STAFF REPORT
Meeting Date: March 18, 2024
To: Honorable Mayor & City Council
From: Blue Ribbon Committee
Subject: Report and Recommendations by the Blue Ribbon Committee on Long-Term Strategic Financial Planning
Attachments: None
INTRODUCTION
Beverly Hills, similar to virtually all municipalities, has a need for strategic long-term financial planning and sustainability. As part of his Mayoral Initiatives, Mayor Julian A.
Gold, M.D. charged City Treasurer, Howard S. Fisher to assemble a Blue Ribbon Committee to:
• More completely understand the City’s financial position, reviewing the City’s current revenue streams and where the money is spent, and • Gain a clearer understanding of what the City needs or would like to accomplish in the next five to ten years, what it is likely to cost, and how the City will pay for it.
This Report is the result of multiple meetings of the Committee and represents a consensus of their views. These meetings took place on the following dates:
• Meeting 1 - August 8, 2023 • Meeting 5 - January 22, 2024 • Meeting 2 - September 5, 2023 • Meeting 6 - February 13, 2024 • Meeting 3 - November 2, 2023 • Meeting 7 - March 4, 2024 • Meeting 4 - November 14, 2023
Meeting Date: March 18, 2024
Members of the Committee
City representatives on the Committee included:
• Mayor Julian Gold, M.D.
• Vice Mayor Lester Friedman (final three sessions)
• City Treasurer, Howard S. Fisher, Chair
Committee Members included:
• Joshua Greer, Former Public Works Commissioner/ Entrepreneur • Vicky Mense, Restauranteur/Entrepreneur
• David Mirharooni, Real Estate Entrepreneur
Staff supporting the Committee included:
• Nancy Hunt-Coffee, City Manager
• Ryan Gohlich, Assistant City Manager
• Jeff Muir, Director of Finance
• Tatiana Szerwinski, Asst. Director of Finance
DISCUSSION
The Committee was first presented with high-level information on governmental accounting and the City’s operating and capital budgets. This included a discussion of fund accounting and the various fund types (general, enterprise, special revenue, internal service, debt service and capital project). The General Fund became the focus, being the chief operating fund of the City where most basic government services are provided (e.g. public safety, public services, culture and recreation). Further detailed information on the major revenue sources for the General Fund was discussed with the Committee.
The focus then shifted to spending and the major expenditure categories within the General Fund, where public safety makes up approximately half of the budget. There was also discussion of the City’s existing debt obligations, unfunded pension obligations and some of the major unfunded capital projects.
Meeting Date: March 18, 2024
Capital Project Funding
The Committee also reviewed the current extensive capital improvement budget and plan, as well as unfunded capital projects of varying durations. The adopted capital improvement budget for Fiscal Year 2023-24 appropriated $92.4 million towards capital improvements from all funds (General Fund share approximately $46 million), and the remaining four years of the plan call for an additional $333.9 million (General Fund share approximately $162 million). In addition to the adopted capital improvement plan, the Committee reviewed additional identified capital projects with only partial funding identified or without any current funding plan. Costs and timing for many of these future projects are only rough estimates at this point, and the exercise was more to demonstrate that even with the City’s significant commitment to capital improvements and infrastructure, there are future needs beyond what the City can currently afford. The list below summarizes the projects that would likely require General Fund support above and beyond the current capital improvement plan, if or when they are pursued.
General Fund Expenditure Trend
The Committee was provided information showing the City historically enjoying a strong financial position due to generally conservative fiscal policies and a strong tax base; however, the City’s General Fund revenues were significantly impacted during the pandemic and a variety of budget reductions were instituted to reduce expenditures.
These measures (implemented from Fiscal Year 2020-21 and carried forward into Fiscal Year 2021-22) included reducing contractual service budgets by eight percent, eliminating positions through a voluntary retirement incentive program, using reserves, and significant deferrals of certain capital and equipment investments. As the economy reopened and the City’s revenues started to recover, the budgets for Fiscal Years 2022-23 and 2023-24 included significant enhancements to restore or enhance services in response to public safety concerns, and other Council initiatives, as well as inflationary pressures and the overall expansion of the General Fund budget.
Project
Funding
Estimate
(In Millions)
City Hall Seismic Retrofit - Phase 2 $ 47
Sunset Median Improvements $ 7
Greystone Park Improvements $ 7
Southeast Improvements/Gale Site $ 8
Streetscape Improvements-South Beverly $ 9
Land Acquisition $ 60
La Cienega Park and Recreation Complex
Renovation Project - Phases 1 and 2 $ 200
Stormwater - MS4 Compliance Projects $ 155
Estimated Total $ 493
Meeting Date: March 18, 2024
The adopted General Fund budget for Fiscal Year 2023-24 has increased approximately 25% from year-end expenditures from Fiscal Year 2019-2020, as summarized in the chart below.
