Title
Provide Direction on Potential Revenue Measures to Submit to Voters for the November 6, 2018 General Election. (City Manager 2110)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Acting City Manager
Title
Re: Provide Direction on Potential Revenue Measures to Submit to Voters for the November 6, 2018 General Election
BACKGROUND
While the City of Alameda has a history of taking proactive measures aimed at fiscal discipline and is currently meeting its policy of a 25% reserve, significant financial challenges exist, including a projected General Fund deficit in five years due to CalPERS increasing payments towards the City’s unfunded liabilities and substantial deferred infrastructure and public facility needs. In the City Council’s February 20, 2018 consideration <https://alameda.legistar.com/LegislationDetail.aspx?ID=3340622&GUID=E2F1C600-0D38-48B1-A6BE-F507471E1D44>of an infrastructure bond <https://alameda.legistar.com/LegislationDetail.aspx?ID=3340622&GUID=E2F1C600-0D38-48B1-A6BE-F507471E1D44>, nearly $300 million in infrastructure needs were identified that are beyond the City’s current and projected funding capacity. The City Council’s May 18 Mid-Cycle Budget workshop detailed how long-term PERS unfunded obligations are projected to result in multimillion dollar funding gaps by Fiscal Year (FY) 2021-22.
Funding gaps require difficult choices including reduction in service levels or increasing revenues. These challenges are not new. The City of Alameda has been considering them since at least 2009, with the Fiscal Sustainability Committee’s Long Range Financial Forecast 2009-2019 and the last two biennial budget processes.
Since 2000, Alameda has had four local revenue measures on the ballot. Over that same time period, the cities of Berkeley (19), Oakland (14), and San Leandro (7) had even more revenue measures. Alameda’s four revenue measures were:
• Measure O ((2000) 78% of voters approving) was an $11 million general obligation bond to fund the new Main Library and improvements to branch libraries;
• Measure P ((2008) 51% of voters approving) raised the property transfer tax from $5.40 to $12.00 per $1,000 of value, resulting in a significant benefit to the fiscal stability of the City;
• Measure C ((2012) 51% of voters approving) failed as it was short of the two- thirds threshold required whenever revenue is dedicated to specific projects; with this measure, funds were proposed to be dedicated to city vehicles, library improvements, and constructing an emergency operations center; and
• Measure K1, the Utility Modernization Act ((2016) 73% of voters approving) modernized the existing Utilities Users Tax and confirmed Alameda Municipal Power’s (AMP) historical support of city services.
At the May 18, 2018 budget workshop, the City Council considered four revenue-measure-related options; (1) not placing a measure on the November 2018 ballot; (2) placing a cannabis tax on the November 2018 ballot; (3) placing an infrastructure bond on the November 2018 ballot; and (4) placing a half cent sales tax on the November 2018 ballot. A majority of the City Council expressed an interest in the options of placing an infrastructure bond or half cent sales tax on the November, 2018 ballot.
For that reason, this staff report covers the basics of the infrastructure bond and sales tax, and discusses the pros and cons of each. As requested by members of the City Council, this staff report and presentation also provides more detail related to the infrastructure bond’s priorities.
The following are the basics of each measure:
Table 1
|
Considerations |
$95 Million Infrastructure Bond |
Half Cent Sales Tax |
|
Estimated annual revenue |
$6 million |
$4.9 million |
|
Vote to place on ballot |
4 of 5 Council members |
3 of 5 Council members |
|
Voter threshold |
67% |
50%+1 for general purpose |
|
Who pays? |
Property owners |
Consumers of products |
|
What is proposed tax rate? |
$23/$100,000 of assessed value |
½ cent per $1 spent |
|
Time tax collected |
Through bond repayment, 36 years |
In perpetuity, unless City Council adjusts |
|
Where do funds go? |
Bond Fund |
General Fund |
|
Funds restricted? |
Yes, to capital improvements |
No |
|
Budgets impacted |
Capital |
Operating and/or capital |
DISCUSSION
Staff seeks direction on whether to place either a sales tax or infrastructure bond measure on the November 2018 ballot. While both are worthwhile measures, the half-cent sales tax benefits both the City’s forecasted operating deficits and its capital needs, and its placement on the ballot in November 2018 is one of a limited number of elections during which the City has the state’s permission to submit the issue to voters and to do so during a favorable economy.
If the City Council defers placing an infrastructure bond measure on the ballot until 2019 or 2020, staff will have more time to resolve some of the questions identified by City Council related to the proposed infrastructure bond. In addition, staff will return to seek City Council’s permission to complete a mail-in stormwater ballot in early 2019, and the results of this ballot may help offset a portion of the City’s significant stormwater infrastructure needs.
