City of Gonzales
CITY MANAGER DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: May 31, 2022
FROM: Rene Mendez, City Manager
SUBJECT: Resolution No. 2022-31 Submitting to the Voters a Measure Increasing the City's Temporary Transactions and Use Tax by One-Half Percent (0.5%)
RECOMMENDATION
It is recommended that your Council Conduct a public hearing on, and Consider Adopting Resolution No. 2022-31, A Resolution of the City Council of the City of Gonzales Proposing to Adopt a Special Tax Increasing the City’s Transactions and Use Tax (Sales Tax) by One-Half Percent (0.5%), Calling for a Special Mailed Ballot Election to be held on August 30, 2022, Ordering that a Question Relating to the Levy of a Special Tax be Submitted to the Qualified Voters at the Special Mailed Ballot Election, Requesting that the Board of Supervisors of Monterey County Consent to the Consolidation of the Special Election with any other Election Conducted on said date and Requesting Election Services from the Monterey County Elections Department.
BACKGROUND
In 2014, your Council considered and placed on the ballot a One-Half Percent (0.5%) Transaction and Use Tax (TUT) measure, which was ultimately approved by the voters. In 2020, an additional One-Half Percent (0.5%) TUT measure was placed before the voters and also approved.
Since the passage of both tax measures, the City has worked very hard to meet all the requirements set forth by the voters, which staff is pleased to report have all been met. A prime example is the establishment of the Transaction and Use Tax Advisory Committee which, since its inception, has been very engaged, proactive, and effectively represented the community. To date, all the projects and programs recommendations by the Advisory Committee to the Council have been approved. Projects and/or programs have included:
• Funding the debt service for the renovation of the Community Pool • Youth Services and Leadership Development
• New restrooms at Central and Meyer Park
AGENDA
ITEM
3 • Tot Lot at Centennial Park
• Improvements to the Skate Park
• Resurfacing of the Tennis Courts (split with the GUSD) • Gonzales Day Camp
• A very successful Community Participation Grants Program • Expanded After School and Summer Youth Program
• Senior Programs
• Accessibility Improvements to the Council Chambers and City Hall • New Playground equipment at Meyer Park
• Internet for All
Similarly, since the passage of the Measure X One-Half Percent (0.5%) TUT, the established Advisory Subcommittee has recommended the use of a portion of those tax proceeds be applied to the pending Gonzales Community Center Complex Project (“Project”). The Project, which is the result of several years of planning and extensive public outreach and input, will include a library, Teen Innovation Center, standalone gymnasium, outdoor venues, and a 3,500 square foot Community Hall to host fitness and recreation classes, competitive sports events and public and private functions. However, while the use of Measure X revenues will represent a significant source of funding, unfortunately it cannot support nor fully fund the Project. This Project was going to be challenging enough, but with the impacts of the pandemic as well as the current war between Russia and Ukraine, anticipated costs have increased considerably to the point that they are significantly outpacing the available funding sources for the Project.
Costs are estimated at $34.8 million for the base project and an additional $8 million for the standalone gymnasium for a total project budget of $42.8 million. Attachment A illustrates the benefit of a dedicated one-half percent (0.5%) TUT. Without the new dedicated funding source based on the current cost estimates the shortfall ranges from $4.1 million to $29 million, which assumes that the capital campaign and all the grants being pursued would be successful. As a result, based on the reality of an existing shortfall, staff was directed on April 4, 2022, to bring back the resolution and ordinance to consider putting forward a new dedicated special One-Half Percent (0.5%) Transaction and Use Tax (TUT) measure to before the electorate.
How does Gonzales Tax Rate Compare to Other Cities?
It is important to understand and realize that Gonzales’s current sales tax rate is the second lowest in the County of Monterey.
The following table compares existing local tax rates from surrounding communities.
City/County Tax Rate %
Greenfield 9.50%
Salinas 9.25
Seaside 9.25
Marina 9.25
Del Rey Oaks 9.25
Soledad 9.25
Sand City 9.25
Monterey 9.25
Carmel-by-the-Sea 9.25
King City 8.75
Gonzales 8.75
Monterey County (unincorporated area) 7.75
** Going out a little bit further, the sales tax rate in Morgan Hill is 9.00%, and San Jose, Watsonville, and Santa Cruz are all 9.25%
Similar to 2014 and 2020 elections, the simple fact of the matter is that our community, when shopping outside the City or online, is paying a higher sales tax rate already so a one-half percent (0.5%) increase would have minimal impact and likely not significantly impact buying habits.
