INITIATIVE PETITION TO REPEAL CERTAIN MUNICIPAL CODE SECTIONS TO ELIMINATE HERMOSA BEACH UTILITY USERS TAX

 

Recommendation:

It is recommended that the City Council:

1. Receive and file the attached report that Council ordered pursuant to Elections Code Section 9212 analyzing the fiscal impact of the proposed ordinance; and
2. Select one of the following alternatives:

• (a) Introduce the ordinance without alteration (and adopt it within 10 days); or
• (b) Direct the City Clerk to prepare the documents required to submit the ordinance, without alteration, to the voters at the next regular municipal election occurring November 6, 2001.

 

Background:

At its meeting of June 12, 2001, the City Clerk presented to Council a Certificate of Sufficiency for the subject initiative ordinance, stating that the petition contained valid signatures from more than 5 percent of the Hermosa Beach votes cast for all candidates for governor at the November 3, 1998 gubernatorial election and has, therefore, qualified for the November 6, 2001 ballot. The Council was presented with the alternatives mandated by State law to either: (a) introduce the ordinance and adopt it within 10 days; (b) direct that the measure be submitted to the voters at the next municipal election; or (c) order a report pursuant to Elections Code Section 9212, to be presented to the Council within 30 days.

At that meeting, the Council opted to order a report, to be presented at the July 10 meeting, thereby deferring action on the petition until that date. Staff was directed to report on the fiscal impact of the proposed ordinance. That report is attached.

 

REVIEW OF ALTERNATIVES:

Option 2(a) – Introduce the Ordinance

If the City Council opts for Alternative 2(a) ¾ to introduce the ordinance without alteration at tonight’s meeting ¾ the item would not be placed on the ballot.  Because State law requires the subsequent adoption of the ordinance to take place within 10 days, it would be necessary to adjourn tonight’s meeting to a date no later than Thursday, July 19, 2001, in order to adopt the ordinance within the State-mandated time limit.

Option 2(b) – Direct the Measure be Placed on the November 6, 2001,  Ballot

If the City Council opts for Alternative 2(b) ¾ to direct the City Clerk to prepare the required documents to submit the ordinance without alteration to a vote of the people at the regular municipal election of November 6, 2001 ¾ the City Clerk would prepare all appropriate resolutions and associated documents for approval and adoption by the Council at its July 24, 2001, meeting, which is the last regular Council meeting before the County deadline for placing measures on the November ballot.

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EXHIBIT "A"

PROPOSED MEASURE

 

AN ORDINANCE OF THE CITY OF HERMOSA BEACH, CALIFORNIA, REPEALING SECTIONS 3.36.040, 3.36.050, 3.36.060, 3.36.070 AND 3.36.080 OF CHAPTER 3.36 OF THE MUNICIPAL CODE OF THE CITY OF HERMOSA BEACH

CITIZENS' INITIATIVE ACT TO REPEAL THE UTILITY USERS TAX ON TELEPHONE, ELECTRICITY, GAS, WATER, AND CABLE TELEVISION

The people of the City of Hermosa Beach do ordain as follows:

SECTION I. Title . This Act shall be known as and may be cited as the "Citizens' Initiative Act to Repeal the Utility Users Tax on Telephone, Electricity, Gas, Water, and Cable Television."

SECTION II. Findings and Declarations . The people of the City of Hermosa Beach hereby find and declare all of the following:

1. The costs of electricity, gas and water, already high in Southern California, are escalating.

2. A 6 % utility users tax was imposed by a City Council vote in 1985. It was to "sunset," or expire, after three years but in 1986 the City Council deleted the sunset clause, and the tax still remains in effect.

3. Despite generous pay raises to police, fire and other City personnel, despite record purchases of new cars and trucks, and despite the costs of a major, ongoing, remodel of City Hall, the City of Hermosa Beach has had budget surpluses of $1 million or more in each of its last three fiscal years. As a result, as of January 2001, the City had $20 million in bonds and other interest-yielding accounts - up more than 50% from two years ago.

4. Repealing the 6% utility users tax will benefit residents and help Hermosa's businesses to compete fairly with those in other cities that have no utility tax.

5. Should the revenue stream from this tax again be needed in the future, a new utility users tax may be instituted by a simple majority vote of the electorate.

SECTION III. Purpose and Intent . The people of the City of Hermosa Beach hereby declare their purpose and intent in enacting this Act to be as follows: To reduce taxation in order to help to offset the soaring cost of utilities.

SECTION IV. Municipal Code Amendment . Sections 3.36.040 through 3.36.080, entitled "Telephone Tax," "Electricity Tax," "Gas Tax," "Water Tax," and "Cable Television Tax," of Chapter 3.36 of Title 3 of the Hermosa Beach Municipal Code, are hereby repealed in their entirety.

SECTION V. Liberal Construction . The provisions of this Act shall be liberally construed to effectuate its purpose of providing tax relief.

SECTION 4. Severability . If any provision of this Act, or part thereof, or the application thereof to any person, property or circumstances, is for any reason held to be invalid or unconstitutional, the remaining provisions shall not be affected, but shall remain in full force and effect, and to this end the provisions of the Act are severable.

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REPORT REGARDING THE IMPACT OF REPEALING THE 6% UTILITY USER TAX 
ON CITY SERVICES PROVIDED TO RESIDENTS, BUSINESSES AND VISITORS 
PREPARED PURSUANT TO ELECTION CODE SECTION 9212

 

PURPOSE

This report is intended to show the impact of repealing the 6% utility user tax on City services provided to residents, businesses and visitors. This report has been prepared pursuant to City Council direction in accordance with Section 9212 of the Election Code.

