Hoover city treasurer spells out options for increasing revenue, including taxes

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The treasurer for the city of Hoover on Monday night laid out six or seven options city leaders can consider as they look for ways to increase revenue for city government.

Officials for both the city of Hoover and the Hoover school system say they are facing financial challenges and will need more money.

The tools in the toolbox, as Councilman John Lyda called them, include an increase in the city’s property tax, rental tax, lodging tax, or sales and use tax, a new occupational tax, and charging residents for garbage service.

Raising sewer fees for the 4,700 customers on the city’s sewer system in Riverchase, Southlake and Inverness or selling the sewer system also was discussed briefly, and Lyda suggested restructuring the city’s debt.

City Treasurer Robert Yeager emphasized that the options presented Monday night were not the mayor’s recommendation.

“We just want to put everything out there in front of you so you can almost think of it as a smorgasbord,” Yeager said. “There’s a variety of things you can choose from, or choose nothing. That’s a legislative decision. We’re just trying to inform you of the options.”

Property tax

Hoover residents now pay 72.6 mills of property taxes in Jefferson County and 66.5 mills of property taxes in Shelby County. By state law, the city can only increase property taxes by 2.4 mills before it reaches the statewide cap of 75 mills. Such an increase would generate an estimated $4 million a year in Hoover, Yeager said.

To accomplish that, the City Council would need to propose a property tax increase by ordinance or resolution and ask the Legislature to pass a local act, allowing the public to vote on the increase, Yeager said.

If the money were being set aside for the school system, the school board would need to request the rate increase before any council action, Yeager said.

However, city leaders could ask the Legislature to call for a public vote to exempt Hoover from the lid bill and allow the city to raise property taxes beyond 75 mills. For that to take effect, voters throughout Jefferson and Shelby counties would have to approve it, Yeager said.

Homewood, which has been at the 75-mill limit for several years, this year asked to be exempt from the lid bill, and the Legislature this spring called for a vote of Jefferson County residents in the November general election.

Mountain Brook and Vestavia Hills were exempt from the lid bill when it was passed because they were already beyond 75 mills at the time. Mountain Brook residents pay 99.1 mills in property taxes, and Vestavia Hills residents pay 92.6 mills.

An additional 2.4 mills of property taxes would equal $36 a year for Hoover property owners with a $150,000 home and would generate about $4 million for the school system, Yeager said. Raising property taxes to 80 mills would generate about $12 million more than currently brought in, and raising property taxes to 85 mills would generate roughly $20 million more, he said.

Lyda said if the Hoover school board were to request a property tax increase for education, he suspects there would be unanimous consent among the council to allow that to move forward. “The ball’s in the court of the school system,” he said.

Residential rental tax

Hoover currently charges a 1 percent residential rental tax, which generates almost $1 million a year, Yeager said. Doubling that would generate another $1 million and could be done by a City Council ordinance, he said.

Mountain Brook also charges a 1 percent residential rental tax, but Alabaster, Birmingham, Homewood, Pelham, Trussville and Vestavia Hills do not, he said.

Lodging tax

Hoover now charges a 3 percent lodging tax, which when combined with the state lodging tax of 4 percent and Jefferson and Shelby County lodging taxes of 7 percent, brings the total lodging tax in the city to 14 percent.

The current 3 percent Hoover tax brings in almost $2 million in revenue for the city, so doubling it to 6 percent would bring in about $2 million more, Yeager said.

Of nearby cities, only Mountain Brook is still at 3 percent, Yeager said. Alabaster, Pelham, Trussville and Vestavia Hills all charge 6 percent, and Homewood charges a 9 percent lodging tax, he said.

A lodging tax increase also can be done with a City Council ordinance.

The Hoover City Council considered doubling its lodging tax to 6 percent in mid-2015 but backed off after objections from hotel operators.

Occupational tax

Bessemer and Birmingham are the only two nearby cities that charge an occupational tax, and both charge people 1 percent to work in those cities, Yeager said. If Hoover were to adopt an occupational tax, city officials are uncertain how much it would bring in but estimate it would be between $16 million and $20 million a year, Yeager said.

An occupational tax also could be approved by a City Council ordinance.

Sales and use tax

Hoover currently has a 3 percent sales and use tax, which when combined with state and county taxes brings the total sales tax in Hoover to 8 percent in Shelby County and 9 percent in Jefferson County.

The current 3 percent municipal sales and use tax brings in about $71.4 million a year. Raising that to 4 percent would bring in about $20 million more per year, Yeager said.

Mountain Brook is the only other nearby city at 3 percent, Yeager said. Alabaster, Bessemer, Birmingham, Homewood, Pelham, Trussville and Vestavia Hills all are at 4 percent already, he said.

