ITEM 8-A
City Council: July 23, 1991 Santa Monica, California
STAFF REPORT
TO: Mayor and City Council
FROM: City Staff
SUBJECT: FIRST READING OF ORDINANCES INCREASING THE REAL PROPERTY
TRANSFER AND TRANSIENT OCCUPANCY TAXES AND AUTHORIZATION
FOR CITY MANAGER TO NEGOTIATE AND EXECUTE AN AGREEMENT
WITH LOS ANGELES COUNTY TO COLLECT TAX RECEIPTS
Introduction
During deliberations on the City's FY1991-92 Budget, the City
Council added twenty police positions, approved additional
funding for improvements to Palisades Park, determined that these
additional costs were to be financed by increasing the Real
Property Transfer and/or Transient Occupancy Taxes, and directed
staff to return to Council to indicate in what proportion the
additional costs should be distributed between these two revenue
sources.
This staff report is to transmit to the City Council the attached
ordinances increasing both taxes, however staff recommends that
these additional costs be financed by an increase in the Real
Property Transfer Tax and that the Transient Occpancy Tax not be
increased. It is further recommended that the tax increase
ordinance(s) selected be introduced for first reading, and that
the City Manager be authorized to negotiate and execute an
agreement with Los Angeles County to collect the City's Real
Property Transfer Tax receipts.
Background
Currently, the City's Transient Occupancy Tax rate is 12% and the
Real Property Transfer Tax rate is $.55/$1,000 of property sale
value. Comparison tax rates for those cities in the general
Westside/South Bay area and other selected California cities
which are tourist destinations are as follows:
Real
Property
Transfer
Transient Tax Rate
Occupancy (per $1,000
City Tax Rate Sales Value) Comment
General Westside/South Bay Area
Beverly Hills 11% $ .55 -City budget was
adopted as of
7/16/91. Staff
will return to
Council recom-
mending a 12%
TOT tax rate.
Culver City 12% 4.50
El Segundo 8% .55 -City Budget not
adopted as of
7/16/91.
Hawthorne 8% .55
Inglewood 12% .55
Long Beach 10% .55
Los Angeles 12.5% 4.50
Manhattan Beach 8.5% .55
Redondo Beach 10.0% 1.10
West Hollywood 12.0% .55
Los Angeles County 12.0% 1.10
(Marina del Rey)
Other Selected California Cities
Anaheim 11.0%
Monterey 10.0%
Newport Beach 9.0%
Palm Springs 10.0%
San Diego 9.0%
San Francisco 11.0%
Santa Barbara 10.0%
The current Los Angeles Transient Occupancy Tax rate of 12.5%
appears to be the highest in the State, whereas the Los Angeles
Real Property Transfer Tax rate of $4.50/$1,000 of property sale
value is significantly less than the $9.50 tax rate in the City
of Oakland which is believed to be the highest in the State.
Cost Increase and Alternate Financing Sources
Staff has determined that the annual cost of adding twenty Police
positions (17 officers and 3 sergeants), associated support costs
in the City Attorney's Office and Police Department, and
improvements to Palisades Park is $2.0 million. Attached is a
schedule detailing these costs.
To finance these additional costs, the City Council determined
that either or both of the Real Property Transfer and Transient
Occupancy Taxes be increased. The City Council also directed
staff to return to the Council and indicate how the additional
costs should be distributed between these two revenue sources.
Staff does not recommend that the Transient Occupancy Tax (TOT)
rate be increased. It has been the City's practice to maintain
tax rates at or somewhat lower than those in surrounding
jurisdictions in order to provide a competitive advantage to the
City's businesses in the region's economy. This practice is one
of the reasons the City has been able to weather the current
recession in a relatively strong fiscal condition. To increase
the TOT tax rate up to or in excess of the current Los Angeles
tax rate of 12.5% would eliminate this competitive advantage.
