HomeMy WebLinkAboutRevised Staff Report- Item No. 4 UUT Tax Impact AnalysisPage 1
Staff Report
City of San Bernardino
Request for Council Action
Date: December 2, 2020
To: Honorable Mayor and City Council Members
From: Robert D. Field, City Manager
By: Jim Slobojan, Acting Finance Director
Subject: Impact Report for Petition Reducing Service Users Tax (All
Wards)
Recommendation
It is recommended that the Mayor and City Council of the City of San Bernardino,
California, take the following actions:
1. Receive and file the financial impact analysis report of the proposed measure to
reduce the rate of the City’s Service Users Tax from 7.75 percent to 3 percent.
2. Submit the Measure to the voters at the next regular General Municipal Election
on November 8, 2022, including the adoption of the required Resolutions:
1. Resolution No. 2020-271 of the Mayor and City Council of the City of San
Bernardino, submitting to the qualified voters of the City of San Bernardino
an initiative measure reducing the rate of the city’s service users tax from
seven and three-quarters percent (7.75%) to three percent (3%), at the
general municipal election to be held on Tuesday, November 8, 2022.
2. Resolution No. 2020-272 of the Mayor and City Council of the City of San
Bernardino, requesting the Board Of Supervisors of the County Of San
Bernardino to consolidate a General Municipal Election to be held on
November 8, 2022 with the Statewide General Election to be held on that
date pursuant to Elections Code Section 10403.
3. Resolution No. 2020-273 of the Mayor and City Council of the City of San
Bernardino providing for the filing of primary and rebuttal arguments and
setting rules for the filing of written arguments regarding a City measure to
be submitted at the November 8, 2022 General Municipal Election.
Background
On March 20, 2020, the City received a Notice of Intent to Circulate a Petition and
proposed initiative measure (“Measure”) from Ryan Fischer, an authorized
representative of Samuel Coleman, a San Bernardino resident and proponent of the
Measure. If approved, the Measure would reduce the rate of the City’s current Service
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Utilities Users Tax (UUT) from 7.75 percent to 3 percent.
Section 900 of the City’s Charter provides that initiative measures shall follow the
procedures set forth in the California Elections Code. In accordance with the Elections
Code, the City Attorney’s office timely prepared and sent a ballot title and summary of
the Measure to the Measure’s proponent and authorized representative on April 2,
2020. The proponent then had 6 months from receipt of the ballot title and summary to
gather enough signatures to qualify the Measure for the ballot.
On September 23, 2020, the proponent submitted a signed petition to the City Clerk’s
Office. As is standard practice, the City Clerk’s Office forwarded the signed petition to
the San Bernardino County Registrar of Voters to verify the validity of the petition
signatures.
On October 20, 2020, the City Clerk’s office received a notification from the County
Registrar of Voters that the petition contains 2,339 valid signatures. Generally, the
Elections Code requires the signatures of at least 10 percent of the City’s registered
vo ters to qualify a local measure. However, pursuant to Proposition 218, a provision of
the State Constitution relating to local taxes (Calif. Const. Art. XIIIC, Sec. 3), the
signature threshold to qualify a local tax repeal or reduction measure was lowered to 5
percent of the City’s registered voters who voted for any candidate for Governor at the
last Statewide election (November, 2018). That lowers the minimum signature
requirement to 1,972 in order to qualify the measure. Therefore, the Measure has
qualified for the ballot. At the November 4, 2020, meeting, the Mayor and City Council
accepted the Certification of Sufficiency of the Initiative Petition and directed staff to
prepare an impartial and informational report analyzing the impact of the Measure on
the City’s finances and its ability to provide public services .
Since the Measure has obtained the required number of signatures, the Mayor and City
Council’s options under Elections Code Sections 1405 and 9215 are as follows:
a) Adopt the Measure, without alteration, at this meeting, or within 10 days after;
b) Submit the Measure to the voters at the next regular municipal election occurring
at least 88 days later. A “regular municipal election” is one where
Councilmembers are elected. The next regular municipal election upon which
this Measure can be placed will be November 8, 2022; or
c) Submit the Measure to the voters at a special municipal election occurring on a
Tuesday between 88 and 103 days after the City Council calls the election (either
February 2, 2021 or February 9, 2021).
Based upon the projected cost impact to the City, staff recommends moving forward
with submitting the measure to voters at the next regular municipal election (option (b))
as holding a special election (option (c)) will be significantly higher because the cost of
the election would be borne exclusively by the City, in contrast to the November 8, 2022
regular election where many agencies will share the cost. Furthermore, if the UUT rat e
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is lowered from 7.75 percent down to 3 percent the City’s General Fund revenues will
be reduced by an estimated $14 million annually affecting all levels of city service s,
including public safety, parks and recreation, homeless programs, street repairs,
citywide facility maintenance, youth after-school programs, senior programs, retaining
local businesses and jobs, and other general city services.
Discussion
Utility Users Taxes are levied by local governments on the consumption of utility
services, including electricity, gas, sewer, telecommunications, and cable television.
There are currently 148 cities in California that have a UUT. The UUT was adopted in
San Bernardino on August 13, 1968. The UUT currently provides $22.6 million in
General Fund revenue representing 1716 percent of total General Fund revenues .