While the City’s General Fund operating expenditures and transfers out have expanded, revenues have accommodated the growth up to this point. The five-year forecast that was included in the current year’s adopted budget was reviewed with the Committee, and it was pointed out that slower and more moderate growth of the “big four” tax revenues is forecasted into the future and continuing the rate of expenditure growth would not likely be sustainable.
Further Budget Pressures
The originally adopted Fiscal Year 2023-24 budget projected a total surplus of $5.5 million (including a $10 million Public Benefit Contribution from the OneBH project).
Staff shared the additional General Fund appropriations that have occurred after the Fiscal Year 2023-24 budget was adopted. A variety of additional funding commitments have been approved during the fiscal year, which are expected to necessitate using General Fund unassigned reserves to cover the additional costs (detailed in the chart below).
Some of the approved items were one-time and some are ongoing. The ongoing items will be factored into the base budget in future years (before additional enhancements are considered) and will require additional ongoing resources.
Revenues $ 317.1
Public Benefit Contribution $ 10.0
Operating Expenditures $ (286.2)
Transfers Out $ (35.4)
Total Surplus/(Deficit) $ 5.5
FY 2023-24 General Fund Adopted Budget (In Millions)
Meeting Date: March 18, 2024
In addition to the additional appropriations that have already been approved, there are more items on the horizon that will likely require expenditure growth beyond what is currently included in the budget. Examples of some of these items include the following:
• Additional Costs for securing Metro Stations
• Unhoused Program (funding not provided outside of current fiscal year) • Affordable Housing Creation
• Additional Property Acquisitions
• Transit (Microbus System)
• Joint Powers Agreement with the BHUSD (future funding years past current agreement)
• Increased Operating Costs for La Cienega Recreation Complex Renovation Project if and when that project is pursued
Concurrent to the Blue Ribbon Committee meetings, the Finance Department has been preparing a mid-year financial update report to include an updated ten-year forecast which is being brought forward in a companion report on this Study Session Agenda.
A key takeaway from the information presented to the Committee was that City costs are increasing, there remain a variety of operational and capital needs that would require additional funding, and revenue growth over at least the next several years is expected to become more moderate. With that, the Committee discussed many revenue generation ideas and debt financing options, settling on a number of items to recommend for further consideration to the City Council moving forward.
The Committee focused on revenue generation and did not explore in-depth analysis of the City’s expenditures. The Committee also did not explore how the City decides which projects are pursued or on what time horizon, expenditure reduction opportunities, or the process for ongoing review of projects both during implementation and upon completion.
These are areas that need further exploration, especially if new revenues are minimally pursued in light of the City’s increasing demands for services offered to the community.
Real Property Purchase (111 North Gale Drive) $ 8.42
JPA Agreement + CCTV Purchases/Installation 4.01
Supportive Housing for the Unhoused (Step Up on Second) 1.80 Tourism and Marketing True-Up (from FY 2022-23) 1.12
MOU Increases, Executive Compensation Plan Amendment, and Reclassifications 0.72 Nastec International, Inc. Unhoused Support 0.52
Afterschool Program Instruction 0.40
Flag Display, Shabbat Table, and Related Security 0.24
Total $ 17.23
General Fund Appropriations
($ Millions)
NOTE: Immaterial differences may exist when adding rounded figures above.
Meeting Date: March 18, 2024
Recommendations
In light of discussions surrounding the overall financial picture for the City, the Blue Ribbon Committee discussed and encouraged an increased shift to long-term financial planning when making present decisions for the City. Specifically, this would include reviewing revenue sources, not only for the generation of additional income (further discussed below along with debt financing) but also examining use of existing resources and preservation or maximization of existing income sources. Additionally, the Committee discussed the importance of ensuring accurate cost estimates and resource needs on a prospective basis, to enable the City Council to make the most informed decisions possible when considering new expenditure commitments.
The Committee noted that for all of the potential revenue generation opportunities below, the Cheval Blanc project would have provided an opportunity for more annual revenue generation than any of those listed below and would have rendered many of them unnecessary. The Committee recommends that the City Council continue to pursue and attract new businesses that align with the City’s reputation for luxury and sophistication, which can also increase revenues for the City.
After meeting and deliberating over the course of seven sessions, the Mayor’s Blue Ribbon Committee proposed the following recommendations for consideration of the City Council.
1. Consider Increase to Sales Tax (Transactions and Use Tax) Per the California Department of Tax and Fee Administration, “sales tax applies to all retail sales of goods and merchandise except those sales specifically exempted by law. The use tax generally applies to the storage, use, or other consumption in California of good purchased from retailers in transactions not subject to the sales tax. Use tax may also apply to purchases shipped to a California consumer from another state, including purchases made by mail order, telephone, or Internet.”
