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HomeMy WebLinkAboutSupplemental Information Received after Posting of Agenda - Item BTfieA-n Robin Roberts �U From: Jill Ingram Sent: Monday, March 13, 2017 2:04 PM To: Schelly Sustarsic Cc: Craig A. Steele (CSteele @rwglaw.com); Vikki Beatley; Robin Roberts Subject: RE: Questions for tonigh'ts City Council Meeting Attachments: VLFswapNtakeFAQ.pdf BCC: CITY COUNCIL Hi Schelly, please see staff responses below and related attachment to your agenda questions. Please call if you would like to discuss further and /or staff can address any additional questions you have at the meeting tonight. Thank you, Jill Jill R. Ingram, City Manager City of Seal Beach - 211 Eighth Street, Seal Beach, CA 90740 (562) 431 -2527 Ext. 1300 For Information about Seal Beach, please see our city website: http: / /www.sealbeachca.gov NOTICE: This communication may contain privileged or other confidential information. If you are not the intended recipient of this communication, or an employee or agent responsible for delivering this communication to the intended recipient, please advise the sender by reply email and immediately delete the message and any attachments without copying or disclosing the contents. Thank you. - - - -- Original Message---- - From: Schelly Sustarsic Sent: Monday, March 13, 2017 10:19 AM To: Jill Ingram Subject: Questions for tonigh'ts City Council Meeting Hi Jill, I had a couple of questions for tonight's meeting, in regard to the warrants. 1. What were the Landscape services to the Anaheim Landing Cottage (Check # 115724 to Bright View Landscape)? This was for all of the landscape improvements including plants and irrigation for the Blue House on the greenbelt. 2. What is the Traffic Management Center Upgrade (Check # 115808 to Flatiron Electric Group)? There is a new Traffic Management Center here at City Hall which was in the Capital Improvement budget. This particular payment was for the relocation and removal of cables and conduit, installation of the new equipment, and fiber optic cable throughout the City for traffic monitoring. I also had a few questions on the Mid -Year Budget, but these are more informational and I do not need answers to them today. 1. What is sales tax "back - fill ?" This is not a simple answer, please see attached PDF. 2. What is Public Safety sales tax? This is 1/2 cent sales tax allocated to public safety that began with Prop 190 back in the 1990's. 3. Do we ever receive any Arbor Dog Park license fees? Infrequently. 4. What all is included in "Tennis Center Services ?" Any revenue generated at the Tennis Center is primarily posted to this account. It can be for court rentals, facility rentals, annual memberships, etc. Thank you. Schelly Coleman Advisory Services i' lAforniaGityfinance.Gom The VLF for Property Tax Swap of 2004 Facts for Local Officials Rev. Oct 2006 In May 2004, Governor Schwarzenegger proposed a swap of city and county vehicle license fee (motor vehicle in -lieu tax or VLF) revenues for additional property tax share as a part of a state -local budget agreement. The swap was included in the 2004 budget package. I. The VLF Prior to the 2004 Budget Act Prior to the 2004 budget act, VLF tax rate was 2% of the value of the vehicle. The state general fund "offset" 67.5% of this tax resulting in an effective tax rate of 0.65 %. VLF taxpayer revenues were supplemented with a backfill from the state general fund to provide cities and counties with revenues equivalent to a full 20/a VLF tax rate. Under Section 11001.5 of the Revenue and Taxation Code, 24.33% of VLF funds were allocated to the Local Revenues fund to pay for health and welfare programs largely provided by counties under a state -local program realignment in the early 1990s. Of the remaining amount, about $286 million went to reimburse state agencies for administrative costs of the program (Department of Motor Vehicles, Franchise Tax Board, and State Controller). Of the amount remaining after realignment and administrative charges are taken out, 18.75% was allocated for special payments including supplemental funds for cities that did not levy a property tax in 1977 -78, eligible low property tax cities incorporated prior to 1987, and supplemental funds for counties. The 81.25% was allocated half to cities and half counties on a population basis) $7 $6 $5 $4 $3 $2 $1 $0 Figure 1 -2 shows the revenues and allocations of the VLF under the prior law. Finurp 1 VI F Ailncation $'71 Figure 2 VLF Revenues and Allocation - Prior Law VLF Backfill at 0.65 Counties Per Cities Per Capita tj H& W lignment 18.75% U U Q U J L iv 81.28% > O Y O J2 Local Fund 24 33% t For more information on the history