City of Gonzales
CITY ATTORNEY
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: August 1, 2022
FROM: Michael Rodriquez, City Attorney
THROUGH: Carmen Gil, Interim City Manager
SUBJECT: Resolution No. 2022-58 Submitting to the Voters a Measure Extending the City’s
1.0% Transactions and Use Tax through 2064
RECOMMENDATION
It is recommended that your Council consider adopting Resolution No. 2022-58, A Resolution of the City Council of the City of Gonzales Submitting to the Voters at the General Municipal Election to be Consolidated with the Statewide General Election Held on Tuesday, November 8, 2022, a Measure Extending the Term of the City’s Transactions and Use Tax Through 2064 with Continued Use of Tax Revenue Annual Audits by an Independent Auditor and Community Review by Citizens’ Advisory Committees.
BACKGROUND
In response to the need for additional revenues, in 2014 the City’s voters adopted Measure K, imposing a Temporary Transactions and Use Tax, known as the “Gonzales Quality of Life Temporary Tax Measure,” in the amount of one-half percent (0.5%) on retail sales or consumption of tangible personal property within the City. The Transactions and Use Tax (“TUT”) was increased by one-half percent (0.5%), for a new total TUT of 1.0% in 2020 when the City’s voters adopted Measure X. Use of 1.0% TUT revenues, which are collected by the California Department of Tax and Fee Administration, are subject to annual audit and reporting by an independent auditor, as well as oversight and use recommendations from the City’s Measure K and Measure X Temporary Transactions and Use Tax Advisory Committees, comprised of appointed members of the community. The Committees make annual recommendations on the use of the TUT revenue, which must thereafter be approved by the City Council. Measure K and Measure X funds are kept in separate accounts, with each account being allocated 0.5% of all tax revenue collected.
The tax revenues, which are general taxes, are restricted to use exclusively by the City of Gonzales and its residents and cannot be taken by the state for other purposes. It has been estimated that the Gonzales
1.0% TUT will generate approximately $1,500,000 in tax revenues in Fiscal Year 2022-2023.
AGENDA
ITEM
10 Since the establishment of the TUT, the City has worked very hard to meet all the requirements and expectations set forth by the voters. The Measure K and Measure X Advisory Committees have been very engaged, proactive and have effectively represented the community. To date, all the projects and programs recommendations by the Advisory Committees 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
• Tot Lot at Centennial Park
• Improvements to the Skate Park
• Resurfacing of the Tennis Courts (split with the GUSD) • Gonzales Day Camp
• Limited Community Center Complex Project Financing
• 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
There should be no dispute that the TUT revenues are vital to the City’s ongoing financial stability and the Community’s well-being. It is worth noting that the City’s financial status continues to be adversely impacted by the COVID-19 Pandemic, which commenced in March of 2020, as well as the recent war between Russia and Ukraine. The war in particular has had a significant impact on both the cost and availability of a variety of goods and services, with a resulting increase in the City’s operational expenses and project costs. The duration of these impacts is unknown at this time.
Notwithstanding the City’s prudent use of the TUT, as well as efforts to expend City revenues in a fiscally responsible manner, a number of critical projects and areas of operation in the City remain underfunded or unfunded. For example, based on substantial input from the Community, the City Council has determined that the development, construction and funding of a multi-purpose Community Center Complex Project is paramount to the “Quality of Life” in Gonzales and will provide facilities necessary to accommodate and enhance a wide variety of activities and services, including but not limited to senior programs, community meetings, health, education, and recreational services, community gatherings and festivals, youth services and programs, child care, and arts and theatre activities. With a current cost estimate of $42.8 million dollars, despite the City’s best efforts to assemble a variety of available funding sources, including a portion of TUT revenues, the Community Center Project’s costs exceed funding, thus creating a significant project cost deficit.
In light of the funding deficit for the desired Community Center Complex Project, on May 31, 2022, the Council adopted Resolution 2022-31 calling for an all-mail ballot election for the City’s electorate to consider adoption of a special one-half percent (0.5%) increase to the City’s Transactions and Use Tax. (The Tax Measure has been designated as Measure D.) The new 0.5% tax would be a special tax, requiring a two-thirds vote for approval, with use of the tax revenues restricted initially to financing and funding the Community Center, and only upon the completion of such funding, to be used for street maintenance and repair. The term of the special tax has been proposed for forty years, a period deemed necessary for project financing, or until 2064. Since the special all-mail election is not scheduled until August 30, 2022, it is uncertain whether Measure D will be passed by the City’s voters and whether this new funding source for the Community Center Complex Project will be available.
