Casino - putting property into trust, eroding the tax base

People Against a Casino Town

News of Interest

But in the end, it does mean the Chinook Winds Resort and Chinook Winds Casino -
the two largest users of treated water in Lincoln City -
are getting the benefits of a new sewer treatment plant without paying for it.

Winds of Change
By Barton Grover Howe Of the News-Times
Posted: Apr 21, 2006 - 09:17:31 PDT

(Lincoln City, Oregon) - - If Chinook Winds Casino Resort was in Washington or California, the words "putting property into trust" and "eroding the tax base" probably would never had cause to escape Mayor Lori Hollingsworth's lips.

If the casino was in either of those states Chinook Winds Casino Resort-related spending by both visitors and casino management itself would add thousands of dollars to Lincoln City's general fund every year.

Unfortunately - from a budget perspective - the casino is in neither if those places; it's in Oregon.

Oregon's neighbor states have a sales tax. Massive spending by the casino feeds their city funds as do casino guests shopping elsewhere in town. Every dollar they spend drops a few pennies into city coffers. Here it produces nothing, and so the tax revenue lost to land placed in trust is especially critical. Indeed, only three things really impact Lincoln City's general fund: property taxes, franchise fees and shared revenues.

Clearly property tax revenues, which make up half the general fund, drop when land is placed into trust. And the other two major items are largely unimpacted by casino related spending elsewhere in the city. Even elevated contributions to the transient room tax don't change that fact.

One thing many people wonder is why money can't be taken from the transient room tax fund to supplement those items in the general fund that are hurting. Simply reshuffle the money, they say. An interesting idea, except it's illegal.

The way the TRT fund is split between the five accounts operating within it are set by statute. Voted on in a variety of elections stretching from the early 1970s to 2002, every dollar has a predetermined destination that can only be changed by another vote of the people.

Here, Lincoln City is different from most other cities. In Newport, for example, their TRT money is allocated by ordinance and can be changed merely by a vote of the city council. Although the money does have preset allocations, they can be changed and recently were when the city council gave money to the Oregon Coast Aquarium. Even other towns with casinos nearby, such as North Bend, have their fund accounts delineated by ordinance rather than statute.

Could Lincoln City officials call for a city-wide election seeking to reallocate the money in the TRT? Legally, yes. But given that voters each time were told exactly what the money would be used for, they are hesitant to ask for a change now. Also, this would result in a net loss to those departments funded by the TRT, and they need the money just like everyone else.

The lack of a sales tax isn't the only unique thing about Oregon wreaking havoc with the budget of Lincoln City. Indeed, lost amidst the controversy following Hollingsworth's speech is that she talked about another threat first: statewide ballot measures.

That has gone largely unnoticed in the ensuing weeks, but it shouldn't be. For even if a casino had never opened in Lincoln City, the mayor would still be talking about threats to the general fund.

Since 1997, the voters of Oregon have been passing laws that increasingly restrict local government's abilities to raise funds. Particularly damaging to the city has been Measure 50, which starting in 1997, rolled property tax values back to 1995 levels and then restricted their growth to just 3 percent a year.

In 1995, property taxes generated approximately $2.2 million a year for the city's general fund. With the passage of the measure capping growth at 3 percent per year, that number has climbed to about $3 million.

If Measure 50 had not passed, however, given the growth in actual Lincoln County property values, that number would be much higher. According to the Lincoln County Board of Realtors, actual property values have increased more than 75 percent since 1995, a fact which tribal and casino leaders say mitigates their $52,000 impact on the general fund.

Once again, if the casino and city weren't in Oregon this would be true, as the resultant increase in property tax revenue would have contributed some $3.85 million a year to the general fund.

But here in Oregon, Measure 50 has resulted in a very real net loss to the city of more than $800,000 in just 2005 alone. When you consider this has been occurring since 1997 - albeit in increasingly smaller amounts the further you go back - city leaders have had to face a loss of millions of dollars from the budget since 1997.

