City Council Meeting: July 13, 2010

Agenda Item: 8-B

To:                   Mayor and City Council

From:              Rod Gould, City Manager

Subject:         Tax Measure for November 2010 Ballot

 

 

Recommended Action

Staff recommends that the Council:

1.    adopt an ordinance enacting a transactions and use tax subject to a vote of the electorate at the November 2, 2010 election (Attachment A); and either,

2.    adopt a resolution placing a measure on the November 2, 2010 ballot that would:

      (a) offset severe state cuts, stabilize City finances, and protect/maintain essential City services including: police, fire, paramedic and emergency 9-1-1 services, school/educational/afterschool programs, public transit, services for the disabled, gang/drug prevention programs, environmental, library and other general fund services, by enacting a City of Santa Monica one-half percent transactions and use tax, with independent audits, and no money going to Sacramento (Attachment B);

      (b) authorize certain members of the Council to submit arguments and rebuttals concerning the measure;

      (c) direct the City Attorney  to prepare an impartial analysis of the measure;  or

3.   Consider and adopt a resolution that includes everything in Recommendation 2             above, and that also includes an advisory measure concerning allowing the   voters to express their preference on how the tax funds are to be spent    (Attachment C).

 

 

Executive Summary

On July 6, 2010 Council held a discussion on possible revenue options to place before the voters in order to partially address the structural deficit caused by continuing State theft of local funds and an anemic economic recovery. A summary of recent polling on voter attitudes regarding City priorities and potential funding solutions was presented on July 6.  Council gave direction to prepare ballot language for a one-half cent transaction and use tax to be added to the sales tax. Staff now requests adoption of a resolution placing a proposition on the November 2010 General Municipal Election ballot.  The ballot measure and proposed ordinance are attached.

 

In addition, Council provided direction on a companion advisory measure.

 

Over the past six years, the State has taken over $40 million from the City of Santa Monica budget. These raids on local revenues are predicted to continue given the State’s fiscal crisis.  The effects throughout California will likely include loss of human and social services, further erosion of support for education, and additional public safety cuts.

 

Background

The City anticipates a structural deficit of $4.1 million for FY 2010-11 despite actions taken through a variety of measures including expenditure reductions in services and capital replacement and fee adjustments.  Future operating costs associated with capital projects that are underway will add to this deficit.  The City’s five-year forecast projects expenditures growing at a rate that exceeds revenue growth, causing the structural deficit to grow over time.  Further, the anticipated continued State raids on city and county revenues necessitate discussion of potential revenue solutions.  Future operating costs associated with capital projects that are underway will add to this deficit.  Staff will continue to evaluate opportunities to close the structural deficit with the least impact to the community.  Strategies currently underway include business process improvements, including use of technology to reduce costs, and negotiations with employee groups to ensure that compensation costs are sustainable while continuing to be competitive and fair to employees. However, the State budget continues as a significant threat beyond City control. In all over the last six years, the State has diverted over $40 million from the City of Santa Monica budget. 

 

The proposed State budget includes significant cuts to close the projected $20 billion budget deficit through June 2011. Persistent State revenue grabs will exacerbate county social service and public safety costs, vastly complicate local government efforts to meet the needs of the most vulnerable, and police local streets.  Local schools also have been battered by State retrenchment in educational funding and the erosion of Proposition 98 revenues. State impacts have resulted in larger class sizes, reduced programs and significant teacher layoffs. Santa Monica has provided support to schools against past threats through a facilities lease.  However, it is prudent to consider ways to further bolster general funds for services such as police and fire services, education and school programs, parks and recreation and other general fund services given the ongoing State fiscal crisis.

 

Summary of Poll

Between June 27 and June 30, 2010, Fairbank, Maslin, Maullin, Metz & Associates (FM3) conducted a telephone survey of 500 voters in the City of Santa Monica who are likely to vote in the November 2010 General Election.  Almost two-thirds of respondents (63%) perceive the City has a “great” or “some additional” need for funds to provide the level of services that Santa Monica residents need and want.  A majority of voters (59%) would initially vote in favor of a ˝ cent sales tax measure to fund essential City services if an election were held today, while 38% would oppose it.  Once voters are provided with additional information on this simple majority measure, support for the measure increases five percent, from 59% to 64% and opposition decreases by seven percent, from 38% to 31%. 

 

Seventy-one percent of respondents are more inclined to vote yes on the measure when they hear that over the last six years Sacramento has taken over $40 million from the City of Santa Monica budgets and that this measure will ensure local control of funds to maintain vital services. 

 

Staff intends to develop a public outreach and education program that would provide factual, objective, and balanced information to update and inform the community about these issues and seek input. 

 

Discussion

As envisioned, this would be considered a general tax and as such would require a simple majority (50% plus one vote) for voter approval.  If the measure were to specifically limit the uses of the revenue, it would be considered a special tax and, therefore, require a two-thirds majority for voter approval.  

 

Attachment B is the resolution submitting the measure to the voters of the City of Santa Monica. The title is as follows:

 

PROPOSITION " “ :  Shall an ordinance be adopted to offset severe state budget cuts, protect and stabilize City finances, and maintain essential services including: police, fire, paramedic and emergency 911 response, school, educational and afterschool programs,  public transit, services for the disabled, gang and drug prevention programs,  environmental, library and other general fund services, by enacting a City of Santa Monica ˝ percent transactions and use tax, subject to independent annual audits, and no money going to Sacramento?

 

In addition, the resolution authorizes the City Council to submit arguments and rebuttals concerning the measure.  The City Council may designate one to five members to submit arguments and rebuttals for the measure.  Finally, the resolution directs the City Clerk to transmit a copy of the measure to the City Attorney and directs the City Attorney to prepare an impartial analysis of the effects of the measure on the existing law and operation of the measure.

