City of Gonzales
CITY MANAGER DEPARTMENT
STAFF REPORT
TO: Honorable Mayor Rios and City Council
DATE: August 5, 2024
FROM: Carmen Gil, City Manager
THROUGH: Carmen Gil, City Manager
SUBJECT: Resolution No. 2024-52, a Resolution Submitting to the Voters at the General Municipal Election to be Consolidated with the Statewide General Election Held on Tuesday, November 5, 2024, a Measure Increasing the City’s Transactions and Use Tax by One-Half Percent (0.5%) with the Use of the Tax Revenue to be Subject to Annual Audits by an Independent Auditor and a Citizen’s Oversight Committee
RECOMMENDATION
It is recommended that the City Council consider adoption of Resolution No. 2024-52, 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 5, 2024, A Measure Increasing the City’s Transactions and Use Tax by One-Half Percent (0.5%) with the Use of the Tax Revenue to be Subject to Annual Audits by an Independent Auditor and a Citizen’s Oversight Committee.
BACKGROUND
Over the last decade, stagnant growth has produced little to no revenue resulting in a disequilibrium between operating costs and revenue. Although our budget has been balanced for the last few years, it is extremely tight with no room for mishaps or for projects that require upgrades. Maintenance of infrastructure has been deferred, worsening the conditions of roads, sidewalks, city parks and city facilities.
Voters in the City have previously approved two tax measures, Measure K and Measure X, (known collectively as the “Gonzales Quality of Life Temporary Tax Measure”) setting the City’s current Temporary Transactions and Use Tax (TUT), as codified in Chapter 3.29 in the Gonzales City Code, at one percent (1%). The 1% TUT, administered as Measure X but accounted for as two separate funds, Measure K and Measure X, each of which receives .5% of all Measure X tax proceeds and is overseen by AGENDA
ITEM
5 a separate oversight committee, has established a sales tax rate in Gonzales at 8.75%, still one of the lowest tax rates in Monterey County. Since the passage of both tax measures, the City has worked hard to meet all the requirements and expectations set forth by the voters. Assistance in this effort has been provided by the Measure K and Measure X Transaction and Use Tax Advisory Committees which continue to be engaged in representing the community’s preferred tax fund allocations.
Programs and services supported by Measure K include funding of the debt service for the renovation of the community pool, youth services and leadership development, the Community Action Grants Program, senior and adult programming and extended after school and summer camp programs. The Measure X Advisory Subcommittee has recommended, and the Council has approved that a majority of its 0.5% of the TUT tax proceeds be applied towards the Dennis and Janice Caprara Community Center Complex Project (“Project”) costs. Phase I of the long-awaited Project will include a library, Teen Innovation Center, a meeting room and an outdoor amphitheater. It has broken ground and is expected to be completed in December of 2025. The City anticipates that a significant portion of the Measure X funds will continue to be allocated to this Project. Measure X funds have also been used for the project design and construction to date.
Despite prudent spending, without significant additional revenue coming in, there are a number of essential infrastructure and maintenance needs that the City is unable to address in the current annual operating budget. These include the renovation of the Fire Station, which includes a new roof, restrooms and upgrades to the sleeping quarters. The City also needs to invest in new equipment for the Department in order to ensure that it can carry out its mission to provide effective fire protection services. Our public infrastructure is old and outdated; our City roads and streets are in desperate need of repairs. Additional funding would enable the City to address potholes and allow us to deal with uplifted sidewalk and tree problems with more permanent solutions. Similarly, deferred maintenance of City parks could also be addressed with additional revenues Finally, additional funds could be used to ensure that we can keep our current City programming and services active and provide citizens with more enrichment opportunities.
After considering the forgoing and weighing all possible funding and revenue options, the Council directed Staff at their meeting of March 20, 2024, to bring back a resolution and ordinance to consider putting forward a new general one-half percent (0.5%) Transaction and Use Tax (TUT) measure on the November 5, 2024 General Election Ballot.
It is important to understand and realize that Gonzales’s current sales tax rate is one of the lowest in Monterey County. When a purchase is made in any of the surrounding communities, Gonzales residents are already paying a higher tax rate.
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 and San Jose is 9.37%, and Watsonville and Santa Cruz are at 9.75%.
King City has approved a tax measure to be placed on the ballot in November of 2024 that will increase its TUT to 9.25%. Monterey County is also looking at putting a Sales Tax Measure on the November Ballot. Since Gonzales residents are already paying a higher tax rate every time they shop outside the City, staff believes that a one-half percent (0.5%) increase would have minimal if any significant impact on buying habits.
REVIEW & ANALYSIS
Attached for your consideration and approval is Resolution No. 2024-52, with the accompanying:
Ordinance of the Voters of the City of Gonzales Adding Chapter 3.30 to the Gonzales City Code Imposing a New General Transactions and Use Tax Measure to be administered by the State Board of Equalization and Tax Revenues to be Spent for City of Gonzales Services and Programs and Infrastructure, Subject to Annual Audits and Annual Public Expenditure Reports.
Pursuant to Council direction, staff has prepared a “General Purpose” tax measure similar to Measures K and X. This means that if adopted the funds will not be restricted or dedicated to any specific use.
Instead, the tax revenue funds will be used for general purposes approved and directed by the City Council with guidance from a citizen’s advisory committee. This arrangement provides the City with the greatest degree of flexibility to respond to funding needs as they arise in the City. Notwithstanding, Staff is recommending that initially there should be an emphasis on the use of the new tax proceeds for Fire Station and fire equipment needs, road, street and park maintenance projects and to maintain current service and programming. General-purpose taxes only require a majority vote (50%+1 voter) result to pass. Based on existing TUT revenue, it is estimated that the new tax would generate approximately $800,000 a year.
Resolution No. 2024-52 reflects the legal language necessary to set a measure on the ballot for the State General Election on November 5, 2024 that will increase the existing TUT by the addition of a new onehalf percent (0.5%) tax. This would set the City’s total sales tax rate to 9.25%, bringing us in line with almost every city in Monterey County. The tax would remain in place until extinguished by the voters.
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.
Revenues will grow as the City successfully improves the community and attracts new business and jobs.
It is important to adopt a means of catching new tax revenue before significant planned residential development takes place in the City. It is equally important to capture this revenue before it is taken by the State or some other County entity.
If passed, the sales tax would generate an additional ½ cent for every dollar spent. For a $50 dollar dinner at a restaurant, it would add 25 cents more to the cost of the dinner. For a $100 purchase, it would add 50 cents more to the purchase.
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 one-half percent (0.5%) tax increase pass, it would provide some of the funding needed to retrofit the Fire Station, purchase necessary equipment, maintain and enhance City parks, roads and streets and sustain current services and programs.
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 put the Measure on the Ballot in November, which is not recommended as existing revenue has not kept up with costs and City needs continue to rise. (b) Wait until a later date to put the Sales Tax Measure out for a vote.
BUDGET IMPACT
Putting the Ballot Measure on the General Election reduces the cost of the election for the City. The total cost of the election will be approximately $7-$10 per registered voter.
On the revenue side, if the Sales Tax was to pass by Gonzales voters it would initially generate approximately $800,000 annually.
CONCLUSION
It is recommended that the City Council consider adoption of Resolution No. 2024-52, 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 5, 2024, A Measure Increasing the City’s Transactions and Use Tax by One-Half Percent (0.5%) with the Use of the Tax Revenue to be Subject to Annual Audits by an Independent Auditor and a Citizen’s Oversight Committee.
Attachments:
1. Resolution No. 2024-52 with Exhibht A (Ordinance 2024-145)