The sales and use tax rate in a specific California location has three parts: the State tax rate, the local tax rate, and any district tax rate that may be in effect. These district taxes are technically called “Transactions and Use Taxes” and are also administered by the California Department of Tax and Fee Administration. Transactions and Use Taxes work very similarly to sales tax, with some differences. For purposes of simplification in this report, “sales tax” will be used to mean both regular sales tax and Transaction and Use Taxes.
Meeting Date: March 18, 2024
The State tax rate is comprised of a variety of items, which total six percent, detailed in the chart below. The local tax is comprised of 0.25 percent for county transportation funds and 1.0 percent for City operations which is distributed directly to the City. This total 7.25 percent establishes the maximum base sales tax in California. A total of 2.25 percent in additional district sales taxes have been approved from 1982 through 2017 in Los Angeles County, resulting in a total effective sales tax rate in the county of 9.50 percent (the rate effective in Beverly Hills as well). The maximum combined sales tax rate in Los Angeles County is 10.25%, and there remains an additional 0.75 percent in capacity that could be levied in Beverly Hills.
49 of the 89 cities (63%) in LA County have a total sales tax rate of 10.25%. Another seven cities have a total sales tax rate of 10.00%. The below chart summarizes the City’s sales tax rate compared to other nearby cities.
Rate Jurisdiction Purpose
3.69% State State General Fund
0.25% State State General Fund
0.50% State Local Public Safety Fund to support local criminal justice activities (1993)
0.50% State
Local Revenue Fund to support local health and social services programs (1991 Realignment)
1.06% State Local Revenue Fund 2011
0.25% Local * County Transportation Funds
1.00% Local * Counties or incorporated cities (Beverly Hills)
7.25%
* Local maximum Bradley-Burns sales tax rate
Rate Jurisdiction Purpose
0.25% District LA County Measure H Homeless (2017)
0.50% District LA County Measure R (2009)
0.50% District LA County Measure M (2017)
0.50% District LA County Proposition A (1982)
0.50% District LA County Proposition C (1991)
2.25%
9.50%
10.25% Maximum County Sales Tax Rate
0.75% Additional City Sales Tax Capacity
Total County District Taxes
Total Statewide Base Sales and Use Tax Rate
Total City of Beverly Hills Sales Tax Rate
Transactions and Use (Sales) Tax Rates % Rate
City of Beverly Hills 9.50%
City of Burbank 10.25%
City of Culver City 10.25%
City of Glendale 10.25%
City of Los Angeles 9.50%
City of Pasadena 10.25%
City of Santa Monica 10.25%
City of West Hollywood 10.25%
Meeting Date: March 18, 2024
In reviewing Fiscal Year 2022-23 sales tax results, the majority of sales tax is derived from general consumer goods (46%), followed by automobiles and transportation sales (18%), restaurants/hotels (15%), and use tax received from the County and State Pools (17%) based on proportional cash receipts.
If the City pursued an increase to the sales tax rate of 0.5 percent, it would yield approximately $18.6 million/year in additional revenue for the City’s General Fund (based on current sales tax projections). The full differential of 0.75 percent would yield an approximate $27.9 million/year in additional revenue for the General Fund.
Tax increases require voter approval and must be placed on the ballot during a regular City Council election by a two-thirds vote of the City Council (unless the City Council were to unanimously declare a fiscal emergency exists). Once on the ballot, a majority of voters must approve a general-purpose tax increase. If the Council chose to designate a specific purpose for the tax increase, the voter approval requirement increases to a 2/3 majority.
Meeting Date: March 18, 2024
In November 2020, Beverly Hills voters approved Measure RP, which reserved the remaining 0.75 percent incremental sales tax increase for local use only and only takes effect if the County or another regional entity places a sales tax measure on a ballot that would be effective in Beverly Hills. Rather than waiting for this potential outcome to occur, the City could revisit placing a general sales/TUT measure on a future ballot.
There are at least two ballot measure for November 2024 that may make it more difficult for local governments to have local taxes approved (ACA 13 [Ward] Voting Thresholds and the “Taxpayer Protection and Government Accountability Act”). Staff is monitoring these items, and the City may take positions consistent with its’ City Council legislative platform.
Benefits
Of all the revenue generating options discussed in this section, this option has the largest potential for ongoing revenue increases to the City. Residents shopping locally, which is a fraction of the shopping, would pay the additional tax, and tourists and visitors would also pay a significant share due to the City’s unique shopping and dining options.
