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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
From: CouncilmemberWendy
McCammack
Subject: Consideration of reduction in Utility
User's Tax rate
Dept: Council Office
cO'py
Date: April 7, 2004
Synopsis of Previous Council Action:
July 2001:
Council adopts Resolution 2001-239 establishing a formula for the reduction of the
utility user's tax
April 7, 2004:
Ways and Means Committee recommends adoption of a new formula for the reduction
of the utility user's tax
Recommended motions:
A. Resolution of the Mayor and Common Council authorizing enactment of an immediate reduction in the
utility user's tax rate and a fonnu1a for the reduction of the utility user's tax in subsequent years, and
repealing Resolution No. 2001-239
Motion: Adopt resolution
B. An Ordinance of the City of San Bernardino amending Chapter 3.44 of the San Bernardino Municipal Code
reducing the amount of the Service Users Tax to 7.93 percent. FIRST READING
Motion: That said ordinance be laid over for final ad. 0 o:~~
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Contact person: Councilmember McCammack
Phone: 384-5068
Supporting data attached: Staff report, other materials Ward: All
FUNDING REQUIREMENTS:
Amount: None by this action; UUT reduction will result
in loss of $178,200 in General Fund revenue for FY
04/05.
Source: (Ace!. No.)
(Ace!. Description)
Finance:
Council Notes:
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Agenda Item No. /3
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STAFF REPORT
Subiect:
Resolution of the Mayor and Conunon Council of the City of San Bernardino authorizing
enactment of a formula for the reduction of the Utility User's Tax in the city of San
Bernardino, and repealing Resolution 2001-239.
Backl!round:
In January 2001, Mayor Valles and the Ways and Means Conunittee began discussions
concerning the impact of utility rate increases on the City's utility user's tax (UUT)
revenues. Over the ensuing months, a number of Ways and Means Conunittee meetings
were held to evaluate options for addressing this issue, including a proposal by the Inland
Valley Manufacturer's Council for a utility user's tax rebate program. Information was
also obtained from the City of Rancho Cucamonga concerning its utility user's tax rate
reduction formula, which was established by resolution in 1995.
In May, 2001, Mayor Valles proposed that the Ways and Means Committee consider
establishing both a UUT rebate program for July and August of2001, and a formula for
reduction of the UUT. On June 26, 2001, the Ways and Means Conunittee reconunended
that a proposed UUT rate reduction formula be adopted by the Mayor and Council. This
formula was generally based on the model used by the City of Rancho Cucamonga. In
July 2001, Resolution 2001-239 was adopted to establish this formula. Adoption of this
UUT rate reduction formula was the first major step toward the eventual elimination of
the City's utility user's tax.
As it was originally written, Resolution 2001-239 established an annual cycle for the
evaluation of the City's financial condition and the application of the rate reduction
formula. In March of each year, growth in major General Fund revenue categories was to
be evaluated, and a portion of that growth used to reduce the current UUT rate.
Revenues were to be adjusted for anyone-time gains (for example, one-time revenue
increases as the result of UUT or sales tax audits). Any rate reduction would then be
made by amending the City's UUT ordinance to reflect the new rate effective July I.
While the resolution established this systematic examination of the City's UUT rate, it
also provided the Mayor and Council with a mechanism to evaluate the possible rate
reduction in light of appropriate financial information, such as state and federal mandates.
The UUT rate reduction would not take effect automatically; in any given year, the
Mayor and Council may have elected to maintain the current UUT rate.
When the calculations outlined in the resolution were made in 2002 and 2003, the Mayor
reconunended that no rate reduction be enacted. In her memos to the Council, the Mayor
cited a number of reasons, including the State's financial uncertainties and the City's own
financial condition. If the 2004 calculation were implemented, it would lower the rate to
7.74% and result in a loss of $675,000 to the General Fund. In a year in which the City is
facing a significant budget shortfall, it is clear that a new approach is needed that will
lower the utility tax rate over time, but in a fiscally responsible manner.
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ProDosed Formula Modifications:
A$ it has been discussed at the Ways and Means Committee, the proposed new resolution
would make a number of changes to the utility tax rate reduction formula. These changes
are being recommended in order to correct a number of flaws in the existing formula that
have now come to light. The following is a summary of the key changes:
. In the definitions of revenue indicators, intergovernmental revenues have been added
in order to capture any changes in revenues subvented by the State. The previous
formula did not take into account State take-aways.
