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Home My WebLink About27-City Manager CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL A(O R+G I N A P From: Fred Wilson, City Manager Subject: Discuss and take possible action concerning public opinion survey results and Dept: City Manager's Office possible November 2007 ballot measure to modernize the City's Utility User Tax a Date: June 25, 2007 ordinance M/CC Meeting Date: July 2, 2007 Synopsis of Previous Council Action: June 21, 2007 — Mayor and Council received a presentation concerning public opinion research results, and asked staff to agendize the matter for further discussion at the next regular Council meeting. Recommended Motion: It is 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 to the UUT ordinance, along with other necessary documents, in order to place the matter on the November 2007 ballot. Signature Contact person: Fred Wilson Phone: 5122 Supporting data attached: staff report Ward: all FUNDING REQUIREMENTS: Amount: none by this action Source: (Acct. No.) (Acct. Description) A1057-1102.15-- Finance: Council Notes: Agenda Item No. c27 7 -/(,o -07 STAFF REPORT Subject: Discuss and take possible action concerning public opinion survey results and possible November 2007 ballot measure to modernize the City's Utility User's Tax ordinance Background: 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. In recent elections, voters have approved modernized UUT ordinances in several cities. In some cases, cities have elected to reduce the UUT rate as part of the ballot measure. A number of cities are now considering measures for the November 2007 ballot. In San Bernardino County, the deadline to submit a measure to the Registrar of Voters for that ballot is August 10. 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. You may recall that 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. If a rate reduction is desired, there exist essential 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. Financial Impact: None by this action. Passage of a modernized UUT ordinance in conjunction with a modest UUT rate reduction will result in some revenue reduction in the short term, but stabilize UUT revenues into the future. Recommendation: It is 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 to the UUT ordinance, along with other necessary documents, in order to place the matter on the November 2007 ballot. UUT REDUCTION CALCULATION Current City UUT Rate: 7.83% FY 06-07 Estimated UUT Revenue: $25,2501)000 Amt Rate Reduced New UUT Rate Est Rev Loss .03% 7.80% $ 961700 .08% 7.75% $ 258,000 .10% 7.73% $ 3221)500 .13% 7.70% $ 4199200 .33% 7.50% $110641200 The estimated amount of UUT revenue that would be lost if the City's UUT 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: $89965,200 Telecommunications Amt Rate Reduced New UUT Rate Est Rev Loss .03% 7.80% $ 341300 .08% 7.75% $ 9100 .10% 7.73% $ 114,500 . 13% 7.70% $ 14800 .33% 7.50% $ 3779800 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.