Drawbacks
Estimates for the additional sales tax revenue are based on the trends observed in other cities, but there are many variables to be considered including economic trends, spending patterns of residents and visitors and whether they are impacted by this sales tax rate change. Sales tax can fluctuate based on the economy and is subject to economic cycles.
Barring a fiscal emergency declaration, a proposed measure could only be placed on the next City Council election ballot (June 2026), which would be significantly into the future.
There would be a variety of procedural steps to be completed, and if a tax measure were approved, it will generally go into effect on the first day of the next calendar quarter, at least 110 days after the adoption of the local district tax.
Given the above, the Committee recommends that the City Council further consider a future ballot measure increasing the City’s sales tax (TUT) rate, as this represents the largest potential increase to the City’s major revenues.
2. Consider Increase to Transient Occupancy Tax (TOT)
The City has sixteen hotels which collect transient occupancy tax (TOT), or hotel tax, at a rate of 14%. There are three hotels where guests pay an additional five percent municipal surcharge per night’s stay, bringing the total to 19% in these limited cases.
The Committee discussed potential increases to the TOT rate for hoteliers to collect from their occupants. The annual revenue attributed to a one percent increase is approximately $3.5 million/year in General Fund revenue (assuming the base rate increase for all hotels).
The Committee also discussed the option of increasing the TOT rate for hotels not subject to the municipal surcharge. This could result in an estimated increase of $2.6 million/year in additional General Fund revenue.
Additionally, there was discussion as to whether the Council could then propose a reduction of this TOT for large scale event bookings, should there be concerns about the cost increase impacts on bulk sales and whether such increases could push this business outside the City.
Meeting Date: March 18, 2024
If the City Council were to consider an increase to the TOT rate, it would require majority voter approval at a regularly scheduled City Council election. Comparable TOT rates for surrounding cities are shown below.
Benefits
This tax increase would primarily impact visitors and tourists to the City, thus minimizing the impact on City residents. While the return on effort is smaller than a sales tax/TUT ballot measure, the ongoing impact of an increase of several million dollars per year can still be significant.
Drawbacks
Local hotels may feel a TOT increase could affect regional competitiveness or the ability to attract conferences/large events. Similar to sales tax, increases are procedural and must be placed on a future ballot, which requires additional time and delay until the impacts of the tax increase can be realized.
The Committee recommends that the City Council further consider a ballot measure for a TOT initiative.
3. Expedite Real Estate Leasing Processes to Maximize Returns The City has a significant real estate portfolio and the Committee discussed ways to ensure it remains competitive and generates optimal returns. They emphasized the importance of conducting thorough market research, implementing proactive management practices, and leveraging strategic partnerships with industry experts and specialists. Additionally, given the speed by which the private sector can operate and the challenges that navigating the public sector space can present to tenants, the Committee recommends the Council explore recommendations for expediting this process and further leveraging experts.
Recommendation A: Establish a Real Estate Council Liaison Committee comprised of two Council members whereby authority is
delegated to these two members to negotiate expeditiously with prospective tenants and brokers. Once negotiations are complete, lease agreements would be brought forward for the full City Council for approval.
Recommendation B: Establish a Real Estate Advisory Committee, comprised of local brokers, real estate attorneys, other industry
professionals, to help assist City staff and Council in ensuring competitive returns on real estate holdings.
The above are presented for the benefit of Council consideration and are not mutually exclusive or dependent.
Citiy of Beverly Hills 14.0%
City of Culver City 14.0%
City of Los Angeles 14.0%
City of Santa Monica 15.0%
City of West Hollywood 12.5%
TOT Rates
Meeting Date: March 18, 2024
Additionally, the Blue Ribbon Committee discussed and reviewed the current base rent and percentage rent lease offerings, and common area maintenance charges. The Committee recommends that additional reviews are conducted for future lease negotiations to ensure that the City is generating optimal returns. This could be further explored through Option 2 above by leveraging an Advisory Committee of real estate professionals which could provide additional insight and expertise for future negotiations and agreements.
Benefits
Establishing a Real Estate Council Liaison Committee, including the authority for completing negotiations, could further expedite decision-making and streamline the leasing process, reducing delays and creating greater efficiencies and turnaround times for lease agreements. Establishing a Real Estate Advisory Committee can provide expertise to ensure that leasing agreements are negotiated effectively, protecting the interests of the City and optimizing the use of City assets.
Drawbacks
Establishing the Real Estate Council Liaison Committee without negotiation authority could introduce additional layers of bureaucracy and potentially slow down the decisionmaking process, which would impact a tenant’s ability to timely assume their lease and commence business operations. Depending on the time commitments of the volunteer Real Estate Advisory Committee, the ability to provide timely input into the City’s real estate process and individual negotiations might be limited.
