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HomeMy WebLinkAboutSPCC Minutes 1993-01-06SRCC MINUTES (Special) 1/6/93 Page 1 IN THE COUNCIL CHAMBERS OF THE CITY OF SAN RAFAEL, WEDNESDAY, JANUARY 6, 1993, AT 7:00 PM Special Meeting: Present: Albert J. Boro, Mayor San Rafael City Council Dorothy L. Breiner, Councilmember Paul M. Cohen, Councilmember Michael A. Shippey, Councilmember Joan Thayer, Councilmember Absent: None Others Present: Pamela J. Nicolai, City Manager Jeanne M. Leoncini, City Clerk 1. SPECIAL WORKSHOP - REVENUE OPTIONS - File 9-2-42 x 8-5 Mayor Boro stated this was a special workshop meeting of the City Council and the Revenue Options Committee to gain some information from the speaker, Mr. John O'Sullivan, Municipal Resource Consultants. He stated there were two other meetings planned for the Revenue Options Committee, Monday night, January 11, 1992, from 4:00 PM to 8:00 PM in the Council Chambers, and January 26, 1992, from 4:00 PM to 8:00 PM at the PG&E auditorium. Mayor Boro stated that when they last met, December 7, 1992, and discussed some of the past history of the City's financial situation, both causes and effects, it was mentioned that they were aware of a speaker who could not only talk about some of the techniques that other cities have used to raise taxes, but also some of the results they have had and also the broader look at the situation in the State of California now and how this might impact San Rafael. He explained Mr. O'Sullivan was responsible for the strategic planning of the Municipal Resource Consultants group in Southern California and has extensive experience and expertise in facilitating work sessions focused on the development of strategies for the City's fiscal needs. He stated Mr. O'Sullivan has been a City Manager in the City of Fontana and Finance Director in the City of Hayward. He has a BA from the California State University at Long Beach and has worked extensively with the League of California Cities and held other positions in other cities within the State. Mr. O'Sullivan explained that Municipal Resource Consultants has worked with approximately 120 cities throughout the State. He stated they were able to observe what works and what does not work, and one of the things he was attempting to accomplish at this meeting was to make suggestions to help the City's fiscal problems and give some guidance and information as to how to resolve these problems. He noted that he was there to provide information and perspective on this issue. He then discussed the state of fiscal affairs in the State of California. He explained that there had been a perception for the last several years that because of the recession, starting approximately in 1990, if local government can make it for a couple of years and make some changes then everything would be alright. He stated they had assumed this was a short-term problem and the cities have been taking short- term strategies to deal with these revenue shortfalls when, in fact, these problems have been reoccurring since 1978 when Proposition 13 was passed. Mr. O'Sullivan then listed the short-term strategies used: Drawing down emergency reserves ° Deferring capital improvement projects ° Downsizing staff (layoffs, attrition, freezes) ° Curtailing or postponing delivery of city services Increasing user service and development impact fees Creating or raising discretionary taxes on an ad hoc basis He stated that most cities have done all of these things and even if this was a short-term problem, this would work alright; however, the fact is that it is a recurring problem which will be with us for a while and these strategies could make the problem worse. He explained why this was a long-term problem in that there are political events happening with a cutback in Federal and State assistance that has been going on since revenue sharing was removed earlier, the State has pre-empted a lot of taxes and the cities are no longer allowed to tax certain businesses such as banks, insurance companies, etc. State and Counties are balancing their budgets on the backs of cities. SB2557 imposed booking fees and, for example, one of the cities found out that the same prisoner had been booked in the County jail three times in one day and that city paid for it. He stated it seemed that everyone was looking at the cities to SRCC MINUTES (Special) 1/6/93 Page 1 SRCC MINUTES (Special) 1/6/93 Page 2 solve all their revenue problems. He stated there have been some legal issues that have happened, too, such as voters established limits on city revenue raising and spending authority (Propositions 13, 4, 62). He noted the Federal and State have mandated programs on the cities, such as AB939 to finally force the State to recycle; but the costs of these programs are being funded by the cities at the local level. He stated in 1986 Congress passed the Lawyers' and Accountants' Relief Act of 1986 which reduced the combined Federal and State Income Tax from approximately 55% to approximately 40o and at the same time eliminated many loopholes. Mr. O'Sullivan stated that economically, businesses have not been covering their fair share of City services and it has only been recently that they have been able to gather information about this, but it is a known fact that a new house being built today is not paying for City services, because there is not enough tax revenue in the equation to make that happen. He noted competitive advantages throughout the State of California relating to businesses that are defecting from the State, which is a major part of the Governor's agenda for the next year. He stated his firm talks a lot to the private sector and, outside of Workers' Compensation, the current attitude in Sacramento is not pro-business. He stated their business was helping cities recover under -payments and non -payments of local taxes. He noted those were all trends that they have identified recently as being a major part of why cities are in big trouble. For example, through 1985-86 we have voted ourselves rebates, tax breaks of $114 Billion and they estimate that today that number is close to $200 Billion. Mr. O'Sullivan stated the voters have made it real clear that as a part of their long-term strategy, in this last election, it was decided that it was very important not to charge Sales Tax on junk food, and given the opportunity, the voters will vote not to tax themselves. Mr. O'Sullivan then referred to a graph entitled, "Changing Make -Up of the U.S. Job Market, 1970-2010", which indicated the flow of: "Total -- All Middle and Upper Income Jobs", "Middle and Upper Income Jobs Associated with Labor -Intensive Production & Management", and "Middle and Upper Income Jobs Associated With High -Tech Production and Management". He indicated that in 1993 we have not hit the trough of this trend yet. The bad news is that these are the people who pay Income Tax and Sales Tax, and the State no longer has that money available to balance their Budget. He noted the trend is very clear and that is causing the State of California to have to continue tc look at local government as a source of funds for the future. He noted that there was a theory recently that after Proposition 13, the State of California "bailed out" local governments throughout the State and, in fact, there was a lump sum payment for specific projects which involved a lot of red tape and qualifications to receive that money, which was getting rid of the obscene deficit which had built up primarily as the result of failure to index the Income Tax, etc. He stated the State had a huge amount of money and in order to offset some of the impact of Proposition 13 and build up a surplus of money, they rebated this back to the cities. The State then stated that Proposition 13 cut property taxes generally in the area of a third, and maybe a little more, and then stated if cities received 15% to 200 of the Property Taxes before Proposition 13, they would continue to receive 15% to 200 of the Property Taxes after Proposition 13; however, other than that one lump sum payment that was given to cities to remove the surplus, there was no bailout evident there, in Mr. O'Sullivan's opinion. There was simply a reallocation of Property Taxes that took place. He stated that is why this will be with the cities for a while and it will not work to continue to look at the tax structure, as in the past, because the State will continue to come after the cities. He stated what his firm recommends is that the cities need to start looking at themselves as becoming fiscally self-reliant, which means they will have to rely, as much as possible, on the revenue sources that they can control before the State takes them away from the City. He noted the City cannot control the Property Tax, short of going to the voters and getting a Property Tax override. We cannot control the Sales Tax, because the State controls that. He noted these are two of the largest revenue sources that San Rafael and other cities have. He stated the County of Los Angeles controls only 70 of its revenue, for example. Mr. O'Sullivan stated the City needs to become self-reliant. In order to do this, the City staff needs to look at the revenue equation, which is a revenue structure composed of discretionary and non -discretionary revenue sources. He stated the City has a base against which this can be applied, which is a revenue foundation that is the land, the buildings and the users, thereof, in our City and from this we would get a funding level, which is what the City can afford to fund in services to the City. He stated he was presenting this to the Revenue Options Committee so they would have this as a way of looking at the work that will be done for the next several meetings and for the Summer months after that as the Committee works to bring in enough revenue to allow the City of San Rafael to create a service funding level that works for the residents. Mr. O'Sullivan stated that in this equation, if someone does not pay their fair share, someone else has to make up the difference with either more money or reduced services. SRCC MINUTES (Special) 1/6/93 Page 2 SRCC MINUTES (Special) 1/6/93 Page 3 He stated they should keep this in mind because as he makes comments about the various alternatives that Council is looking at, from the consultants' perspective, they will SRCC MINUTES (Special) 1/6/93 Page 3 SRCC MINUTES (Special) 1/6/93 Page 4 have the best chance of getting the voters to agree with the Council's strategy if the voters can see that there is some relationship to what they are going to be paying and what they will be getting for what they pay. He noted one thing in the cities they have been working in where they have been successful in raising taxes, they have been able to show the voters what they are getting for their money. He stated in no case could he think of any city that has been able to raise taxes without a process similar to what Council was discussing tonight. He noted there has to be a broad base of the citizenry in the whole effort; otherwise it just will not work. He stated he knew of cities that have either put this on the ballot or have adopted taxes late at night when everyone had gone home and there have been recalls which have taken place in these instances. Mr. O'Sullivan noted people will pay more taxes when they can connect what they pay with what they get. He stated the perception that exists in various cities is that local government is over -taxing and that perception comes from the Federal Government which spends approximately $5,000 per person, per year. The State government spends approximately $1,500 per person, per year; County government spends a little less than that; and, City government spends approximately $500 per person, per year. He stated that this is not very much money compared to what the Federal Government is spending on the public's behalf. He stated what the public gets for the $5,000 that the Federal Government spends on their behalf every year includes the National Park Service, the Smithsonian Museum, Defense Department expenditures, etc., and for the $1,500 spent at the State level there are a few things identified; however, for the $500 spent at the City level you get a police department, a fire department, parks, roads and get them all the time, which is fairly good value, and is much easier to identify than the money being spent at the State. He stated the problem is the public has not figured out that this is the connection. Mr. O'Sullivan noted one of the cities they were working in, the residents of a fairly isolated area decided that they wanted to have increased police protection. They went to the city and discussed it and the city offered to impose an Assessment District type tax to pay for those increased police services. He noted in that city they did not trust the city enough to give them the money to pay for that level of service. He stated they did, in fact, form the Assessment District and hired private police officers to provide safety; so, in that city nothing had been done to build credibility, or give the people who were going to vote on that tax or receive the service, a comfortable feeling that they would be able to see what they were going to get for the money they were going to spend. Mr. O'Sullivan noted local government generally has tended to be very apologetic for the services provided, or for the taxes it takes in which the public does not agree with. He gave an example of a city in which a large business was located which paid $10,000 in Business License Tax. That city was worried that this business would move to another city and they explained to this business that compared to the Federal taxes in the million dollars and State taxes in the $100,000's they were paying, another $10,000 being paid to the city for police and fire protection, parks, etc., was not going to make this business move. He also gave an example of the opposite dilemma wherein a city implemented a $50 a year fee for fire inspection services and the businesses got together and told the City Council they would not pay it because they would have to close down and the City Council rescinded the fee. What that city did not realize was that if the Fire Department will not do the inspection, the insurance company will and it will cost more money, and the public will pay that. He then talked about the homeowners' insurance policy, which will probably be another $100,000+ a year that this city states they hope they are never going to have to use, but if they have a fire or burglary the policy is there to be used. He then discussed the Property Tax bill as an example, which is where they still find many people misunderstanding what they are paying and what they are getting. He stated they would show them their Property Tax bill and ask how much does the city actually receive? The answer invariably will be all of it. He noted there is a perception among most citizens that every dime they pay in Property Taxes goes to the City, when in fact it is actually 13% to 150. Then it is explained to these people that for these dollars they are getting a Police and Fire Department. When these types of things are put into this kind of perspective, people begin to understand what they are paying for and they will be much more interested in at least hearing what the Committee's proposal is to increase their taxes. He noted we can no longer continue to drive businesses out of the State because of the economic effect of the loss of jobs. He stated that what drives businesses out of the city is Workers' Compensation at the city level which the City cannot do much about; however, attitude we can do a lot about, and he knew for a fact that people in San Rafael are concerned and are working on it. He explained there are some cities that have very large businesses that pay high taxes, but only have three or four people housed in an office, which is a home office with approximately 100 outside sales people, and they do not use city services very much and generate $300,000 to $500,000 a year. He explained that because these businesses are staffed with very few people, they are extremely portable and an increase in a Business License Tax, or any other tax on them, may cause them to move because he knew of cities that are actually SRCC MINUTES (Special) 1/6/93 Page 4 SRCC MINUTES (Special) 1/6/93 Page 5 recruiting these kinds of businesses and will pay the moving expenses and everything else. So, he advised that as decisions are being made on this problem, it is going to affect the business community, so the Committee needs to look at this from the eyes of these businesses. He stated it is important through this educational process to focus the public on the total taxes they are paying to the City, the State, the County, etc. Mr. O'Sullivan then addressed the City's options being discussed and, in general, tax structure. He emphasized the City has to make a decision as to who will be paying the tax. Will this tax be applied to the residential community, as well as the business community; different levels, depending on the type of business? He noted that, for example, taxing the business community $1.00, they pay roughly 60C with 40C of that being a savings in taxes, and this is not a justification for doing this, but it is a factor. Also, he suggested anything the City could export by having a tax deduction on a Federal Income Tax Return would