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Home My WebLink About29-City Manager c CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: Fred Wilson, City Manager Subject: Ordinance amending Chapter 3.44 of the Municipal Code concerning reduction in the Service User's Tax (utility tax) rate - FIRST READING Dept: City Manager's Office Date: August 9, 2006 Meeting Date: August 21, 2006 Synopsis of Previous Council Action: August 8, 2006 - Mayor and Council direct the City Manager to bring back the appropriate ordinances to reduce the City's utility tax rate to 7.83%, and to set a cap on business registration fees for motor vehicle dealerships. Recommended motion: C. That said ordinance be laid over for final adoption. c Contact perSon: Fred Wilson Phone: 384-5122 Supporting data attached: staff report Ward: All FUNDING REQUIREMENTS: Amount: Potential revenue reduction of $300,000 annually Source: (Acct. No.) (Acct. Description) General Fund Finance: Council Notes: Agenda Item No. ;).~ ~-~/~ ,...'"~~ L ~, c STAFF REPORT Subiect: Ordinance amending Chapter 3.44 of the Municipal Code concerning reduction in the Service User's Tax (utility tax) rate Backl!:round: During discussions concerning the potential sales tax to fund enhancements to public safety, key stakeholders have noted that business recruitment and retention are key factors in addressing the root causes of crime in the community. Many studies have found that as local economic conditions improve, crime rates typically decline as individuals have better employment opportunities and family incomes grow. Accordingly, job creation has been a very high priority of the Mayor and Council, along with enhancements to Police Department staffing. Following up on the concerns recently expressed, two potential actions were presented to the Mayor and Council on August 7 and 8 that would further enhance the City's business recruitment and retention efforts. On August 8, the City Manager's Office was directed to bring back both a .10% reduction in the City's utility tax (UUT) rate, and a $10,000 cap on business registration fees. The business registration fee cap is being developed, and will be presented to Legislative Review Committee on August 25. This agenda item will address the matter of the UUT rate reduction In California, 145 cities and 4 counties impose utility user's taxes. The tax rates vary from 1% to 11%, with the average rate being 5.5%. Approximately 50% of the state's residents and businesses are based in areas with utility tax. The City's UUT rate is currently 7.93%. The tax applies to electricity, gas, telephone (including cell phones), and cable services. Utility tax is the City's second largest source of revenue, and is projected to generate approximately $24 million in FY 06-07. The following table summarizes the highest utility tax rates found in California: Citv Culver City Seal Beach Richmond Compton Firebaugh Inglewood Los Angeles Lynwood Bell Santa Monica Pomona Pinole EI Cerrito Rialto San Bernardino Utilitv Tax Rate 11% 11% 10% 10% 10% 10% 10% 10% 10% 10% 9% 8% 8% 8% 7.93% c c c In the San Bernardino-Riverside County area, San Bernardino's UUT rate is second only to Rialto: City Rialto San Bernardino Riverside Moreno Valley Fontana Desert Hot Springs Indio Palm Springs Colton Montclair Beaumont Utilitv Tax Rate 8% 7.93% 6.5% 6% 5% 5% 5% 5% 4% residential; 6% business 3.89% 3% In April 2004, Resolution 2004-108 was adopted to create a mechanism for a gradual reduction in the OUT rate. The reduction is based on a formula that compares the 5-year history of expenditure and revenue growth, and calls for a rate reduction if revenues outpace expenditures over that time period. In 2004, the City's UUT rate was reduced from 8% to 7.93% in accordance with the formula. Since that time, the annual calculation of the formula has not resulted in a rate reduction. A .10% reduction would lower the City's OUT rate to 7.83%, and could reduce General Fund revenues by approximately $300,000 annually. Because of the time required to provide notice to utilities concerning the change in the rate, the rate reduction would become effective January 1, 2007, assuming the following timelines: First reading of the ordinance: Second reading: Ordinance effective date: Date utilities implement, per Public Utilities Code Section 799: August 24, 2006 September 5, 2006 October 5, 2006 January I, 2007 It should be noted that utility tax revenues are already facing significant challenges, as federal actions and technological changes are anticipated to significantly erode UUT revenues generated from telecommunications in the coming years. However, the Mayor and'Council may determine that it is in