Further, potentially having the highest TOT tax rate in the State
would be counter productive to maintaining City revenues which
are required to continue the high level of public services
provided to City residents. However, should the City Council
wish to generate additional revenues from this source, attached
for first reading is an ordinance increasing the City's TOT rate
from 12.0% to 13.0% effective October 1, 1991. This tax rate
change would increase revenues by $.4 million for FY1991-92. It
has been the practice of the City to have a delayed
implementation date for TOT rate increases to allow hotel and
motel operators to fulfill prior commitments for Summer lodging
without having to change the terms of those commitments.
In place of increasing the TOT rate, staff recommends that the
Real Property Transfer Tax rate be increased to $3.14/$1,000 of
property sale value.
The projected impact of this tax rate increase on the sale of a
$500,000 property is as follows. The tax payment is the legal
responsibility of the property seller.
Current Proposed
$ 500,000 $ 500,000
- 1,000 - 1,000
500 500
x 1.10 x 4.24*
$ 550 of which $275 $ 2,120 of which $1,570
goes to City goes to City of
of Santa Monica, Santa Monica,
and $275 goes to and $550 goes
Los Angeles County. to Los Angeles
County. **
* $1.10 for Los Angeles County + $3.14 for City of Santa Monica.
** The law specifies that if a City's tax rate is increased above
$.55/$1,000 of property sale value, the City's previous share
of the total $1.10/$1,000 of property sale value reverts to
the County.
Hence, the proposed tax rate increase represents an increase from
.11% to .42% of the sale value of $500,000. If selected, this
revised Real Property Transfer Tax rate will be lower than the
rate being charged by the cities of Los Angeles and Culver City.
Attached for first reading is an ordinance which will affect this
tax rate increase and implement other necessary procedural
changes.
Implementation of the Real Property Transfer Tax Rate Increase
Payment of the Real Property Transfer Tax is due upon the sale of
any real property in the City of Santa Monica. Currently, the
Los Angeles County Registrar-Recorder collects the $1.10/$1,000
of property sale value transfer tax upon the filing of each new
deed and simply forwards the City's share ($.55/$1,000 of
property sale value) to the City. However, staff have been
informed that the County Registrar-Recorder will charge (by
crediting against actual tax receipts) a nominal fee per deed
filing if the City establishes a revised tax rate. Staff
believes contracting with the County Registrar-Recorder is the
most efficient method of collecting these tax receipts. It is
therefore necessary to authorize the City Manager to negotiate
and execute an appropriate tax collection agreement with Los
Angeles County.
Budget/Financial Impact
Increasing the City's Real Property Transfer Tax rate to
$3.14/$1,000 of property sale value will increase FY1991-92
revenues by approximately $1.5 million as the implementing
ordinance and a tax collection agreement with the County
Registrar-Recorder will not be in force until approximately the
end of September, 1991. Should the City Council also decide to
increase the Transient Occupancy Tax from 12% to 13%, FY1991-92
revenues will be increased by $.4 million, and it will only be
necessary to increase the Real Property Transfer Tax rate to
$2.46/$1,000 of property sale value to generate the remaining
$1.1 million for FY1991-92.
Since expenditures related to the additional Police positions and
associated support costs will not occur until FY1992-93 due to
the length of time it takes to recruit and train new officers,
FY1991-92 tax receipts will be used to help finance one-time
capital improvements to Palisades Park. The adopted FY1991-92
City budget will be revised to reflect these revenue and
expenditure increases.
Recommendation
It is recommended that:
1) The FY1991-92 budget be amended to reflect additional
revenues of $1.5 million and a $1.5 million capital
expenditure for improvements to Palisades Park;
2) The attached ordinance(s) be introduced for first reading;
and
3) The City Manager be authorized to negotiate and execute an
agreement with Los Angeles County to collect the City's Real
Property Tax receipts.
Prepared by: John Jalili, City Manager
Robert M. Myers, City Attorney
Mike Dennis, Director of Finance