Special Workshop Meeting 05/12/2022
Special Workshop Meeting Agenda
Fortuna City Council
Fortuna Business Improvement District Board
Thursday, May 12, 2022 – 9:30 A.M.
621 11th Street, Fortuna CA
We May Disagree, but We Will Be Respectful of One Another All Comments Will Be Directed to the Issue at Hand, and Addressed to the City Council Personal Attacks are Unacceptable
I. CALL TO ORDER / FLAG SALUTE / ROLL CALL
II. ORAL COMMENTS FROM THE PUBLIC
Members of the Public may be heard on any item on the Special Meeting Agenda. Speakers addressing the Council will be limited to 3 minutes per speaker. Be advised, by law the City Council cannot deliberate or take action on issues presented during Oral Comments that are not shown on the Agenda.
III. DISCUSSION ITEMS
A. Fortuna Business Improvement District
IV. REPORT OUT AND ADJOURN
Pursuant to Government Code Section 54957.5, any non-confidential documents or writings that the City distributes, less than 72 hours before a regular meeting, to all or a majority of the legislative body's members must be made available to members of the public at the same time as the distribution. Documents and information related to the agenda topics are available for review at City Hall, 621 11th Street, between the hours of 8:00 AM to 4:00 PM. Members of the public are invited to come to the meeting and comment. In compliance with the Americans with Disabilities Act, if you need special assistance to participate in this meeting, please contact the City Clerk at 725-7600. Notification prior to the meeting will enable the City to make reasonable arrangements to ensure accessibility to this meeting.
Siana L. Emmons, City Clerk
Special Workshop Discussion Item A
STAFF REPORT
City Council Discussion Item
DATE: May 12, 2022
TO: Honorable Mayor and Council Members
FROM: Merritt Perry, City Manager
SUBJECT: Discussion regarding the Future of the Fortuna Business Improvement District
STAFF RECOMMENDATION:
Review the background of the Fortuna Business Improvement District (FBID) and discuss options for FBID’s future with staff and the public and provide direction to staff.
EXECUTIVE SUMMARY
FBID was established by the City of Fortuna for the purpose of imposing benefit assessments and charges on businesses for certain purposes in accordance with the Streets and Highways Code Section 36500 and Parking and Business Improvement Area Law of 1989. The founding Resolution (90-10) and subsequent Ordinance (90-550) included a boundary and the proposed uses for which the revenue was to be put to use and included the following:
• Promotion of public events which are to take place on or in public places in the District • Decoration of any public place in the District
• Furnishing of music in any public place within the District; and • The general promotion of business activities within the District • Marketing to fill available space, recruiting and expansion of commercial enterprise The founding ordinance and resolution also included an assessment schedule for how much each business within the District would be assessed on an annual basis, and how those funds would be distributed between the core areas and the citywide district. The distribution of the funds between the core areas and the citywide district was divided as follows:
• 62% raised within each core area to be used to promote that core area • 38% raised within each core area to be used to promote the entire community FBID was established as an advisory committee to the City Council of the City of Fortuna with the following designated representatives:
• One from the Downtown Area
• One Redwood Village Shopping Center
• One Citywide
• One designated by the City Council
Special Workshop Discussion Item A
• One nominated by the Chamber of Commerce
• Two people nominated by the other representatives
In 1992, FBID formed a non-profit Corporation to reduce the audit responsibilities of the City and to carry out the responsibilities of the advisory committee. The City entered into the first contract with the FBID non-profit corporation acting as an advisory committee. A new contract was executed in 1994 with the FBID non-profit corporation to continue the work of the District.
In 1997, Ordinance 97-610 clarified the relationship between the FBID non-profit corporation and its responsibility as an advisory committee to the Fortuna City Council.
Changes were made over time that affected the district boundary, designated representatives and the assessment amount, however the purpose of the funds and the distribution between the Citywide benefit and core areas have remained the same. The most significant change to membership was the addition of the Stongs Creek Plaza in 2010 (Ordinance 2010-685).
