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Bonus bucks keep city afloat
$12.2M infusion since 2002 covered revenue shortfalls
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Joe Anfuso was astounded when he took over the top job at Stockton-based Florsheim Homes that currently has two new Manteca neighborhoods underway and came face-to-face with “bonus bucks.”

Anfuso, who cut his teeth overseeing new housing construction in the nose-bleed prices of the San Diego housing market, had never heard of such a growth fee let alone one that had no conditions placed upon it in terms of what a city could do with the money.

“I couldn’t believe builders let that one get put in place,” Anfuso recalled saying in an interview last year.

Then he found out how it came about. A group of 13 builders a decade ago were up against a hot market and Manteca’s 3.9 percent annual growth cap on the issuance of residential sewer allocations.  The way the city’s growth cap works was to award available sewer allocations each year in January to the first-come, first-served who met certain criteria.

That posed major problems in terms of securing financing for projects if a builder couldn’t get enough allocations to build enough homes in a year to cover upfront construction costs. There were concerns that those who would get aced out in the process might sue and stop all building. So the builders did something that a lawyer at the time said was comparable to successfully herding 13 cats – they all agreed to give Manteca an unrestricted growth fee on each home in return for certainty for sewer allocations through development agreements.

Over the years that money has helped pay for the new Union Road fire station, soccer lights at Woodward Park, the skate park, Tidewater traffic signals, and a host of other things including several police dogs. The bonus bucks also have helped pay for Fourth of July fireworks in advance while the city awaited donations and part of the receipts from the Manteca Police Officers Association fireworks booth to cover the tab.

Bonus bucks have prevented city budget cuts since 2002
The biggest single bonus buck expenditure, though, has been in keeping Manteca afloat with adequate reserves.

Since 2002, city leaders have used $12.2 million in bonus bucks to cover gaps in the general reserve.

It  started in 2002 as a $512,000 infusion to help ease the pain of dropping the $2.35 monthly household tax on garbage, water, and sewer service that generated $690,000 annually to help cover part of the tab of operating Manteca’s municipal storm drain system.

Another $429,500 in bonus bucks was used to cover a revenue shortage in 2003. The city used $780,000 in bonus bucks in 2004 to assist with storm system expenses. Then in 2005 they used $2.4 million in development agreement fees for general fund operations and personnel. The city used $2.1 million in 2006 to also cover a general fund short fall.

This fiscal year, the City Council tapped $6 million in bonus bucks to balance the budget.

The budget, as developed, had a $7.3 million revenue shortfall against expenditures. The city made up the rest by leaving six positions unfilled to save $455,890 and then slashed department spending back by $800,000.

When the council adopted the budget in July, they called the $6 million infusion of bonus bucks a zero interest loan although it wasn’t clear how the council intended to repay the money down the road.

It is that $7.3 million that is referred to as the structured deficit. The city actually has money – thanks to the bonus bucks – to plug it this year. The structured deficit refers to usual revenue sources coming up short against expenses.

The $7.3 million shortfall for the upcoming fiscal year starting July 1 was assumed out of the gate on this year’s budget in planning for next year’s spending plan. Since then, property and sales tax revenue started dropping. That prompted the city in December to analyze trends and to announce they would face an $11.3 million deficit in the 2009-10 year unless steps were taken to reduce spending and possibly find a way to increase revenue.

Bonus bucks help put Manteca in better shape than many nearby cities
While other cities are cutting for the current fiscal year to balance the budget, steps Manteca is now taking are designed to avoid a deficit in the upcoming budget year. City Manager Steve Pinkerton has indicated that steps that have been taken so far to entice early retirements, furlough workers, restructure the police command structure, freeze additional positions and numerous other strategies should end up trimming that $11.3 expected gap by half. The City Council appointed a 15-member citizens committee to advise it on the next step which is how best to cut services to make ends meet.

Theoretically, bonus bucks could bring in another $50 million plus over the next decade if all of the projects on the books are actually built.

That, however, may have more to do with the economy when future development agreements are negotiated.

Anfuso noted the bonus bucks in place right now are a contractual obligation. The city has given the developers some leeway providing them with additional years to front money for sewer allocations they’ve been awarded but haven’t yet used. Under the agreements the bonus bucks had to be paid by a certain time even if a house hadn’t been built. The council gave developers relief on that but not the fact they have to eventually pay the bonus bucks.

Some elected officials have said bonus bucks might need to be re-examined. However, if the new housing market picks up again as it did in the late 1990s, the pressure would be on the developers to try and control future sewer allocations. The city is unlikely to give up control of flexibility with their sewer allocations for nothing especially since the growth cap makes them a relatively scare commodity.

Manteca developers who want guaranteed sewer allocations are now paying between $7,350 and $13,340 extra per home.

The standardized approach of including bonus bucks in development agreements has been in place ever since 1999 when demand exceeded remaining sewer capacity.

It’s ironic, in a way that, as the bonus bucks came about especially since one of the two prime motivators of putting the Northern San Joaquin Valley’s first growth cap in place had everything to do with the city’s inability to make sure revenues kept pace with the expanding costs associated with accommodating growth. The bonus bucks have helped the city not just keep up with growth but expand some services.  

Bonus bucks are assessed on a three-tiered approach to the fees that are adjusted annually for inflation based on the number of allocations issued in a given year.

That tier is:

• $7,350 per home for one to 50 housing units,

• $8,172 per home for 51 to 99 housing units.

• $13,340 per home for 100 or more housing units.

The tiered approach has the effect of reducing housing costs when the housing market is in a slowdown mode.

Builders need a guarantee of the number of homes they need a year to make building profitable to cover the cost of improvements that need to go in first such as sewer and water lines, streets, and everything from electrical to cable.

During the tight period of allocations in the late 1990s, builders argued they needed to build a minimum of 50 homes to make things pencil out.

Then City Manager Bob Adams decided it made sense to escalate the initial fee of $2,500 per home to make it work for the benefit of Manteca residents.

Other cities interested in adopting programs similar to Manteca’s bonus bucks in the past have approached municipal staff for details on how it works.