BACKGROUND

The City has had a utility user tax since 1985. The tax is expected to generate $1,822,004 during the 2001-2002 fiscal year. This represents 12% of the City’s total General Fund revenue of $15,417,726. The funds have been used primarily for police protection and sewer reconstruction and maintenance. A transfer of $700,000 is made to the sewer fund for reconstruction and maintenance projects and $400,000 is transferred to the Capital Improvement Fund for street repairs.

I have attached several charts that show where the City’s revenue comes from and where it is spent. The charts show that the largest expenditure from the General Fund is for the Police and Fire Departments, which make up about 60% of the General Fund budget or a total $9,700,000. The largest source of revenue for the General Fund is property taxes, which is expected to total $4,596,606. for the fiscal year. Sales taxes are the second largest at $2,796,603. and the UUT is third at $1,822,002. Sales taxes have increased due to several factors including auto sales. It appears that one or two of the auto dealers will be leaving the City when their new locations are finished. The loss of one or two of the auto dealers will also have significant impact on the general fund. The remaining General Fund revenue comes from a number of other taxes and fees for services. Many of these other sources have grown in the last few years primarily as the result of an improved economy and new building. The hotel tax has increased as the result of a new hotel and increased usage at existing properties. This source is expected to total $1,013,454. Fees collected for building permits has increased significantly as a result of the mini building boom that continues in the City and the South Bay in general. Together, these increases have partially offset the funds taken by the state in the early 1990’s.

The elimination of the utility user tax revenue would cause a significant reduction in services provided by the City. If the repeal of the utility user tax is approved, the tax would no longer be collected as of December 31, 2001. The most practical way to reduce the City’s expenditures in order to offset the $1,822,004. in lost revenue is to reduce ongoing operational costs. Personnel costs make up 56% of General Fund expenditures. The remaining 44% are allocated for contract services, operating expenses and the City’s Capital Improvement program. It would be virtually impossible to achieve the cost saving necessary without reducing staffing in all departments. It will take a workforce reduction of 24% of the total of City employees to achieve the cost savings necessary to balance the budget without the UUT revenue. There also would be reductions in or elimination of activities and expenditures in several areas where we use private contractors, such as street sweeping, park maintenance, crossing guards, NPDES reporting and building maintenance. These types of reductions would have a significant impact on the services received by our residents, businesses and visitors and the City’s ability to comply with state and federal mandates.

In the event that the voters repeal the tax, the task of the City Council would be to enact a series of reductions in expenditures to make up for the loss of the revenue. In developing possible recommendations, the following realities were considered. It would not be possible to leave public safety out of the cuts and still have much of an operation. If Police and Fire were held harmless, the total number of non-safety reductions would be over 46% of the non-safety workforce. I do not believe that we could function as a full service city at that point. Two departments generate revenue, Community Development and Community Resources, and although some cuts would be recommended in these departments, additional cuts would not be recommended as we would lose the revenue that goes along with the services provided. There was no consideration given to wage reduction as a way to close the gap. Frankly, it would have to reach around 16-18% in order to make up enough to balance the budget. A reduction of that size is not a realistic option in this labor market.

The following is a list of changes that would be recommended to reduce expenditures to achieve a balanced budget. This has been developed in an honest attempt to explain the impact of the repeal of the tax and the impact that it would have on the services provided.

• The Capital Improvement Program would be reduced to grant funding. The street repair program on residential streets would be eliminated. The $400,000 of general fund revenues committed to this effort would have to be eliminated or much deeper cuts in other areas would have to be made.
• The Police Department sworn police personnel would be reduced to the minimum deployment necessary to staff each shift with patrol officers and maintain the detective division. This level of staffing would virtually eliminate specialty assignments, including the motor/traffic division, additional downtown enforcement, specialized traffic enforcement in neighborhoods and at schools and reduce our ability to staff special events.
• The Fire Department is presently staffed with 18 sworn shift personnel, Assistant Fire Chief and the Fire Chief with 6 firefighter/paramedics working each shift. If a reduction were made to 5 firefighter/paramedics per shift, we would no longer be able to staff the second response engine. This second engine provides a first response when a second call for service is received. In addition, the inability to use the second engine has an impact on the automatic aid agreements the City has with our neighboring communities.
• The reductions in the Public Works Department would significantly impact the Maintenance Division, providing only sewer maintenance and critical repairs on other facilities. If the tax is repealed, a major effort would need to be undertaken to reduce the City’s responsibilities in terms of maintaining facilities. We simply would be an in mode of attempting to keep things safe.
• In the Community Resources Department, staffing would be reduced somewhat or the fees raised to the point where there is no subsidy by the general fund. The special programs, special events, coordination and assistance provided to non-profits would have to be cut back.
• In the Community Development Department, even though most department operations are covered by fees, the general fund portion of operations would have to be reduced. The code enforcement effort would be reduced as it is not covered by fees.
• Additional staffing reductions would be proposed in the Finance Department and Administrative offices, which includes the City Manager, City Clerk and Personnel Department.

The overall reduction would be approximately 33 positions out of 137 positions. I have also attached some information concerning the history of the Utility Users Tax that you might find helpful as the issue is discussed.

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