and allocation of the VLF see "VLF Facts: A Primer on the Motor Vehicle In -lieu Tax, the Car Tax Cut and Backfill" and other resources at w .ca1iforniadryfinance.com / #\'1.1 42n isle Royale Lans a Davis, GA • 15V16-4I<il. Phone: 530.159.3g52 • Far.: 53o.158.3g52 $6 $5 $4 $3 H &W $2 Realignment (local Revenue Fund) $1 $0 VLF Backfill at 0.65 Counties Per Cities Per Capita tj H& W lignment 18.75% U U Q U J L iv 81.28% > O Y O J2 Local Fund 24 33% t For more information on the history and allocation of the VLF see "VLF Facts: A Primer on the Motor Vehicle In -lieu Tax, the Car Tax Cut and Backfill" and other resources at w .ca1iforniadryfinance.com / #\'1.1 42n isle Royale Lans a Davis, GA • 15V16-4I<il. Phone: 530.159.3g52 • Far.: 53o.158.3g52 rev Oct 2006 H. VLF- Property Tax Swap of 2004, State General Fund Contribution and Constitutional Amendment Soon after the LOCAL coalition qualified Proposition 65 for the November ballot, Governor Schwarzenegger proposed that cities, counties, special districts and redevelopment agencies make a two-year contribution to solving the state's budget deficit of $1.3 billion per yeas In exchange, the Governor pledged to lead a campaign to secure legislative and voter support in November 2004 for Proposition 1A, a constitutional amendment with important revenue and mandate protections for cities, counties and special districts. The agreement also included the permanent elimination of the Vehicle License Fee backfill and replacement with a like amount of property tax revenue to cities and counties (except for the 2 year state budget contributions). Following negotiations, the legislature passed and the Governor signed a state budget containing these essential elements. A. Constitutional Amendment. The legislature placed Proposition IA on the November 2004 ballot Proposition lA was a constitutional amendment that contained similar revenue protection features as Proposition 65 as well as some new features that enhance the level of revenue and mandate protection. Among other provisions, Proposition IA prohibits the legislature from reducing the additional property tax share provided to cities and counties under the swap of VLF revenue. The measure also requires that the Legislature provide full replacement revenue to cities and counties for any reduction in the 0.65% VLF rate. See www.CahforttiaCitoFinanx.com for more information on Proposition IA. B VLF Reduction Permanent /Additional Pmperrty Tax to Cities and Counties The 2004 budget included a permanent reduction of the VLF rate from 2% to 0.65% (its current effective rate). The VLF backfill (approximately $4.4 billion) was eliminated and replaced with a like amount of property taxes, dollar- for - dollar. Subsequent to the FY04 -05 base yea; each city's (and county's) property tax in lieu of VLF or "VLF Adjustment Amount increases annually in proportion to the growth in gross assessed valuation in that jurisdiction. Figure 3: The VLF for Property Tax Swap . ............. Y SUB gate repeals VLF ball and permanently reduces VLF rateto 0.65% Pnhpatytax shifted from countywide ERAF ............. >R ; Property tax •� in-lieu of ooa VLF IL V 0. Prfor property r�� www.(aliforniar-itIFinanLe.com State General Fund SUB State t,'n=UFund revenueto make up 6r reduced propety tad (ERAF) to schools -14 Local Schools VLF Backfill ; 3 .............. Y > VLF Fee v � Revenue SUB gate repeals VLF ball and permanently reduces VLF rateto 0.65% Pnhpatytax shifted from countywide ERAF ............. >R ; Property tax •� in-lieu of ooa VLF IL V 0. Prfor property r�� www.(aliforniar-itIFinanLe.com State General Fund SUB State t,'n=UFund revenueto make up 6r reduced propety tad (ERAF) to schools -14 Local Schools rev Oct 2006 C Two Year State General Fund Contribution. In both 200405 and 2005 -06 cities and counties made contributions to the state general fund of $700 million ($350 million for cities, $350 million for counties). These contributions came from reductions to each agency's "property taxes in lieu of VLF." Redevelopment agencies and special districts also made state general fund contributions in FY04 -05 and FY05 -06 in the amounts of $250 million and $350 million respectively. Figure 4 diagrams the VLF for property tax swap taking into account the $700 million contribution from cities and counties in FY04 -05 and FY05 -06. Figure 4: The VLF for Property Tax Swap u � ; VLF Backfill T tax ! c ; ; > > VLF Fee U f Revenue $43B State repeals VLF baddi0 andpennmently reduces VLF rateto 0.65% Propenytm shifted fmmmurtywide ERAF State General Fund $3.66 State GeneralFmd rewnueto makeup for reduced properly tax (ERAF)to schools K -14 Line Schools *State retains $700m from