OREM -- Orem residents may have to face the ugly truth about taxation -- if property taxes don't go up they could lose the level of services they enjoy.
And whether taxes go up this year or not, residents could still be facing more increases in the next few years, all to pay for decisions made during better economic times.
The heart of the budget is UTOPIA, the fiber optic network of which Orem is part and on the hook for financially. The city has to pay $2.8 million annually for the next 28 years. At the network's onset, that money was supposed to come from subscriber fees. However, the network has yet to make enough money to cover all the costs, including that payment. The city still owes the money, though, hence the need for a 50 percent property tax increase, raising property rates an average of $97.11 a year.
"We have the responsibility to pay the UTOPIA bill," Mayor Jim Evans said.
City leaders, many of whom were not involved with the UTOPIA decision, have come to the same realization Provo did in recent years -- the money-losing fiber optic network wasn't going anywhere, and paying for it was going to hurt. Only about a third of Orem is wired. Now they need to communicate that to residents, both to get residents to sign on to UTOPIA and to face facts -- residents are going to pay for UTOPIA whether they use it or not.
The city's tentative budget is $88,740,063. Included in that is a $3.3 million property tax increase. Of that increase, $2.8 million is earmarked for UTOPIA. Without a tax increase, the city has to take $2.8 million out of the budget to pay the UTOPIA bill
"We know there is a demand for this service," Evans said. "We're trying to get the facts out there. Our goal is to be open with the citizens."
Even with a tax increase, some say that won't be enough. Royce Van Tassel from the Utah Taxpayers Association, said Orem offered itself into indentured servitude until 2040.
"Orem has bound themselves to UTOPIA," Van Tassel said.
He added that city leaders decided to take a risk because the venture offered enough upsides, but that cost is approximately $2.8 million plus a year for the next 28 years. He also said the city appears to be less willing to talk about UTOPIA now than it used to be.
The challenge is that the city has been making its UTOPIA payments out of its reserve funds, which was fine several years ago. Now, however, the city is almost at its limit of 5 percent revenue and cannot keep paying out of its reserves.
The other concern is that one tax increase may not cover the city through UTOPIA's lifetime. While this year's cost for UTOPIA is $2.8 million, the payment goes up each year by 2 percent. In the final years of the contract the payments will be about $5 million a year. That means the city could be replaying this same situation in five to seven years.
Draining the rainy day fund
The question some residents are asking is if the city has been paying the bill since 2002, what has made this year's budget so critical?
The answer to that lies in the city's savings account.
By state statute cities may keep up to 18 percent of their revenues in reserve, but cannot dip below 5 percent without being forced to raise taxes. Orem city manager Bruce Chesnut said the city has been putting $3 million into reserves, like a rainy-day fund, for a number of years as a buffer.
Jamie Davidson, assistant city manager, added, "What we had two years ago was because of money socked away five years ago."
At the time the city was at 18 percent in reserves.
According to Chesnut the city now has used up its reserves, taking it down to almost the 5 percent level, which means residents would be forced into a property tax increase whether they like it or not.
And it's not only the UTOPIA account that has been using up city reserves.
"We have been maintaining a level of service using some of our savings," Davidson said. "We no longer have savings. That's why we're in this situation."
Like Joseph of Egypt, the city leaders had been putting money aside during years of plenty. Orem was living the good life.
"Then times became difficult and we pulled money from savings so our level of services would be the same as in the good years." Davidson said. "We have been maintaining a level of service we can't continue to maintain."
Basically, while Orem residents were going through austere years of private budget control, the city was using up savings to keep residents from feeling any difference in how the city was doing.
"We're artificially maintaining a level of service," Davidson said.
Truth about taxation
Orem, like every other city, has faced declining sales tax revenues in the bad economy, compounded by more people shopping online.
Chesnut said the city has done much in the past few years to keep from having to raise taxes. In the past four years they have cut 20 jobs, and $3.7 million from other funds and operations. Employees now do maintenance, including the day-to-day chores such as vacuuming, mopping, dusting and carrying out the trash, resulting in an annual savings of $115,000.
"Orem is a great community with a good quality of life," Chesnut said.
The problem, leaders said, is they put it off for too long.
"We are having a tax increase decision years later than many other cities in the county," Davidson said. "We had hoped between 2007 and today the economy would improve."
