's Office and Public Works Facilities Division for cost estimations. Staff also adjusted cost estimates to account for price increases anticipated over the five-year bond program. An inflation factor using data projections, provided by the University of Arizona's Economic Business Research Center, was applied to all proposed projects.
The study identified $1.2 billion in unfunded needs, divided into two categories: Prioritized Capital Needs and Future Capital Needs. Prioritized Capital Needs, totaling $647 million, representing the most urgent needs identified by staff while offering a balance among the City’s service categories. Future Capital Needs, totaling $505 million, representing projects determined to be less urgent than the Prioritized Capital Needs, or projects better suited for deferral to a future bond program. Incidentally, it is not uncommon for the amount of unfunded capital need to exceed resources available for GO Bond programs. For example, the 2006 GO Bond Program included unfunded capital needs of $3.2 billion and the voter-approved bond program was $878 million. Similarly, the 2001 GO Bond Program identified $2.8 billion in unfunded needs, and the voter-approved bond program was $754 million.
The first Executive Committee meeting was held on Aug. 8, and direction was provided to subcommittees to determine the highest-priority items assigned to their subcommittee, and recommend funding values for those items. Each subcommittee conducted at least three public meetings between August and October. Meetings were conducted in a hybrid format, allowing the public to participate either virtually or in-person. Subcommittees developed recommendations that varyingly included items from the Prioritized Capital Needs, Future Capital Needs, requests from the public, and priorities identified independently by subcommittee members. Subcommittees compiled recommendation reports for the Executive Committee, with subcommittee recommendations collectively totaling $717 million (Attachment B). The subcommittee recommended projects would additionally increase the City’s ongoing annual operating costs by an estimated $46 million.
To assist the Executive Committee in making reductions to subcommittee recommendations to arrive at the $500 million scope, the City Manager developed optional targets for their consideration. These targets were not binding by the committee and took into account:
- The prioritized list of projects in the Capital Needs Study;
- Subcommittee prioritization;
- Public comments received from residents during the subcommittee process;
- Equitable distribution of projects throughout the City;
- City departments’ ability to execute projects over the next five years;
- Future affordability by minimizing impacts to ongoing operating expenses; and
- Other funding sources currently budgeted for certain program areas.
The Executive Committee unanimously adopted these targets, with flexibility, as the baseline to start their deliberations. Staff also provided several supplemental reports for the committee's consideration including: other funding sources currently budgeted for certain program areas, project scalability, and public-private partnerships. The supplemental reports provided to the Executive Committee are included in this report for reference as Attachment C.
On Nov. 14, after extensive deliberation, discussion and consideration of resident feedback, the Executive Committee recommended a $500 million GO Bond Program for Council consideration. The below list summarizes recommendations by subcommittee program area. The Executive Committee's recommendations would additionally increase the City's ongoing annual operating costs by an estimated $26.8 million.
- Arts and Culture (10%) $50,385,000
- Economic Development and Education (7%) $38,000,000
- Environment and Sustainability (5%) $26,000,000
- Housing, Human Services and Homelessness (13%) $63,000,000
- Neighborhoods and City Services (9%) $44,615,000
- Parks and Recreation (13%) $64,000,000
- Public Safety (27%) $132,500,000
- Streets and Storm Drainage (16%) $81,500,000
Total Proposed GO Bond Program $500,000,000
Below is a brief summary of the Executive Committee's recommendations by program area. Attachment A provides detailed project/program descriptions, scope, location, multi-year cost estimates and estimated ongoing operating expenses where applicable.
Arts and Culture: $50.4 million - 10% of the total bond program
A total of seven projects/programs are recommended for Arts and Culture including: a new Latino Cultural Center ($21.6M) and Valley Youth Theatre ($14.0M), expansion of the Children's Museum of Phoenix ($5.4M) and Phoenix Center of the Arts Theatre improvements ($1.2M), the Phoenix Theatre Company's Americans with Disabilities Act (ADA) accessibility projects ($5.8M), renovation and expansion funding for the Arizona Jewish Historical Society ($2.0M), and funding for general cultural facility critical equipment replacements ($0.4M). Funding in this program area will provide needed resources to support projects focused on diversity, equity and inclusion including: building Phoenix's first dedicated Latino Cultural Center in accordance with the Latino Cultural Center Ad Hoc Committee recommendations approved by the City Council in 2020, expand and improve local art venues used by all residents and provide improved accommodations for persons with disabilities, and help to expand the existing Cutler Plotkin Jewish Heritage Center to provide a state-of-the art Holocaust Education Center. Total estimated ongoing operating costs associated with this program area is approximately $890,000.