. The definitions sections have also been amended to reference the current fiscal year
and the previous fiscal year, rather than the years further in the past that were in the
original formula. Because the original formula examined revenues from several years
past, the formula did not take into account any more recent changes in State revenues
or other revenues.
. In Section I, the formula calls for a reduction of the utility tax rate from 8% to 7.93%
effective July I, 2004. In a companion item on the April 19 Council agenda, the
Council will have the opportunity to have the first reading of the ordinance
implementing this tax reduction.
. In Section 2, a modified formula is proposed for the calculation of future rate
reductions. Beginning in November 2004, the calculation will be made using the
current year's budgeted revenues and the prior year's actual revenues. If revenue
growth has exceeded expenditure growth by an average of 3.5% over the previous 5
years, the UUT rate will be reduced pursuant to the formula (see Section 2 C (3) of
the resolution). No reduction would be made if the City had used borrowing,
refinancing, or reserves to balance the budget, since any of those actions would
indicate a financial difficulty.
. All references to a "possible" rate reduction have been removed. If the thresholds in
the new formula are met, the utility tax rate will be reduced.
At the April 7 meeting ofthe Ways and Means Committee, the Committee recommended
approval of this resolution and the companion implementing ordinance, subject to final
review and possible modification by the Chair. Subsequent to the Committee meeting
and upon further review of the draft, several additional changes have been made to the
revised formula. These changes include a 3.5% differential between the five-year
average between revenues and expenditures; the earlier draft required a 5% differential.
Other minor changes in wording have also been included.
Financial imDact:
The reduction in the UUT rate to 7.93% effective July 1,2004, will result in an estimated
loss of $178,200 in utility tax revenues to the General Fund. The future reductions in
utility tax revenue will vary from year to year as the rate gradually decreases over time.
Recommendation:
It is recommended that the Mayor and Council adopt the resolution.
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RESOLUTION NO.
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO AUTHORIZING ENACTMENT OF AN IMMEDIATE
REDUCTION IN THE UTILITY USER'S TAX RATE AND A FORMULA FOR THE
REDUCTION OF THE UTILITY USER'S TAX IN SUBSEQUENT YEARS, AND
REPEALING RESOLUTION NO. 2001-239
WHEREAS, the Mayor and Common Council of the City of San Bernardino desire
the reduction of the service user's tax established by San Bernardino Municipal Code Section
3.44, commonly called the utility user's tax; and
WHEREAS, the Mayor and Council also desire to preserve and fully fund public
safety personnel, and the public's safety shall in no way be compromised by this tax reduction;
and
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WHEREAS, the Mayor and Council has determined that a systematic process for
reduction of the utility user's tax is necessary to achieve this goal; and
WHEREAS, the concept behind the utility tax reduction is that as major General Fund
revenue sources are projected to increase from year to year, a portion of this projected net
revenue increase shall be used to reduce the utility user's tax rate based on the following
formulas;
NOW, THEREFORE, IT IS RESOLVED by the Mayor and Common Council of the
City of San Bernardino, California, as follows:
Section 1. FY 2003 - 04 Calculation: The following definitions, formula, and
process are hereby established for the calculation of an immediate utility user's tax rate
reduction:
A. Definitions:
City General Fund Revenue Indicators (A) shaIl equal the estimated total of sales tax, vehicle license fees,
property tax, business registration, franchise fee, other intergovernmental revenues, and utility user's tax revenue
for the 2003-04 fiscal year, as projected in the City's FY 2003-04 Mid-Year Budget Review, adjusting for any
one-time gains or losses in these revenue categories and/or the cost of any Utility User's Tax rebate or credit
program that may be offered in that year.
City General Fund Revenue Indicators (B) shaIl equal the projected total of sales tax, vehicle license fees,
property tax, business registration, franchise fee, other intergovernmental revenues, and utility user's tax revenue
for upcoming FY 2004-05 fiscal year as indicated by the projections included in the City's FY 2003-04 Mid Year
Budget Review, adjusting for anyone-time gains or losses in these revenue categories and/or the cost of any
Utility User's Tax rebate or credit program that may be offered in that year.
CPI shaIl equal the Consumer Price Index for AIl Urban Consumers (CPI-U) for the 12-month period ended each
February, as published by the U.S. Department of Labor's Bureau of Labor Statistics.