If the proposed measure were to pass, it would be several months before the UUT rate
reduction will become effective. Under California Elections Code section 9217, a local
measure is not deemed adopted by the voters until the City Council has certified the
final election results, which typically occurs about a month after the election. The
measure then becomes legally effective 10 days after adoption. Further, California
Public Utilities Code section 799(a)(5) provides that once the UUT rate change
becomes legally effective, the City must send written notice to all utilities that collect and
remit the UUT to the City. The utilities are not required to implement the rate change for
at least 60 days after receipt of the City’s notice. If the 60th day falls in the middle of a
calendar month, the notice period is extended to the first day of the following month.
Therefore, if the measure were to pass at an election, the rate reductions would likely
take effect between March and April 2023.
Formatted: Highlight
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If voters approve the ballot measure to reduce the UUT rate from 7.75 percent to 3
percent, the City will lose an estimated $3.5 million in General Fund revenue in FY
2022/23 with a projected effective date of April 1, 2023. The City will lose $14 million in
General Fund revenues annually starting in FY 2023/24.
10 - Year Forecast Projections
The 10-Year Forecast provides a picture of the City’s finances over a period of time,
assuming the City will continue with current service levels, without adding any new or
expanded programs or services. To predict revenues and expenditures staff performs a
rigorous examination of historical data and economic conditions to identify trends used
to forecast the City’s finances over a 10-year period. As much as staff endeavors to
incorporate all the variables that might impact these projections, there are factors that
are impossible to forecast, such as natural disasters or pandemics.
Although an operating surplus is estimated this fiscal year and going forward due
primarily to the projected passage of Measure S, it is critically important to remember
that the forecast does not include restoration to services that have been reduced over
the past two budget cycles, including the elimination of 105 positions. There currently
are no reserves for capital improvements, equipment, or infrastructure improvements;
and reserves for risk management functions are underfunded.
Attached are two versions of the 10-Year Forecast. The first version is the 10 -Year
Forecast with no reduction in UUT. The second version illustrates the impact on the
City’s finances if the Measur e to reduce the UUT from 7.75 percent to 3 percent passes.
This second scenario projects a loss of $3.5 million in FY 2022/23 and then $14 million
annually thereafter.
During the upcoming Mid-Year Budget review in February and again during the budget
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development process for FY 2021/22, the forecast will be updated as issues of service
levels and reserves for long term requirements are addressed; and as more information
regarding the impacts of the COVID -19 pandemic become available
2020-2025 Key Strategic Targets and Goals
The request for an Impact Report aligns with Key Target No.1: Financial Stability -
Securing a long -term revenue source, and implementing, maintaining, and updating a
fiscal accountability plan.
Fiscal Impact
If t he Measure to reduce the Utility User Tax rate from 7.75 percent to 3 percent is
passed, the City will lose an estimated $14 million annually. The impact will affect all
levels of city services, including public safety, parks and recreation, homeless
programs, street repairs, citywide facility maintenance, youth after-school programs,
senior programs, retaining local businesses and jobs, and other general city services.
The November 8, 2022 regular municipal election will be included in the FY 2022/23
operating budget as a normal course of business. The additional cost to the City to add
an initiative measure to this ballot is estimated to be $296,000 based on the estimate
received for the November 3, 2020 general municipal election.
In contrast, adding the Measure to a special municipal election ballot in February or
March, 2021 is not currently budgeted. Special municipal elections tend to be
significantly more expensive because the cost would be borne exclusively (or nearly
exclusively) by the City, in contrast to the November 8, 2022 regular election where
many agencies will share the cost.
Conclusion
It is recommended that the Mayor and City Council of the City of San Bernardino,
California, take the following actions:
1. Receive and file the financial impact analysis report of the proposed measure to
reduce the rate of the City’s Service Users Tax from 7.75 percent to 3 percent.
2. Submit the Measure to the voters at the next regular General Municipal Election
on November 8, 2022, including the adoption of the required Resolutions:
1. Resolution No. 2020-271 of the Mayor and City Council of the City of San
Bernardino, submitting to the qualified voters of the City of San Bernardino
an initiative measure reducing the rate of the city’s service users tax from
seven and three-quarters percent (7.75%) to three percent (3%), at the
general municipal election to be held on Tuesday, November 8, 2022.
2. Resolution No. 2020-272 of the Mayor and City Council of the City of San
Bernardino, requesting the Board Of Supervisors of the County Of San
Bernardino to consolidate a General Municipal Election to be held on
November 8, 2022 with the Statewide General Election to be held on that
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date pursuant to Elections Code Section 10403.
3. Resolution No. 2020-273 of the Mayor and City Council of the City of San
Bernardino providing for the filing of primary and rebuttal arguments and
setting rules for the filing of written arguments regarding a City measure to
be submitted at the November 8, 2022 General Municipal Election.
Attachments
Attachment 1 10-Year Forecasts
Attachment 2 Resolution No. 2020-271
Attachment 3 Exhibit A to Resolution No. 2020-271 - Text of Initiative
Measure/Ordinance
Attachment 4 Resolution No. 2020-272
Attachment 5 Resolution No. 2020-273