The Incorporation Steering Committee posted an 89 page Incorporation Study <click here> and spent two hours presenting bits and pieces of it at Saturday night’s (09-20) public meeting <for Zoom recording click here>.

I want to thank those who brought their time and expertise to the review of the Incorporation Study and the drafting of this assessment.

What you are about to read is a reality check of the Incorporation Study and the information that was conveyed in the public meeting.  It takes into consideration the incorporation experience of La Pine, Oregon and the recommended considerations by League of Oregon Cities (LOC) <click here> that were presented on August 28^th, though the importantly, relevant sections of that presentation seem to have been overlooked in the posted Study. 

Also, as important context for this communication;

1. Only two cities have incorporated in Oregon in the past 35 years.  La Pine took 4 kicks at the can and, after it incorporated, ran into $55,000,000 of “unintended consequences”(La Pine’s words).  The other city, Damascus, fought a successful 7 year legal battle all the way to the State Supreme Court and Governor’s office to unincorporate <click here>. 
2. The consultant producing the report has only done an incorporation study twice in her long career and none of the Steering Committee members have gone down this path.

The expression, “Is the juice worth the squeeze”, couldn’t be more appropriate when considering the proposal to incorporate an Arch Cape city. 

This discussion covers:

1. Why are we doing this? (The Juice)
2. What is it going to cost us?  (The Squeeze)
3. “Wish and a Prayer” vs “Fiscal Realities”
4. Summary and a Request of the Steering Committee

TO INCORPORATE OR NOT SURVEY:   Residents and property owners in Arch Cape, Falcon Cover and Arcadia are invited and encouraged to complete a 30 second incorporation survey – click here.  Please forward to friends and neighbors so we can get a representative assessment of preferences.

Executive Summary

*** An executive summary is provided for those that don’t want to slog through the detail below.  Given the serious financial impact of the proposal for incorporation, a thorough analysis of that proposal is warranted for those that want to dig in. ***

The Juice – The primary reason that the Steering Committee is proposing to incorporate is to have greater control over land use, but they aren’t specific about what they expect to be different.  Short terms rentals will remain.  Additional roads might or might not be asphalted/ paved, as has been done over the past 20-30 years.  Housing density requirements will continue to be mandated, either by the County or the State.  And it is possible that the State could be a more stringent master than the County by requiring rather density rather than allowing it. Too early to tell.

The Squeeze – The Study proposes annual operating costs of an incorporated Arch Cape City that swing widely from $679,000 to $5,000,000 due to the fact that the Steering Committee has yet to decide on the specific services to be provided.  These services include potentially unwanted services such as $261,000 for Tourism Promotion.  The cost for most, if not all, of these services are grossly understated, apparently in the interest of keeping the property tax rate close to the stated current rate of $1.73 per thousand dollars of assessed value.  For the simplest scenario presented in the study, which does not include Tourism Promotion, the cost understatement is estimated at least $250,000 – $300,000, PLUS the additional impact of identified but not budgeted capital costs.  The Study states that it does not include the budget projections for anticipated capital costs as “… the legal requirements for an economic feasibility statement do not require a capital budget.”   And lastly, the Study and consultant’s comments allude to the fact that forms of taxes other than property tax, such as levies and bonds, may be required.

Bottom line, if an Arch Care City were to be incorporated, property owners would carry a significantly higher financial burden than they do now, along with untold financial risk, for the same or lesser level of service than is provided by the County.  And for that burden and risk, property owners would likely get; 1) minimally more, if any, meaningful control over land use, and 2) 5 to-be-selected city councilpersons with the authority to make wide ranging changes to the look and feel of the community (ala the previous Arch Cape Design Review.)

Is the juice worth the squeeze?

Detail

Why are we doing this?  (The Juice)

Page 3 of the Study says; “there is interest in the potential benefits of forming a city, especially greater local control”.  On Saturday night when specifically asked why incorporate, the Steering Committee response was words to the effect; “The primary underlying reason is ….  we don’t have control over land use planning” and went on to say that “Clatsop County has not made the appropriate investments in this community”, which is also echoed on page 3 of the Study.