cities and counties in T04 -05 and it D. The New VLF Allocation. Under the new law, the VLF remaining after the repeal of the VLF backfill first goes to maintain full funding of health and welfare programs largely provided by counties under a state -local realignment shift in the early 1990s. In this way the VLF continues to provide the same level of funding for these programs. Remaining VLF revenue is deposited in the Motor Vehicle License Fee Account These funds, less administrative charges (largely for the Department of Motor Vehicles) and $54 million (grown annually) in funding for Orange County's debt service, is allocated to cities on a per capita basis. www. Galifo r niaGityFi nance. com ••Property M tax ! in-lieu of VLF.....i � U 96 property tax State General Fund $3.66 State GeneralFmd rewnueto makeup for reduced properly tax (ERAF)to schools K -14 Line Schools *State retains $700m from cities and counties in T04 -05 and it D. The New VLF Allocation. Under the new law, the VLF remaining after the repeal of the VLF backfill first goes to maintain full funding of health and welfare programs largely provided by counties under a state -local realignment shift in the early 1990s. In this way the VLF continues to provide the same level of funding for these programs. Remaining VLF revenue is deposited in the Motor Vehicle License Fee Account These funds, less administrative charges (largely for the Department of Motor Vehicles) and $54 million (grown annually) in funding for Orange County's debt service, is allocated to cities on a per capita basis. www. Galifo r niaGityFi nance. com + rev Oct 2006 $7 � Figure 5: VLF Revenues and Allocation - New Law $6 $11- gat 0.65rateu�, _ H &W $0 Revenues Revenue After Allocation AYOnaSOn After Status Quo Proposed Swap Status Quo Proposed Swap Figure 5 shows the effect of the reduction in VLF backfill and the allocations that were swapped into "property tax in -lieu of VLF." Figure 6 shows the new VLF allocations. Figure 6: VLF Allocation & Revenue - New Law $2.0 1 I min Charges "�- $1.5 VLF Revenue $1.0 at 0.65% H &W effective Realignment rate $0.5 $0.0 Revenue VLF Revenue Allocation Remaining iii. City Allocations of VLF and Property Tax In -Lieu of VLF Figure 7 shows the total VLF allocation to cities under the prior law and the new swap — before the state general fund contribution from cities. The rema nin VLF to cities under the proposal amounts to less than 10% of city VLF revenue under current law. www.LalfforniaGiftfinance.com All $5 To be Counties P paid from $a VLF Backfill Capita property lax in -lieu of VLF $3- Citi Capita Ckies $2 �_ I PsrC Ib $11- gat 0.65rateu�, _ H &W $0 Revenues Revenue After Allocation AYOnaSOn After Status Quo Proposed Swap Status Quo Proposed Swap Figure 5 shows the effect of the reduction in VLF backfill and the allocations that were swapped into "property tax in -lieu of VLF." Figure 6 shows the new VLF allocations. Figure 6: VLF Allocation & Revenue - New Law $2.0 1 I min Charges "�- $1.5 VLF Revenue $1.0 at 0.65% H &W effective Realignment rate $0.5 $0.0 Revenue VLF Revenue Allocation Remaining iii. City Allocations of VLF and Property Tax In -Lieu of VLF Figure 7 shows the total VLF allocation to cities under the prior law and the new swap — before the state general fund contribution from cities. The rema nin VLF to cities under the proposal amounts to less than 10% of city VLF revenue under current law. www.LalfforniaGiftfinance.com $2.01 $1.5 � $1.0 1 $0.5 � Figure T VLF to Cities Property Capita Tax VLF in Lieu of ing backfi I VLF Cities to cities 1.8 B $1.6 B Per Capita MVLF to Cities $164M .. rr $0.0 ; Prior Law New Swap lamming full funding Dollar for Dollar of VLF bacdill) Figure 8 shows how city VLF and "property tax in -lieu of VLF" grows annually. VLF revenues grow as taxpayer VLF revenue to the MVLF account grows. Allocations to individual cities continue to be affected by statewide VLF revenue growth and by each city's population growth relative to the population growth in cities statewide. However, "Property tax in -lieu of VLF" grows in proportion to the growth in each jurisdiction's gross assessed valuation. $2.5 T--- Figure 8: VLF to Cities $2.0 $1.5 $1.0 Tax in-lie of VL $0.5 FY04 -05 FY05 -06 FY06 -07 FY07 -08 FY08 -09 www.