help. He reminded them of the voter approved rebates discussed before which did not help, because what we did was to limit our Property Taxes which are tax deductible and then the Sales Tax which is no longer tax deductible, and others, have gone up. He stated that the City would be getting itself in a real dangerous area by, at the local level, continuing to try to set tax policies, when the tax at the upper level is not effective, that we do not even do right by ourselves in giving ourselves our own tax breaks that are available. He also noted that the Transient Occupancy is another tax that also is exported because people who do not live in the City pay for it. He then discussed the Special Taxes issue and explained that according to the law, as he understands it, if something is designated as a Special Tax (a tax for a specific purpose) then it is subject to a two-thirds majority vote requirement; however, if it is a general tax, it is not. He noted that on the other hand, no one would vote for a general tax because they do not know where the money will go and there is a dilemma as to how much the City can commit themselves to regarding where this money will be spent. He noted some other general considerations they should consider are: 1) the cities that impose the Utility Users' Tax often put a cap on it, but he has found that is a very inefficient way of raising that kind of tax, as they have gone through all the agony of getting the Tax, but now the money is limited that the City can take in. He noted this has been found to be a little regressive because it gives a break to the very large tax payers. 2) Sunsets also are a very good idea, in his opinion. He stated he did not know how effective they would be in the long run, but in the short run it gives a lot of political acceptability because people know there will be an end to it. He noted it also makes you responsive because if there is a change in the way things are taxed, the economy, technology, that would otherwise trigger you to re -look at that tax, then there is some real incentive for doing this; however, if that is not there, we do not have the same incentive. Elissa Giambastiani, Executive Director of the San Rafael Chamber of Commerce asked with regard to the cap he talked about on the Utility Users' Tax. She proposed, as an example, that she was the owner of a pizza parlor who was a heavy user of electricity and asked who would be paying the largest amount of taxes - her establishment or the attorney's office next door to her who does not use the same amount of electricity. Mr. O'Sullivan responded in most cities there is no relationship among all the various taxes, and in this case or any other similar case where any large user of a utility versus a small office complex that does not use a lot of utilities, the fact remains that those who are large users of utilities are going to get a break if a cap is put on this. He stated there should be a thorough discussion of the issue she raised on how to structure these taxes, because if in the chosen approach to raising you let a certain segment of the community "off the hook", whether by putting a cap on it in the Utilities Users' Tax or not taxing the attorney's office for their fair share of providing services, then someone else will have to pay the bill. He suggested the City might want to state that it is not fair to tax any one business beyond a certain level, which he does not have a problem with; however, there are some implications of doing this. He noted when the tax is implemented very often the businesses that generate a large amount of jobs also generate a large amount of service demand on the City. He also noted the City might want to think about exemptions for senior citizens for income, which is being done by many cities. He then discussed the four specific taxes they were talking about: 1) Admissions Tax - Pros identified by the City are that it would be paid by residents and non-residents so it is, to a certain, extent exportable. It would be collected by the Theatre and might be imposed on the County and it would not have a big impact on the taxpayer. The arguments against it were that it will not raise a large amount of money and it would provide a competitive disadvantage to San Rafael theaters. His thoughts were that the Admissions Tax is kind of a dead tax and it does not exist in the State very SRCC MINUTES (Special) 1/6/93 Page 5 SRCC MINUTES (Special) 1/6/93 Page 6 much any more. He stated it was not worth the trouble, in his opinion, to do this and would not raise a large enough amount of money to make it worthwhile and would be a short-term approach to the problem. 2) The Lighting and Landscaping Act and Municipal Services Tax were discussed together because they can be implemented in such a way that they are virtually indistinguishable from one another; however, the Lighting and Landscaping Act does have some ease of implementation that the Municipal Services Tax does not. The Lighting and Landscaping Act can be done with an Assessment District process which can be a protest process, rather than the vote. The pros that have been identified are that it provides money for specific services which would have a high visibility and good support. He stated they know that this act is used to fund Police and Fire in other parts of the State and has been successful in doing that. The arguments against it are that it is limited in the use of funds for specific services, the Council has to set a fee each year which can become very cumbersome; however it does keep the Council in front of the voters all the time. This requires an Assessment District process and may require different tax rates in different neighborhoods to reflect level of benefits. He stated it can be very positive, but can also be an administrative