The City executed subsequent contracts with the FBID non-profit for 5 year subsequent terms with the most recent being on August 1, 2000, which included a provision that the parties may extend the term in writing, but it does not appear that in practice, written extensions were signed. So, the contract has renewed for annual terms by continued performance, despite the lack of a signed extension. The current term will expire July 31, 2022.
FBID has dealt with criticism and challenges over the past couple of years ranging from questions regarding fiscal controls to different opinions of how the BID should best serve the business community. Additionally FBID has been unable to comply with its requirement to complete required annual audits. The last audit of FBID was completed in 2015 for FY 2014/-2015 and included a number of findings that have not been resolved. Additionally, FBID has failed to allocate the necessary funds to complete the audits and the City had to loan FBID the money to complete the FY 2014-2015 audit and arranged another loan to FBID to complete audits for all of the following years. FBID also undertook an effort to modify its bylaws to redefine its function, however many of the bylaws developed were inconsistent with the Fortuna Municipal Code and cannot be implemented without corresponding updates of the Municipal Code including Council concurrence of the changes. Another ongoing problem has been the lack of a quorum at FBID Board meetings and more importantly, a general lack of direct participation by businesses that are assessed the Business Improvement District Fee.
FBID has also had many successes recently including continuing to support businesses with a variety of events, and assisting businesses in obtaining COVID relief funding from a variety of sources including state, federal and local governments. The previous FBID Executive Director assisted the City with the development and implementation of a COVID Relief Loan Program.
FBID has also undertaken more tourism and marketing efforts recently with grant funding received from the Humboldt Lodging Alliance. Some of the core areas are more active than others, and in particular, the Downtown Merchants seem to continue to put the FBID funding to good use and hold regular events to attract people to the downtown area.
On June 30, 2021 the Fortuna City Council held a special workshop to discuss FBID. The meeting was in response to some public criticism of FBID, and the announcement that the long-serving Executive Director was stepping down to take a new position. At that meeting, the Council Special Workshop Discussion Item A
expressed its desire to consider the options for the BID and asked the City Manager to identify options for how the business of FBID could be conducted in the future.
In response to the council’s request, staff has evaluated the following options and brought them to the council on October 29, 2021:
Option 1. FBID continuing as-is, as a non-profit advisory committee to the City Council Option 2. City Staff performing the duties of FBID or contracting with a third party Option 3. Dissolving FBID and discontinuing the District.
Option 1 – FBID Continuing As-Is – NOT RECOMMENDED
This option is not recommended. The administrative burden of having FBID Board function as a non-profit corporation and an advisory committee to the Council carries with it a very heavy administrative burden. Without an executive director with the experience to act as staff, the board has had to take on much of the administrative responsibility to the detriment of completing the core purposes of the district. It is unlikely that with the budget available that a qualified executive director can be hired with the qualifications to perform all the duties required. Staff doubts that continuing under the current contract, even with a new board, that the organization will be successful. Further details for this option continue below.
The option would include FBID continuing as a non-profit corporation acting as an advisory committee to the City Council. This is how FBID has functioned for the past several years with no changes to the assessment amount or the City contribution.
If FBID continues to function as it does currently, City oversight should be increased to ensure that the FBID follows through with its responsibilities to the City Council including:
• Complete the Annual Report
o Any proposed changes in the boundaries of the Parking and Business Improvement Area or in any benefit zones within the area.
o The improvements and activities to be provided for that fiscal year. o An estimate of the cost of providing the improvements and the activities for that fiscal year.
o The method and basis of levying the assessment in sufficient detail to allow each business owner to estimate the amount of the assessment to be levied against his or her business for that fiscal year.
o The amount of any surplus or deficit revenues to be carried over from a previous fiscal year.
o The amount of any contributions to be made from sources other than assessments levied pursuant to this part.
o Council review and acceptance of the annual report (with or without modification) • Complete Annual Resolution of Intention to Levy Assessment o Declare the intention of the City Council to change the boundaries, if a change is proposed.
o Declare the intention of the City Council to levy and collect assessments within the Parking and Business Improvement Area for the fiscal year stated in the resolution.