If taxes don't increase the city will look at operational accounts and all of the general funds. They will have to cut services to parks, the library, swimming pools, emergency services and more. Even the price of fertilizing parks has been brought up as a place they would cut funding this year. According to the community profile attached to the proposed budget it indicates that Orem applies 52 tons of fertilizers in its 22 parks, 29 parkways, and other green spaces at a cost of $35,097.
And if taxes are raised, what are residents going to get? Well, nothing. The status quo remains.
Council member Hans Andersen has come forward with a few ways to pay the bills and not raise taxes. First, he said, get rid of the 2 percent across the board wage increase for employees, even though city employees have not had an increase since July 2008. Next, decrease the city's 401(k) matching program for its employees and get rid of the proposed Center for Story, thus saving on future maintenance costs.
He is circulating a petition asking that two non-binding poll questions be added to the ballot in November: if the voter wants Center for Story, and if the voter agrees with a property tax increase.
"The ability of the people to vote on a property tax increase is important," Andersen said. "The people who pay the bills should vote on paying those bills and the services they receive shouldn't be determined by the city council."
Andersen said during his campaigning last year he already knew there wasn't enough money and tried to inform residents then.
Even if taxes go up, Van Tassel said, there should be limits.
"They've made their bed and the city of Orem is going to have to lie in it, and they shouldn't have to ask the taxpayers to make it more comfortable," Van Tassel said. He added that giving city employees a 2 percent raise would be the first place to make a change.
"Orem should follow Sandy's lead. They need to go in the opposite direction," Van Tassel said.
Sandy city compared public and private sector wages and benefits packages and noted that public sector employees were receiving more income in many job titles than similar jobs in the private sector and changed course. Orem needs to find that balance, Van Tassel said.
"That decision would go a long way to show taxpayers the mayor and council understands their plight," he added.
However, Davidson, the former human resources director for Sandy, disagreed with Van Tassel's assessment.
"I encourage you to watch what's happening in Sandy," Davidson said. "They're not sure they did the right thing, that they made a good choice. Their savings are dramatically less than thought."
Davidson points to other municipalities such as Provo, which is seeking a 2.5 percent increase in employees wages. The average adjustment is between 2 and 3.5 percent increases in cities throughout the state, according to Orem's compensation consultant. Provo also has had to deal with its fiber optic network with utility fee increases to all households, whether they use it or not. In one or more budgetary issues all cities are struggling as the area comes out of the recession.
Other budget concerns include replacing fleet vehicles like police cars that are seven years old and have 120,000 miles on them and rising gas prices
To help residents understand Orem's proposed budget and the need for a truth in taxation hearing, city leaders have organized a number of open houses to give residents the opportunity to ask questions and learn more about departments, UTOPIA and the proposed tax increases. The first was held Wednesday.
"We had a good experience at our meeting," city spokeswoman Charlene Mackay said. "We had about 35 residents come out and have their questions answered. We know this is a busy time for everyone, but there are still several opportunities for residents to learn about the issues and make comments."
• May 29, anytime between 6-8 p.m.
Orem Senior Center, 93 N. 400 East
• May 31, anytime between 6-8 p.m.
Hillcrest Elementary, 651 E. 1400 South
• June 5, anytime between 6-8 p.m.
Canyon View Junior High, 655 E. 950 North
• June 7, anytime between 10:30 a.m. and noon
Orem Senior Center, 93 N. 400 East
It takes a lot of money to run a city. Here are some interesting services offered and facts about Orem.
• Out of 12 cities, including Ogden on at the high end, Orem has the lowest monthly taxes and fees at $107.20
• Orem's population as of the 2010 census is 88,328.
• The average per house cost of city services for 2010 was $166.82 per month.
• Orem maintains approximately 500 miles of sidewalk and gutter.
• Each year the city uses 7,300 gallons of paint to stripe the streets.
• The city maintains 22 parks which include: 55 pavilions, 27 tennis courts, 26 restrooms, 24 soccer fields, 18 playgrounds, 16 ball fields and 5 miles of walking tracks.
• Last year crews planted 27,000 bulbs, 15,000 flowers, and cared for 5,885 trees with a value of over $10.9 million.
• There were 131 weddings scheduled in city parks last year.
• The library is among the top 10 percent nationwide for circulation per capita.
• There are 12,400 active members of the rec center, and between Memorial Day and Labor Day 246,758 patrons visited the City of Orem Scera Park Pools.
• Approximately 21,500 hot lunches were served at the Orem Senior Friendship Center.
• Public safety responded to more than 68,000 calls in 2011. The made 22,000 traffic stops and issued 15,000 citations.