nightmare. He noted this is not tax deductible. Mr. O'Sullivan noted many Lighting and Landscaping Acts are done as a flat fee per parcel and this may be an area of trouble for the City, because it makes the tax by definition trivial due to the fact that if it is going to be too large on any one parcel there will be a bad reaction to this from the public. On the other hand, for example, there could be a major shopping center on one parcel paying the same amount as a single family resident which will be an even worse problem. He stated we do not need to use the flat fee, but can instead assess the tax like a Municipal Services Tax, which is where the difference would be. He noted they were currently proposing in a city to do a Public Safety Assessment District and will assess benefit for Fire service in particular in this City based on a formula which will include the number of employees in a business, square footage and number of residents, the number of stories in height, proximity to fire lines, sprinkler systems, etc., all of which can be built into a mathematical formula which will become a very complex, but very accurate measurement of the benefit that is being received. He noted the legal status of all these activities is constantly being legally challenged and the Municipal Services Tax is challenged more than anything else which may create some costs there. 3) He stated the Utility Users' Tax is the most popular of these approaches throughout the State and approximately 82 cities have this tax. He noted the pros are it is received monthly, collected by the utility, and is graduated by utility usage; however, there could be an argument made that this makes it less regressive because people who tend to use more utilities may tend to be appropriately larger taxpayers, but this might not be an argument that works all the time and this does change automatically as the utility rates change. He noted it is fairly effective and efficient as far as raising tax revenue is concerned. He stated this is the only tax he knows of that allows the City to get to certain people who otherwise do not pay any taxes, for example the County. He stated we do not have to exempt public facilities, other than the Federal Government, from the Utility Users' Tax; we can apply (the tax) to the State, County, Schools (but he did not know of any cities doing this), banks, insurance companies, and financial institutions (who are exempt from personal property taxes). He then gave an example of the fire at First Interstate Bank in Los Angeles costing a large amount of money to the taxpayers, even though the bank pays very little in property taxes and stated this was a good example where property taxes do not work because of all the firefighters and policemen used to fight this fire. He stated the utilities will take 60 to 90 days to tell the City exactly how much the Utility Users' Tax will generate per percent and they usually do a good job of implementing and collecting the tax for the City. They are audited by his consulting firm and they do find some things, but they generally do a pretty good job. He noted when this tax is used in the smaller cities, it is usually the only source of revenue they have now, because there is not much of a business tax base with implementation of Business License Tax. He stated another thing that a lot of cities are doing is authorizing one rate, but charging a lower rate to have that flexibility at a later time. He noted they should go to the voters with this once. Harry Winters asked if this was deductible as a business expense and Mr. O'Sullivan responded affirmatively, noting that for every dollar the City receives in tax, the business is only paying 60C of that. SRCC MINUTES (Special) 1/6/93 Page 6 SRCC MINUTES (Special) 1/6/93 Page 7 Mr. O'Sullivan stated that the business community will react to the Utility Users' Tax, which affects them. He noted the Council needs to deal with the business community by including them in the process and by making sure they understand clearly what it is they are getting for that money. He noted that if the City only implements this tax on the business community and not on the residential community, there will be a lot more problems from the business community, which is seen in many cities. Harry Winters stated one of the benefits would be that this recognizes the lifeline use for senior citizens' residential use automatically. Mr. O'Sullivan responded that it has become popular for this reason and people in the lower income bracket and senior citizens who do not use as much utilities and get the lifeline rates like this. Mr. O'Sullivan stated his problem with this, as someone looking at this from the fiscal strategic planning standpoint, is it is not tied closely enough to service levels and the impact of the business on the community. He stated there are too many examples like the pizza parlor and the attorney's office where it may not turn out to be fair, if you are only looking at that one tax. He noted there may be other ways of taxing those other businesses. Mr. O'Sullivan stated the last item to be discussed was the General versus Specific Tax issue and the City Attorney will have to look into how much can be put into the ballot measure that states this is what the City will spend the money on and how specific the City can get without triggering the need for a two-thirds vote, which he felt the City would probably not get. Mr. O'Sullivan then emphasized again the fact that the State will come back and take more money this year. He noted the City resolved this problem in the last fiscal year (and current) by taking funds from the San Rafael Redevelopment Agency, which the State has some real concerns about in relation to the counties. He noted he did not feel they would stop the Redevelopment