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Home My WebLink About03- City Manager CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL AC'11O1VG I N A L From: Fred Wilson Subject: Discuss and take possible action City Manager regarding potential ballot measures for the November 2008 ballot Date: July 1,2008 MICC Meeting Date: July 7, 2008 Synopsis of Previous Council Action: June 25, 2008 — Mayor and Council are presented the report from Competitive Edge Research regarding potential ballot measures Recommended Motion: Discuss and take possible action. el .4Z gnature 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: P�viQUS c y # 37l3 7/7�0� -7116,/08 #3 Agenda Item No. STAFF REPORT Subiect: Discuss and take possible action regarding potential ballot measures for the November 2008 ballot Background Over the last several months, work has been in progress on a three-part strategy to address the City's budget shortfall for FY 08-09. The three parts are: • Budget reductions and new revenues • Potential revenue measures approved by the voters • Employee cost-sharing i After several months of research by staff and discussions with the Budget Ad Hoc Committee, a poll was conducted to gauge voter opinion regarding several potential ballot measures. Any potential measure for the November 4, 2008 ballot must be submitted to the Registrar of Voters no later than August 8. The potential measures included in the poll were a quarry tax, warehouse tax, transient lodging tax (TLT) increase, removal of the exemption from UUT for city of Riverside water pumping activities, and a 911 communications tax. The following gives a brief description of each measure, and shows the potential annual revenue that may be generated by each of these measures. Please note that staff has made its best efforts with the information available to j develop these estimates: Increase TLT from 10%to 12%: Potential annual revenue: $620,000 The TLT, or "bed tax" as it is sometimes called, is collected and remitted by hotels and motels. The TLT is a preferred tax measure from the administrative viewpoint; it provides a stable revenue source, and its remittance can be audited. Quarry tax ($.18/ton): Potential annual revenue: $300,000 - $500,000 The quarry tax, formally known as the extraction and processing tax, is a form of business registration tax. Like all taxes, increases to the business registration tax rate and/or broadening of the tax base is subject to voter approval. According to information provided by the County of San Bernardino and the State Department of Conservation, the City currently has two (2) mines that would be subject to the tax (see attached maps). One of the mapped sites is currently exempted from business registration tax, based on the location of its administrative offices; however, the County and State staff confirm that both sites are within the City's jurisdiction for the purposes of the Surface Mining Control and Reclamation Act (SMCRA), and therefore the source of the mine's aggregate material is from within the City's boundaries. Page 2 The revenue estimates associated with the tax are based on the most recent mining tonnage information as provided to the State. The most recent data reported to the State is for the calendar year 2006. Tonnage varies from year to year, and therefore revenues will vary. The tax rate of $.18 per ton is based on the FY 08-09 rate of $.1782 per ton in the city of Highland. Highland's tax was adopted in 1998, after encountering opposition from quarry operators. The Highland tax escalates by the rate of CPI annually, with a cap at $35 cents per ton. Other entities with quarry taxes locally include the City of Upland. Staff met with staff in the city of Irwindale, which is home to large quarry operators, and that City provided helpful information regarding the potential tax. Based on staffs research, the quarry tax is perhaps the most complex potential revenue measure and poses the most administrative challenges. First, with one of the mining sites straddling the city boundaries, it will be important to carefully monitor remittances and verify that tax is properly applied when the aggregate materials are extracted from and/or processed on property that is within city boundaries. Verifying the tonnages reported for tax purposes may be difficult; the City of Highland uses annual comparisons of aerial photography, and uses a consultant's engineering calculations to verify the operator's reports. If mining activity shifts into unincorporated areas, revenues will decline significantly. However, given the impact of quarry operations on air quality and road conditions, the tax is certainly appropriate and may provide significant revenue. Other sites may fall under the tax and therefore provide additional revenue, if new mining operations begin, and/or other sites are processing rock materials that have not yet been identified by staff. UUT on Riverside wells: Potential annual revenue: $100,000 The City's UUT of 7.75% applies to electricity, gas, and communications services. Chapter 3.44.050-B of the Municipal Code contains the following exemption from the UUT on electricity: B. As used in this section, the term "using electrical energy" shall not be construed to mean the storage of such energy by a person in a battery owned or possessed by him for use in an automobile or other machinery or device apart from the premises upon which the energy was received; provided,however,that the term shall include the receiving of such energy for the purpose of using it in the charging of batteries; nor shall the term include the mere receiving of such energy by an electric public utility or governmental agency at a point within the City for resale; or the use of such energy in a production or distribution of water by a public utility or governmental agency; or the use of such energy utility or a governmental agency; or the use of such energy for the production and distribution of water for lawn and landscape irrigation of cemeteries.