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Could the Squaw Incorporation Report Be Wrong?

LAFCO directs consultant to research potential errors in fiscal analysis
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Just last month, it looked like the incorporation debate could be over after an independent consultant found in a draft report that the proposed town of Olympic Valley was not financially viable. However, at a packed public meeting in Tahoe City on June 10 where both sides of the issue presented their analysis of the findings, the Placer County Local Agency Formation Commission directed the consultant to look into the 28 errors that incorporation proponents claim are in the study.  

Nearly 100 people attended the LAFCO workshop on the draft Comprehensive Fiscal Analysis (CFA) at the Tahoe City Public Utility District. The report was prepared by RSG — a firm hired by LAFCO and paid for by Incorporate Olympic Valley — and released on May 21.

At the meeting, both IOV and the opposing Save Olympic Valley were given 15 minutes each to state their case. Tom Sinclair, an expert on municipal finances and the first town manager of Orinda, spoke on behalf of IOV. He stated that there were $4.2 million in errors in the document, including double-counting the cost of CalFire — a $1.6 million mistake — and incorrectly calculating the amount of revenue that the county will transfer to the town by approximately $295,948 per year because property transfer tax revenue had been miscalculated by a full decimal point. Over the course of nine years, this error causes an overstatement of the potential revenue neutrality payments (what the new town pays to Placer County to compensate it for its revenue loss) by more than $2.6 million. Sinclair also disputed the fact that RSG counted the potential town’s 30 percent reserves as an expense rather than an asset.

“Correcting mistakes and characterizing reserves as reserves and not as expenses changes the CFA outcome by $10.7 million over 10 years,” wrote IOV in its analysis of the CFA. “Our conclusion is that the Town of Olympic Valley will be a fiscally viable town.”

Sinclair also disagreed with the seven full-time employees assumed by RSG for the new town. Colfax, with a population of 2,000, only has four-and-a-half fulltime employees, according to Fred Ilfeld, chairman of the Incorporate Olympic Valley Foundation.

“These staffing levels are not appropriate for a small town,” Sinclair said.

And although IOV claims that 30 percent reserves are too high since state law only requires 10 percent, incorporation opponents like Kathryn Rees, a Squaw Valley Lodge condo owner, thought 30 percent was fair.

“Thirty percent reserves are infinitely reasonable,” she said, “because there could be a bad snow year.”

Matthew Newman of the Blue Sky Consulting Group, which was hired by SOV and Squaw Valley Ski Holdings to advise on incorporation, found the CFA to be a sound document.

“Our assessment of the CFA is that it is very well done and used reasonable assumptions,” he said. “It arrived at the same conclusions we did — a town of Olympic Valley is not fiscally viable.”

Newman also pointed out that the CFA budgeted for increased development and tax revenue from the proposed Village at Squaw Valley Specific Plan — which would add 1,440 residential units and more than 300,000 square feet of commercial space, almost doubling revenue for the town to $9.7 million by 2025. However, he said that IOV should not rely on this added revenue as a sure thing.

“There is a likelihood the development won’t occur as planned if we have a couple more bad winters,” he said. “A recession over the next 10 years is for sure. The CFA doesn’t do a stress test. What is the fiscal viability of the town if the new development does not occur as planned?”

LAFCO Executive Officer Kris Berry said that while there were some inaccuracies in the report, “just because one side got up and said there were errors doesn’t mean there are.”

RSG is currently researching the issues brought up at the public meeting, and should have an updated version of the CFA before LAFCO’s July 8 meeting. There will not be a final CFA until after revenue neutrality negations between IOV and Placer County are finalized.

Bob Barnett, an advisor to IOV, is skeptical that RSG will address his group’s concerns.

“I don’t feel confident that RSG will fix [the mistakes],” he said. “It might have to be arbitrated or mediated in some way.”

 
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December 14, 2017