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2021-10-19 CC Agenda Packet SPC - ITEM #1 - PRESENTATION - Revenue Study Session10/21/2021 10/21/2021 10/21/2021 Goal 5 - Champion Economic Development and Fiscal Sustainability 1. Consider guidelines for the use of potential revenue from golf course lease. 2. Continue on a sustainable financial path, solve future structural deficits, and maintain reserves. 3. Continue to pay down unfunded pension liabilities. 4. Bring proposed business license tax to City Council for a future ballot. 5. Provide for an annual adjustment of the master fee schedule to consider CPI. 6. Conduct a water and wastewater rate study to ensure the adequacy of rates to support the water and sewer system. 4 10/21/2021 4 10/21/2021 Goal 5 - Champion Economic Development and Fiscal Sustainability 7. Enhance existing revenues and look for new revenue sources (grants, economic development, tax measures). 8. Conduct a development impact fee update. 9. Explore developing a strategy in collaboration with other cities to get relief from low property tax with the potential of working toward a future statewide ballot measure. 10. Evaluate creating a risk manager position to establish a coordinated program of management and reduction of costs associated with liability claims and workers' compensation. 11. Determine the right reserve level so excess reserves can be used for services 11 One-time Capital Needs: ➢ Large Capital Projects ➢ The Plunge Rehab ➢ Recreation Park Needs Assessment ➢ Facilities Needs Assessment ➢ Public Infrastructure Projects ➢ Streets & Roads ➢ Sidewalks 2 10/21/2021 0 Revenue loss: GF —$22M decline due to COVID-19 11 Unfunded Infrastructure 2018 Facility needs assessment (does not include parks, roads, & sidewalks) $40M+ required to address aging City facilities and infrastructure Recreation Park assessment Several million to tens of million dollars (study in progress) Annual ongoing need of N$2M in street/sidewalk improvements & repairs Replacement cost for any new facilities II 10/21/2021 rA 1 * Recurring operational and maintenance needs * Recurring costs of Public Safety * Unfunded Technology needs: N$3M - $4M Ensure fiscal sustainability * Ensure healthy reserves g 10/21/2021 D 9 Total unfunded fiscal need for the City over the next 20-30 years $150M-$200M $5M — $10M per year Not factored into the above discussion: ° Unfunded Labor negotiations Future labor negotiations will need to be funded Fiscal impact: unknown 2 10/21/2021 E Total General Fund Revenue $90,000,000 80,208,257 $80,000,000 72,503,402 ............................................................................................................:............ , .............. $70,000,000 75,935,689 71,393,455 $60,000,000 65,338,214 61,708,699 � - ().000,000 $40,000,000 $30,000,000 $ 20,000,000 $10, 000, 000 $0 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 �n 10 10/21/2021 10 $120,000,000 - - $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $0 Ten -Year Financial Strategic Plan General Fund Ten Year Projection FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 dam_ Revenues . Appropriations Fund Balance $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 12 10/21/2021 12 0 An additional tax levy on top of the 1% Bradley -Burns local sales tax a Authorized by CA Constitution Article XIII section 25.5(a)(6) Requires 75% of governing body approval ➢Requires an affirmative vote by four members of City Council to place the measure on the ballot 13 10/21/2021 13 a May be levied as a general tax (unrestricted) ® Requires voter approval: 50% + 1 15 May be levied as a special tax (restricted for a specific use) 94 Requires voter approval: 66.666% (2/3rds approval) Examples of restricted use: Capital & infrastructure, Parks, Public Safety • Can be in perpetuity or include a sunset provision 14 10/21/2021 14 Can be levied in .125% increments ($1.5 million) .25% local sales tax would generate about $3M per year to the City M .50% local sales tax would generate about $6M per year to the City 0 .75% local sales tax would generate about $9M per year to the City 15 10/21/2021 15 ® The CA State Legislature considers 10.25% to be the "legal limit" of sales tax within Los Angeles County ➢Revenue and Taxation Code section 7251.10 0 The limitation in Section 7251.1 is 2.0% above the base tax rate a Certain tax increases have NOT been counted towards the 2.0% limit. ➢For example, the Legislature adopted Section 130350.5 of the Public Utilities Code which allows MTA to impose a transactions and use tax at a rate of 0.5% that is NOT considered part of the 2.0% limit. 16 10/21/2021 16 17 10/21/2021 17 18 10/21/2021 m 1. Leave Measure C unchanged — no actively assessed local sales tax 2. Direct staff to look into modifying Measure C and enact: ➢A general (unrestricted) or special (restricted) local sales tax ➢At what percent a. 0.25% will generate —$3M per year b. 0.50% will generate —$6M per year c. 0.75% will generate —$9M per year ➢With a sunset date or no sunset date 19 10/21/2021 19 • Tax imposed on use of utility services ° Authorized by CA Government Code Section 37100.5 Can be a general tax (unrestricted) or a special tax (restricted) ➢Nearly all UUTs have been imposed as general taxes KII 10/21/2021 20 10/21/2021 21 22 10/21/2021 22 23 10/21/2021 23 Average Assessed Residential UUT Rate ➢Electric = 6.1% ➢Gas = 6.1% ➢Water/Sewer = 6.4% ➢Wireless/Phone = 6.0% 24 10/21/2021 24 Requires an affirmative vote by four members of the Council to place the measure on the ballot 0 Current UUT is a general tax ➢Any amendment would require voter approval: 50% + 1 0 Each 1% increase in UUT will result in -$2.1M (business only) 0 Each 1% UUT assessed on residential will result in -$388K ➢Current UUT rate on residential is 0% OR 10/21/2021 25 UUT Options + Revenue Source Current Rate FY 2021-22 Budget Annual Revenue per Annual Revenue per (non -Residential) (Revenues) each additional 1% each additional 1% (Residential) (non -Residential) Gas(natural)/Cogen 3% $ 2,719,500 $ 25,200 $ 906,500 © Electric 3% 2,420,000 67,200 806,667 © Telecommunication 2% 800,000 67,200 266,667 Water 3% 350,000 84,000 116,667 © Pre paid wireless 1.5% 1501000 42,000 50,000 Cable/Video 0% - 84,000 - Refuse collection 0% - 18,480 - Total $ 6,439,500 $ 388,080 $ 2,146,500 $ 55 $ 537 .. .. 