4. Review Business License Tax Categories and Basis for Tax Calculations Rounding out the discussion of three of the four major tax revenues for the City, the Committee further explored business license taxes. Upon reviewing and comparing the structure of other local cities’ business tax categories and associated methodologies, it was observed that other cities tend to utilize gross receipts across most categories, whereas, the City has several classifications where the basis of payroll hours is used to calculate the tax.
Meeting Date: March 18, 2024
This was specifically observed for the City’s Class A license for Corporate Headquarters, Business and Personal Services, and Class C for Professionals and Semiprofessionals.
While it is difficult to extrapolate what a change in the tax structure for Class A and C could mean across these entire categories without in-depth study, the Committee did review example calculations for these classifications in comparison to other cities and their existing formulas, an example of which is presented below. It seems likely that the City’s current structure yields less than other cities where the methodology is based on gross receipts.
While the City could be collecting less in business taxes than other cities for these classifications, further analysis would be required to determine whether a change in methodology might yield increased revenues for the City. As such, after consultation with Finance staff, the Committee recommends that consideration be given to hiring a consultant to further review these business license classifications and potentially to review the entire tax structure and rates. As it has been many years since this area of the City’s Municipal Code was reviewed, there could be additional considerations and updates necessary to reflect other current developments and trends in this area.
Gross Receipts Operating Costs
# of FT
Employees Beverly Hills Santa Monica Culver City Los Angeles West Hollywood Difference from the highest Class A - Corporate
Headquarters $ 2,000,000 $ 1,500,000 5 $ 905.66 $ 2,500.00 $ 6,000.00 $ 7,120.00 $ 1,440.00 $ 6,214 Class A - Business &
Personal Services $ 2,000,000 $ 1,500,000 5 $ 905.66 $ 5,895.00 $ 6,000.00 $ 7,120.00 $ 1,440.00 $ 6,214 Class C -
Professionals $ 150,000,000 $ - 50 $ 91,954.63 $ 749,775.00 $ 525,000.00 $ 637,500.00 $ 216,000.00 $ 657,820 Classifications
Minimum $ 329.00 First 2080 payroll hours $ 75.00 First $60k gross receipts $ 48.00
Additional $ 0.06931 Each additional payroll hour $0.00125 Each $1 over $60k $ 0.00300 Every $1 of gross receipts $0.00356 Every $1 of gross receipts $0.00096 Every $1 of operating costs
Minimum $ 329.00 First 2080 payroll hours $ 75.00 First $60k gross receipts $ 48.00
Additional $ 0.06931 Each additional payroll hour $0.00300 Each $1 over $60k $ 0.00300 Every $1 of gross receipts $0.00356 Every $1 of gross receipts $0.00096 Every $1 of operating costs Minimum $ 75.00 First $60k gross receipts $ 75.00 First $60k gross receipts $ 24.00
Additional $ 0.00125 Each $1 over $60k $0.00125 Each $1 over $60k $ 0.00150 Every $1 of gross receipts $0.00127 Every $1 of gross receipts $0.00048 Every $1 of gross receipts Minimum $1,839.00 First 2080 payroll or billed hours $ 75.00 First $60k gross receipts $ 72.00
Additional $ 0.88418 Each additional payroll or billed
hour $0.00500 Each $1 over $60k $ 0.00350 Every $1 of gross receipts $0.00425 Every $1 of gross receipts $0.00144 Every $1 of gross receipts Minimum $ 255.00 First $85k gross receipts $ 75.00 First $60k gross receipts $ 24.00
Additional $ 0.00300 Each $1 over $85 $0.00125 Each $1 over $60k $ 0.00150 Every $1 of gross receipts $0.00127 Every $1 of gross receipts $0.00048 Every $1 of gross receipts Minimum $ 75.00 First $60k gross
receipts
Additional $ 0.01200 Every $1 of gross receipts $0.00125 Each $1 over $60k $ 0.00130 Every $1 of gross receipts $0.00127 Every $1 of gross receipts
Minimum $ 75.00 First $60k gross
receipts $ 72.00
Additional $ 0.02350 Every $1 of gross receipts $0.00125 Each $1 over $60k $ 0.00130 Every $1 of gross receipts $0.00148 Every $1 of gross receipts $0.00144 Every $1 of gross receipts Minimum $ 175.00 First $50k gross receipts (1st Year) $ 75.00 First $60k gross receipts $ 48.00
Additional $ 0.00350 Each $1 gross receipts (2nd year
+) $0.00300 Each $1 over $60k $ 0.00250 Every $1 of
gross receipts $0.00096 Every $1 of operating costs
Minimum $ 75.00 First $60k gross
receipts $ 48.00
Additional $ 0.00100 Every $1 of gross receipts $0.00125 Each $1 over $60k $ 0.00250 Every $1 of gross receipts $0.00096 Every $1 of
operating costs
Outside City Min $2,704.00 First 10,000 barrels $ 0.04000 Every $1 of gross receipts
Outside City Max $ 0.19995 Each additional barrel
Inside City Min $5,432.00 First 10,000 barrels $ 0.04000 Every $1 of gross receipts
Inside City Max $ 0.49994 Each additional barrel
*First $200k of GR exempted.