Economic Development and Education: $38.0 million - 7% of the total bond program
A total of three projects/programs are recommended for Economic Development and Education including: land acquisition for Rio Reimagined ($23.5M), funding for a new Arizona State University (ASU) Health Technology Center ($12.0M), and funding for land acquisition to "spark" redevelopment of fragmented parcels ($2.5M). Funding in this program area will ensure real estate is available for future economic development of Rio Salado and other parcels to include environmental assessments and cleanup as needed, and create a partnership with ASU to invest in infrastructure to help fund a new health technology center to provide advanced skilled training, including nursing. This program area does not include any net new ongoing operating costs.
Environment and Sustainability: $26.0 million - 5% of the total bond program
A total of four projects/programs are recommended for Environment and Sustainability including: funding for energy and water efficiency/renewable energy upgrades at City facilities ($14.0M), funding for heat resiliency projects ($7.7M), brownfield redevelopment program funding for City properties ($3.0M), and vehicle electrification stations for City facilities ($1.3M). Funding in this category will help to achieve goals of the 2021 City Council-adopted Climate Action Plan, including reduction of energy consumption, heat mitigation efforts, green infrastructure, environmental cleanup of contaminated property, and reduction of carbon emissions. Total estimated ongoing operating costs associated with this program area is $190,000.
Housing, Human Services and Homelessness: $63.0 million - 13% of the total bond program
A total of five projects/programs are recommended for Housing, Human Services and Homelessness including: Affordable Housing Property Preservation funding for up to 610 units at four properties Citywide ($33.2M), a new Cesar Chavez Senior Center ($5.7M), renovations for the McDowell Senior Center ($1.8M), gap funding for Choice Neighborhoods Housing Development for the Edison-Eastlake Community to accommodate 286 affordable and 78 market-rate new rental units ($21.3M), and funding for a new Innovation in Affordable Housing Initiative ($1.0M). Funding in this category will help to provide a new community center and upgrades to an existing historic center for seniors, and achieve goals of the 2020 City Council adopted Housing Phoenix Plan, which include creating and/or preserving 50,000 affordable housing units by 2030. Total estimated ongoing operating costs associated with this program area is $330,000.
Neighborhoods and City Services: $44.6 million - 9% of the total bond program
A total of five projects/programs are recommended for Neighborhoods and City Services including: a new library as part of Phase I for Estrella Village Civic Space ($8.6M), funding for City facility Americans with Disabilities Act (ADA) accessibility improvements ($10.1M), expansion of the Yucca Branch Library ($10.6M), a new library as part of Phase I for Desert View Civic Space ($10.3M), and funding for Historic Preservation Programs ($5.0M). Funding in this category will provide comprehensive library programs in areas of the community currently lacking services, provide needed funding to do necessary ADA prioritized improvements to maximize access at a City facilities, and funding for Historic Preservation Programs including demonstration, exterior rehabilitation, and threatened building grants. Total estimated ongoing operating costs associated with this program area is $3.0M.
Parks and Recreation: $64.0 million - 13% of the total bond program
A total of 10 projects/programs are recommended for Parks and Recreation including: Citywide parks minor capital projects to be determined by the community ($1.5M), a new recreation center at Esteban Park ($4.5M), South Mountain Park Phase I roadway safety improvements ($7.7M), repurpose four pools in South Phoenix to provide a new regional pool at Harmon Park, and add three splash pads at Alkire, Grant, and University Parks ($12.8M), repurpose three pools in the Maryvale area to provide a new regional pool at Maryvale Park, install two new splash pads at Marivue and Holiday parks ($14.3M), design and construct Phase I of the Estrella Village Civic Space ($8.4M), design and construct Phase I of the Desert View Village Civic Space ($8.4M), provide funding for improvements at the Telephone Pioneers of America Park Recreation Center ($2.2M), renovation of the exterior sport courts at the Mountain View Community Center ($1.2M), and provide funding for additional enhancements to Margaret T. Hance Park ($3.0M). Funding in this program area will significantly increase Parks and Recreation facility capacity to provide a variety of programming and services in areas of the city lacking sufficient resources, while also funding necessary roadway safety improvements to reduce the number of accidents that occur at South Mountain Park and Preserve. Total estimated ongoing operating costs associated with this program area is $3.3M.
