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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: Fred Wilson, City Mana~ Subject: Discuss and take possible
U RIG' N ""ftion con~erning B~siness Recruitment
Dept: City Manager's Office t\hd Retention Incentives
Date: August 4, 2006
Meeting Date:
August 7,2006
Synopsis of Previous Council Action:
Recommended motion:
That the City Manager be directed 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.
Contact person: Fred Wilson
Phone: 384-5122
Supporting data attached: staff report
Ward: All
FUNDING REQUIREMENTS: Amount: Potential revenue reduction of $250,000 in FY 06-07
Source: (Accl. No.)
(Accl. Description) General Fund
Finance:
Council Notes:
Agenda Item No. 5Q>
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STAFF REPORT
Subiect:
Discuss and take possible action concerning Business Recruitment and Retention Incentives
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
ofthe Mayor and Council, along with enhancements to Police Department staffing.
Following up on the concerns recently expressed, the following options may be explored to
further enhance the City's business recruitment and retention efforts.
Utility Tax Rate Reduction
In California, 145 cities and 4 counties impose utility user's taxes (OUT). 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%
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 UUT 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.
In order to accelerate the reduction of the utility tax to improve the City's business climate, a
.10% reduction in the rate could be considered at this time. That reduction would lower the rate
to 7.83%, and would 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 could become effective January 1, 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 UUT rate even in the face
of those challenges.
It is recommended that any UUT rate reduction be contingent upon voter passage of the
proposed .25% sales tax increase, so that if that sales tax is not passed, current revenues can at
least be preserved. If the UUT rate were reduced, and the sales tax were not passed by the
voters, then the City would be left in a worsened fiscal condition at a time when public safety
needs are pressing.
Business registration fees for motor vehicle dealerships
Motor vehicle dealerships have historically been a key driver in sales tax generation in the city.
Sales tax is the City's largest revenue source, providing approximately $40 million in revenue
this fiscal year, or about 1/3 of General Fund revenues. Dealerships are also significant
employers, and many positions provide higher than average wages.
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Retention and expansion of existing dealerships will provide additional revenues to fund key
City services. In order to provide incentives to dealerships, some cities such as Riverside and
Colton have capped business registration fees for these dealers. A $10,000 cap on business
registration fees for motor vehicle dealers in San Bernardino would result in a reduction in
annual business registration revenue of approximately $80,000.
If a cap is imposed, staff recommends that the cap mirror that in Riverside, which rises annually
by CPI or 5%, whichever is less. This will allow the cap to grow over time as gross receipts for
dealerships also increase.
In order to implement these proposed business recruitment and retention incentives, the existing
City ordinances related to business registration and utility tax will need to be amended. If the
Mayor and Council so direct, staff will prepare the appropriate ordinances for first reading.
Financial Impact:
Implementation of these business recruitment and retention incentives will result in a direct loss
of revenue to the General Fund of approximately $380,000 annually. However, to the extent that
these actions provide incentives to retain and attract businesses, these losses will be offset by
growth in property tax, sales tax, and even utility tax revenues in the long run.
Recommendation:
It is recommended that the City Manager be directed to bring back the appropriate ordinances to
reduce the City's utility tax rate to 7.83%, and to set a $10,000 cap on business registration fees
for motor vehicle dealerships.
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City Attorney
DRAFT
ORDINANCE NO.
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.
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9 "3.44.030
THE MAYOR 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:
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Telephone Users Tax.
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 7.83 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."
SECTION 2. Chapter 3.44.040 (B) of the San Bernardino Municipal Code is hereby
amended as follows:
"3.44.40
Video Users Tax.
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23 "3.44.050
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."
SECTION 3. Chapter 3.44.050 (A) of the San Bernardino Municipal Code is hereby
amended as follows:
Electricity Users Tax.
A.
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."
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DHC/js fUtility Tax.Ordinance]
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7 A.
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.
SECTION 4. Chapter 3.44.060 (A) of the San Bernardino Municipal Code is hereby
amended as follows:
"3.44.060
Gas Users Tax.
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."
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SECTION 5. Chapter 3.44.065 (A) of the San Bernardino Municipal Code is hereby
amended as follows:
"3.44.065
Application of City Users Tax.
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."
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1 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.
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I HEREBY CERTIFY that the foregoing Ordinance was duly adopted by the Mayor and
Common Council of the City of San Bernardino at a
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meeting thereof, held
6 on the day of
7 COUNCIL MEMBERS: AYES
8 ESTRADA
9 BAXTER
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VACANT
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12 DERRY
13 KELLEY
14 JOHNSON
15 MCCAMMACK
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, 2006, by the following vote, to wit:
NAYS
ABSTAIN ABSENT
Rachel G. Clark, City Clerk
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The foregoing Ordinance is hereby approved this _ day of
,2006.
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Patrick J. Morris, Mayor
City of San Bernardino
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Approved as to Form:
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25 JAMES F. PENMAN,
City Attorney
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27 By:
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DHCljs [Utility Tax.Ordinance] 3