GR more than $100M add 0.01%
Class F - Commercial
Property Renting and
Leasing
Class G - Agencies,
Lenders, Brokerages,
and Other Similar
Services
Class G1 - Real
Estate Salesperson
Class I - Oil
Production
Class A - Corporate Headquarters
Class A - Business &
Personal Services
Class B - Retail, Wholesale, Manufacturing, and Contractors Class C -
Professionals and
Semiprofessionals
Class D - Used Car
Sales
Class E - Residential
Property Renting and
Leasing
Business Tax Comparison Beverly Hills Santa Monica Culver City* Los Angeles West Hollywood Meeting Date: March 18, 2024
Benefits
Hiring a consultant to review this section of the City’s Code and business tax license structure can help modernize business license tax collection and could provide for additional revenue. An updated Code structure can also ensure compliance with current and changing legal and regulatory requirements, enhancing transparency and consistency in the licensing process. Additionally, by aligning the Code with industry standards and best practices, the updated structure could foster a more business-friendly environment, attracting new businesses. Lastly, improved clarity within the Code could help businesses better understand their obligations and rights, promoting compliance and reducing the risk of legal disputes. Updating the business license municipal Code structure could contribute to a more efficient, and dynamic business environment in the City.
Drawbacks
There would be a cost associated with the hiring of a consultant to perform this work and there is no guarantee of additional revenue generated from classification updates. The process of making any revisions to the Code can require significant time, resources, and coordination among various stakeholders including the City, businesses, and legal counsel, which could lead to delays in implementation. If not carefully executed, updates to the Code could inadvertently introduce new complexities or ambiguities, creating new confusion or frustration for businesses and the City, tasked with administering these changes.
5. Debt Issuance/Bonds
Due to the large volume of unfunded capital projects, the Committee reviewed options surrounding bond financing and bonding capacity. Bonding for capital improvements is a generally accepted practice to spread the cost of long-term capital assets over their useful life. The Committee discussed and reviewed general obligation bonds and revenue bonds. General obligation (GO) bonds could be issued, which would essentially tax property owners to pay bondholders and as such, this type of bond does not impact overall City bonding capacity. A voter election would be required with 2/3 approval to pass GO bonds. Conversely, revenue bond payments are secured by existing revenues generated by the City (issuer). Per rating agencies’ guidelines, debt service payments should not generally exceed eight percent of governmental fund expenditures, which would need to be in consideration of existing City debt.
The City’s existing lease revenue bond annual debt service payments are approximately $12.0 million/year, with upcoming reductions to $10.0 million/year by 2025-26, $8.0 million/year by 2026-27 and approximately $3.5 million/year by 2028-29. Given the current interest rate environment, Finance staff obtained an update of the City’s bond capacity for issuing additional lease revenue bonds. Assuming an interest rate of six percent, a scenario was explored whereby the City could continue its current debt service payments of $12.0 million/year, which would allow for a maximum bond par value of approximately $136.0 million.
Meeting Date: March 18, 2024
While the Committee is not affirmatively recommending bond financing at this time, it is included as a recommended area for further consideration for future capital projects funding.
Benefits
Bond financing offers several benefits, including access to large amounts of capital, lower interest rates compared to other forms of borrowing, and fixed debt-service payments that provide stability for budgeting. Issuing bonds can help establish a reliable source of longterm funding for large scale capital projects.
Drawbacks
Issuing bonds at a given point in time can constrain the City’s future capacity for borrowing for other later identified capital projects. The timing of market fluctuations can also impact the cost of bond financing, which can be favorable in low interest environments and less favorable in higher interest rate environments.
6. Review Project Planning and Permitting Processes
The process for new businesses to apply for permits and plans, as well as the inspection process during construction, can be overwhelming. The Committee discussed how businesses often have a limited understanding of how to best navigate the permitting and planning processes, which then causes additional delays to open their businesses and generating revenues more quickly. While improvements have been made to the overall planning and permitting process, most recently in 2020 with the implementation of electronic plan document submissions, the Committee discussed whether opportunities exist for further improvements, as well as expedited, concierge-type services to help businesses better navigate the processes. In so doing, there is the potential for businesses to maximize their revenue potential, thereby also benefitting the City through the collection of additional taxes. Additionally, the Committee discussed further reviewing the planning and permitting processes to explore opportunities for simplification and to expedite all of the dealings with Community Development. Offering business-friendly and easy-to-navigate services could foster the attraction of new and competitive businesses to enter the City, thus enhancing overall revenue optimization for all parties.