Public Safety: $132.5 million - 27% of the total bond program
A total of seven projects are recommended for Public Safety including: a new Fire Station 7/Community Assistance Program facility located at 7th Street and Hatcher ($21.4M), a new Fire Station 13/Community Assistance Program facility located at 44th Street and Thomas ($21.8M), a new Fire Station 15/Community Assistance Program facility located at 45th Avenue and Camelback ($21.4M), replacement of the Cactus Park Police Precinct, including land acquisition to accommodate a future relocation of the North Command Center, located to be determined ($37.3M), a new Fire Station 51 located at 51st Avenue and State Road 303 near the new Taiwan Semiconductor Manufacturing Company plant ($18.6M), renovation of the Police Property Management Warehouse ($9.0M), and renovation of the Maryvale Police Precinct ($3.0M). Funding in this category will provide critical public safety infrastructure to improve response times and mitigate service impacts on neighboring stations by reducing redirection of resources, and improve Police operations and training facilities. Additionally, three of the four new Fire Stations will provide facility space for personnel with the City's Community Assistance Program (CAP) to improve mental and behavioral health outcomes for residents. Total estimated ongoing operating costs associated with this program area is $18.7M.
Streets and Storm Drainage: $81.5 million - 16% of the total bond program
A total of six projects/programs are recommended for Streets and Storm Drainage including: program funding for Vision Zero projects ($16.9M), funding for Equity Based Transportation Mobility/T2050 Mobility Implementation ($12.6M), project funding for flood mitigation in four areas of Laveen ($8.2M), funding to supplement the Accelerated Pavement Maintenance Program ($22.0M), funding to implement the Hohokam Drainage Master Plan in collaboration with the Flood Control District of Maricopa County ($19.3M), and Storm Drainage Replacement Program funding to replace one to two miles of deteriorating metal storm drain piping with new reinforced concrete pipe ($2.5M). Funding in this category will help achieve goals of the 2022 Council adopted Vision Zero Road Safety Action Plan to improve safety conditions for drivers and pedestrians on city streets, provide additional funding to improve road conditions, accelerate implementation of mobility projects that support disadvantaged communities and persons with disabilities where access to safe transportation is limited, and partner with the Flood Control District of Maricopa County (FCDMC) by providing 35 percent of the funding needed to do flood control projects in Laveen and implement the Hohokam Area Drainage Master Plan (the FCDMC will provide 65 percent of the funding). The total estimated ongoing operating costs associated with this program area is $390,000.
Additionally, the Executive Committee's recommendations, each subcommittee's report, the Capital Needs Study, and all community feedback reports are available on the GO Bond website.
Other Considerations
Percent-for-Art: Consistent with Phoenix City Code, one percent of voter-authorized GO Bond funds would be reserved for public art projects. Certain activities such as land acquisition and equipment are excluded from the Percent-for-Art allocation. After accounting for exclusions, the Executive Committee's $500 million recommendation would include approximately $3.8 million in funds for the Public Art Program. If the City Council were to adjust the Executive Committee’s recommendations, those adjustments may result in a change to the Percent-for-Art calculation. The City Code authorizes Percent-for-Art funds to be aggregated, or pooled, to the extent legally permissible. For a GO Bond program, funds could be pooled within a given proposition. For example, all Percent-for-Art funds associated with a Street Transportation and Drainage bond proposition could be used towards one Street Transportation and Drainage-related public art project, or could be used towards multiple related art projects. Funds would be available in allotments based on the timing of actual bond sales and would be reflected in the Public Art Plan presented to the City Council annually for review.