Should City Council direct the placement of a revenue measure on the November ballot, introduction of the related ordinance (required for an infrastructure bond measure) could occur no later than July 10, and final adoption of either the ordinance (infrastructure bond measure) and/or resolution (half-cent sales tax measure) must occur no later than July 24. These are firm deadlines as any measure must be submitted to Alameda County Registrar of Voters in early August for the November 2018 ballot.
There are pros and cons to advancing any one of these measures, or to choosing to advance no measure at all. If the City Council directs staff to place a revenue measure on the ballot, it should be a single measure only. Advice from experts in this field suggest that voters fatigue when two local revenue measures are on the same ballot, leading to both measures having reduced rates of success.
Voters’ appetite for a revenue measure increases during the positive part of an economic cycle, and decreases during the negative part of an economic cycle. The United States (and California) is in the midst of one of the longest economic expansions in its history, yet this positive part of the economic cycle cannot continue forever. If a revenue measure is part of the solution to Alameda’s financial challenges, then the economic cycle suggests placement on the ballot sooner rather than later.
All three tax options were part of the community survey in summer 2017 <https://alamedaca.gov/node/5401>. The February tracking <https://alameda.legistar.com/LegislationDetail.aspx?ID=3340622&GUID=E2F1C600-0D38-48B1-A6BE-F507471E1D44>survey (See Exhibit 2) <https://alameda.legistar.com/LegislationDetail.aspx?ID=3340622&GUID=E2F1C600-0D38-48B1-A6BE-F507471E1D44>only included the infrastructure bond. If the City Council chooses to place a revenue measure on the November ballot, staff will engage a consultant for communications support. If the City Council considers revenue measures as part of a longer term financial strategy to develop solutions to the City’s capital and operating needs, staff suggests including polling and/or communications support in future budget years.
Table 2 summarizes the pros and cons of the two revenue measure options.
Table 2
|
Options |
Pros |
Cons |
|
#1 Place infrastructure bond |
? Significant revenue to meet significant need ? Extensive public outreach already complete |
? Higher vote threshold, less likely to succeed ? Unresolved issues re: specificity v. flexibility; Alameda Point in or out ? Raises cost to property owners |
|
#2 Place half cent sales tax |
? Significant revenue to meet significant need ? Lower vote threshold, more likely to succeed ? Meets both operating and capital needs ? Timing: few opportunities to place ? Visitors contribute xtensive public outreach already complete |
? Uncertainty from Taxpayer Fairness proposition ? Raises cost to consumers |
Option #1: Infrastructure Bond. On May 18, the City Council requested more detail on the priorities and/or projects which would be funded by an infrastructure bond. Staff developed draft priorities (below) and a draft project list which is included at Exhibit 3. Should the City Council choose to place the infrastructure bond on the November ballot, City staff would seek further direction on the following:
• Amount. What is the appropriate amount for an infrastructure bond? Staff’s previous analysis and polling evaluated the potential of a $95 million infrastructure bond, as reflected in the table above.
• Alameda Point. Should the bond include the replacement of the drinking water infrastructure at Alameda Point as an eligible use of bond funds? If yes, then should the bond only permit, or require, developer fee reimbursement for that expense? If the bond includes drinking water infrastructure at Alameda Point, should the bond include language reconciled with Alameda Point’s fiscal neutrality policy?
• Specificity. Should the bond expenditures be more specific by showing percentages on the categories of infrastructure expenses? Would more specificity include a draft list of proposed projects for the first phase of $30-$35 million in infrastructure funding?
• Priorities. Should the City Council adopt priorities for eligible projects in advance of the measure’s vote? Examples of draft priorities are as follows:
• Focus on deteriorating facilities and infrastructure;
• Provide community-wide benefits;
• Advance goals from the City's adopted plans such as: transportation, climate/sea-level change, disaster/emergency response and preparedness, etc.;
• Help the City become more environmentally responsible, resilient, and financially sustainable, including lowering or containing future costs to local taxpayers;
• Leverage taxpayer dollars to secure additional matching grants or other funding that may otherwise go to other communities; and/or
• Ensure geographic equity.
Draft ballot language for a $95 million infrastructure bond is included as Exhibit 1.
Option #2: Half Cent Sales Tax. AB 366 <https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201520160AB366>, with the assistance of Assembly member Bonta, adopted by the California legislature and signed by the Governor in 2016, authorizes the City of Alameda to submit to its voters in any general election before January 1, 2025, a request to raise its sales tax by ½ cent. This legislative permission was required due to California’s Revenue and Taxation Code section 7251.1, which places caps on local sales tax increases. Alameda can only place a sales tax measure in general elections, which are held in November of even numbered years: 2018, 2020, 2022, and 2024. After January 1, 2025, Alameda voters will not be able to consider a general sales tax measure unless the California legislature and governor approve a new bill permitting it.