This is not to say they've had to reduce the budget by that exact amount. When city leaders looked at the long-term impact of Measure 50 on the city's economic future, they saw what was coming and took action. They cut staff positions, doubled the business and occupation tax and in October 2005 increased power franchise fees. The gas franchise fees will likely go up next fiscal year. The revenue losses caused by Measure 50 have been regained in some areas.

But none of that would have been necessary had the measure not passed. Indeed, with that hypothetical extra $800,000 in the budget, the $52,000 missing from the general fund because of tribal land being put into trust probably wouldn't even matter. For against even the constrained $6 million that actually sat in the general fund in 2005, that $52,000 is only about .8 percent of the
total fund.

But the effects of the measure are not hypothetical, and the subsequent increase in Lincoln County property values - no matter what fraction could be attributed to the casino - have not been able to feed the general fund. And for city leaders, the budget situation gets worse.

Another recent statewide measure passed by the voters prevents cities from keeping more than 3 percent of their funds in reserve. Coupled with ballot Measure 50, city budgets now can't even keep up with the rate of inflation.

This means the budget and the dollars flowing into it have been artificially capped. Meanwhile, the expenses borne by those budgets - such as fuel and health care - have grown at double digit inflation rates the last few years and the general fund has to pay most of that. Every dollar is critical because they are so much harder to get.

Tribal leaders are quick to point out they didn't create this situation; when the casino opened in 1995 most of these ballot measures were still in the future. They say they can't be held responsible for the actions of Oregon voters, and city leaders aren't suggesting they are. But it's because of this changed financial landscape over the last decade that $52,000 means so much, a number whose impact will increase every year the property remains in trust.

Among all these declining numbers, it must be remembered the casino does donate $170,000 to the general fund. This number was set by government-to-government agreement in 1995 when the casino opened to help reimburse the city for expenses they would incur in the police department and other city services such as sewer and water.

That number, however, does not replace the money lost from the general fund as a result of properties placed in trust. In a sense, it just covers the bills caused by the tribe's use of the Lincoln City services that everyone else funds with their taxes.

Even this number, however, isn't having the effect it used to. In the 1996-97 fiscal year, the payment represented 3.2 percent of general fund revenue. By 2005-06, that had dropped to just 2.1 percent of general fund revenue. Further, the tribe's annual $170,000 donation to the city was agreed upon when only the casino was out of the tax base.

Today, the city also services properties such as the casino's office building, but with no increase in the contribution from the tribe. City leaders do have the right to ask the tribe to renegotiate this figure, but have so far chosen not to. This might seem strange given the financial picture, but the city has no guarantee that should they choose to renegotiate, the number would increase. It is
possible the $170,000 could actually drop.

For city leaders, however, there is more to worry about than just the general fund. In the mayor's speech she didn't even mention the third city budget tied into property taxes - the urban renewal fund. That fund will take a $148,000 hit this year from properties placed into trust. Over the next eight years city administrators say some $2 million worth of city projects won't be able to be
completed because of the effects of tribal properties being placed into trust.

Urban renewal districts are complicated things with boundaries that seem to wander randomly throughout the city. Some people even call them a waste of taxpayer dollars, but that is a debate for a different day.

In the here and now they are the means by which the city paid for the redevelopment of the Taft and Oceanlake districts. Those funds will pay for similar projects in the future, plans which will have to be scaled back by about $148,000 a year because of land placed into trust.

That will end in 2014, when the 25-year urban renewal district will expire. The hit the city takes to urban renewal funds will be over - and some other taxing district problems will have just begun.

For when urban renewal district sunsets, the tax that feeds it begins feeding other local entities. If the tribe continues not to make a voluntary donation to supplement these dollars, Lincoln County schools will lose $104,470 (in 2005 dollars), Lincoln City will lose another $87,205, and Samaritan North Lincoln Hospital will lose $10,827. In total, 10 different taxing districts will miss out on more than $292,000 in revenue.