Agencies this year and that they will come back to cities and take a large part of the property taxes and maybe take the motor vehicle in -lieu taxes, too. He stated the State is admitting a budget deficit for this year of approximately $7 Billion; it was $11 Billion last year and some of this got put forward into this year. So this problem will be with us next year and probably for quite sometime after that as a result of some of the things discussed earlier. He encouraged the Committee, as they work through this, to keep this in mind and whatever they do this year, they have to allow the flexibility to continue to provide services in the City. He noted this has happened in other cities, where they have discontinued their police departments and used the Sheriff's Office, which can be a very serious problem. He stated he knew this was going to be a very difficult process and the more the Committee asks questions, the more they make sure that this is a credible process and it creates a better chance of getting this tax adopted. City Manager Nicolai asked that in their reading of the Landscaping and Lighting Act how would this apply to Police and Fire? Mr. O'Sullivan responded that City may be using a different assessment district process that looks like a Landscaping and Lighting District, but this is basically to pay for services other than Police and Fire, such as Parks; however, there are other similar assessment district processes that are the close cousins of the Lighting and Landscaping District process. A gentleman from the audience asked with regard to the Utilities Users' Tax and the use of such by a small business which uses a disproportionate amount of utilities, is there a practical way to put a limit on it, providing, however, that this amount does not exceed their State or Federal Tax by another percent? Maybe a cap on these high users? Mr. O'Sullivan responded affirmatively and stated another suggestion was for the City Attorney to deal with a protest process whereby someone could bring something that is not equitable and challenge it to have it adjusted so it would make some sense. He stated the attorney would have to inform the Council on what criteria to use, and this is why some cities use the cap to keep this type of thing from happening. Shirley Fischer noted many large businesses have, during the recession, dramatically cut back in their administration staff, thereby streamlining the operation of that business. She then asked if any other cities were also doing this. Mr. O'Sullivan stated he did not know of any city in the State of California that has not gone through some type of restructuring. He stated every city is going through the type of streamlining Ms. Fischer was describing, noting some are more effective than others. Most cities are simply reducing their staff by attrition; however, there has not yet been the strategic assessment of what needs to be done and are they doing all the right things, how can they privatize this, etc. He stated privatization is a "dirty word" in a lot of places; however, it has worked well in many places, too. He noted this was done in Los Angeles County and did not work, but he indicated this needs to be done on a case-by-case basis. He stated his firm encourages cities through their training programs to take a look at what they are doing and why they are doing it and how are they doing this. He noted he could tell by talking with a business community in a city how this is working, because they are the ones who relate most closely to SRCC MINUTES (Special) 1/6/93 Page 7 SRCC MINUTES (Special) 1/6/93 Page 8 the logic with which an organization is run on how good a city has done in streamlining and whether they were letting the public know about it, because many cutbacks are being made without advising the public which confuses the issue. Mr. Mike Smith stated he would be interested to hear about cities that are similar to San Rafael who have been successful and what Mr. O'Sullivan felt made those successful tax packages pass and caused the businesses to agree with this? Mr. O'Sullivan responded the primary ingredient was the education process for the public to know what they were getting for the money asked for. 100% of the cities participating had many meetings with the leadership of the community, including the businesses and homeowners associations, to explain what was happening with the city. He gave the example of the City of Orange and how they handled this. He stated their deficit for next year is approximately $8 million which represents a little less than 20% of the General Fund after all the restructuring has been done. He explained they convened a committee of educators, accountants, business people and residents, along with himself, and the Finance Director went through step by step what the city's financial condition was and how they got into that position and what had happened to get them into that position. He stated if this process is not done, it would not pass with the voters, and this was applied to both businesses and residents. Gary Phillips asked what was a reasonable amount of time to educate the community on this problem. Mr. O'Sullivan responded he understood the ballot measure had to be written in February, 1993, and this would mean the time frame would be between February and June to do the work involved in a ballot measure, which he mentioned, would be adequate time to do this. Mr. O'Sullivan then discussed taxing of water, long distance phone calls, and possibly cellular phones, which succeeded in Southern California. He stated East Bay Municipal Utility District was taxing on their water usage, which he noted was legal to do, but was counter-productive with the amount they are charging their customers. He stated sometimes the sewer services were