the City's best long-term economic interests to reduce'the OUT rate even in the face of those challenges. Financial ImDact: This reduction would lower the rate to 7.83%, and could reduce General Fund revenues by approximately $300,000 annually based on current estimates. As previously noted, because of the time required to provide notice to utilities concerning the change in the rate, the rate reduction could become effective January I, 2007. To the extent that this action provides an incentive to retain and attract businesses, initial revenue losses will be offset by growth in property tax, sales tax, and even utility tax revenues in the long run. Recommendation: That said ordinance be laid over for final adoption. c c 24 A. 25 (- 26 /II \...... 27 28 /II ORDINANCE NO. 2 AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING CHAPTER 3.44 OF THE SAN BERNARDINO MUNICIPAL CODE CONCERNING REDUCTION IN THE SERVICE USER'S TAX (UTILITY TAX) RATE. 3 4 5 6 7 THE MA YOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO DO ORDAIN AS FOLLOWS: SECTION 1. Chapter 3.44.030 (A) of the San Bernardino Municipal Code is hereby amended as follows: 8 9 "3.44.030 Telephone Users Tax. 10 A. A tax is imposed upon every person in the City using telephone communication services, including services for intrastate, inter-state, or international calls, and using any teletypewriter exchange services in the City. The tax imposed by this section shall be at the rate of? .83 percent (7.83%) of the charges made for such services and shall be paid by the person paying for such services. Interstate calls shall be deemed to include calls to the District of Colombia." II 12 13 14 SECTION 2. Chapter 3.44.040 (B) of the San Bernardino Municipal Code is hereby 15 amended as follows: 16 " 3.44.40 Video Users Tax. 17. 18 B. The tax imposed in this section shall be at the rate of 7.83 percent (7.83%) and shall be collected from the service user by the person providing the video services. The amount of tax collected in one month shall be remitted to the Director of Finance on or before the twentieth day of the following month." 19 20 21 SECTION 3. Chapter 3.44.050 (A) of the San Bernardino Municipal Code is hereby 22 amended as follows: 23 "3.44.050 Electricity Users Tax. A tax is imposed upon every person in the City using electrical energy in the City. The tax imposed by this section shall be at the rate of 7 .83 percent (7.83%) of the charges made for such energy and shall be paid by the person paying for such energy." DHC/js {Utility Tax.Ordinance] c c I AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING CHAPTER 3.44 OF THE SAN BERNARDINO MUNICIPAL CODE CONCERNING REDUCTION IN THE SERVICE USER'S TAX (UTILITY TAX) RATE. :2 3 4 5 6 SECTION 4. Chapter 3.44.060 (A) of the San Bernardino Municipal Code is hereby amended as follows: "3.44.060 Gas Users Tax. 7 A. A tax is imposed upon every person in the City using gas which is delivered through mains or pipes. The tax imposed by this section shall be at the rate of 7.83 percent (7.83%) of the charges made for such gas and shall be paid by the person paying for such gas." 8 9 SECTION 5. Chapter 3.44.065 (A) of the San Bernardino Municipal Code is hereby 10 II amended as follows: 12 "3.44.065 Application of City Users Tax. 13 The 7.83 percent (7.83%) users tax imposed on telephone communication services pursuant to section 3.44.030, on CATV service pursuant to section 3.44.040, on electrical service pursuant to section 3.44.050, and on gas service pursuant to section 3.44.060 shall be imposed only upon charges made for consumer services. The 7.83 percent (7.83%) users tax shall not be levied upon any state or federal tax, fee or surcharge which is separate from the users service charges. This section is intended to clarify existing law; it does not propose any change in the method of calculation of the utility users tax." 14 15 16 c AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING CHAPTER 2 3.44 OF THE SAN BERNARDINO MUNICIPAL CODE CONCERNING REDUCTION IN THE SERVICE USER'S TAX (UTILITY TAX) RATE. 3 I HEREBY CERTIFY that the foregoing Ordinance was duly adopted by the Mayor and 4 5 6 on the day of 7 COUNCIL MEMBERS: AYES 8 ESTRADA 9 BAXTER 10 VACANT 11 12 DERRY 13 KELLEY C 14 JOHNSON 15 MCCAMMACK 16 Common Council of the City of San Bernardino at a meeting thereof, held , 2006, by the following vote, to wit: NAYS ABSTAIN ABSENT 17 18 19 Rachel G. Clark, City Clerk The foregoing Ordinance is hereby approved this _ day of ,2006. 20 21 22 23 Approved as to Form: 24 25 JAMES F. PENMAN, City Attorney C 26 ( 27 B;J~ ']- 2 I e~'1/l~....... 28 DHC/js {Utility T~x.OrdinanceJ J Patrick J. Morris, Mayor City of San Bernardino