Of more immediate concern to the city's future is the possible development of Lot 57, a large parcel between the hotel and the casino. Currently, the property sits undeveloped.

But some city leaders are worried the tribe will build a hotel on the property. Aside from increasing the city's cost to service the property - although many believe the tribe would adjust their $170,000 donation to cover this - the hit to urban renewal funds and ultimately to the other 10 taxing districts would be enormous.

When (Shilo owner) Mark Hemstreet still owned the property, the belief was he would build time-shares on the property. Admittedly, that might never have happened, but given the lot's prime oceanfront location, many city leaders feel safe in assuming something would have been built there, and large payments into the urban renewal fund would have resulted. With the property in trust, those payments will never happen, no matter what is built on the land.

Finally, there are bond payments, another area totally unrelated to the tribe's donation to the TRT. Whenever the voters of a city pass a bond issue, they are basically saying to the entity issuing the bond they will put forth the money to pay that bond as a collective population. In the case of the recent sewer bond to build a new sewer treatment plant, they committed to repaying $22 million.

Each property owner will thus repay a certain percentage of that $22 million, depending on the value of the owner's holdings.

Because the tribe's properties are not on the property tax rolls, tribal holdings will not pay any of this. In fact, this means every other property owner in Lincoln City has to pay more, although in reality that might only be a few pennies per year for most individual property owners.

But in the end, it does mean the Chinook Winds Resort and Chinook Winds Casino - the two largest users of treated water in Lincoln City - are getting the benefits of a new sewer treatment plant without paying for it.

City officials estimate if the tribe were to make a voluntary donation to make up for the missing dollars - based on the value of properties placed into trust - it should come to just under $15,000.

Taking it all in total - A general fund depleted largely by ballot measures and to a lesser extent by more property being placed into trust by the tribe, a tribal donation to the general fund that although fairly negotiated and implemented buys less and less every year, urban renewal projects that improve the city either remain undone or scaled back, and a new sewer treatment plant whose two biggest users don't currently pay for it, leaving the rest of the city to foot the bill - suddenly the mayor's comments about an eroding tax base make a lot more sense.

It should be noted that City Manager David Hawker, Mayor Hollingsworth and other city officials do not sit around and wonder what they could do with the money they don't have. "When you get to projects, we don't think like that," he said. "We just rethink what's available; it's not focused on the casino or the tribe."

Further, Hawker said he can't fault the tribe for taking advantage of the laws of the United States and Oregon. "The tribe and the casino are operating within their mandates and their rights and operating as any competent business would operate."

This does not mean he and other city officials haven't tried to explain to the casino the impact their decision to put properties into trust is having on the city. In a letter to the Bureau if Indian Affairs, Christopher Thomas, Lincoln City attorney until last year, explained the impact on the general fund and urban renewal funds both now and in the future.

This letter was copied to Craig Dorsay, legal counsel for the Siletz Tribe, so clearly someone at the tribe has some understanding of the impact the tribe is having on the city's general and urban renewal funds. Among the great unknowns, however, is whether they understand how the TRT, the general fund and urban renewal funds do - or do not - tie together.

City officials say to their knowledge no one from the city has ever sat down and explained it to anyone from the tribe. Hawker freely admits, "Our budget in Lincoln City is fairly complicated," he said. "It really is." He even notes the subject of so much confusion, the TRT, makes things even worse. "The TRT complicates it even more because of the charter and the way it's done." He doesn't find it unbelievable at all that tribal and casino officials might not understand how it all really works.

Of course, the city's not the only one with budget issues, say tribal leaders; they have their own. And while they understand the changes in Lincoln City's budgeting process the last decade, they have some historical problems to address as well - starting in the19th century.

http://www.newportnewstimes.com/articles/2006/04/21/news/news04.txt

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