Special Workshop Discussion Item A
o Generally describe the proposed improvements and activities authorized by the ordinance and any substantial changes proposed to be made to the improvements and activities.
o Fix a time and place for a public hearing to be held by the City Council on the levy of the proposed assessment for that fiscal year.
o State that at the public hearing written and oral protests may be made. o If written protests are received from owners of businesses within the District that account for 50% or more of the assessments proposed, the Council may not levy assessments for that year and must wait at least one year before attempting to levy the assessment again.
• Update the City’s Contract with FBID to Specify Objectives and Responsibilities o The existing contract describes the “objectives” and the general purpose of the FBID. These objectives are taken verbatim from the FBID Ordinance and are openended and lacking specificity. It is important to focus on better defining the objectives and include benchmarks to objectively measure FBIDs success. o The contract should specify a date for the Annual Report to be submitted that allows enough time before the start of the new fiscal year to allow the Council to conduct the protest proceedings
o The contract should be amended to require that public meetings be conducted in accordance with the Brown Act
o The contract should be amended to prohibit the comingling of funds derived from assessments and funds derived from other sources and provide more financial controls for reporting revenue and expenditures.
o The contract should address the makeup of the Corporation’s Board of Directors and specify that the Board shall be appointed by the Council and, shall act both as the Board of Directors and the “advisory board,” as defined in the BID Law. o The contract should require that any revisions to the Corporation’s bylaws be first submitted to the Council for a finding of consistency with the BID Law, the City’s ordinance, and the contract.
o The termination provisions should be updated to better define the City’s termination rights either with, or without cause.
Option 2 – FBID Continuing as a Function of City of Fortuna Option 2 would include the orderly termination of the contract with the FBID non-profit corporation and the City taking on the functions of FBID. The City would either have to hire a staff person to fulfill the role of FBID staff or it would have to be taken on by the City Manager.
Work to fulfill the purposes of the district could either be completed by staff or contracted out to a consultant or other third party non-profit such as the chamber of commerce.
This option would require coordination with FBID to ensure a smooth transition from FBID to the City, and would also require a public outreach effort to ensure that the businesses that are assessed are in agreement with the decision.
• The minimum notice that should be given is 60 days and would have to be by mutual consent, or for cause. Alternatively, the Council could wait until the current contract expires on July 31, 2022.
Special Workshop Discussion Item A
• If the contract is terminated, The City would need to recover all funds and assets belonging to FBID.
• Any contractual obligations of the FBID non-profit corporation would need to be assigned to the City.
• An advisory board would need to be appointed to serve in place of the FBID non-profit corporation board.
• The estimated cost for a staff person to complete the work is estimated could range between $50,000 for a part time employee and up to $100,000 for a full time employee, in addition to any purchases of equipment, supplies, advertising, etc. • If a contract between the City of Fortuna and the third party is desired, such as a consultant on other organization the normal procurement process would be followed. • City finance staff would have to take over the fiscal responsibilities of FBID which would add some workload above the current requirements of city employees.
Option 3 – Dissolution of the FBID
Option 3 includes the dissolution of the FBID. The steps necessary to dissolve FBID would be as follows:
• The Council must adopt a resolution of intention to disestablish the BID. The resolution shall state the reason for the disestablishment, shall state the time and place of the public hearing to be held in the future on the ultimate action, and shall contain a proposal to dispose of any assets acquired with the revenues of the assessments levied within the BID. • The public hearing must occur not less than 20 days and not more than 30 days after the resolution is adopted. At the public hearing, the Council may dissolve the BID by ordinance. The ordinance must provide that any remaining revenues derived from the levy of assessments, or any revenues derived from the sale of assets acquired with the revenues, shall be refunded to the owners of the businesses then located and operating within the area in which assessments were levied by applying the same method and basis that was used to calculate the assessments levied in the fiscal year in which the area is disestablished. The City should control this process, as opposed to the FBID non-profit corporation. • Notice of the disestablishment of an area shall be published once in a newspaper of general circulation in the City.
