Rap of gavel ends Loveland discussion of food-tax elimination budget cuts

LOVELAND — A sharp rap of the gavel ended discussion of a contingency budget for the city of Loveland should voters approve initiative 300 on the ballot this fall.

Initiative 300, brought to the ballot by the signatures of numerous residents, would eliminate the sales tax on food purchased for home consumption. 

That 3% tax generates about $10.5 million, according to city staff projections based upon a comparison of city sales tax collections and Larimer County sales-tax collections in Loveland. Larimer does not charge a tax on groceries.

Residents who support the elimination of the tax, which they say penalizes lower-income individuals, contest the city’s projection of the impact. They say that the impact will be less, that shortfalls can be made up by city reserves or by modest reductions in city spending.

City staff had been trying for multiple meetings to present its analysis of the impact and seek council direction on how to proceed, should the measure pass on Nov. 7.

Recognizing that the council agenda Tuesday contained multiple issues that could swallow up time and push the council against its 10:30 p.m. adjournment time, council member John Fogle moved to extend the meeting until the budget discussion was done, regardless of the time. 

With some members of the council out of the room, the vote was 5-2 to extend. Mayor Jacki Marsh, however, who supports elimination of the food tax, changed her vote from yes to no, making the vote 4-3. Under the council’s rules, motions to extend require a super majority, so the motion failed. She told Fogle he could present his motion again when all council members were back in the room.

Discussion began, however, and the motion to extend was not re-offered, resulting in the abrupt  adjournment at 10:30 p.m. as Brian Waldes, chief financial officer, was mid-sentence.

Before the gavel struck, however, Waldes outlined the potential issue for the city if the ballot issue passes.

He said that in previous discussions with the council, staff was instructed to spread the $10.5 million shortfall over the entire general fund budget instead of protecting any particular city function from cuts. One scenario would have protected public safety, which Waldes said would make the cuts to other departments twice as deep.

Waldes said the city will receive additional revenue from increases in property taxes due to steep increases in property valuations throughout the city. He said staff originally estimated increased revenue from the property tax would be 20%, or $2 million. That money was already factored into the base budget for 2024, from which the $10.5 million would need to be taken. Now, Waldes said, the city estimates a 30% bump in property-tax revenue, meaning about $1 million will be available to apply to the food-tax shortfall.

He said that the city also will have a one-time increase in revenue of $600,000 due to a change in the share that the city pays toward the Loveland Fire Rescue Authority. That can help cushion the impact of the food-tax removal, but only for one year.

The city may also have a surplus at the end of 2023 that can be applied to 2024 costs, he said, but the number is uncertain.

He asked the council to direct how it would like the $1 million property-tax increase and the LFRA amount distributed. It could be put in an unassigned fund balance and used as needed over the coming year, or applied to specific areas of the budget to reduce cuts.

The concern, Waldes said, is people. “It comes down to people. The largest single expense in the general fund is personnel, compensation.”

While the city can take steps to reduce capital spending and to withhold merit pay increases, that can happen only so long before cuts will be needed to programs, he said.

In response to questions from the council, Waldes said that Loveland residents pay 63.8% of food sales taxes, with 32.2% or $3.8 million coming from nonresidents shopping in the city. He also said that using those percentages and census data, the city estimates that an average resident pays $106 per year in food taxes. Proponents of the tax elimination say that number is much higher.

Waldes broke down the fund balances, which total $192 million, but not all are available for use in covering shortfalls. Some are in restricted enterprise funds, such as for city utilities, that can be used only for utility repairs and projects. About $148 million are restricted, he said. The general fund reserve could be tapped, and it totals $37.1 million.

Without the ability to replenish that fund because the food-tax elimination would continue each year, sooner or later, reductions will need to be made to services.

“This change would be permanent, unlike the 2008 (economic) downturn, which had an end.  You can’t eliminate merit increases permanently. You can’t eliminate capital projects permanently. We will get to a point where we have to decrease services,” he said.

The council discussed few specifics. It mentioned the Pulliam Community Building project, which is scheduled for a potential contract award on Nov. 21. The Pulliam restoration project could cost the city $7 million up front, plus ongoing operational costs, Waldes said.

In the public-safety realm, staff is recommending elimination of school resource officers, reductions in police staffing and other cuts that total about $4 million.

Staff is suggesting increased development services fees to increase revenue, but also reducing library services, building maintenance staffing, reductions to IT services and software, reductions to parks and recreation, court services, and the elimination of some special events such as public concerts.

Multiple council members recommended using the increase in property taxes and the one-time $600,000 to reduce cuts in public safety. 

“I can’t get behind cutting school resource officers,” council member Dana Foley said.

“Put all of the $1.6 million into public safety. I’m not sure it does much to sprinkle it across the whole budget,” said Andrea Samson.

As Waldes attempted to get additional direction, the gavel rapped and the meeting adjourned.

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