ND. I~ A
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO AUTHORIZING ENACTMENT OF AN IMMEDIATE
REDUCTION IN THE UTILITY USER'S TAX RATE AND A FORMULA FOR THE
REDUCTION OF THE UTILITY USER'S TAX IN SUBSEQUENT YEARS, AND
REPEALING RESOLUTION NO. 2001-239
B. Formula:
Step 1:
B - (A increased by Cpr) = Net Revenue Growth (G)
Step 2:
20% of G = Amount of revenue available for rate reduction (R)
Step 3:
If R is less than or equal to zero, then there is no rate reduction.
rfR is greater than zero, than the rate may be reduced as follows:
(R divided by the more recent year adjusted UUT ) = P
Step 4:
Current UUT rate - (Current UUT Rate x P) = New..t3te
.
C. Process:
In April 2004, a utility user's tax rate reduction shall be calculated by the Finance
Department using the definitions, formula, and process established by Section I of this
resolution. These calculations shall be presented to the Mayor and Common Council in April,
along with an analysis of the City's current financial condition and other appropriate financial
information. An ordinance shall be adopted that amends San Bernardino Municipal Code
Section 3.44 to establish the new, reduced utility tax rate. It is intended that this rate reduction
shall be effective July I, 2004, and shall be adopted in accordance with a schedule that allows
sufficient time to provide adequate notice to utilities as required by California Public Utilities
Code Section 799.
D. Result:
Using the calculation methodology as outlined in Section I, Parts A through C above,
the City's utility tax rate shall be reduced to 7.93%.
Section 2. Calculations beginning in FY 2004-05 and in subsequent fiscal years:
The following definitions, formula, and process are hereby established for the calculation of a
utility user's tax rate reduction during the FY 2004-05 fiscal year and in subsequent fiscal
years:
A. Definitions:
City General Fund Revenue Indicators (A) shall equal the total of sales tax, vehicle license fees, property tax,
business registration, franchise fee, other intergovernmental revenues, and utility user's tax revenue for the
previous fiscal year as indicated by the unaudited actual totals for the previous fiscal year, adjusting for any one-
04/13/04.2:29 PM
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO AUTHORIZING ENACTMENT OF AN IMMEDIATE
REDUCTION IN THE UTILITY USER'S TAX RATE AND A FORMULA FOR THE
REDUCTION OF THE UTILITY USER'S TAX IN SUBSEQUENT YEARS, AND
REPEALING RESOLUTION NO. 2001-239
time gains or losses in these revenue categories and/or the cost of any Utility User's Tax rebate or credit program
that may be offered in that year.
City General Fund Revenue Indicators (B) shall equal the estimated total of sales tax, vehicle license fees,
property tax, business registration, franchise fee, other intergovernmental revenues, and utility user's tax revenue
for the fiscal year during which this rate reduction calculation is made, as estimated in the approved budget,
adjusting for anyone-time gains or losses in these revenue categories and/or the cost of any Utility User's Tax
rebate or credit program that may be offered in that year.
CPI shall equal the Consumer Price Index for All Urban Consumers (CPI-U) for the 12-month period ended each
August, as published by the U.S. Department of Labor's Bureau of Labor Statistics.
B. Formula:
Step 1:
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B - (A increased by CPI ) = Net Revenue Growth <6)
Step 2:
20% of G = Amount of revenue available for rate reduction (R)
Step 3:
If R is less than or equal to zero, then there is no rate reduction.
IfR is greater than zero, than the rate may be reduced as follows:
(R divided by the more recent year adjusted UUT ) = P
Step 4: Current UUI rate - (Current UUI Rate x P) = New rate
C. Process:
1. Each November, a utility user's tax rate reduction shall be calculated by the
Finance Department using the definitions, formula, and process established by Section 2 of this
resolution.
2. These calculations shall be presented to the Mayor and Common Council in
November of each year, along with an analysis of the City's current financial condition and
other appropriate financial information, including a comparison of revenue and expenditure
growth for the five (5) previous fiscal years.
