Consultant: As city, Wildomar could weather economic slowdown

By: AARON CLAVERIE - Staff Writer
Consultant says bad economy does not doom a city | Friday, January 25, 2008 1:00 PM PST ∞

WILDOMAR ---- If there is a prolonged economic slump or a full-blown recession, there would be a tangible effect on early Wildomar city budgets if the community incorporates this year.

For instance, projected property tax receipts would be negatively affected by falling property values, building permit fees could dry up and the city's projected sales tax receipts would take a hit if proposed retail projects in the pipeline are delayed.

While acknowledging those possibilities, Gary Thompson, the consultant who wrote an analysis of Wildomar's projected finances, said the city council should be able to make sure costs are kept in line and keep the city running smoothly by managing within a leaner budget.

"Forming a city in bad economic times is not a disaster as people would have you believe," said the Rancho Santa Margarita councilman and head of GST Consulting, the firm that produced the comprehensive fiscal analysis that was referenced by the county when it approved putting Wildomar's incorporation on the ballot.

Area voters will decide Feb. 5 whether to incorporate. If approved by a majority of voters, Wildomar would become a city July 1.

In the first year, called the transition year, the county would continue to provide services to ensure a smooth handover. The city would have to pay the county back within five years for the cost of those services.

For some of the candidates, particularly those opposed to cityhood, the slumping economy has become a political football.

In community forums, campaign literature and stump speeches, cityhood critics are arguing that the economic climate isn't ideal for incorporation. Those critics contend they aren't against cityhood as much as they are against Wildomar becoming a city now. They are urging residents to oppose incorporation until the economy rebounds and the area's sales tax base grows larger.

Cityhood supporters, including the majority of the people running for the council, dismiss the economic concerns, saying the area is well-positioned to succeed as a city that will be able to provide the services that the county has been providing. They contend the city will be able to do that without tax increases.

Supporters point to the fiscal analysis produced by Thompson that shows numerous sources of general fund revenue, including, if Wildomar incorporates before June 20, 2009, millions annually in the form of vehicle license fees from the state. The legislation that provides license fees to newly incorporated cities expires July 1, 2009.

Fulfilling a state requirement, Wildomar's fiscal analysis compared the community to six existing cities: San Jacinto, Beaumont, Lake Elsinore, Goleta, Aliso Viejo and Rancho Santa Margarita.

Of those cities, only Lake Elsinore had a more diversified revenue stream, a measurement of the ability of a city to collect various types of revenue ---- property tax, sales tax and fees ---- from its businesses and residents.

In Thompson's city of Rancho Santa Margarita, half of the annual revenue is composed of sales tax receipts boosted by auto dealerships there. Sales tax makes up nearly half of Temecula's annual revenue. In Lake Elsinore, sales tax revenue makes up about one-fourth of total revenue.

In contrast, the fiscal analysis predicts sales tax revenue will form only about 10 percent to 20 percent of Wildomar's annual total revenue, which is expected to be $13 million in fiscal year 2009-10. The vehicle license fees Wildomar would receive will make up a little less than 25 percent of the budget in fiscal year 2009-10.

Property tax revenue, which Thompson said is generally a stable revenue stream because of the affect of Proposition 13, is projected to be about 25 percent of total revenue in fiscal year 2009-10. When calculating that number, Thompson assumed an average increase of 2.5 percent per year from the base year figures from 2005-06.

Prop. 13 caps annual property tax increases at 2 percent. Thompson added what he believes is a conservative half percentage point to account for the property tax money the state allows a city to capture once a home is resold.

This diversity should allow the city to more readily absorb a downturn in a specific revenue stream, Thompson said. Also, because the city isn't as dependent on sales tax, it shouldn't be as affected by economic downturns because sales tax is the most volatile component of a city's revenue stream, he said.

Richard Estes, president of the Wildomar Chamber of Commerce, said the city's sales tax base will be a source of potential growth for the city.

The staunch cityhood supporter said the retail base is in the process of catching up to the rapid increase in the housing stock since 2000. So, he maintains, even if housing construction grinds to a halt, he still expects businesses to flock to the area to serve the residents who have moved to the community in recent years.

Among the large plots of land in the city targeted for future retail development are 146 acres owned by retired doctor Robin Oxman, who has contributed to the campaigns of half the candidates, and land north of Cornerstone Church off Bundy Canyon. The Oxman land is west of Interstate 15, south of Clinton Keith Road. The Bundy Canyon property is tabbed for a Wal-Mart.

Yet, some remain skeptical that the city would be self-supporting given the economic climate and the area's limited shopping opportunities.

"Having land to build on is great but you have to have someone to build," said Joe McCabe, a member of the county's Wildomar Municipal Advisory Council. "You need a builder and the builder needs to know his buildings will be occupied."

McCabe, speaking as a private citizen not as a member of the council, said the majority of people in Wildomar shop in the "big box" stores in Lake Elsinore and Murrieta and those retailers likely won't set up shop here.

"We'll have little stores. And little stores don't produce a lot of money," he said.

In an economic downturn, the county would see declining revenues just as a new city would.

But, McCabe said, a recession would have a bigger affect on a small city with a small budget than it would on a large county with a larger budget.

"The county has more (fiscal) flexibility," he said.

State law requires preparation of a comprehensive fiscal analysis for any proposed new city, a study that spells out how the city will pay for services after incorporation.

When Rancho Santa Margarita incorporated in 2000, Thompson said, two major components of its fiscal analysis were flawed.

"Our (analysis) did not match up with our reality," he said.

Yet, Rancho Santa Margarita, a city that is smaller in area but more densely populated than Wildomar would be, made it work.

"Money will be tight no matter what you do," he said.

Regional economist John Husing, who titled his January economic report "Recession?", said in a recent interview that 2008 could be the first year in 43 years in which the Inland Empire shows negative job growth.

"The fundamentals (for growth) remain in place, but the short term news is not good," he wrote in the report.

Similar verbiage was included in Thompson's analysis last year.

"For purposes of developing a reasonable assessment of future development growth, several factors have been taken into consideration, including current market factors that have driven recent short term slowing in residential development," Thompson wrote.

Both of those statements presuppose that the current slump will be something affecting the area in the short term.

Husing's report states more information as to whether the slump could be long term and extend into a recession will become available in March when the state releases adjusted 2007 jobs data.

Thompson, based on his recent talks with Wildomar area developers, doesn't believe the Wildomar area will suffer from a prolonged slump or recession.

"Absolutely not. When you look at the long-term view, that whole area will take off a lot quicker in a lot of respects," he said.

Contact staff writer Aaron Claverie at (951) 676-4315, Ext. 2624, or aclaverie@californian.com.

First name only. Comments including last names, contact addresses, e-mail addresses or phone numbers will be deleted. Attempts to misrepresent your identity or impersonate any person will not be approved. All comments are screened before they appear online, so please keep them brief. Comments reflect the views of those commenting and not necessarily those of the North County Times or its staff writers. Click here to view additional comment policies.