DATE: April 6, 2016
TO: Council Budget & Finance Committee
FROM: City Manager
SUBJECT
Title
Continued Discussion of Potential Revenue Enhancement Strategies and Actions
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RECOMMENDATION
Recommendation
That Council reads and comments on this report and provides staff direction on future revenue enhancement efforts.
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BACKGROUND
Through the course of various discussions, Council Committee members have agreed that exploring reasonable revenue enhancements was a critical part of meeting the future resource needs of the municipal organization; and they have periodically identified some possibilities. The last direct discussion was on November 4, 2015. Some actions such as the renewal of Measure A (UUT) rose immediately to the top and are already under way. Some supporting policies have already been implemented such as identifying a base for Real Property Transfer Tax and targeting anything above that for Economic Development or one-time costs. Still other ideas and actions warrant further discussion and decisions as to what to bring forward to the full Council.
With this report, staff is attempting to further the conversation and to present some prioritization of ideas and actions for the Committee’s discussion and consideration. Hopefully, some “next steps” will develop from the conversation to guide staff’s efforts in this arena.
DISCUSSION
Per Propositions 218 and 26, taxes and fees fall into the following categories: a) special taxes, which require two-thirds approval of voters and go into restricted accounts; b) general taxes, which require simple majority approval of voters and go into the General Fund; and, 3) fees approved by the Council and go into the fund from which the service is funded, but which must be supported by studies and off-set the actual costs of delivering those services. Other forms of raising revenue include bonded indebtedness to support large capital projects such as a new police building. In such instance, two-third voter approval would be required. Debt would be secured by the General Fund (or other identified funding source) over the life of the issue. Property owners could pay annually via the secured tax roll, whereas current Measures A and C are supported via the UUT and district sales tax, respectively. (NOTE: Possible general elections to target are in 2018, 2020, and 2022.)
Topics identified in the last discussion in November include:
1. Possible new fees such as traffic impact, open space, or a “retail facilities in-lieu” fee
2. Additional items for future ballots:
a. Increasing the Real Property Transfer Tax to better align with surrounding jurisdictions
b. Increasing the Transient Occupancy Tax to better align with surrounding jurisdictions
c. Complete upgrade of the Business License Tax Ordinance and increase the associated business license taxes
d. Developing a new tax on marijuana (medical and/or recreational) in preparation for allowing it in the community
e. Developing new, local taxes on “specialty” items currently exempt from sales tax such as canned/bottled sodas and junk food
3. Identify and consider fees on new emerging services
a. AirBnB
b. Uber et al
c. Other technologies??
While each of the above have merit, some could be implemented in a timelier manner and/or require fewer resources in the process, and may yield more lucrative and logical results; or they are somewhat already in process. With that in mind, staff is recommending the following loosely prioritized list for the Committee’s consideration and possible forwarding to the Mayor and Council during the FY 2017 budget development process:
1. Increase the Real Property Transfer Tax to position Hayward nearer other Charter cities. Hayward’s RPTT is currently defined in our Code as “…when the value of the consideration exceeds $100, said tax to be at the rate of $4.50 for each $1,000 or fractional part of $1,000 of the value of the consideration.” For comparison with other Charter cities, the City of Alameda charges $12.00 per $1,000; Albany is $11.50; Berkeley is $15.00; Oakland, $15.00; and San Leandro, $4.00. General Law cities are not allowed by State law to set this fee level locally, so they all sit at the State-approved .55 per $1,000, but tend to make it up in other ways.
Staff Recommendation: Consider increasing the tax rate to at least double the current RPTT to $9.00 per $1,000 as soon as possible, possibly in 2018.
2. Upgrade of the Business License Tax Ordinance and increase the associated business license taxes. Hayward’s Business License tax Ordinance is seriously out of date by about fifty years. Business codes, the basis of calculating and applying the tax, are extinct and irrelevant to today’s businesses. There is major work that needs to be done before a ballot measure could be considered. However, this project is long overdue.
Staff Recommendation: In the FY 2017, establish and fund a three-year project to review, assess, and update the current Business License Ordinance; and develop recommendations for new per-business-code license rates and a target ballot date for taking it to the voters (e.g., 2020).