(aliforniaLitIFinanct.com Grows annually with growth in jurisdictions gross Assessed Valuation of Taxable Property Grows annually with growth in VLF revenue and jurisdictions population - growth relative to population growth in cities (thars how VLF FY09 -10 grows now) rev Oct 2006 Figure 9 shows the growth in city VLF and "property tax in -lieu of VLF" with the FY04-05 and FY05 -06 state general fund contributions. $2.5 $2.0 $1.5 $1.0 $0.5 Ell • - • • - - with $350m State General Fund Contributions $350 million State General Fund contibutions , , Property Tax In-lieu of VLF FY04 -05 FY05 -06 FY06 -07 FY07 -08 FY08 -09 FY09 -10 IV. The VLF - Property Tax Swap and the "Triple Flip." As a part of the Proposition 57 state fiscal recovery funding mechanism, cities and counties are currently receiving property tax payments m lieu of 'A cent sales and use tax they would otherwise receive under the Bradley Bums Local Sales and Use tax. The California State Board of Equalization determines the compensation amounts for each city and county. County Auditors [Hake the transfers to each jurisdiction from the countywide ERAF (Education Revenue Augmentation Fund). The state fully compensates school agencies for the reduced ERAF with higher payments from the state general fund. This mechanism is generally referred to as the "triple flip." This property tax is Neu of sales tax operates similar to the way in which the property tax in -Neu of VLFwould work. However, in the case of the in -lieu sales tax payments under the "triple flip," the property tax in lieu of sales tax increases each year in relation to the sales and use tax each jurisdiction would otherwise have received. In effect, year to year growth is in proportion to each jurisdiction's year -to -year growth in sales and use tax revenue. By contrast, the property tax in lieu of VLFwould grow in subsequent years with each jurisdiction's change in the gross assessed value of taxable propertyz Because the growth formula is tied to sales tax and because it is temporary, property tax in Neu of sales tax under the triple flip should be generally be considered a subset of "sales tax revenue ". Because it would be permanent and because its growth would be tied to the assessed valuation of real property, property tax in lieu of VLF should be considered a subset of property tax. 2 In FY04 -05 and FY05 -06 the VLF adjustment amounts (property tax in lieu of VI.F) were essentially determined by the California State Controller's office. In subsequent years, County Auditors calculate how the amounts grow based on each jurisdiction's growth in Assessed Valuation. www. Lalifo r niaLiiy Finaw4.rAta rev Oct 2006 Figure 11 shows the combined interaction of these two revenue swaps. While they operate through similar mechanisms, these two "flips" do not affect each other. Figure 11: The VLF for Property Tax Swap and the Prop 57 "Triple Flip" • .............. N : 0.25 of the I.00localmte $1.2B State Fiscal Yareducing bcel salestmc rate Recovery Fund d a Remaining and increasing special state nee. ii sales tax State General Fund V .d � .............. SUB State repels VLF II $4.SB" State General Fund y andpermana/ly reduces rmnueto makeup for � T� � VLF Backfill ; VLF rateto 0.65% reAuced propety ta< c u (ERAF)to schools i ..............i .4 > VLF Fee U Revenue Propenyta<shated K -14 Local fmm muntywideE Schools $1.2 ,.......... ... ..............$3.6B• w ; Property tax ;; Property tax • In FY07 -05 and FY05-06 >.F in-lieu of in-lieu of onythe stateretains a, ; sales tax ;; VLF ; $700mdluh fmm ctimand d C a•••••• •iiiia counties astheir mrtribatinn y IL to the stare general find. Prior v o`. property tax w,miraliforn"FinaKa.com rev Oct 2006 V. Frequently Asked Questions About The VLF for Property Tax Swap 1 The formula allocating each atyt share of the $350 million stategeneralfund wntribution in FY04 -05 and FY 05 -06 it bared onpropenY tax, tales tax, and VLF. Were each of these sources be redxad? No. The city and county contributions were taken from a reduction in "property tax in -lieu of VLF" 2 How is auaualgrowth in the "properly tar in lieu of VLF" determined? After the dollar -for dollar swap in FY04 -05, county auditors change property tax in lieu of VLF payments (VLF Adjustment Amount) to cities and counties in proportion to each jurisdiction's annual change in gross Assessed Valuation. 3 Our dty bar a redevelopment agncy and that reduas our property tax revenue gmwtb because properly taxgmwtb in the redevelopment pmjed area goes to the agsq. Won f mdevebpment afro affed the growth of "property toxin Lieu of VLF7" No. The County Auditor calculates your regular property tax allocation, the property tax increment allocation to your redevelopment agency and your ABS shares first just as would be done absent the VLF for property tax swap. Then the County Auditor looks at the amount you are owed under the swap, which is your FY04 -05 VLF loss as calculated and reported by the State Controller with growth in proportion to the growth of gross assessed valuation (x. without netting out property tax increment growth going to redevelopment) in your jurisdiction. Thus, redevelopments property tax revenue is not affected, nor does redevelopment affect your property tax in lieu of VLF payments. 