exempted; however, legally they can be charged. Mary Ellen Irwin asked with regard to competition between cities. Mr. O'Sullivan responded the amount of competition that takes place is more perceived than real. He stated there were exceptions in that if the tax works to the detriment of auto dealers, then they will probably relocate. For the most part, he stated, these taxes have not been large enough to cause this type of problem except in heavy users of utilities. Bob Parr, San Rafael Firefighters Association, asked how often the utilities taxes would be paid and Mr. O'Sullivan responded usually only once. Harry Winters asked if a utilities tax would be a negative, as far as the voters are concerned. Mr. O'Sullivan responded the cap on the utilities tax would probably not make that much of a difference. Patrick Webb asked with regard to voting on a smorgasbord tax and if this was possible. Mr. O'Sullivan responded it might be possible, but probably would not go over well with the voters by not having a definite goal in mind with the ballot measure. Patrick Webb then asked if the City could be creating a tax on fast food at drive -up windows or skateboards, something that is not in the law to gain more revenue. Mr. O'Sullivan responded negatively. Bob Parr asked with regard to the City using more than one utility tax. Mr. O'Sullivan responded he had not seen this done in other cities. In Los Angeles County, they are levying a business license tax inside the City, which is not usually done. He stated he did not think the residents of San Rafael would pay more than 2% Utility Tax. Finance Director Coleman stated there was some discussion last year to allow the County to impose a user's tax on the unincorporated areas. Mr. O'Sullivan agreed with this and stated he expected this tax would come back next year. Harry Winters asked if Mr. O'Sullivan had heard of cities that have run their own utilities. Mr. O'Sullivan responded there were a number of cities in California that run their own electrical utilities. He stated it was very difficult to do now, because in order to do this the City would have to buy the service and condemn it. Finding a lending agency to assist a city to purchase a utility now would be difficult, if not impossible. He stated there would probably be a five year legal battle to begin with, and the attorneys for the utilities have done some real damage to the State of California on the assessment of their property. Elissa Giambastiani asked with regard to a Municipal Services Tax, if this was deductible. Mr. O'Sullivan responded affirmatively and for that reason it may be more appealing. He stated he was not sure how this would be voted on. He noted there are very few of these taxes in the State. Mrs. Giambastiani asked if that was because it was easier to have these taxes collected by the utilities companies? Mr. O'Sullivan SRCC MINUTES (Special) 1/6/93 Page 8 SRCC MINUTES (Special) 1/6/93 Page 9 responded affirmatively and stated the Municipal Service Tax has become too politically "hot" because it has not been implementable and the possibility exists that the City might lose the court battle after implementing this tax and then would be in more trouble. Mary Carpou asked about the County coming after the City voted for this tax and collecting from it, too. Mr. O'Sullivan stated that what Mr. Coleman was talking about was that there was legislation proposed that would have allowed the piggy -backing so that residents would pay their percent to the City and then the County comes along and collects an additional amount. He stated that this legislation did not pass, so as it stands now if the City were to implement the Utility Users' Tax, the County could not impose it in San Rafael, but that could change in the future. Maynard Willms asked with regard to the legality of the Municipal Services Tax. Mr. O'Sullivan responded it was a questionable legal status. Mr. Coleman stated it is being challenged primarily through Proposition 62 which talks about the ability to pass taxes and what they can be used for. San Rafael has added protection because it is a charter city. Mr. Mike Smith asked if there was a way to get around this by asking the City Council to vote on whether or not they wanted an advisory measure. Mr. O'Sullivan responded that this was a question for the City Attorney, but noted that many cities implemented these taxes without any vote, and he did not think the law had changed so much recently that it would preclude that. He noted the advisory measure was an option available to the City and was one that was under consideration. He stated that the Committee has done a good job of establishing credibility so that no one would have a problem with an advisory vote. Elissa Giambastiani asked Mr. O'Sullivan to discuss more about the Lighting and Landscaping District. Mr. O'Sullivan responded that there are a number of different laws that allow for an assessment district (lighting and landscaping district) that allow various types of expenditures in those districts. He noted for the most part they can be done in a "protest process", wherein the Council can state they will do this and unless a certain number of people file a protest, they will go to the next step and after a certain amount of time without a certain amount of protests, the district becomes a legal entity just through that operation. He noted some districts were set up so that it is a flat amount per parcel, and some actually have an engineer come in and put together a formula that states that this is the benefit that should be assessed for that particular parcel because it has certain statistics and is looked at from a more complex standpoint. Mrs. Giambastiani referred to what was passed in 1972 and Mr. O'Sullivan agreed this was still working. Mr. Coleman stated