The Committee recommends reviewing the project planning and permitting processes for simplification and the potential for expedited services.
Meeting Date: March 18, 2024
Benefits
Conducting additional review in this area could allow the City to better streamline and simplify processes for businesses looking to enter the City. Offering additional direct staff assistance could also decrease processing time and allow for business to open more quickly, which could optimize revenues for businesses and the City. A more efficient permitting process can attract new businesses and investment and ultimately contribute to job creation and community development.
Drawbacks
Performing additional review in this area can be time consuming and could require consulting costs and staff time being diverted from other development related projects.
Hiring and training additional staff can negatively impact the City’s budget, which could result in the reallocation of funding from other essential City services. Additionally, if underlying process inefficiencies are not addressed, an increase in staff may not result in significant improvements to the permitting process.
7. Considering Special Assessment Districts
Special assessments provide for a charge to be levied on parcels of land or businesses based on the special benefit they receive from a particular service or capital improvement.
There are a variety of special assessment structures permitted in California depending on the type of capital improvement or service. Examples include Business Improvement Districts, Community Facilities Districts, Open Space Maintenance Districts, Landscape & Lighting Districts, Parking Districts, and more. Each has a defined election process, some requiring a vote of all property owners and some with a protest ballot process, with varying percentage thresholds for approval.
The City has one special assessment district, the City of Beverly Hills Community Facilities District (CFD) No 2002-A (Business Triangle), which was authorized to levy special taxes to the properties within the CFD, and to issue bonds secured by those taxes. In 2002, $16.2 million in Special Tax Bonds were issued to fund an Urban Design Program to enhance the City’s Business Triangle. The City contributed an additional $2.7 million to fund this program. The current outstanding principal balance was $5.3 million as of June 30, 2023. The Community Facilities District Bonds are payable solely from the net special assessments levied on taxable properties within the District and are not considered debt obligations of the City. This CFD is an example of how a successful special assessment district can be used to fund improvements for a local area and distinct purpose.
When considering projects or services that strongly benefit a certain geographical area (a specific commercial area or neighborhood), such assessment district options can be worth considering. Given the variety of options available and complexities, utilizing a consultant to advise and assist through any such endeavor would be necessary.
While the Committee is not affirmatively recommending specific assessment considerations at this time, they are included as a recommended area for further future consideration.
Meeting Date: March 18, 2024
Benefits
Special assessment districts can more fairly allocate the cost of certain projects or services that provide specific benefits to an area. In many instances they can provide funding for both infrastructure improvements and future maintenance costs, providing a sustainable funding source. Special assessment districts provide for greater local control and allow property owners to pay for needed or enhanced services that may be desired by a particular geographic region. This option also secures funding directly from a taxpayer district, typically the most benefited from the district, and can relieve expenditure pressures on the City’s General Fund.
Drawbacks
The process to formulate and seek approval of special assessment districts can be complicated and somewhat costly. There are future annual efforts to maintain such districts that will require some level of staff time and consultants as well. The significance of the cost of potential projects or services that would fall within the legal confines of such a district must be weighed against the cost of formation and maintenance. Higher assessments could impact the finances of district property owners.
8. Consider Public-Private Partnerships
Public-Private Partnerships (PPPs) are another option where the City may be able to deliver projects or services by leveraging private sector relationships. PPPs involve the collaboration between a government agency and a private-sector company that can be used to finance, build, and/or operate specific projects. For example, while the City must endeavor to meet housing goals (particularly affordable), housing development and operation are not a core City function. The City is adept at land purchase and assembly, but a private sector partner might make more sense for delivery of such projects. These projects often involve tax or other operating revenue concessions, or partial ownership rights split between the public and private entities.
While the Committee is not affirmatively recommending PPPs at this time, they are included as a recommended area for further future consideration.
Benefits
PPPs can allow the City to accomplish goals or projects it might not otherwise have the capacity, expertise, or resources to complete. PPPs also allow for risk sharing where project savings or overruns are shared between the private sector and public taxpayers.
Private sector involvement can accelerate project delivery times and can bring innovation and advanced technology to projects, which could lead to more efficient solutions.
Drawbacks
PPPs can be complicated arrangements and the City would need to ensure the public benefits from any such endeavor are commensurate with the City’s contribution.
Negotiating and managing PPP agreements can require extensive legal, financial, and technical expertise and can be time consuming. PPPs can also result in reduced local control as the City would not maintain full decision making ability for project construction, management, and operational decisions.
