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CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION
Date: July 3, 2001
OR: C:,'JAL
Subject: Resolution of the Mayor and
Common Council of the City of San
Bernardino, California, authorizing
enactment of a formula for the reduction
of the Utility User's Tax in the city of San
Bernardino
From: Fred Wilson, City Administrator
Dept: City Administrator's Office
Synopsis of Previous Council Action:
June 26, 2001: Ways and Means Committee recommends approval of a formula for the
reduction of the City's Utility User's Tax.
Recommended motion:
Adopt resolution
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Contact person: Fred Wilson
Phone: 384-5122
Supporting data attached: Staff report, other materials Ward: All
FUNDING REQUIREMENTS: Amount: None
Source: (Ace!. No.)
(Ace!. Description)
Finance:
Council Notes:
fu_4Q/FF ~(X) ( - .;;13 9
Agenda Item No. ~
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STAFF REPORT
Subiect:
Resolution of the Mayor and Common 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
Backl!:round:
In January 2001, Mayor Valles and the Ways and Means Committee 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 Committee 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 OUT rebate program for July and August of2001, and a formula for
reduction of the UUT. Since that time, the Committee and staff have been developing
both these programs for the consideration of the full Council.
On June 26, the Ways and Means Committee recommended that a proposed OUT rate
reduction formula be adopted by the Mayor and Council. The attached resolution would
establish this formula, which is generally based on the model used by the City of Rancho
Cucamonga.
The resolution establishes 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 will be evaluated, and a portion of that
growth may be used to reduce the current UUT rate. Revenues will be adjusted for any
one-time gains (for example, one-time revenue increases as the result of OUT or sales tax
audits). Any rate reduction would then be made by amending the City's OUT ordinance
to reflect the new rate effective July I. Attachment A illustrates the possible impacts of
the OUT rate reduction formula.
While the resolution establishes this systematic examination of the City's OUT rate, it
also provides 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 OUT rate reduction will not take effect automatically; in any given year, the Mayor
and Council may elect to maintain the current UUT rate. In no case would the UUT rate
be increased as a result of the application of this rate reduction formula. Under
Proposition 218, any increase in the UUT rate would require voter approval.
If approved, the first OUT rate reduction will be considered by the Mayor and Council in
March 2002. This possible rate reduction would be calculated by the Finance
Department using audited financial statements for FY 1999-2000 and FY 2000-01 (the
two most recently-completed fiscal years). Based upon the information presented to the
Council in March, an amended UUT ordinance establishing the new, reduced rate could
then have its second reading by the end of April, and the new rate would take effect July
1. This schedule would allow sufficient time to provide the required 60-day notice to the
utility companies by May 1, and for the FY 2002-03 budget to be developed using a
reduced UUT revenue estimate.
In future years, the UUT revenue amount used in the formula would be adjusted to
account for the cost of any UUT rebate or credit program that may be adopted, such as
the one that will be considered by the Mayor and Council on July 23.
Adoption of this UUT rate reduction formula is the first major step toward the eventual
elimination of the City's utility user's tax. Since utility tax is second only to sales tax as
the City's most significant source of General Fund revenue, future UUT rate reductions
willlikeiy impact the funds available each year to meet ever-increasing costs in salaries,
benefits, and other expenditures. For this reason, the annual consideration of a reduction
in the UUT rate will be a significant policy decision facing the Mayor and Council each
year.
Recommendation:
It is recommended that the Mayor and Council adopt the resolution establishing
enactment of a formula for the reduction of the Utility User's Tax.
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~(Q)~W
RESOLUTION NO.
RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO, CALIFORNIA, AUTHORIZING ENACTMENT OF A
FORMULA FOR THE REDUCTION OF THE UTILITY USER'S TAX IN THE CITY
OF SAN BERNARDINO
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 utilityuser's tax; and
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 increase from year to year, a portion of this net revenue increase shall be used
to reduce the utility user's tax rate;
NOW, THEREFORE, IT IS RESOLVED by the Mayor and Common Council of the
City of San Bernardino, California, as follows:
Section 1. The following definitions, formula, and process are hereby established
for the calculation of a possible utility user's tax rate reduction each year:
A. Definitions:
Revenue Indicators (A) shall equal the total of sales tax, vehicle license fees, property tax, business registration,
franchise fee, and utility user's tax revenue for the tiscal year two years prior to the application of the rate
reduction formula as indicated by the City's audited tinancial statement for that year, adjusting for anyone-time
gains in these revenue categories andlor the cost of any Utility User's Tax rebate or credit program that may be
offered in that year.