Draft ballot language for a half cent sales tax is included as Exhibit 2.
Other Considerations for Potential Revenue Measures
• Tax Fairness, Transparency, and Accountability Act of 2018. An initiative that may qualify for placement on the November 2018 statewide ballot will, if also approved by California voters, require a two-thirds vote of a city’s electorate to approve any changes to local taxes. The sales tax measure could be impacted by the initiative since its proponents indicate that it would apply not only to future measures, but retroactively to void any local measure approved by local voters on or after January 1, 2018. Thus, if the half-cent sales tax measure were placed on the November 2018 ballot and garnered 50-65% support, the measure might still be deemed to have failed if the Tax Fairness initiative is passed in the same election. Given the infrastructure bond threshold is already two-thirds, this initiative would not affect this option.
• Why not consider other special tax measures, such as a parcel tax, or sales tax dedicated to specific projects? Both a parcel tax or a sales tax dedicated to specific projects are considered special taxes that require 2/3 of voters to approve them. Since 2002, fewer than half of these measures passed statewide. By comparison, a general tax, which includes the half cent sales tax considered here, has succeeded 75% of the time statewide. Infrastructure (or general obligation) bonds have succeeded 55% of the time statewide. Given the improved likelihood of success of the general sales tax and, to a lesser extent, the infrastructure bond, staff did not consider special taxes further.
• City’s labor contracts and the Balanced Revenue Index (BRI). The City’s labor contracts that include the BRI include reference to the Bradley Burns Sales and Use Tax. The ½ percent sales tax for consideration is a Transaction and Use Tax (“add-on sales tax”) and is not factored into the City’s BRI. Whether the BRI itself continues in future memorandum of understandings (MOUs) with the City’s bargaining units is a subject of negotiation. MCEA and ACEA’s current MOUs expire December 31, 2018, and public safety’s MOUs expire in 2021.
• Why not a potential tax measure for our stormwater needs? As discussed at the May 18 workshop, Alameda has had a stormwater fee since the early 1990s that is no longer keeping up with the significant operations and capital requirements of the stormwater system. The fee has remained flat for more than a decade. Given the City Council’s expressed support for a 2019 mail-in ballot for stormwater fees, staff will engage a consultant to assist in the development of the rate study, which is the first step in the process to initiate a mail-in ballot. This balloting of property owners requires a majority of voters to approve.
Next Steps
The following provides a schedule should City Council provide direction at the June 5, 2018 City Council to pursue a revenue measure for the November 2018 ballot:
• June 5, 2018 - Recommend City Council provide direction on a potential revenue measure for November 2018 ballot.
• June 6, 2018 - Engage communications consultant.
• July 10, 2018 - Deadline for approval of infrastructure bond (ordinance requires two readings) and ballot argument process.
• July 24, 2018 - Deadline for approval of sales tax and ballot argument process.
• August 2018 - Deadline for submittal of measure to County Registrar of Voters.
• November 6, 2018 - General election.
As described above, there will be potential for placement of revenue measures at future elections and ballots, including a potential mail-in stormwater ballot in 2019, and at general elections in 2020 and 2022 or special elections. Additionally, potential revenue measures can continue to be considered as part of subsequent budget cycles, such as the upcoming 2019-2021 budget adoption.
FINANCIAL IMPACT
Since the City is already holding an election in November, placing one revenue measure on the November 2018 ballot is likely to cost in the range of $10,000 to $25,000 for printing and translation. Not placing a revenue measure on the ballot means that the City’s long- term financial challenges will remain without a solution, and in the case of public infrastructure, the costs of future repairs will continue to increase. Should City Council provide direction to place one measure on the November 2018 ballot, communication consultant costs will be approximately $30,000 and an additional $20,000 for informational material.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
None.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to section 15378 (b)(4) of the CEQA Guidelines, because it involves governmental fiscal activities (approving funding mechanisms), which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
RECOMMENDATION
Provide Direction on Potential Revenue Measures to Submit to Voters for the November 6, 2018 General Election.
Respectfully submitted,
Jennifer Ott, Acting Assistant City Manager
By,
Liam Garland, Public Works Director
Financial Impact section reviewed by,
Elena Adair, Finance Director
Exhibits:
1. Draft Infrastructure Bond Ballot Language
2. Draft Sales Tax Ballot Language
3. Draft Project List