there were some options, other than the Municipal Services Tax, available in the assessment district laws. Mr. O'Sullivan stated he knew that these options did exist in some assessment district laws, but did not know in which ones. Mr. O'Sullivan stated they were fairly vague and stated you could not charge an assessment that exceeds the benefits that the City will receive and that leaves it up to the City to justify how it spreads that assessment. He noted in the past they were used to build streets, so the engineers thought of a very rational way of assessing it; assessing police and fire costs is a little more complicated than streets. Councilmember Breiner asked if it was possible to combine using the funds for a high crime rate area one year and then to repair a park the next? Mr. O'Sullivan responded they could, but at some point in time it will be made more complicated than can be explained and make it that much more subject to challenge. He noted it should be kept as simple as possible for the benefit of the voters. Councilmember Thayer asked Mr. O'Sullivan what, in his experience, were the best taxes? Mr. O'Sullivan responded that Police and Fire were the obvious ones. He noted that in Fontana they passed a school bond by using a method whereby the voters could see what would benefit their children and then gave a lot of support to these issues. He noted that more and more the only discussion about tax increases are on public safety issues. Charles Stuckey asked if they could use the funding over different parts of the city and for different departments and Mr. O'Sullivan responded affirmatively. Mr. O'Sullivan noted there were something like 4,400 special districts in the State of California. A gentleman from the audience stated we live in a diverse community, the northern part of San Rafael and the southern part, and to attempt to get voter approval on specific ones may not be all that easy, because we all have different interests. He asked if the Measure could be so worded that the tax would be used in certain areas that will be determined by the City Council in conjunction with a citizens' advisory committee. Mr. O'Sullivan agreed with this approach; however, he gave an example of a possible SRCC MINUTES (Special) 1/6/93 Page 9 SRCC MINUTES (Special) 1/6/93 Page 10 problem with this concept and stated this would open the City up to a challenge because it is a different method of doing this and there is a lot of open language in many laws that allows this challenge. A lady from the audience stated, in her opinion, the public would be much more likely to vote for safety services, such as Fire and Police. Mr. O'Sullivan responded affirmatively and stated the City of Hemet turned down $7.5 million in State Library funds because they could not come up with the $3 million match and the only way to do this would be to take it out of Police and Fire, which was not acceptable. Councilmember Cohen asked with regard to the Utility Users' Tax, if someone had come up with something more sophisticated than a simple cap? Mr. O'Sullivan responded that there were things that could be done through the Business License fees that would cover this. He stated the cap was the only method he had seen used in the Utility Users' Tax. Mayor Boro asked if there had been different rates for residential versus commercial? Mr. O'Sullivan responded he was not aware of anyone who has done that. Mary Ellen Irwin asked if it was an effective campaign method to find out what the public wanted to cut in the budget via a public survey? Mr. O'Sullivan stated he would not tie this to a tax measure and that it would probably confuse the public. He stated that if the City is credible and does all the work required between now and June, and the public does believe that this is real and the City needs the money to provide these levels of service, they will vote for it. Mary Carpou stated basically the simpler the measure is the more the public will vote for it. Mr. O'Sullivan responded affirmatively. Gary Phillips stated he thought it was appropriate to clearly spell out what services will not be provided if the tax measure is not passed. Mr. O'Sullivan noted that with the low voter turnout rate (for special elections) in this City, he did not believe much would be accomplished by letting that be the absolute determinate as to whether the City would be able to raise enough money to fund the levels of service that a well- informed group of people have agreed need to be funded. Mayor Boro then summarized the chart as shown by Mr. O'Sullivan and stated the City has dealt with everything except the surplus which has been kept at about 100 of the City Budget. He stated the objectives of this Committee were to determine what type of programs the City wanted to fund, what it would take to fund them and then what type of vehicle would be used to arrive at that amount. He stated then this group would agree to form a campaign committee to get this accomplished. He noted the time line is very short in that by the end of February they needed to have the Measure on the Ballot, with two meetings in January to put it together and then approximately three months of hard work to get it passed. He noted that the State has an $8 billion deficit and, based on the past, this will probably double by the time this Measure would be put on the ballot and the public will be aware of the problems facing city government. He stated the issues to be discussed with the Committee next week will be what they can do that will be credible that the public can buy into and see what they would be receiving in return. There being no further business, the meeting was adjourned at 9:10 PM. JEANNE M. LEONCINI, City Clerk APPROVED THIS DAY OF , 1993 MAYOR OF THE CITY OF SAN RAFAEL SRCC MINUTES (Special) 1/6/93 Page 10