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HomeMy WebLinkAbout30-City Manager CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL A �` a s From: Fred Wilson, City Manager Subject: Workshop Regarding Utility User's Tax Dept: City Manager's Office Date: September 18, 2007 M/CC Meeting Date: October 1, 2007 Synopsis of Previous Council Action: September 17, 2007 — Mayor and Council take no action on a draft UUT ordinance, and direct that a workshop concerning the Telephone User's Tax be agendized for October 1, 2007. Recommended Motion: That the Mayor and Council consider and provide direction concerning possible UUT ordinance options, and direct the City Manager to work with the City Attorney's Office to prepare a draft revision to the UUT ordinance, along with other necessary documents, in order to place the matter on the February 2008 ballot. Signature Contact person: Lori Sassoon Phone: 5122 Supporting data attached: staff report Ward: all FUNDING REQUIREMENTS: Amount: none Source: (Acct. No.) (Acct. Description) Finance: Council Notes: /D Agenda Item No. o V i STAFF REPORT Subiect• Workshop concerning Utility User's Tax (UUT) BacklZround: As we have been discussing for several months, a number of issues related to advances in technology, litigation, and changes in federal law have begun to or may soon impact utility user's tax (UUT) revenues, particularly with regard to telecommunications services. In light of these issues, several California cities have sought voter approval for updated utility tax ordinances that modernize the ordinance's technical language in order to preserve this important source of revenue. It is important to note that this is a complex, technical issue that has significant financial implications for the long- term financial stability of the City. In San Bernardino, UUT is the City's third largest source of General Fund revenue. At the current rate of 7.83%, it is projected to generate roughly $25 million in FY 2007-2008. UUT on telecommunications services generates approximately $9 million of that total. The City Manager's Office commissioned a public opinion survey in May to determine voter views in San Bernardino regarding a possible utility tax modernization measure. A copy of the initial results from Fairbank, Maslin, Maullin & Associates (FMMA) was presented to the Council at the June 21 workshop, at which time John Fairbank from FMMA provided an overview and analysis of the survey results. At the Council meeting of July 2, this office provided a summary of the issues and recommended that the Mayor and Council consider and provide direction concerning which option to place before the voters, and direct the City Manager to work with the City Attorney's Office to prepare a draft revision of the UUT ordinance, along with other necessary documents, in order to place the matter on the November 2007 ballot. The matter was continued to July 16, when the Mayor and Council adopted an alternate motion directing that staff instead proceed with an update to the UUT ordinance that could be adopted by the Mayor and Council. Based on that direction, the City Attorney's Office prepared a draft ordinance that was discussed at the Legislative Review Committee and recommended for approval in July. However, since that time the city of Sacramento has been sued by a taxpayers' organization regarding its adoption of a clarifying ordinance by action of their Mayor and Council, rather than by the voters. Following the Sacramento lawsuit, staff again recommends that this matter be brought before the voters. Any ballot measures that the City intends to place on the February 5 ballot must be submitted to the County no later than November 9th. Ballot Measure Options You may recall that at the June 21 workshop, John Fairbank of FMMA noted that the poll indicated stronger support for a UUT modernization measure that did not include a reduction in the UUT rate. However, given the track record of similar measures in other cities, a reduction in the UUT rate is likely needed to ensure passage of the measure. The following table summarizes the cities in California that have had recent UUT modernization measures, whether or not they included a rate reduction, and the election results: city Type of measure Rate reduction? % Yes % No Compton Modernize UUT Yes, from 10% to 89.8% 10.2% 8.5% Daly City Modernize UUT No 71.4% 24.6% Fowler Modernize UUT No 65.9% 34.1% Portola Valley Modernize UUT Yes, from 5.5% to 86.3% 13.8% 4.5% Tulare Modernize UUT Yes, from 7% to 85.6% 14.4% 6% While the experience will vary from city to city, the data indicates that measures are more likely to pass by wider margins when accompanied by a UUT rate reduction. For that reason, staff recommends that the Mayor and Council consider a modernizing ordinance that reduces the rate. Given the City's fiscal challenges, including recent declines in sales tax, it is recommended that the reduction be modest so that it can be absorbed without adverse impact upon the City's budget. The attached information from the Finance Department indicates what the estimated corresponding loss in revenue might be from various rate reductions. Financial Impact: If a rate reduction is desired, there exist essentially two main options: Option 1: Reduce UUT rate across all utilities The City's ordinance currently applies utility tax to electricity, natural gas, video services (cable), and telecommunications. A rate reduction from 7.83% to 7.75% across all utilities might result in a $258,000 reduction in UUT revenue annually. Option 2: Reduce UUT rate across only telecommunications The City of Tulare recently adopted this approach, and reduced its rate only on telecommunications while seeking voter approval for a modernized ordinance. The Mayor and Council could take a similar approach to a ballot measure. The advantage to this option is that it reduces the negative impact on revenue that would result from the rate reduction. A rate reduction from 7.83% to 7.75% on only telecommunications (including video) might result in a $91,600 reduction in UUT revenue annually. While passage of a modernized UUT ordinance in conjunction with a modest UUT rate reduction will result in some revenue reduction in the short term, it will stabilize UUT revenues into the future. I recommend that the Mayor and Council discuss these matters and direct me to work with the City Attorney's Office to prepare a draft revision of the UUT ordinance, along with other necessary documents, in order to place the matter on the February 2008 ballot. Recommendation: It is recommended hat the Mayor and Council consider and provide direction concerning possible UUT ordinance options, and direct the City Manager to work with the City Attorney's Office to prepare a draft revision to the UUT ordinance, along with other necessary documents, in order to place the matter on the February 2008 ballot. { UUT REDUCTION CALCULATION Current City UUT Rate: 7.83% FY 06-07 Estimated UUT Revenue: $25,250,000 Amt Rate Reduced New UUT Rate Est Rev Loss .03% 7.80% $ 969700 .08% 7.75% $ 2585000 .10% 7.73% $ 3225500 .13% 7.70% $ 419,200 .33% 7.50% $11064,200 The estimated amount of WT revenue that would be lost if the City's WT rate were decreased is based on the assumption that the current level of UUT collection would continue. If in the future there are some legislative changes that impact the City's ability to continue to collect the same UUT that is currently being collected, then the estimates above would be impacted. There are also several other external factors (such as weather conditions) that could also significantly impact the estimates above. TELECOMMUNICATIONS UUT REDUCTION CALCULATION Current City UUT Rate: 7.83% FY 06-07 Est Telecomm. UUT Revenue: $8,965,200 Telecommunications Amt Rate Reduced New UUT Rate Est Rev Loss .03% 7.80% $ 341,300 .08% 7.75% $ 913600 .10% 7.73% $ 1147500 .13% 7.70% $ 148,800 .33% 7.50% $ 37700 The estimated amount of UUT revenue that would be lost if the City's Telecommunication UUT rate was decreased is based on the assumption that the current level of Telecommunication UUT collection would continue. If in the future there are some legislative changes that impact the City's ability to continue to collect the same Telecommunication UUT that is currently being collected, then the estimates above would be impacted. There are also several other external factors (such as technology changes)that could also significantly impact the estimates above in the future.