Meeting Date: March 18, 2024
9. Parking Revenue Recapture
Parking is a valuable commodity in the City and the Committee discussed opportunities for recapturing revenue related to the City’s 19 parking facilities. The costs to operate, maintain, and perform necessary capital improvements for the parking facilities are significant. Current funding sources include the lease of tenant spaces within City owned parking facilities and parking fees charged to customers both off-street at parking facilities and on-street at parking meters. Over the years, particularly during and coming out of the pandemic, the General Fund has needed to provide subsidies to the parking funds.
Enhancing parking revenues would make the parking funds more self-sustaining and provide an indirect benefit to the General Fund.
The Committee discussed the current provision free two-hour parking in many City parking facilities. As background, in 2011, voters in Beverly Hills passed Measure 2P, a Two Hours of Free Parking Initiative, which made two hour free parking mandatory at most of the non-metered parking lots owned by the City. The initiative was backed by local property owners whose tenants directly benefited from the free parking. Additionally, there are several lots with one-hour free parking. See the chart below for details by parking structure.
Meeting Date: March 18, 2024
The Committee discussed that it might be time to charge a nominal fee ($1-$2/hour) for the first one to two hours of parking as a means of generating additional revenue to support the parking facilities. A sampling of recent free parking data across all relevant structures indicates a very high-level estimate of the revenue that could be generated is between $3 million to $4 million per year. If the Council desired to explore this option, significant additional work would be required to determine the legalities and logistics necessary to pursue it. Public outreach would be necessary for such a change as well.
Benefits
Implementing a nominal per hour charge in existing structures with one and two-hour free parking would provide for additional parking enterprise revenues, which would improve the self-sufficiency of the parking enterprise and reduce the need for current and/or future General Fund infusions.
Drawbacks
There will likely be dissenting opinions over the removal of any City free parking options.
This could impede the City’s ability to obtain support for removing the free parking initiative. Charging nominal parking fees for the first one- to two-hours could change consumer patterns; though, neighboring cities’ have limited parking facilities with free parking offerings.
10. Recouping Development Costs Associated with Impacts on Public Infrastructure and Services
While the City utilizes a variety of fees and charges to recoup costs associated with development, there could be added benefit of conducting a review of development impacts on public infrastructure and services to ensure that these fees accurately capture these costs. Specifically, the Committee discussed the increasing costs of public health and safety, and infrastructure, and whether additional fees could be considered/established to support the increased demand on these critical services, ensuring that the burden is appropriately distributed among developers and residents benefiting from new development projects. As such, additional review of development costs and impacts to the community might provide the opportunity to help the City make better informed decisions about development policies, fee structures, and infrastructure investments to support sustainable growth for residents and businesses.
While the Committee is not affirmatively recommending additional development fees at this time, it is included as a recommended area for further future consideration.
Benefits
Conducting additional review in this area could allow the City to better assess the impacts of development and to ensure that costs are being recouped appropriately. This could help ensure that the incremental costs of development are fairly distributed among stakeholders, potentially reducing the burden on taxpayers. Recouping development costs can also promote sustainable development by encouraging responsible land use and minimizing negative impacts on public resources. Should a review identify additional costs to be recouped through new fees, these fees would provide the funding for the maintenance and expansion of essential infrastructure, public safety and services.
Meeting Date: March 18, 2024
Drawbacks
Performing additional review in this area can be time consuming and could require staff time be diverted from other development related projects. A consultant would be required to perform a nexus study which will also come at a cost. Additional development fees to cover incremental impacts can increase the overall cost of development and potentially discourage investment and economic growth in the City. Balancing the need for revenue generation with the goal of fostering economic development and equitable access to infrastructure remains a key challenge with recouping additional costs.
FISCAL IMPACT
There is no direct fiscal impact associated with this report. Should the City Council decide to implement any of the recommendations included in this report, there could be future financial implications.
RECOMMENDATION
The Mayor’s Blue Ribbon Committee, chaired by the City Treasurer, makes the following recommendations for further consideration by the City Council.
1. Consider a Sales Tax (Transactions and Use Tax) Increase
2. Consider a Transient Occupancy Tax (TOT) Increase
3. Expedite Real Estate Leasing Processes to Maximize Returns
4. Review Business License Tax Categories and Basis for Tax Calculations
5. Consider Future Debt Issuance/Bonds
6. Consider Review Project Planning and Permitting Processes
7. Consider Special Assessment Districts
8. Consider Public-Private Partnerships
9. Consider Parking Revenue Recapture
10. Consider Recouping Development Costs Associated with Impacts on Public Infrastructure and Services
The Committee Chair also recommends establishing a future committee to review project selection, project review and the expenditure process.
Jeff S. Muir
Director of Finance
Howard S. Fisher
City Treasurer
Approved By Approved By