Revenue Indicaton (B) shall equal the total of sales tax, vehicle license fees, property tax, business registration,
franchise fee, and utility user's tax revenue for the fiscal year prior to the application of the rate reduction formula
as indicated by the City's audited tinancial statement for that year, adjusting for anyone-time gains in these
revenue categories andlor 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
February, as published by the U.s. Department of Labor's Bureau of Labor Statistics.
B. Formula:
Step 1:
B - (A increased by CPI ) = Net Revenue Growth (G)
Step 2:
20% of G = Amount of revenue available for rate reduction (R) .
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO, CALIFORNIA, AUTHORIZING ENACTMENT OF A
FORMULA FOR THE REDUCTION AND ELIMINATION OF THE UTILITY USER'S
TAX IN THE CITY OF SAN BERNARDINO
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 UUT rate - (Current UUT Rate x P) = New possible rate
C. Process:
Each March, a possible utility user's tax rate reduction shall be calculated by the
Finance Department using the definitions, fonnula, and process established by this resolution.
These calculations shall be presented to the Mayor and Common Council in March of each
year, along with an analysis of the City's current financial condition and other appropriate
financial infonnation. If the Mayor and Common Council detennine that a utility user's tax
rate reduction is fiscally prudent based upon these calculations and other infonnation, an
ordinance shall be adopted that amends San Bernardino Municipal Code Section 3.44 to
establish the new, reduced utility tax rate. This rate reduction shall be effective July I of that
same year, 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.
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RESOLUTION OF THE MAYOR AND COMMON COUNCIL OF THE CITY
OF SAN BERNARDINO, CALIFORNIA, AUTHORIZING ENACTMENT OF A
FORMULA FOR THE REDUCTION AND ELIMINATION OF THE UTILITY USER'S
TAX IN THE CITY OF SAN BERNARDINO
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
, 200 I, by the following vote, to wit:
Council Members:
AYES
NAYS
ABSTAIN ABSENT
ESTRADA
LIEN
MCGINNIS
SCHNETZ
SUAREZ
ANDERSON
MCCAMMACK
City Clerk
The foregoing resolution is hereby approved this
day of
2001.
Judith Valles, Mayor
City of San Bernardino
JAMES F. PENMAN,
City Attorney
B'rf-l Pe--
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Attachment A
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Examnle 1:
Using the 2 most recent audits, this is what would have happened for FY 2001-2002 if the formula had
been in effect in March 200 I.
* Assumes CPI of 3.6%, which is the CPI for the 12-month period ending May 2001.
FY 98-99:
22,907,000 - sales tax
8,377,000 - VLF
7,025,000 - property tax
3,823,000 - business reg
2, 254,000 - franchise
15.093.000 - UUT
59,479,000 - Total Revenue Indicators (A)
FY 99-00:
25,294,000 - sales tax
8,980,500 - VLF
7,215,400 - property tax
4,160,800 - business reg
2,331,800 - franchise
15.347.600 - UUT
63,330,100 - Total Revenue Indicators (B)
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Step 1:
63,330,100 - (59,479,000 (increased by CPI of 3.6%) ) = Net Revenue Growth (G)
63,330,100 - (61,620,244) = 1,709,856 Net Revenue Growth (G)
Step 2:
20% of G = Amount of revenue available for rate reduction (R)
20% ofl,709,856= 341,971 (R)
Step 3: Since R is greater than zero, than the rate is reduced as follows:
(R divided by FY 99-00 UUT ) = P
(341,971/15,347,600) = .022 (P)
Step 4:
Current UUT rate - (Current UUT Rate x P) = New rate
8 - (8 x .022) = New Rate
8 - (.18) = 7.82 % New Rate
C In this scenario, rate goes down by .18%.
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Examnle 2: March 2002 nossibilities
Assumes: 1) FY 00-01 revenue estimates in the Prelim Budget are the audited actuals for that year
2) Uses FY 99-00 audited actuals
3) CPI of3.6 %
FY 99-00:
25,294,000 - sales tax
8,980,500 - VLF
7,215,400 -property tax
4,160,800 - business reg
2,331,800 - franchise
15.347.600- UUT
63,330,100 - Total Revenue Indicators (A)
FY 00-01:
26,217,100 - sales tax
9,750,000 - VLF
7,310,000 - property tax
4,150,000 - business reg
2,493,500 - franchise
17.644.900 - UUT
67,565,500 - Total Revenue Indicators (B)
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\.,..; Step 1:
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67,565,500 - (63,330,100 (increased by CPI 00.6%)) = Net Revenue Growth (G)
67,565,500 - (65,609,983) = 1,955,517 Net Revenue Growth (G)
Step 2:
20% of G = Amount of revenue available for rate reduction (R)
20% of 1,955,517 = 391,103 (R)
Step 3: Since R is greater than zero, than the rate is reduced as follows:
(R divided by FY 00-01 UUT) = P
(391,103/17,644,900) = .022 (P)
Step 4:
Current UUT rate - (Current UUT Rate x P) = New rate
8 - (8 x .022) = New Rate
8 - (.18) = 7.82 010 New Rate
In this scenario, rate goes down by .18%.