26 10/21/2021 NI Changing the current nonresidential rate to a uniform 3.5% Going from different rate assessments to one uniform rate Enhance UUT revenue by $1.8 million per year 27 10/21/2021 27 1. Status Quo: no action 2. Expanding utility service categories to be taxable (for example: cable TV, streaming services, wastewater, refuse collection) 3. Direct staff to look into pursuing an increase of the current business UUT rate 4. Direct staff to look into pursuing setting a new rate for residential UUT 28 10/21/2021 ►4:3 10/21/2021 29 Revision to sales tax and credit incentives 0 Create Small Business Exemption: Ee Any business generating less than $25,000 (actual exemption amount to be determined by City Council) in annual gross receipts will be exempt from taxes and fees associated with the business license tax. 0 Revision of Sales Tax and Penalty Credit ® Eliminate current sales tax credit of 40% ➢Option A: Phase out sales tax credit over a period of 1— 3 years ➢Option B: Eliminate sales tax credit the year following passage of ballot measure Eliminate Late Penalty Credit 30 10/21/2021 30 31 10/21/2021 31 Requires an affirmative vote by four members of the Council to place the measure on the ballot Requires voter approval: 50% + 1 Potentially generate $1.3M-$1.5M per year ongoing ➢Revision to sales tax credit ➢Revision to late penalty credit ➢Revision to base rate & add small business exemption Update current language in code that is outdated Update the methodology used to calculate BLT 32 10/21/2021 32 33 10/21/2021 33 34 10/21/2021 34 11 The parking tax is imposed on the occupant of an off-street parking space * The Parking Tax is collected by the owner or operator of paid parking facilities and remitted to the City by the parking operator, not directly from the parking customer. Typically, the tax is based on a percentage of the amount charged for parking ° Seventeen cities in California reported collecting a parking tax 35 10/21/2021 35 Number of Paid Parking Spaces* 41620 Assumptions: 10% parking tax rate $20.00 daily average rate Average daily rate* $ 20.00 20 days per month occupancy at 80% 36 Estimated Average Yearly Revenue $ 157009000 10/21/2021 36 37 10/21/2021 37 9 California voters formally passed Proposition 64 in November of 2016 0 Prop. 64 legalized the recreational Cannabis products: • use • sale • distribution manufacturing • cultivation • testing • delivery 38 10/21/2021 M 11 Overview of Cannabis Tax for the State 11 N$2.8 billion sales from recreation marijuana in CA since 2018 ® $1.4 billion Excise Tax $1 billion Sales Tax $347 million Cultivation Tax 0 State received —$1 billion in cannabis tax revenue in FY 2020-21, 55% increase from prior fiscal year Total 9,174 cannabis business licenses issued in CA as of 1/20/21 39 10/21/2021 39 Explore adding Cannabis Tax options: 1. Requires an affirmative vote by four of the five City Councilmembers to place the measure on the ballot 2. Requires voter approval: 50% + 1 3. May result in-$600K-$1.3M per year for the General Fund 40 10/21/2021 40 Southern California Cannabis Taos Rates (May 2021) (Source Harrls Sa Associates; Staff Research) oistribution n►Fanufactu ring Carson 18% Carson 18% Maywood 6% Maywood 6% Santa Ana 696 Santa Ana 6% Pasadena 3% Culver City 4% Culver CFty 29G Pasadena 496 Los Angeles 2% Bellflower 2% Bellflower 1911. Los Angeles 2% Long Beach 1% Long Beach 7L% Costa Mesa 1% Costa Mesa 196 Malibu Not permitted Malibu Not permitted West Hollywood Not permitted West Hollywooc Not permitted Retail (Adult) Retail (Medical) Carson 18% Carson 18% Bellflower 10_01y. Bellflower 10_096 Los Angeles 10% Maywood 10916 Maywood 1096 Costa Mesa 7% Long Beach 8% Long Beach 696 Santa Ana 891. Santa Ana 6% West Hollywood 75% CU Iver City 59G Costa Mesa 7% Los Angeles 5% Culver City 6% Pasadena 4% Pasadena 6% Malibu 096 Malibu 2-5% West Hollywoo, GF T®sting cultivation Carson 18% Maywood 6% Bellflower 7.5% Santa Ana 6% Maywood 6% Los Angeles 2% Pasadena 2-5% Carson $25Jsf Culver City 1% Long Beach $12-80fsf Long Beach 1% Bellflower $3.5/sf - $17.SJsf Costa Mesa 1% Culver City $12fsf Los Angeles 1% Costa Mesa Not permitted Santa Ana 1% Malibu Not permitted Malibu Not permitted Pasadena Not permitted West Hollywood NOt permitted West Hollywoo� Not permitted 41 10/21/2021 41 42 10/21/2021 42 43 10/21/2021 43 44 10/21/2021 44 45 10/21/2021 45 " City Council to give staff direction on which tax measure(s) to pursue placing on the November 2022 ballot The Measure(s) will then be developed and brought back for City Council discussion during February -April 2022. ° Any ballot measure would need to be finalized and approved by City Council no later than June 21, 2022, in order to be placed on the November 2022 general election. 46 10/21/2021 W. I', ift, i Wrap-up & Questions - _ AQ i