STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of June 14, 2022
TO: Mayor Bailey and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Patrick Tang, City Attorney
Ben Fay, Special Counsel
SUBJECT: Second Public Hearing Regarding a Possible Charter City Measure Recommended Action
Staff recommends that the City Council hold the second of two required public hearings regarding a proposed charter for the City of Hercules, which if authorized by the Council, would be placed on the ballot for the November 8, 2022, general election.
Background
The City Council has engaged in a series of discussions at regularly agendized council meetings regarding placing two potential tax measures on the November 8, 2022 ballot for voter approval. The first measure would be a renewal of the existing Utility Users Tax (UUT), which if not renewed by an affirmative vote of a majority of voters, will expire January 1, 2025. The second measure would be an increase in the Real Property Transfer Tax (RPTT). The Council has directed that staff continue to explore both the UUT and Charter City/RPTT options for possible placement on the November 8, 2022 ballot.
The RPTT. Hercules is a general law city, and only charter cities can impose RPTT, with voter approval, beyond the statutorily mandated amount for general law cities. In order for the City to seek voter approval for an adjustment to the RPTT, a ballot measure to become a charter city must be approved by the voters at a general election. Prior reports discussing the charter city/RPTT option are provided as attachments to this report.
The process for placing the UUT continuation measure on the ballot and the process for placing the Charter City/RPTT measure on the ballot are different; in order to place a charter city measure on the ballot, among other requirements two public hearings must be convened. This is the second of the required two public hearings for the Charter City/RPTT measure.
Discussion
Cities in California are organized as either general law cities or charter cities. The City of Hercules is a general law city. Cities are general law cities by default but may go through a process to become charter cities. A general law city has the authority to exercise its police powers to act locally, but its acts must be consistent with all general laws adopted by the State Legislature. In contrast, a charter city may use its “home rule” authority to adopt local laws regarding “municipal affairs” that vary from, and even conflict with, state laws that apply to general law cities. “Municipal affairs,” over which charter cities have independent authority and are not bound by the general laws, include the structure of a city’s government, aspects of contracting, and municipal revenues. One charter city power in particular is the ability, with voter approval, to impose a higher Real Property Transfer Tax (“RPTT”) than that mandated by state law. An RPTT (also called a Documentary Transfer Tax) is a tax imposed on the transfer of real property in the City. The tax is only collected by the county when a change of ownership is recorded, and the county remits the tax to the City. The tax is imposed as a percentage of the value of the real property being transferred. Under the Revenue and Taxation Code, the maximum rate at which a general law city can impose an RPTT is 0.055%; charter cities, however, are not so restricted, and many charter cities have adopted higher RPTTs under their charter authority. These include Alameda (1.2%), Albany (1.5%), Berkeley (1.5% to 2.5% depending on the value of the property), El Cerrito (1.2%), Emeryville (1.2%), Oakland ($1.5% to 2.5% depending on the value of the property), Piedmont (1.3%), Richmond (0.7%), and San Leandro (1.1%). See prior staff reports containing additional information regarding which cities have opted to become charter cities, and the amount of RPTT these charter cities are collecting, attached to this report.
There have been several examples in recent years of general law cities seeking to become charter cities in order to increase the RPTT. For example, in 2014, the City of Emeryville adopted a charter partly in order to increase its RPTT. In fact, it limited its charter authority to municipal revenues, specifically taxation and assessments, and the increase of the RPTT in particular.
The City of Emeryville charter has previously been presented to Council by staff as an example of a Bay Area city that has received voter approval to become a charter city, and can be found in the documents attached to this report. Emeryville’s charter is limited to municipal revenues, with a particular focus on increasing the City’s RPTT. If the decision is made to place a charter city matter on the ballot for November 8, 2022, an ordinance would also be placed on the ballot that if approved by the voters, would increase the RPTT by the amount specified by the City Council. The charter measure and the RPTT ordinance could be placed separately on the ballot, as Emeryville did, or they could be combined into one ballot measure, as El Cerrito did.
Charter City Timeline: A city can only adopt a charter with the approval of a majority of the electorate. In order to put a proposed charter on the ballot, the City Council must first hold two public hearings on the proposed charter. There must be at least 30 days between the two public hearings, and at least one of the hearings must be held outside regular business hours. The Council cannot vote on whether to submit the charter to the voters until at least 21 days after the second hearing, and the decision to put the charter on the ballot must be made at least 88 days before the election.
Next Steps:
After this second of two required public hearings is completed, the Charter City/RPTT proposal will come back to Council in July for a decision whether to proceed with placing the matter on the ballot, and if so, what the RPTT rate would be. A simple majority vote in the affirmative of the Council is required to place a Charter measure on the ballot. However, an increase to the RPTT would adjust the current RPTT tax rate, and pursuant to California Government Code Section 53724(b), placing such a tax measure on the ballot requires 2/3 approval by Council. Meeting the statutory 2/3 vote requirement on a five-member council means that four of five council members would have to vote in the affirmative to place the RPTT tax measure on the ballot.
Conclusion
Should the Council direct that staff continue to explore the charter city option, it is recommended by staff that the decision and vote on whether to place the matter on the November 8th, 2022 ballot occurs at one of the regularly scheduled council meetings in July.
Attachment 1: Staff Report from the May 10, 2022 Council meeting, with attachments 2