 

Arguments and rebuttals shall be submitted in accordance with State Elections Code Sections 9280-9287, and Santa Monica Municipal Code Section 11.04.125.  The Elections Official will set the deadline for submitting arguments as 14 days from the date the election is called on the measure and the deadline for submitting rebuttals to arguments as 10 days after the deadline for submitting arguments on the measure.

 

If Council opts to place a tax measure on the ballot, it has been suggested that Council concurrently place on the ballot a purely advisory measure asking the voters whether they would favor allocating one-half of any new revenue raised by the measure to benefit the Santa Monica Malibu Unified School District (School District).  The results of such a measure would not, in any way, bind this or future City Councils as to the use of the revenues.  Rather, such a measure would merely provide information about the voters' preferences.  Such advisory measures have been paired with transaction and use tax measures in many other jurisdictions throughout the state.

Attachment C contains both the ballot measure stated above and asks an advisory question:

 

PROPOSITION "  ":  ADVISORY VOTE ONLY: If a local transactions and use tax is enacted in the City of Santa Monica, should half of its revenue be used to support school, educational and afterschool programs, with half of its revenue being used for general City services such as: police, fire, paramedic and emergency 911 response,   public transit, services for the disabled, gang and drug prevention programs, environmental, library and other general fund services?

 

This advisory measure does not raise taxes; it only expresses Santa Monica voter preference if the transactions and use tax measure is approved by the voters.

 

The City Attorney has undertaken a preliminary analysis as to whether such an advisory measure would affect the status of the proposed transaction and use tax as a general tax.  She reports that there is case law supporting the conclusion that it would not.  In Coleman v. County of Santa Clara, 75 Cal.Rptr.2d 516 (1998), taxpayer advocates challenged the validity of a county sales tax measure, which was approved by a simple majority of the voters.  They claimed that the measure actually proposed a special tax, basing their claim on the ground that a companion advisory measure, asking whether the voters favored spending the increased revenue on transportation improvements, showed that the tax increase was, in fact, intended for a special purpose and therefore required a two-thirds voter approval.  The trial court ruled in the County's favor, granting summary judgment.

 

On appeal, plaintiffs argued that the measures were designed to circumvent the supermajority requirements imposed by Propositions 13 and 62 and that the advisory measure demonstrated the county's intent to use the revenue specifically for transportation purposes.  The Court of Appeal rejected their claims.  It reasoned that because the spending priorities in the advisory measure were not compulsory, the county was free to spend the tax revenues for any and all county purposes.  Moreover, the text of the measures as well as the legal analysis and ballot arguments made clear that the two measures were legally separate and distinct.  Therefore, there was no factual or legal basis to hold that the presence of the advisory measure on the ballot subjected the tax measure to the supermajority requirements of Propositions 13 and 62.  Finally, the appellate court refused to delve into the county’s motives based on the fundamental legal principle that the courts should determine the validity of legislation based on its own terms and not on the motives of, or influences upon, the legislators who enact it.

 

The Santa Clara decision is thus authority for the proposition that an advisory measure on how tax revenue could be spent does not transform a concurrently proposed general tax into a special tax.  However, it is always possible that a court deciding a similar case on a different record, could reach a different conclusion.  The ballot language in Santa Clara was analyzed under Propositions 13 and 62, which define special taxes as "taxes imposed for specific purposes."  Proposition 218, which was on the ballot at the same time as the Santa Clara measures and was not considered in the Santa Clara, defines "special tax" a little more restrictively as "any tax imposed for specific purposes, including a tax imposed for specific purposes, which is placed into a general fund."   Thus, given different facts and this difference in the law, a court deciding a similar case today could reach a different conclusion.  However, of the many instances in which a tax and advisory measure have been paired in California since the Santa Clara decision, none has been challenged on the ground that the advisory measure showed that the tax required supermajority approval.   Therefore, assuming that the tax and advisory measures are carefully formulated, that they and the remainder of the record make clear that the tax proceeds would be available for general governmental purposes, and that the tax is not being proposed for a specific purpose, the result would likely be the same as in Santa Clara. 

 

Staff has evaluated the advantages of a companion ballot measure with the sales tax measure being accompanied by an advisory measure. This approach would further enhance the close working relationship developed between the City and School District for the benefit of the Santa Monica community.  The recent polling suggests the intensity of support increases the percentage of voters who say they will definitely vote for the measure when voters are informed that a portion of the revenues will go to support Santa Monica schools and education programs.  Based on Council direction on July 6, it appears the City is willing to share the revenues equally with the School District.  While there is some evidence that advisory measures may confuse voters and lead them to vote yes on only one of the two companion measures, staff believes in this case that a companion measure will galvanize support in the community and lead to efforts to explain the relationship between both measures so that all Santa Monica voters can make an educated choice. On balance, staff recommends this companion ballot measure approach.  

 

Alternatives

Council may choose not to adopt the resolution and thereby avoid placing a measure on the ballot.  If so, staff would propose further adjustments to the City’s FY 2011-12 budget for Council action, in order to maintain a balanced budget.

 

Financial Impacts & Budget Actions

The cost of placing the measure on the ballot will be covered by the FY2010-11 election budget.  Voter approval of the measure would secure approximately $12 million annually in revenue for the General Fund based on current estimates.  Approximately one-quarter of the new revenue is estimated to be generated by visitors and tourists.

 

Prepared by: Kathryn Vernez, Assistant to the City Manager for Community and Government Relations

 

 

Approved:

 

Forwarded to Council:

 

 

 

 

 

Rod Gould

City Manager

 

Rod Gould

City Manager