4 How are annexations affected by the "property tax in Lieu of VLF"paymentr? In a change from the Governor's agreement with local governments, the Legislature, in late amendments to AB2115, provided for no property tax in Jim of VLF to replace the lost VLF in annexation areas. The effects of this were largely addressed in AB1602 (Laird 2006) through a reallocation of a portion of the remaining city VLF. 5 My aty wargtting a speaal VLF allocation m a low property tax aty. What bappened to that? County VLF, and special VLF allocation have been converted 1000/" into property tax in lieu of VLF: 6 My city has a properly tax sharing agreement with the wunty. Is this "property tax ro lieu of VLF" be rubva to revenue rbans No. For the purposes of such agreements, the property tax in -lieu of VLF payments should be viewed as VLF revenue. Revenue and Taxation Code Section 97.70(p) provides that tax sharing agreements or revenue sharing agreements are deemed to be modified to account for the reduced VLE The intention of this law is that these agreements not be affected by the swap of VLF for property tax. 7 My aty has used VLF to bark a debt issuance. With the loss of the VLF barkfiQ wbat happens to ourftnanang? It should not be affected. For the purposes of such agreements, the property tax in -lieu of VLF payments should be viewed as VLF revenue. 8 Our dry is a low property tax dry (bearure afire distrid provides us fire serviaj Doer our bw property tax share affed what wegt from the `J7enperty tax in lieu of VLF ?" It has no effect. The amount you receive in property tax in lieu of VLF depends on how much VLF you lose due to the repeal of the VLF backf ll with subsequent annual growth tied to total gross assessed valuation in your jurisdiction. Whether low or high, a city or county's share of secured and unsecured property taxes has no affect. 9 How doer this VLFfarpmperty tax swop afed the Pmpasition 57 tapk fhp? It has no effect. The two operate independently. 10 How does this VLFfarproperty tax swap affed ourexisting secured & unseanedpmperty tax revenues? The VLF for property tax swap and the "property tax in lieu of VIP' payments have no effect on a city or county's secured and unsecured property tax revenues including Tax Equity Allocations for "no and low property tad' Cities 11 Lr there enough money in the wuntywide ERAF to war the payments of both the "property tax in lieu of sales tax" under the Pmpasikon 57 tnpk f6p and the "property tax rn lieu of VLF?" With $4.3 billion of property tax swapped for VLF backfill and $1.2 billion in property tax swapped for sales and use tax under the proposition 57 triple flip, most counties have insufficient money in ERAF to make the in -lieu property tax payments IN www. Galifo rniaGit� Finance. corn rev Oct 2006 these cases, the law provides that County Auditors shift the necessary funds from school shares and (as in the rase of the ERAF ;eduction) the school entities are then fully compensated from the state general fund. 12 Air CoxntyAxditarr dmr�rng esker and mxnaes Pmperty Tax Administration Fees for the "property rax in lieu of MF "Paymentrl Revenue and Taxation Code Section 97.75 prohibits a county from imposing a fee, charge, or other levy in reimbursement for administering the VLF for property tax swap during the FY04 -05 and FY05-06 years. Beginning in FY06-07, a county may impose an administration fee or charge, limited to the actual cost of services. 13 When will aties get repaid for their $700 moon wntiibntions over the EY04 -05 and FY05 -06 Fiscal Years? They will not. The local government contributions to the state in FY04-05 and FY05 -06 were not loans. The amounts will not be repaid. 14 If the VLF ape/ /backfill is 67.5%, why ivould my aty VLF be irdxad by over 90 %? After the repeal of the VLF backfill, funding health and welfare programs provided primarily by counties under a state -local realignment in the early 1990s was maintained. Moreover, the VLF allocation includes certain fixed administrative charges which have not changed, regardless of the amount of VLF revenue. This means that the impact of the loss of the VLF backfill is effectively visited on the remaining allocations, leaving less than $200 million in FY04 -05 for per capita allocations to cities in that year. All other allocations (mduding allocation to counties and special allocation including those to no and low property tax cities) were swapped 100° /a for property tax. Over 90% of city VLF was be swapped for property tax. C www.Galifornia(A finance. tom