Environmental Impact of Proposed Projects: The 2006 GO Bond Program required all facilities within the program to be designed and constructed to meet at least minimum Leadership in Energy and Environmental Design (LEED) standards. Projects approved as part of the 2023 GO Bond Program will also be required to meet these objectives, as well as those outlined in the Climate Action Plan and documented in the current General Plan. City staff, led by Public Works, are revising the Citywide building standards for new and renovation projects and plan to complete those updates by Fall 2023. The Offices of the City Engineer, Sustainability, Environmental Programs, Heat Response and Mitigation, and the Public Works Facilities Management team will work in partnership to develop modern building standards that reflect the City’s goals towards a leadership role in sustainable planning and design of public facilities. Staff will incorporate green stormwater management in all projects. These practices can be incorporated into many building projects with minimal impact to overall project costs. All projects will be heat ready, which will include cool roofs and shade components in all new buildings, and in retrofits where possible. Coordination with all the offices and functions listed above will take place to incorporate these design elements and practices into all new buildings and renovation projects.
Project Scope: Certain projects/programs included in the Capital Needs Study are scalable, while others have specific scope identified to ensure service levels can be met based on department need and resident expectations. The Subcommittee and Executive Committee recommendations included reducing the scale and scope for certain projects. It is important to consider any further adjustment to the scope, square footage for example, of proposed projects including fire stations, libraries, and community centers would either hinder or impact the quality of service delivery.
Public Safety: As mentioned earlier in this report, acquisition of the 100 W. Washington building to serve as a new Police Department Headquarters is an investment totaling $195 million. This in turn allows bond funding capacity to be available for other City projects and programs. The total Public Safety bond program amount recommended by the Executive Committee is $132.5 million, for a combined Public Safety infrastructure investment if approved of $327.5 million over the next five years. This is a significant amount dedicated to Public Safety infrastructure. Attachment A includes the itemized list of the Executive Committees' recommended projects for the Public Safety program area. Recommendations include four new fire stations, replacement of a Police precinct, and renovation of an existing precinct and property warehouse. Additionally, with recurring GO Bond Programs every five years it is possible for the Fire Department to build four to five new Fire Stations with every bond program, resulting in up to 19 new fire stations across the City.
Community Engagement
Community input is a priority to ensure bond projects reflect the needs of Phoenix residents. Staff developed a robust communications and engagement plan, which has provided multiple ways for residents to provide feedback on proposed bond projects. The plan has included the following:
- Dedicated GO Bond website to include instructional video in English and Spanish;
- GO Bond interactive tool (made available on dedicated website in English and Spanish) to allow residents to prioritize and recommend projects from the Capital Needs Study;
- Press releases/PHX Newsroom;
- Social media outreach;
- Targeted emails;
- Spanish and English Radio ads and interviews;
- Spanish and English Print ads - Arizona Republic, AZCentral, AZ Informant, La Voz, Prensa;
- Grocery TV ads;
- Flyer distributions via multiple City departments; and
- PAYS Newsletter.
Additionally, a dedicated public hearing was held on Sept. 14 and community input was solicited at all 34 bond committee meetings. Residents were able to attend in person or virtually to request to speak or provide written comments. Spanish interpretation services were provided at every meeting. Information about bond committee meetings, including the schedule and instructions on how to participate, was made available on the GO Bond dedicated website in July 2022 prior to committee meetings commencing in August 2022.
Community Feedback Reports were compiled twice per month, published on the GO Bond website, and provided to GO Bond Committee members. The most recent Community Feedback Report is included with this report for reference as Attachment D. The City received approximately 1,000 comments made by phone or email, through the GOPHX tool, and at GO Bond Committee meetings. Additionally, resident engagement with social media posts on FaceBook and Twitter included 15,943 clicks, comments, reactions and shares, and GO Bond Committee meetings had 7,295 views on YouTube.
RECOMMENDED ACTION
Staff recommends City Council action to:
1) Approve the GO Bond Executive Committee’s recommendations; and
2) Direct staff to prepare ballot language for a November 2023 election, for review and approval by City Council.
Responsible Department
This item is submitted by City Manager Jeffrey Barton and the Budget and Research and Finance departments.