What does that mean … what will be different if the Steering Committee gets the greater control that it wants?

Also during Saturday night’s presentation, the Steering Committee expressed frustration that; “Clatsop County has not made the appropriate investments in this community.  This sentiment is echoed on page 3 of the Study.  In recent history, the County gave Arch Cape $250,000 to buy a forest-watershed, the County maintains the gravel roads, built a pedestrian bridge on Pacific and even gave the Community Club $100,000+ for an incorporation study.  In my awareness of the recent past, the only specific request that was denied by the County was for $88,000 to upgrade the underground water and sewer infrastructure .

Bottom line,  it appears as though the Steering Committee’s objective for going through all this work and spending all of the money outlined below is so that they can exert some minimally more and potentially inconsequential control over land use (and other aspects about the look and feel of this community) though the Study fails to be specific about the type of control that the Steering Committee expects to get.

What is it going to cost us?  (The Squeeze)

The charts on pages 86 -88 of the Study estimate the incorporation costs as somewhere between $678,000 – $4,900,000.  This wide variation in costs is due to fact that the Steering Committee has yet to decide on the exact services that they want the city to provide.  

It is important to note that these charts ONLY show the annual operating expenses and NOT the known upfront capital expenses that will be required, i.e., comprehensive plan development, road paving etc. that are detailed elsewhere in the Study. 

For simplicity sake, let’s focus on the “Low Expense” Columns 1.A .& 2.A.  These columns represent the costs for a very minimal level of city services. (see next section “Wish & a Prayers vs Fiscal Realities” for a reality check on these costs).

From an Expense perspective (top section of the above chart):  The only difference between the Column 1.A. & 2.A, is that Column 2.A. proposes that $261,000 be spent on “Tourism Promotion”.  As described on page 71-72 of the Study, this means; Operation of a Visitor Center, Production of tourism materials,  Creation and installation of interpretative signs , etc. 

From a Revenue perspective (bottom section of the above chart):  The only difference between Column 1.A .& 2.A is how the costs of the services will be split between what comes out of property owners pockets and short term rental taxes. 

	Column 1.A.	Column 1.B.
Property Tax Rate (Per $1,000 of assessed value)	$1.94	$1.41
Franchise Fees*	$0	$53,000
Transient Lodging Tax (Short Term Rental)	$0	$374,000

* Franchise fees are charges that cities impose on utility providers—such as electricity, natural gas, telecommunications, cable, and solid waste companies—for the privilege of using public rights-of-way to install and maintain infrastructure like poles, pipes, and wires. They are typically calculated as a percentage of a utility’s gross revenues within the city and are passed on to customers in their bills.   Though the property tax rate of $1.41 appears lower, Franchise Fees will be new, additional costs coming out of the residents and property owner’s pockets.

The fine print about taxes …

“Wish & a prayer” vs Fiscal Reality

For even greater simplicity, and assuming that there is not wide spread interest by residents in spending money on promoting tourism, this fiscal analysis will only address the scenario of Column 1.A., although the logic applies across all 4 Columns in the table above.

It is relevant to note that Page 9 -‘Conservative Estimates’ of the Study states that the costs projections “leaned towards the higher end.”  Page 11 states: “Traditional revenue sources for cities, like property taxes and utility franchise fees, have not kept pace with inflation, leading many cities to either cut spending, eliminate services, or rely on alternative revenues. The [League of Oregon Cities] report notes that cities with fewer than 500 residents (like the potential incorporated city would be) were the most likely to report difficulty meeting their financial needs.

It goes on to say; Because of these constraints, this incorporation feasibility study emphasizes cost structures and revenue composition over nominal figures. The goal is to assess whether incorporation is viable under current conditions and likely fiscal trajectories, recognizing that future city officials will need to adjust budgets based on actual conditions at the time.