(emphasis added) The effect of this exemption is that electricity used by the City of Riverside in its water pumping operations in the city is not subject to the City's UUT. As you are aware, the City of Riverside has water well sites throughout the city, and pumps much of its water supply from within San Page 3 Bernardino. Working with utility data and with the assistance of the City's Water Department, staff estimates that this exemption costs the City approximately $100,000 annually in lost revenue. With voter approval, the UUT ordinance could be amended to remove this exemption. Other language in this section would also be clarified so that only the City, its Water Department, and other government office operations continue to be exempted. Warehouse tax: Potential annual revenue: $300,000 The warehouse tax is another form of business registration tax. A warehouse tax was adopted by Redlands voters in 2007, and applies primarily to warehouse distribution facilities. Based on the polling data,the warehouse tax is only marginally viable. 911 communications tax: Potential annual revenue: $4 million Fee of $1.50 per telephone line (landline and cell) would be imposed and collected via phone bills. A fee study completed for the City in April 2006 provides the basis for the fee amount. Some of the additional revenue might be used to increase Police dispatch capacity to receive 911 calls directly from cell phones. Based on the polling data, the 911 tax does not appear viable. Discussion At the June 25 budget workshop, the polling consultant presented the results of the survey, and the final report was provided to you. In summary, they concluded that the quarry tax and UUT exemption removal were the most viable, while the TLT increase would be most viable if it is placed on the ballot as a lone measure. The 911 communications tax does not have voter support, while the warehouse tax is considered marginally viable. Interestingly, placing the TLT on the ballot with the quarry tax and UUT item decreased support for the TLT increase (see p. 20 of the report), although its inclusion did not seem to erode support for the other two. Based on the analysis, and in order to provide the most potential revenue to the General Fund, staff recommends that the Mayor and Council discuss and take possible action regarding the following options: Option A: Quarry Tax and UUT exemption removal This option places only two (2) measures before the voters. Based on the polling data, it would gain the most likely voter support. If passed, these items would provide approximately$400,000 - $600,000 annually. Option B: TLT This option places the TLT measure on the ballot alone. It would provide roughly $620,000 annually. Option C: Ouarry Tax and TLT This option provides $1 - $1.2 million on an annual basis. Page 4 Option D: Quarry Tax, TLT, WT This option places all three viable tax measures on the ballot. It would provide $1.1 — 1.3 million on an annual basis. While the polling data did not show that the number of measures on the ballot would be a significant factor impacting support or opposition,there are concerns that at some point,the voters might feel that there are too many measures for consideration. Financial impact: In any scenario, staff would recommend that the City conduct a publicly-funded public information effort in order to inform and educate voters regarding the measures. With the high turnout expected and large number of items on the November ballot,this public education will be important. A budget of approximately $75,000 would need to be provided, and has not yet been budgeted. According to the Registrar of Voters, the estimated cost for placing measures on the November 2008 ballot is currently $103,300 for one measure, $123,900 for two measures, or $144,000 for three measures. This cost has also not yet been budgeted, and may vary from the estimates. It should also be noted that if the measures pass, they will not take effect immediately, so a full year of revenue will not be received. After taking into account the costs for public education and the election, any measure would provide only a modest net revenue benefit in FY 08-09. However, for FY 09-10, these measures would provide significant revenues that will help the budget situation in that year and beyond. Recommendation: Discuss and take possible action. • r 5 ' f { a h � k't } J � ° t• �+. > ON/p a �V `� F�M�,T `yFrFRS �m wire °r v (I i JQ T�F� 2P SPY �ti� S 1T e O FRS J r {� C'9✓O : R.) RL/,yGTO Q- 0 02 RpN N /q�7v �� wP SNpP °Cry FYFRS �•y� >•q l�,. o�c p�Ory M-gryF� eF[q,0/v` N,NNgT/ N, 91-38-0137 rwy Nr ry �- �C1 �.� •>: W ° � b� MOUNT o w sy/ R giry r q Pe � t� •.;� as gNry J y O q 2 A ♦ R' ��w 9tOt� 'S' A�,11CN C p Ole Entered Into Rec, at MCC/CDC Mtn'.{ by: Agenda Item Iqo: .r ,:,; City CleNCDC Secretary • r mardino d Yr . 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