3. If the five-year average of growth in General Fund revenues exceeds the five-
year average of growth in General Fund expenditures by more than 3.5%, and the current
year's General Fund budget and/or any of the prior five years' budgets did not include
borrowing, refinancing, or using the budget reserve in order to be balanced, an ordinance shall
be adopted that amends San Bernardino Municipal Code Section 3.44 to establish the new,
04/13/04_9: 36 AM
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO AUTHORIZING ENACTMENT OF AN IMMEDIATE
C 1 REDUCTION IN THE UTILITY USER'S TAX RATE AND A FORMULA FOR THE
REDUCTION OF THE UTILITY USER'S TAX IN SUBSEQUENT YEARS, AND
2 REPEALING RESOLUTION NO. 2001-239
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4 reduced utility tax rate. This rate reduction shaH be effective July I of the foHowing fiscal
year, and shaH be adopted in accordance with a schedule that aHows sufficient time to provide
5 adequate notice to utilities as required by California Public Utilities Code Section 799.
6 Section 3. Repeal of previous resolution: Resolution 2001-239 is hereby repealed.
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04/13/04_9:36 AM
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO AUTHORIZING ENACTMENT OF AN IMMEDIATE
REDUCTION IN THE UTILITY USER'S TAX RATE AND A FORMULA FOR THE
REDUCTION OF THE UTILITY USER'S TAX IN SUBSEQUENT YEARS, AND
REPEALING RESOLUTION NO. 2001-239
I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the Mayor
and Common Council of the City of San Bernardino at a
meeting thereof, held on the
_ day of
, 2004, by the following vote, to wit:
Council Members:
AYES
NAYS
ABSTAIN ABSENT
ESTRADA
LONGVILLE
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MCGINNIS
DERRY
KELLEY
JOHNSON
MCCAMMACK
City Clerk
The foregoing resolution is hereby approved this
day of
2004.
Judith Valles, Mayor
City of San Bernardino
Approved as to
Form and legal content:
By:
04/13/04_9:36 AM
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4 THE MAYOR AND COMMON COUNCIL OF THE CITY OF SAN BERNARDINO DO
5 ORDAIN AS FOLLOWS:
6 SECTION 1. Subsection A of Section 3.44.030 of the San Bernardino Municipal Code is
7 hereby amended to read as follows:
8 "A. A tax is imposed upon every person in the City using telephone
communication services, including services for intrastate, inter-state, or international
9 calls, and using any teletypewriter exchange services in the City. The tax imposed
by this section shall be at the rate of 7.93 percent (7.93%) of'the charges made for
10 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 Columbia."
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SECTION 2. Subsection B of Section 3.44.040 of the San Bernardino Municipal Code is
hereby amended to read as follows:
"B. The tax imposed in this section shall be at the rate of 7.93 percent (7.93%)
14 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
15 of Finance on or before the twentieth day of the following month."
16 SECTION 3. Subsection A of Section 3.44.050 of the San Bernardino Municipal Code is
17 hereby amended to read as follows:
18 "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 7.93 percent (7.93%) of
19 the charges made for such energy and shall be paid by the person paying for such
energy."
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SECTION 4. Subsection A of Section 3.44.060 of the San Bernardino Municipal Code is
hereby amended to read as follows:
"A. A tax is imposed upon every person in the City using gas which is deli vered
23 through mains or pipes. The tax imposed by this section shall be at the rate of 7.93
percent (7.93%) of the charges made for such gas and shall be paid by the person
24 paying for such gas."
25 SECTION 5. Section 3.44.065 of the San Bernardino Municipal Code is hereby amended
26 to read as follows:
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"The 7.93 percent (7.93%) 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 7.93 percent (7.93%) 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."
SECTION 6. This ordinance shall take effect on July 1, 2004.
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AN ORDINANCE OF THE CITY OF SAN BERNARDINO AMENDING CHAPTER 3.44
OF THE SAN BERNARDINO MUNICIPAL CODE REDUCING THE AMOUNT OF SERVICE
USERS TAX TO 7.93 PERCENT.
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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
meeting thereof, held on the
_ day of
, 2004, by the following vote, to wit:
6 COUNCIL MEMBERS:
7 ESTRADA
8 LONGVILLE
9 MCGINNIS
10 DERRY
1 I KElLEY
12 JOHNSON
13 MC CAMMACK
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AYES
NAYS
ABSTAIN ABSENT
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City Clerk
The foregoing Ordinance is hereby approved this _ day of
,2004.
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JUDITH V AlLES, Mayor
City of San Bernardino
Approved as to form
and legal content:
JAMES F. PENMAN
City All rney
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