REVIEW & ANALYSIS
Attached for your consideration and approval is Resolution 2022-58, with the accompanying:
Ordinance of the Voters of the City of Gonzales Approving An Amendment to Gonzales City Code Chapter 3.29 Extending the Term of the City’s Temporary General Transactions and Use Tax, Known as the “Gonzales Quality of Life Temporary Tax Measure,” Through 2064, With Continued Use of Tax Revenue Annual Audits by an Independent Auditor and Community Review by Citizen’s Advisory Committees.
How does Gonzales Tax Rate Compare to Other Cities?
In considering the proposed TUT extension, 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.
Tax Rate Comparison by City/County
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 the circumstances during the 2014 and 2020 elections, the simple fact of the matter is that Gonzales community members, when shopping outside the City or online, are already paying a higher sales tax rate. Even if the afore-referenced Measure D is passed, a 0.5% increase in the TUT would bring the City’s TUT on par with that in neighboring cities. As such, extension of the current TUT should continue to have no or minimal impact on local buying habits.
Purpose of the Proposed Tax Extension
It is important to note that the City’s existing 1.0% TUT is a general tax, meaning that the tax revenues can be used for a variety of purposes. When Measure K was adopted in 2014, the City identified a variety of preferred uses of the tax revenues. When Measure X was adopted in 2020, the City identified that based on significant community interest and support, the construction of Community Center Complex Project was a priority use for the increased tax revenues. (Funding for streets and roads was also identified as a priority use for said funds.) While general tax funds are always open to use for any purpose for which other City revenues may be used, the priorities referenced above-provide guidance to both the Tax Measure Advisory Committees and the City Council.
Staff believes that in order to enhance the City’s financial flexibility, and to ensure that the City’s ability to maintain essential governmental services and core programs and move forward with desired projects is not adversely impacted when the existing 1.0% TUT sunsets in 2044, the City Council should consider the extension of the term of the 1.0% TUT from 2044 to 2064, the same date that the proposed Measure D Tax will expire. When paired with Measure D Special Tax Funds, the City will have a reliable source of tax revenue for desired services, programs and projects, including but not limited to providing financial support and security for the Community Center Complex Project. Even if Measure D is not passed by the voters, extension of the term of the City’s 1.0% TUT will provide the City with a significant source of long-term tax revenues that can be used for identified City priorities, including the Community Center.
Without the proposed 20-year extension of the TUT, financing for City projects and programs will be challenging. It is estimated that in Fiscal Year 2022-2023, the City’s TUT would generate approximately $1,500,000.
Resolution 2022-58 contains the legal provisions necessary to place the proposed measure on the ballot of the upcoming November 8, 2022 General Election. Specifically:
• It presents a question that if approved by the voters will extend the term of the City’s existing
1.0% TUT by twenty years, from 2044 through 2064; and
• It specifies that it does not change the current requirement that all TUT revenues will continue to be subject to annual audit and oversight of community based committees; and • Calls for the election and the placement of this measure on the ballot.
Based on all of the forgoing, Staff is recommending that the City Council adopt Resolution No. 2022-58 in order to extend the term of a source of needed tax revenue that has and will continue to be used in a prudent manner for City services, programs, and projects.
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 TUT extension be passed, it would provide a continued source of funding to meet existing Council and Community priorities, like the construction of a Community Center Complex, which would provide resources for the 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:
• Modify, delete and/or add to the language on the proposed resolution or ordinance; or • Delay consideration of the proposed TUT extension for a subsequent general election before the TUT’s expiration in 2044.
BUDGET IMPACT
If approved this evening, the proposed TUT extension measure will be consolidated with the general election being conducted on November 8, 2022. The City pays all costs incurred by the County Registrar of Voters to provide the services necessary to conduct the election, which in previous years have ranged from $5,000 to $25,000.
On the revenue side, the current estimate for TUT revenues in Fiscal Year 2022-2023 is approximately $1,500,000. While there is no guarantee that revenue in a like sum will be generated on annual basis thereafter, it appears that the TUT will continue to be a source of significant tax revenues throughout its term.
CONCLUSION
As directed by the Council, this item is being brought forward to discuss and if desired, to initiate appropriate action for placing a measure effectuating a 20 year extension to the term of the City’s current
1.0% TUT, through 2064, on the ballot for the upcoming General Municipal Election on November 8, 2022.
Attachments:
1. Resolution No. 2022-58
2. Ordinance No. 2022-134