This is part one of a series of articles The Times is doing related to Town of Fountain Hills finances, as residents prepare to go to the polls in May to consider a primary property tax.

Fountain Hills officials have long kept a wary eye on the bottom line. Knowing that the construction boom of the 90s would eventually be tempered by the town’s finite boundaries they have often considered how to offset a revenue source that would shrink.

Looking to expand an economic base that could generate more sales tax, officials looked at development of a major shopping center along the Shea Boulevard corridor. Four Peaks Plaza with an anchor Target store had to go to voters twice due to resistance from surrounding neighbors over zoning.

The plaza finally opened in the fall of 2002 and it did generate revenues ahead of projections.

Before that, however, the town was generating most of its sales tax revenues through construction activity, and times were good through the mid to late 90s. The town’s growth rate during this time also meant the allotment of state shared revenues was good.

During the 2000-01 fiscal year the town had nearly $9 million in capital projects budgeted. This does not include the Library/Museum building which was a voter approved general obligation bond and the money to pay for the project would come from a secondary property tax.

Replacement of the Fountain Lake liner, widening a portion of Shea Boulevard and improvements to the retention dam at Golden Eagle Park were being budgeted from town reserves and only a portion had a dedicated source for debt service revenue.

In 2000 the town funded the Community Center construction with Municipal Property Corporation bonds. Those funds were placed with a trustee who invested in Pacific Gas & Electric, which defaulted.

The town eventually recovered all of the money lost, plus legal fees, but had to fund completion of the Community Center with other money.

In October 2001 the Town Council voted to take over the fire service obligation for the town and abolished the fire district. The district had paid for services with a secondary property tax and funds received from a Fire District Assistance Tax.

The cost of fire service was around $2.4 million at the time, and there was no revenue to cover those costs, and two ballot proposals to implement a primary property tax failed.

While the town’s financial health was never at risk, Moody’s Investors Service was looking on with caution. In 2002 Moody’s placed the town’s general obligation bonds on a “negative outlook.” This was a result of a review of the town’s annual financial report for fiscal year 2000-01, which indicated the use of reserves for capital projects resulting in an operating deficit.

Current town Finance Director Julie Ghetti was accounting supervisor for the town at the time.

“Moody’s concern was that there were no formalized policies or multi-year planning guide present and/or future council policy decisions, and the downward direction of the fund balance during (fiscal years) 2001 through 2002,” Ghetti said.

It was at the end of the first quarter in 2004 that Moody’s released a statement removing the negative outlook for the town.

It said, “The general obligation bond rate reflects important steps the town took in implementing a fund balance policy and multi-year financial and capital planning processes to enhance financial stability.”

The Town Council had also established new financial policies for revenues, expenditures, capital projects and debt issuance.

Former Town Manager Tim Pickering was hired in the fall of 2002, and Mayor Wally Nichols won a recall election in spring of 2003.

Pickering was both praised and criticized for some of the cost cutting steps he took when he came on board, including cutting staff by as much as one-third.

Nichols said for his part he started asking questions about finances three to five years out when he came into office.

He said no one had any answers.

“There was nothing but a one-year budget,” Nichols said. “We felt the council needed a five-year (financial) plan, and decided while we were at it to find out what the people wanted.”

Staff responded by putting together a 25-year financial projection that included both anticipated revenues as well as both necessary operating funds and potential capital costs.

This was the basis for a strategic planning process that began in January 2005. The process involved more than 2,000 citizens in town hall meetings, focus groups and a public survey.

The plan was adopted at the end of 2005 and it has served as the basis for budget considerations for the past three years.

“Now the way Town Hall operates is with a planning mindset,” Nichols said. “(Staff) is looking ahead for what’s needed and the impact.”

Nichols said he understands that the strategic plan needs to be tweaked every so often.

“The peoples’ priorities and attitudes change over time,” Nichols said. “We recognize that.”

One way the town moved to stay on top of the planning process was to establish the Strategic Planning Advisory Commission (SPAC).

Nichols said others are watching what Fountain Hills has done.

“Several communities have asked how it worked and how they might do the same,” he said. “What we are doing is ahead of others in government.

“I give the council a lot of credit for standing up and staying behind the plan results.”

One of the goals established by the strategic planning process was to have the council and staff provide a long-range revenue proposal to address projected revenue shortfalls.

One of the results of the 20-plus year financial plan was finding that with the anticipated drop off in construction revenues the town would face a revenue shortfall anywhere from 15 to 17 years down the road.

These predictions were greatly exacerbated by the recent crisis in the nationwide housing market, bringing potential revenue shortfalls much closer.

In the course of its research and deliberations on projected revenue shortfalls, SPAC concluded that the residents should be asked to consider implementation of a primary property tax levy for the Town of Fountain Hills.

The council agreed and has proposed a $4.5 million tax levy that voters will consider at the polls on May 20.

Next week The Times will be looking at where the town gets the money and spends what goes into the general fund for ordinary day-today operations.