• The refund process then needs to occur and would need to be depending on the time of the year and the status of assessment collection. The refund process would be more easily conducted if the disestablishment was made effective at the conclusion of the fiscal year. • Once the refund process is completed, The City would send notice of termination of the FBID Contract to the FBID non-profit corporation.
Since the meeting on October 29, 2021 FBID completed its audits through Fiscal Year 2020-2021.
Upon the review of the audit internal control letter, it is clear that the organization has struggled with basic oversight and financial controls necessary. Financial management under the previous executive director was not sufficiently scrutinized by the board, and as a result several deficiencies identified in the most recent audit.
The current FBID board and executive director have put forth a significant effort to resolve past deficiencies and have focused much of their recent efforts on completing the audit and basic administrative functions of the organization. Less effort has been put toward fulfilling the purposes Special Workshop Discussion Item A
of the organization, more effort has been put forth to do so since the completion of the audit. It is uncertain how well the organization would do if allowed to continue in its current structure and if the funding contributed by the City would result in enough of a benefit to warrant doing so.
Therefore, Staff does not recommend continuing with FBID under the current contract or continuing to maintain FBID as a separate non-profit corporation. Staff recommends pursuing either Option 2 or Option 3, for the primary reason that the effort of overseeing a non-profit corporation seems to outweigh the benefits the City is receiving. The benefit of Option 2, is that it would preserve the small amount of funding that goes to the Core Areas, however would require a significant amount of staff time to administer FBID (coordinating and preparing for board meetings, documenting meetings, administering finances and providing the level of outreach and communication necessary). Having an employee to perform the necessary tasks would help to balance the workload, however a significant effort would still be required to hire, manage and administer the functions of FBID.
If Option 3 is selected the assessment would be eliminated and there would be no additional demands on City staff after dissolution of FBID. The primary drawback of this option is that funding would no longer be available for the core areas and the purposes of FBID. At the meeting last October, representatives from the Downtown and Strongs Creek core areas expressed the importance of the funding to those areas, and wanted to see it continue. The funding generated by the assessment is described in following section, and is a small amount relative to the total funding of FBID. If Option 3, were chosen, and FBID discontinued, the City could still pursue community promotion activities with the funding had been previously matched by the City (approximately $60,000 annually).
FISCAL IMPACT:
FBID collects approximately $62,000 in assessments annually and the city contributes an equal amount for an approximate total $124,000 annually. Of that amount the core areas receive approximately the following amounts:
Core Area Assessment Distribution to Core
Area (62%)
Citywide Share
(38%)
Citywide $34,500 0 $34,500
Downtown $13,000 $8,060 $4,940
Redwood Village $9,000 $5,580 $3,420
Strongs Creek $5,000 $3,100 $1,900
Total $61,500 $16,740 $44,760
There would be no fiscal impact if FBID continues to function as-is with additional city oversight.
The amount of the assessment and City match would be expected to remain the same. It is estimated that the city share would be used for personnel costs ($62,000) and the remaining assessments after distribution to the core areas ($44,760) could be used for other expenses.
Hiring a staff position to complete the responsibilities of FBID (Option 2) would have an anticipated personnel cost of approximately $100,000 after the distribution to the core areas of $16,740 only $7,260 would remain for supplies, advertising and other expenses. It is likely that additional approximately $20,000-$30,000 would be needed for other expenses above what is Special Workshop Discussion Item A
currently budgeted. Alternatively, a part-time employee could be contracted to complete the duties, however, typically part-time positions are harder to fill and retain employees. A part time employee would likely cost between $50K and $60k depending on the number of hours worked.
Contracting the duties of FBID would likely result in little to no change to the existing FBID budget. A contract scope of work and fee could be negotiated to be consistent with the current available.
Dissolving FBID would result in a reduced assessment to city businesses and the elimination of the discretionary match by the City. It is possible that with the dissolution of the BID that businesses would generate less sales tax as a result of the loss of the business promotion activates performed by FBID.
RECOMMENDED COUNCIL ACTION:
1. Receive staff presentation and review Council questions with staff
2. Open Public Comment
3. Close Public Comment
4. Provide direction to staff regarding proposed options for FBID.
ATTACHMENTS:
• None