DATE: April 20, 2022
TO: Council Budget and Finance Committee
FROM: Director of Finance
SUBJECT: City Tax Generating Revenue Review and Discussion
RECOMMENDATION
That the Committee receives this report on City tax revenues and provide direction to staff on consideration of potential future tax measures to explore for viability.
SUMMARY
This report provides an overview of the City’s tax generating revenues and final community satisfaction survey results associated with support of establishing a parcel tax and provides an opportunity for further discussion regarding the consideration of future tax measures.
BACKGROUND AND discussion
In October 2021, the Committee expressed a desire to continue discussions around a potential ballot measure to establish an annual parcel tax to support City services, including homelessness response. At the time, the City had received preliminary polling results from the Resident Satisfaction Survey, which indicated potential support for a ballot measure to establish an annual parcel tax. The Committee requested that staff return to the Committee in Spring 2022 to discuss the final results of the survey, and consideration of placing a tax measure on the 2024 ballot.
This report provides an overview of the City’s tax generating revenues as well as the final results of the Resident Satisfaction Survey associated with community support to establish a parcel tax. The intent of this report is to solicit feedback and engage the Committee in a discussion regarding the consideration of future tax measures.
Tax Generating Revenue:
The City of Hayward has several key tax generating revenue sources, including County, State, and Local taxes. These revenue streams make up a significant portion of the City’s annual revenue. The various general use taxes include Property Tax, Sales Tax, Utility User Tax (UUT), Real Property Transfer Tax (RPTT), Transit Occupancy Tax (TOT), Cannabis Tax, and Measure C Sales Tax. This report provides a brief overview of each tax generating revenue, including a summarized description of each tax, voter-approved ballot measures, sunset dates, and impacts on the overall revenues received by the City.
Property Tax is collected by Alameda County and remitted to the City through the fiscal year. Under the State constitution, Real Property Taxes (Property Tax) are applied to all taxable real and personal property and set at 1 percent of the assessed value. Factors that affect revenue generation from property tax include changes in assessed value and economic growth in the Bay Area.
Sales and Use Tax is the second largest source of General Fund revenue. Sales tax is an excise tax imposed on retailers for the privilege of selling or leasing tangible personal property. The Use Tax is an excise tax imposed for the storage, use, or other consumption of tangible personal property purchased from any retailer. The proceeds of sales and use taxes imposed within the boundaries of Hayward are collected and distributed by the State to various agencies, with the City of Hayward receiving the equivalent of 1 percent of the amount collected. While Alameda County has the highest sales tax rate in the State at 10.25 percent, the second highest sales tax rate is Los Angeles County, which is 0.75 percent lower than Alameda County.
Sales Tax – Measure C is a local half-cent sales tax. In June 2014, the voters of the City of Hayward passed Measure C, which increased the City’s Transaction and Use Tax (Sales Tax) by half a percent for twenty years. When the measure was placed on the ballot in 2014, the Council adopted an accompanying advisory resolution specifying how the Measure C tax proceeds would be utilized to demonstrate commitment to key community priorities. These items included: debt service for the new library and community learning center, fire station remodels, and the new fire training center; additional staffing in Police and Maintenance; and significant street paving efforts.
Utility Users Tax (UUT) is the third largest source of General Fund revenue. Measure D was a voter approved measure (originally approved in 2009 and renewed in 2016 for 20 years) that imposed a 5.5 percent UUT on electric, gas, cable services, and telecommunication services. This tax is not applicable to State, County, or City agencies, or to insurance companies and banks. Factors that impact this revenue source include consumption/use, regulatory actions, PUC rate changes, market indicators, evolution of technology and state and/or federal legislative action.
Real Property Transfer Tax (RPTT) is a tax that is associated with the sale of real property. In November 2018, Hayward voters passed Measure T, which increased the City’s RPTT from $4.50 to $8.50 per $1,000 valuation of the value of consideration paid for the documented sale of real property or any transfer of interest in real property. This tax is collected and recorded by Alameda County, and remitted to the City throughout the fiscal year. RPTT is tied directly to all real property sales, which makes this revenue source more volatile and difficult to predict trending year over year.
Transit Occupancy Tax (TOT) is a general tax, often referred to as a hotel tax where each transient is subject to pay a tax percentage of the rent charged by the hotel operator. In November 2020, Hayward voters passed Measure NN, which increase the TOT rate from 8.5 percent to up to 14% of the rent charged by the hotel operator. The Council has not approved an increase to the TOT yet under this new authority as the hotel industry continues to recover from COVID.
Cannabis Tax is a general tax on the sale of adult use of recreational and medical cannabis. In November 2016, Hayward voters passed Measure EE, which authorized the City to enact an ordinance imposing a cannabis tax not to exceed 15%. The tax imposed applies to the cultivation, distribution, manufacturing, business-to-business, as well as retail sales. Currently, the City Council has authorized a tax of 7% on cannabis businesses in Hayward.
Over the years, the City has taken various tax ballot measures to its Hayward-voters, and has received support for tax measures that provide community support and programmatic services to the Hayward community. Table 1 provides an overview of City taxes that have been passed by Hayward voters, with two of the top City revenue sources (UUT and Measure C) having defined sunset dates.
Table 1: Voter Approved Tax Ballot Measures
City Tax
Voter-Approved Ballot Measures
Sunset Date
Sales Tax (1/2 Cent)
Measure C
December 2034
Utility User Tax (UUT)
Measure D
June 2039
Real Property Transfer Tax (RPTT)
Measure T
N/A
Cannabis Tax
Measure EE
N/A
Transient Occupancy Tax (TOT)
Measure NN
N/A
Table 2 below provides a summary of each tax generating revenue over the last three fiscal years.
Table 2: Three-Year Actuals of Tax Generating Revenue (All Funds) Tax Revenues
FY 2019
Actuals
FY 2020
Actuals
FY 2021
Actuals
Property Tax
$54,467,978
$58,431,803
$61,196,409
Sales & Use Tax (General Fund)
$36,010,642
$39,679,957
$40,074,819
Sales & Use Tax (Measure C)
$16,906,773
$16,886,500
$18,577,214
Utility Users Tax (UUT)
$16,935,327
$16,065,943
$17,267,592
Real Property Transfer Tax (RPTT)
$12,256,155
$12,150,286
$17,120,032
Transient Occupancy Tax (TOT)
$2,822,564
$2,186,927
$1,552,148
Cannabis Tax
$0
$2,985
$441,877
Community Polling of Parcel Tax Ballot Measure:
In Fall 2021, the City conducted the Resident Satisfaction Survey, which included polling questions surrounding the potential support of a tax measure that would establish a parcel tax. The survey was conducted in October 2021 by FM3 Research. The results of the survey indicated that the majority of Hayward-voters support a parcel tax to fund homelessness and mental health response projects, programs, and services. The survey indicated that 59 percent support a $79 per year parcel tax, with 55 percent supporting a $109 per year parcel tax.
FISCAL IMPACT
There is no fiscal impact associated with this information report.
NEXT STEPS
With direction from the Committee, staff will work to advance efforts and facilitate a discussion to the full Council on viable potential tax measures for future ballots.
Prepared by: Nicole Gonzales, Deputy Director of Finance Recommended by: Dustin Claussen, Director of Finance
Approved by:
__________________________________
Kelly McAdoo, City Manager
2021-Resident-Satisfaction-Survey-Results.pdf (hayward-ca.gov)