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Examnle 3: March 2002 nossibilities. assuminl! even stronl!er UUT revenue l!I"owth
Assumes: 1) FY 00-01 revenue estimates in the Prelim Budget are the audited actuals for that
year, except that UUT revenues come in $2 million higher than our current estimates
2) uses FY 99-00 audited actuals
3) CPI of3.6 %
FY 99-00:
25,294,000 - sales tax
8,980,500 - VLF
7,215,400 - property tax
4,160,800 - business reg
2,331,800 - franchise
15.347.600 - UUT
63,330,100 - Total Revenue Indicators (A)
FY 00-01:
26,217,100 - sales tax
9,750,000 - VLF
7,310,000 - property tax
4,150,000 - business reg
2,493,500 - franchise
19.644.900 - UUT
69,565,500 - Total Revenue Indicators (B)
Step 1:
69,565,500 - (63,330,100 (increased by CPI of3.6%) ) = Net Revenue Growth (G)
69,565,500 - (65,609,983) = 3,955,517 Net Revenue Growth (G)
Step 2:
20% of G = Amount of revenue available for rate reduction (R)
20% 00,955,517 = 791,103 (R)
Step 3: Since R is greater than zero, than the rate is reduced as follows:
(R divided by FY 00-01 UUT) = P
(791,103/19,644,900) = .040 (P)
Step 4:
Current UUT rate - (Current UUT Rate x P) = New rate
8 - (8 x .040) = New Rate
8 - (.32) = 7.68 % New Rate
C In this scenario, rate goes down by .32%.
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Examole 4: March 2002 oossibilities. assuminl!: even stronl!:er revenue I!:rowth in other catel!:ories
Assumes: 1) FY 00-01 revenue estimates in the Prelim Budget are the audited actuals for that
year, except that non-UUT revenues come in $2 million higher than our current
estimates
2) uses FY 99-00 audited actuals
3) CPI of 3.6 %
This scenario has all the same calculations for Steps 1-2 in Scenario 2.
Step 3: Since R is greater than zero, than the rate is reduced as follows:
(R divided by FY 00-01 UUT) = P
(791,103/17,644,900) = .045 (P)
Step 4:
Current UUT rate - (Current UUT Rate x P) = New rate
8 - (8 x .045) = New Rate
8 - (.36) = 7.64 % New Rate
In this scenario, rate goes down by .36%.
** FOR OFFICE USE ONLY - NOT A PUBLIC DOCUMENT **
RESOLUTION AGENDA ITEM TRACKING FORM
Meeting Date (Date Adopted): ')- '2- '3-0\ Item # '2.2.. Resolution #
Vote: Ayes 2-\ Nays -B Abstain--6
Change to motion to amend original documents:
200 \ - 2..2, 9
Absent \
Reso. # On Attachments: -L Contract term:
-
NulVVoid After: -
Note on Resolution of Attachment stored separately: ~
Direct City Clerk to (circle I): PUBLISH, POST, RECORD W/COUNTY
By: -
Date Sent to Mayor: i\-;; S-C) \
Date of Mayor's Signature: '\" d (, -()I
Date ofClerklCDC Signature: 1"")-;:)'--0\
Reso. Log Updated:
Seal Impressed:
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Date e
60 Day Reminder Letter Sent ou 30th day:
90 Day Reminder Letter Sent ou 45th day:
See Attached:
e Attached:
See Attached:
Date Returned: -
e:
Request for Council Action & Staff Report Attached: Y es ~
Updated Prior Resolutions (Other Than Below): Yes
Updated CITY Personnel Folders (6413, 6429, 6433, 10584, 10585, 12634): Yes
Updated CDC Personnel Folders (5557): Yes
Updated Traffic Folders (3985, 8234, 655, 92-389): Yes
No By
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Date: l-3CY-OI
Revised 01112/01