3. Implement new local taxes on “specialty” items currently exempt from sales tax such as canned/bottled sodas and junk food. This has great appeal on many fronts. However, in watching what is happening with the few jurisdictions that have implemented this, primarily a new “soda tax”, effective enforcement and collection remain issues making the projected revenue less than anticipated.
Staff Recommendation: Work aggressively, proactively, and with purpose through our State legislators and professional organizations (e.g., League of California Cities) to eliminate the thousands of exemptions from the State Sales Tax, particularly canned/bottled soda and junk food, among many others. It makes far more sense from a resource allocation and efficiency perspective to apply the Sales Tax to a broader base than to implement small “specialty” taxes locally that prove less than productive. Many, if not all of the exemptions were developed and applied through special interest lobbies. They are generally nonsensical and illogical. The current political environment seems to be more open to change than in the past.
4. Increase the Transient Occupancy Tax and apply it equally to hotels and private residences engaged in the transient hotel business (e.g., AirBnB participants and others.) Hayward’s current TOT is 8.5%. Many surrounding jurisdictions are at 10% or higher. The real key is applying it evenly across the board to include the emerging occupancy models and to assure that the tax is applied consistently by all parties on the full retail rate.
Several law suits, particularly in Southern California have been launched to assure consistent application, collection, and remittance of the tax. The issue has surfaced in two different main scenarios:
a. Against “brokers” such as AirBnB, who were either not charging the TOT or were charging the TOT for the respective jurisdiction within which the lodging resided, but which they were not remitting to the jurisdiction.
b. Against other “brokers” such as Expedia and AirBnB who were (a) not charging the TOT, (b) were charging and collecting it but not remitting it to the respective jurisdiction; or (c) were charging and remitting it, but only charging it on the wholesale rate and not on the rate paid by the consumer.
Staff Recommendation: Before deciding to go forward with this possibility, allocate staff and monetary resources to do more research to determine that the issues identified above have been or can be resolved and to complete projections on potential revenue if they have. Current projections, based on the existing hotel/motel mix indicate a nominal increase from raising it to 10%. However, no projections have been done re possible increases from an improved hotel/motel stock, applying it to all brokers in a consistent manner, or applying it to “residential transient” stays (e.g., AirBnB.) This is a much more complex analysis. Target election date might be 2020 or 2022.
5. Develop a new tax on marijuana (medical and/or recreational) in preparation for allowing it in the community. While we do not allow medical marijuana dispensaries in town and there are no immediate plans to alter that prohibition, there is little doubt that the full legalization of marijuana is not far off in the State of California. With that in mind, it seems prudent to review our ordinances and proposed taxation policies in possible preparation. Those jurisdictions that have dispensaries and existing taxation policy applicable to them (e.g., Oakland) report that revenue does come in from that source. It is unclear if the total revenue is as was projected or even if it is being uniformly applied.
Staff Recommendation: In the possible eventuality marijuana dispensaries (both medical and recreational) might exist legally in the future in our community, we move forward to develop a proposed tax to apply to all phases of the supply chain: retail, wholesale, distribution, warehousing, and cultivation. Target election date should be soon (i.e., 2018 or even a special election, depending on pressures and opportunities.)
6. Continue evaluating and developing policy related to the remaining items: (a) possible new traffic impact fees; and (b) other development-related fees such as open space or a “retail facilities in-lieu” fee. These items all require on-going analysis and are not as targeted or potentially lucrative as some of the other above items.
Staff Recommendation: Continue working on these and analyzing possibilities and potentials as the opportunity arises. If the opportunity arises to eliminate the Emergency Facilities Tax without loss of General Fund revenue and within the bond dedication framework, the City should move to do so. The new Planning Policy Fee staff is formulating as identified in the April 5, 2015 report to Council, if approved, would assist in off-setting General Fund long-range planning costs to some degree.
Staff contact
Prepared and Recommended by: Tracy Vesely, Director of Finance
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Approved by:
Fran David, City Manager