In other words, from the Study’s perspective, these are the higher end costs that should be anticipated, i.e., overstated costs as opposed to understated costs.

Below are the fiscal realities that are not being reflected in the above, very bare bones cost scenario of $678,663.  Those realities suggest that the real costs to taxpayers will be significantly more.  Comparative data and municipal administrative experience estimate that the cost understatement for this scenario is $250,000-$300,000 PLUS the impact of identified but not budgeted capital costs.

Costs are grossly understated:

1. Capital Costs:  $3,100,000 – $5,500,000 are NOT INLCUDED in the budget above.

2. Administrative Costs:  Arch Cape City’s proposed budget – $72,000.  La Pine’s actual budget – $408,000.

3. Police Costs:   Arch Cape City budget:  $30,000.   County Sheriff is $144,464.

4. Contingency/reserve amount: Arch Cape City budget:  $62,000.   GFAO Recommendation is $136,433 (based upon more realistic costs)

Revenues are optimistic

Does this budget pass the “sniff test”?  Aside from the omitted and understated costs specifically highlighted in #1-4 above, are the estimates for the other costs realistic?  In your experience, have estimates ever been right-on or less than actual costs, e.g., home building, renovation, car repairs, whatever?  Typically, the higher the complexity of the work, the higher the over-budget cost.  Likely, incorporating a city is not different, and it is definitely highly complex.

The presented budget for the barebone services, Column 1.A. has a permanent tax of $1.95 which is more than our current permanent tax rate of $1.73.  When the associated service costs are updated to reflect reality, the out-of-pocket costs for property owners will increase significantly. And this fiscal chasm only gets worse if/as the city provide more than the barebones service.

Summary & a Request for the Steeting Committee

The track record for incorporation is daunting. Only two cities have made it through the gauntlet in the past 35 years and only one continues to survive. La Pine had multiple kicks at the can, was knowledgeable and prepared and they still ran into significant unexpected financial problems after incorporation.  In comparison, the Incorporation Study has no meaningfully, actionable objective, no description of how the community will be different after incorporation, includes expensive and unwanted services that will come as an unwanted surprise to the community, and omits significant costs and understates others so that the permanent property tax can be kept as low as possible to increase the likelihood that a possible future ballot measure might be successful.

If an Arch Care City were to be incorporated, property owners would be carrying a significantly higher financial burden than they are now and untold financial risk.  And for that burden and risk, property owners would most likely get; 1) Minimally more, if any, meaningful control over land use, and 2) 5 to-be-selected city councilpersons with the authority to make wide ranging changes to the look and feel of the community. Moving forward in this direction will likely take the community on the same path as Damascus with 7 years of legal entanglements.

If this effort concludes now, maybe the remaining incorporation study money can be spent on repairing our underground water and sewer infrastructure rather than a consultant and, even better, the next year of our lives is not spent wrestling with this incorporation issue.

If the Steering Committee chooses to continue to push their incorporation agenda, it would be helpful if the next version of the Incorporation Study would remove the complexity and make this all very simple by clearly answering the following  questions:

1. What specific aspects of land use planning does the Steering Committee believe that they will be able to control and how will the community be different than it is now?
2. What are the Steering Committee’s expectations of how, when and by whom the capital costs will be paid and what will be the financial impact on the budget and the taxpayers?
3. What is tax rate that we will no longer pay to the county, e.g., $1.73 per thousand dollars of assessed value.
4. What is the proposed permanent property tax rate that we will pay the new city?
5. What are any out-of-pockets costs, other than the permanent property tax rate that the property owners will incur?
6. What are the services that the residents of a new Arch Cape City will get that they are not already getting?

Only then will we each be able to judge for ourself if the juice is worth the squeeze.

TO INCORPORATE OR NOT SURVEY:   Residents and property owners in Arch Cape, Falcon Cover and Arcadia are invited and encouraged to complete a 30 second survey – click here.  Please forward to friends and neighbors so we can get a representative assessment of preferences.