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HomeMy WebLinkAboutItem NMEMORANDUM June 26, 2000 TO: MAYOR CAMPBELL AND MEMBERS OF THE CITY COUNCIL FROM: KEITH TILL, CITY MANA GER SUBJECT. • UTILITY USERS TAX REDUCTION O SUMMARY OF REQUEST: City Council to approve first reading of ordinance reducing the utility tax from 11% to 1/2%, effectively a 14% reduction in the amount to be collected, effective 90 days following issuance of certificates of occupancy for Bixby Town Center commercial tenants on pads (Target, BB &B, Ralphs and Sav -ON). This proposed ordinance would also stipulate that the eligibility standard for the senior citizen exemption remain at the current income level of $33,132 unless modified by City Council at some future date. KEY POLICY ISSUE: Committing to a utility tax reduction is, for all practical purposes, a permanent decision because it now requires a vote of the electorate to re- impose any portion of the utility tax once it's been reduced. Tying the reduction to occupancy of the new shopping center lessens the risk — to what we consider an acceptable level -- of a funding shortfall for essential public services. However, there would be a trade -off in terms of scheduling capital improvements and maintenance work programs over a longer period of time than would be possible if the utility tax were not reduced. To the extent a less ambitious capital improvement and work program is deemed appropriate, the utility tax can be reduced. City Council has reviewed this policy question and provided direction to draft an ordinance reducing the utility users tax by approximately 14 %, intending that it be p approved on first reading only. Second reading would be held after the four major tenants of the shopping center receive occupancy permits. ANALYSIS: As the single highest source of general fund revenue, the utility users tax in 1997 generated $4,038,390, or nearly 32% of the general fund. Following deregulation of electricity and new state standards allowing senior citizen exemptions with incomes up to $33,132 per year, utility tax revenue is now down to $3,200,000. This represents a AGENDA ITEM N Utility User Tax Reduction - Page 2 - June 26, 2000 decrease of 20% in the total utility tax revenue currently collected in the City. However, it remains by far the greatest source of revenue for police, fire, park/landscape maintenance and general government services. A decision to reduce the utility tax from 11% down to 9 '/% would result in a first -year income loss to the City of approximately $436,000, or almost 14% less than what is currently collected. In short, going to a 9 '' /z% utility tax would drop the City's total collections to approximately 1/3 less than the peak year of utility tax income in 1996 -97. In raw numbers, the total annual reduction in utility tax income would be roughly $1,275,000. This compares to an anticipated annual revenue stream of approximately $1,500,000 from the Bixby Town Center project. The $225,000 favorable balance between anticipated new revenues vs. the loss in utility tax income could be utilized to continue a more ambitious capital improvement and maintenance program while enhancing vital public safety and other community services. It also provides a small cushion for swings in the economy and factors influencing sales and property tax revenues. Clearly, a 14% reduction in the utility tax means $436,000 less will be available for a number of highly desirable projects. It is anticipated that new income from the shopping center will provide sufficient resources to address the backlog in deferred maintenance projects over time — even with the utility tax reduced to 9'/ %. But it will take significantly longer. KEY CONSIDERATIONS: If City Council determines that the utility tax should be reduced, careful consideration should be given to limiting the cut to no more than can be supported through new income sources, with a prudent allowance for economic swings and possible shortfalls in income projections. On this basis, a 14 % reduction would be the maximum advisable, bringing the utility tax down from 1 I % to 9'/ %. Secondly, it would be highly advisable to forego any reduction until the new shopping center is open and the anticipated flow of revenues begins. To this end, any reduction would be tied to issuance of certificates of occupancy to key tenants of the center. If City Council so chooses, the utility tax would be reduced by tentatively approving an ordinance now, which would tie the reduction to the occupancy of the Target Store and the three other major tenants of the center. Adopting the tax reduction ordinance 90 days after the occupancy permits will provide assurance that the income stream would be available to backfill the additional loss in utility tax revenue. Utility User Tax Reduction - Page 3 - June 26, 2000 RECOMMENDATION: City Council to approve on first reading Ordinance Nc/nyreducing the utility users tax from 11% to 9 Y2 %, with the stated intent to formally adopt the ordinance 90 days following certificates of occupancy for the four major tenants of the Bixby Town Center, also establishing eligibility criteria for the senior citizen exemption at the 