An increase in the sales and use tax also could be accomplished by a City Council vote.

Garbage fees

Hoover residents currently are not charged extra for garbage, recycling, leaf and yard waste pickup. The city pays Santek about $7.4 million a year for providing those services, and if the cost were divided among the 26,000 or so residents who receive the service, it would save the city that $7.4 million and cost each household roughly $23.72 per month, Yeager said.

Alabaster residents pay $15.20 per month, and Pelham residents pay $12.40 per month, but they only get garbage pickup once a week, Yeager said. Residents in Birmingham, Homewood, Mountain Brook, Trussville and Vestavia Hills do not pay extra for garbage pickup, he said.

The City Council could vote to have residents pay extra for garbage service by passing an ordinance.

Sewer rates

Hoover’s sewer system serves about 4,700 customers in the Riverchase, Southlake and Inverness communities but for the past 10 years has not been bringing in enough revenue to provide long-term support for the system, city officials say.

Revenues are strong enough to pay for current operations, pay off debt obligations and provide positive cash flow, but the sewer system has had negative retained earnings since 2008, Chief Financial Officer Melinda Lopez said. The system has not been able to cover all of its depreciation expenses, so it had negative retained earnings of $10.8 million at the end of 2017, she said.

Plus, an engineering study by Goodwyn Mills & Cawood determined the system has $7.23 million in capital projects needed in the next five years. Those repair and maintenance projects have been deferred, but the city can’t keep putting them off, City Administrator Allan Rice said.

Hoover has not had a sewer rate increase since fiscal 2004. The average monthly bill for a residential customer, based on an average usage of 6,000 gallons, is $36.66 in Hoover. That is more than the average bill of $32.50 in Helena but less than the average bills of $39.71 in Alabaster, $42.30 in Pelham, $45.40 in Calera, $78.48 in Jefferson County and $112.68 in Greystone (where Southwest Water charges a flat fee).

City officials plan to hold meetings with sewer customers in June and July before the mayor brings a recommendation to the council on whether to raise rates, sell to another public or private utility, or create a separate sewer board that could raise rates or sell the system, Rice said.

Restructuring debt

Lyda said a banker recently shared an idea for the city to restructure its debt.

The city currently has a 2010 warrant issue set to be paid off by the end of 2022 and a 2016 warrant issue set to be paid off in 2036. The city’s annual debt payments now are about $11.8 million per year and are scheduled to drop to $6.5 million in 2023, records show.

If the city restructured its debt and levelized those debt payments, it could free up about $3 million per year, remove five years off the life of the debt and reduce the overall amount paid by the city by $1.5 million Lyda said.

He suggested his fellow council members study the idea, and he would be willing to hold a Finance Committee meeting to discuss it further.

Council President Gene Smith said after Monday night’s meeting that restructuring the city’s debt could be a good option, but he is concerned that restructuring the city’s debt like that might keep the city from being able to borrow additional money for a project like a fine arts center.

Reviewing the options

Lyda said that, to this point, he has been more focused on lowering expenses, but there are many tools in the city’s toolbox and city officials are just beginning to discuss what tools they are going to grab.

Smith said it’s understandable that Lyda wants to lower expenses to meet the available revenues, but “we’re going to have to deal in some form or fashion with revenue.”

Additional budget cuts likely would mean cutting more personnel, and a large percentage of city employees are in public safety, Smith said. “I don’t believe the city has enough problems to where we need to look at eliminating positions,” he said.

Smith said it may be appropriate to ask the Legislature to let people vote on exempting Hoover from the property tax lid bill because a property tax is a more stable way of funding schools than a sales tax increase. During an economic downturn or recession, sales tax dollars tend to dissipate faster than property tax revenues, he said.

For the city government, Smith said he thinks charging residents garbage fees and raising the lodging tax and maybe the residential rental tax may give the city the revenue it needs.

Raising the sales and use tax would be easy to do, but it would remove the advantage that Hoover businesses now have over businesses in other cities, Smith said. And it may be hard to raise both the sales tax and property taxes, he said.

“I think we can put together two to three things that would allow the city to get to where it needs to be without the (extra) penny (sales tax).”

Mayor Frank Brocato said he was encouraged to see the council review the revenue increase options Monday night because it shows to him the council realizes something has to be done on the revenue side of the equation. He previously has said he and the council have made many budget cuts already and he doesn’t want to jeopardize the quality of life that Hoover residents have come to enjoy and expect to see in the future.

Brocato said he is pretty close to deciding what his recommendation to the council will be, and he plans to make that recommendation on June 4.