Furthermore, because all of the communities around us have higher Transaction and Use Tax rates, when large purchases are made outside the City (i.e., automobiles, internet purchases, etc.), the City is losing tax revenue as a result of not having a comparable TUT. This is because while the base Sales & Use Tax (commonly known as the Bradley-Burns) is generally allocated to the jurisdiction where the sale is negotiated or the order is taken, the transactions and use tax is allocated to the district/jurisdiction where the goods are delivered or placed into use.
REVIEW & ANALYSIS
Attached for your consideration and approval is Resolution No. 2022-31, with the accompanying:
Ordinance of the Voters of the City of Gonzales Imposing a Temporary Special Transactions and Use Tax, Known as the “Gonzales Community Center Temporary Tax Measure,” to be administered by the California Department of Tax and Fee Administration and Restricting the Use of Tax Revenues to Gonzales Community Center Financing and Funding and Street Maintenance and Repair subject to Annual Audits and Annual Public Expenditure Reports.
General Purpose or Special Tax Differences
Staff was provided direction to bring back a “Special Tax” to your Council for consideration instead of the prior two TUT measures that are “General-Purpose” taxes. There are two fundamental differences between special and general taxes. One difference is that a General-Purpose Tax only requires a 50%+1 voter result to pass when compared to Special Tax, which requires a 2/3rd (66%+) voter result for adoption. The second difference is that a General-Purpose tax can be used for many general purposes approved and directed by the City Council, while a Special Tax is tied to specific purpose(s). In this case, the proposed special TUT would be used only for financing and funding the Project, and once the Project was fully funded, all remaining tax revenues would be dedicated exclusively to street maintenance and repair.
Additionally, due to the urgency of this matter, staff recommended and the Council directed that the proposed Ordinance by considered at a special all-mail ballot election. Resolution No. 2022-31 reflects the legal language necessary to set a special mail only ballot election on August 30, 2022, and also:
• Sets the Community Center Complex as the priority project for the use of the funds with street maintenance and repair as the second priority for any remining funds. • Increases the existing TUT an additional one-half percent (0.5%), which would raise bring the City’s total sales tax rate to 9.25%, bringing us in line with every city in Monterey County • Based on the fact that all the surrounding communities already have a high sales tax rate, it finds that the proposed increase in sales tax will not create a significant financial burden; • It establishes a term of the Special Tax for forty (40) years, which is the best estimate of the time that may be required for financing the costs of the Community Center Project.
A public hearing was duly notice for this evening’s consideration of Resolution No. 2022-31 and proposed Ordinance No. 2022-132.
Explain Recommendation and How it Supports the Vision
Gonzales will continue to be a safe, clean, family-friendly community, diverse in its heritage, and committed to working collaboratively to preserve and retain its small-town charm.
Explain: Should the proposed on-half percent (0.5%) increase in the dedicated Special Tax pass, it would provide the additional funding needed for the Community Center Complex, which would provide the opportunities, activities, programs, etc., needed by our community that would maintain and enhance the Quality-of-Life.
Explain how the Recommendation Directly Implements the Mission The City Council and Staff of the City of Gonzales will realize our Vision by providing the leadership, commitment, and resources necessary to provide excellent services that enhance the quality of life of our diverse community. X Yes ___No ___ NA
Explain: Please see above.
Strong fiscal policies allow us to provide appropriate infrastructure for:
• Public Safety X Yes ____No __NA
• Housing X Yes ____No NA
• Recreation X Yes ____No NA
• Environment X Yes ____No __NA
• Education X Yes ____No NA
Explain: Please see above.
ALTERNATIVES
Your Council has the following alternatives: (a) do not call for the special mail-only ballot election and instead direct staff to bring this back as part of the November 2022 General Election; or (b) simply do not call for the election.
BUDGET IMPACT
Should your Council decide to set the special mail-only ballot election, costs for the election would likely range around $50,000.
On the revenue side, passage of the special tax would generate approximately $750,000 annually to start.
CONCLUSION
It is recommended that your Council Conduct a public hearing on, and Consider Adopting Resolution No. 2022-31, A Resolution of the City Council of the City of Gonzales Proposing to Adopt a Special Tax Increasing the City’s Transactions and Use Tax (Sales Tax) by One-Half Percent (0.5%), Calling for a Special Mailed Ballot Election to be held on August 30, 2022, Ordering that a Question Relating to the Levy of a Special Tax be Submitted to the Qualified Voters at the Special Mailed Ballot Election, Requesting that the Board of Supervisors of Monterey County Consent to the Consolidation of the Special Election with any other Election Conducted on said date and Requesting Election Services from the Monterey County Elections Department.
Attachments:
1. Public Notice
2. Table TUT Increase
3. Resolution No. 2022-31
4. Ordinance No. 2022-132