1999 income level. ORDINANCE NUMBER w6L AN ORDINANCE OF THE CITY OF SEAL BEACH REDUCING THE UTILITY USER TAX AND AMENDING THE CODE OF THE CITY OF SEAL BEACH THE CITY COUNCIL OF THE CITY OF SEAL BEACH HEREBY ORDAINS AS FOLLOWS: Section 1. Subsection (a) of Section 22 -61.1 of the Code of the City of Seal Beach is amended to read: "(a) The tax imposed by this article shall not apply to any individual sixty -five years of age or older who uses telephone, electric, or gas services in or upon any premises occupied by such individual, provided that the combined adjusted gross income (as such term is used for Federal income tax purposes) of all members of the household in which such individual resides, for the calendar year prior to the fiscal year (July I st through June 30th) for which the exemption provided in this section is applied (as documented by a copy of the current Federal Income Tax Return(s) or California Senior Citizen Property Tax Assistance Claim Form(s) FIB Form 9000), is less than the maximum qualifying income for California Senior Citizen Property Tax Assistance provided for the 1999 calendar year ($33,132)." Section 2. Subsection (a) of Section 22 -62 (Telephone Users Tax) of the Code of the City of Seal Beach is amended to read: "(a) There is hereby imposed a tax upon every person in the City of Seal Beach using intrastate, interstate, including the District of Columbia, or international telephone communication services in the City of Seal Beach. The tax imposed by this section shall be at the rate of nine and one -half percent (9 1/2 %) of the charges made for such services and shall be paid by the person paying for such services. Said tax shall apply to all charges billed to a telephone account having a situ in the City, irrespective of whether a particular telephone service originates and /or terminates within the City." Section 3. Subsection (a) of Section 22 -63 (Electricity Users Tax) of the Code of the City of Seal Beach is amended to read: "(a) There is hereby imposed a tax upon every person in the City of Seal Beach using electrical energy in the City of Seal Beach. The tax imposed by this section shall be at the rate of nine and one -half percent (9 1/2 %) of the charges made for such energy and shall be paid by the person paying for such energy. "Charges" as used 57296 \0001 \612612.1 1- in this section, shall include charges made for (1) metered energy, and (2) minimum charges for service, including customer charges, service charges, standby charges, charges for temporary services, demand charges and annual and monthly charges and any other charges or costs adjustments authorized by the California Public Utilities Commission or the Federal Energy Regulatory Commission." Section 4. Subsection (a) of Section 22 -64 (Fuel Users Tax) of the Code of the City of Seal Beach is amended to read: "(a) There is hereby imposed a tax upon every person in the City of Seal Beach using fuel which is delivered through mains or pipes or by mobile transport. The tax imposed by this section shall be at the rate of nine and one -half percent (9 1/2 %) of the charges made for such fuel and shall be paid by the person paying for such fuel. "Charges," as used in this section, shall include charges made for metered fuel or mobile transport, fuel transportation charges and charges for service, including customer charges, service charges, minimum charges, demand charges, and annual and monthly charges and any other charge authorized by the California Public Utilities Commission or the Federal Energy Regulatory Commission." Section 5. The purpose of this Ordinance is (1) to reduce the rate currently imposed by the City on utility users, and (2) to modify the language of the utility user tax ordinance to protect City revenues from further modifications by the State Legislature. As to this second purpose, the provisions of this Ordinance are intended to be declaratory of existing law and shall be interpreted in light of that intent. The Ordinance is not intended to expand the scope of the tax nor to increase the amount of tax imposed on any individual or other entity in the City. Section 6. This Ordinance shall not be adopted until 90 days following the issuance of certificates of occupancy to the four primary tenants of the Bixby Towne Center, and shall not take effect for thirty days after its adoption. PASSED, APPROVED and ADOPTED this day of , 2000. AYES: COUNCILMEMBERS NOES: COUNCILMEMBERS ABSTAIN: COUNCILMEMBERS 57296 \0001 \612612.1 MAYOR 2- ATTEST: JOANNE YEO, CITY CLERK STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF SEAL BEACH I, Joanne M. Yeo, City Clerk of the City of Seal Beach, California, certify that the foregoing ordinance is an original copy of Ordinance Number on file in the office of the City Clerk, introduced at a meeting held on the day of 2000 and passed, approved and adopted by the City Council of the City of Seal Beach at a meeting held on the day of , 2000, by the following vote AYES: Councilmembers NOES: Councilmembers ABSENT: Councilmembers ABSTAIN: Councilmembers and do further certify that Ordinance Number Seal Beach City Charter. 57296 \0001 \612612.1 WIM has been published pursuant to the City Clerk