RANCHO CORDOVA'S ECONOMIC CONUNDRUM

By James R. "Jim" Martin

The fiscal viability analysis for the proposed city has underestimated the costs and over estimated the income for the new city. The real numbers equal more than we afford. Incorporation is just too expensive.

Revenues are overestimated:

1. The method used to determine the amount of the utility user's tax collected in Rancho Cordova probably overestimated the amount by $1.2 million annually. The methods used to estimate this tax in Citrus Heights (per capita method) and Elk Grove (persons served approach), were not used for Rancho Cordova. The Citrus Heights and Elk Grove estimates were reasonably accurate. The Rancho Cordova method results in an unjustified $1.2 million increase.

2. Sales tax will be the new city's major revenue source. It is estimated using 1999-2000 fiscal year revenues as a base. This pre-9/11 period was the peak of the economic cycle. Because sales tax is the municipal revenue source most sensitive to negative economic conditions, Rancho Cordova will be hit hard in an economic downturn.

3. Under state law, the formula for motor vehicle in lieu tax revenue to the new city will drop dramatically after 7 years when the amount generated for the new city will be reduced by $1,051,000 per year

Expenses are underestimated:

1. $1.6 million in lost CHP services are not considered.

2. Capital costs are not included in the analysis.

3. The fiscal effects of the planned new residential developments in the Sunrise-Douglas and Aerojet Rio Del Oro areas are not considered. The revenue from residential development does not cover the cost of providing municipal services since Proposition 13. In Rancho Cordova the revenue shortfall will be gigantic due to the property tax sharing agreement with Sacramento County to implement the revenue neutrality mitigation payments. Sacramento County will initially receive 97.5% of property taxes (gradually reducing over 31 years). Rancho Cordova will have huge new service costs for the planned 34,000+ homes, 100,000+ new residents, without significant new revenues. The new development planned is overwhelmingly residential, so new sales tax revenues for the area will not be sufficient to make up an overwhelming shortfall.

4. The analysis forecasts a 25% population increase over 10 years, (2001-2011), a 24% revenue increase , and a 25% expense increase . While at first glance these numbers don't look terribly out of line, the reality is that municipal expenses are increasing much faster than revenues. This is true of the County of Sacramento, of Citrus Heights, and of other municipalities.

In Sacramento County (unincorporated area) from 1988-2001 :

• Population increased 27.4%
• Property tax increased 27.4%
• Sales tax increased 18.4%
• Law enforcement costs increased 64.5%
• General municipal service costs increased 69.0%

5. The estimated expenses are not consistent with what has occurred in the new cities of Citrus Heights and Elk Grove. Citrus Heights actual expenses are much higher than forecast and much higher than the Rancho Cordova estimate. This is without the residential population growth in Rancho which will add expenses without revenues (property tax will go to the County for years).