STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of July 12, 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: Resolution Calling and Giving Notice of the Holding of an Election on November 8, 2022, for Voter Consideration of a Ballot Measure to Amend Title 8, Chapter 8 of the Hercules Municipal Code to Extend the Utility Users Tax at the Current Rate of 8% (that is, with NO increase in the existing, voter-approved rate) Until Ended by the Voters or Repealed by the City Council; Ordering the Submittal of the Ordinance to the Voters at the Election; Requesting that the Contra Costa County Board of Supervisors Consent to the Consolidation of this Election with the Statewide General Election to be Held on the Same Date; Directing the Registrar of Voters to Conduct the Election; and Providing for Submittal of Ballot Arguments and Rebuttals and Authorizing the Filing of an Impartial Analysis.
RECOMMENDED ACTION(S)
Conduct a public hearing, consider adoption of a resolution calling and giving notice of the holding of an election on November 8, 2022 and ordering submittal of the ordinance to the voters at the election, of a Ballot Measure to amend Title 8, Chapter 8 of the Hercules Municipal Code to extend the Utility Users Tax at the current rate of 8% until ended by the Voters or repealed by the City Council; requesting that the Contra Costa County Board of Supervisors consent to the consolidation of this election with the statewide General Election to be held on the same date; directing the Registrar of Voters to conduct the election; and providing for submittal of ballot arguments and rebuttals and authorizing the filing of an impartial analysis.
COUNCIL OPTIONS:
Conduct a public hearing and adopt the Resolution placing the extension of the UUT on the November 8, 2022 election ballot; or Conduct a public hearing, reject the Resolution, and provide Staff with direction.
BACKGROUND
The City Council has engaged in a series of discussions at regularly agendized council meetings regarding the potential for placing two tax measures on the November 8, 2022 ballot for voter approval. The first measure would be an extension of the existing Utility Users Tax (UUT), which if not extended 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), which would necessitate becoming a charter city.
At the second public hearing for the Charter/RPTT measure held on June 14, 2022, the Council directed that staff present for Council action the necessary documents required to place on the November 8, 2022 ballot both the UUT extension and Charter/RPTT tax measures. This Staff Report relates to the potential UUT measure; a separate report to Council has been agendized for tonight’s meeting regarding a potential Charter/RPTT ballot measure, to be presented following this item.
DISCUSSION
The City of Hercules enacted a Utility Users Tax (UUT) in 2004. The UUT was originally a 6% tax on utility services including but not limited to telephone, electricity, gas, water, cable and video. A UUT is a local funding measure commonly applied by California cities and counties on the consumption of utility services, as a local source of funding for services communities rely on. The existing UUT is a general tax, meaning that it can be used for a variety of municipal services at the direction of the City Council. As a general tax, it requires simple majority approval by Hercules voters. A UUT is applied across a wide base of taxpayers, including property owners, renters, and businesses. It is a tax that is applied locally, and controlled at the local level, and cannot be taken by Sacramento. It is based on consumption; taxpayers pay based on their usage of the utility services covered under the UUT. The UUT is a stable revenue source that maintains a dependable local revenue stream. The tax is collected by the utility provider and remitted to the City. The UUT is set to expire January 1, 2025.
Pursuant to a June 4, 2013 special election, in order to assist the City in maintaining long term fiscal stability with adequate reserves, Hercules voters approved a 2% increase to the original 6% UUT, for a total UUT of 8%. As with the original UUT, the 2% increase expires on January 1st of 2025.
According to Finance Director Gato, the City receives annually approximately $3.6 million in revenue from the UUT. This comprises 20 percent of the City’s current budget. The UUT is vital to maintaining current levels of staffing and City services; if the UUT is not extended, significant and drastic cuts to the City’s budget would be required, which would impact staffing and the City’s ability to provide the level of services expected by residents.
The City has been advised by its longstanding revenue sustainability professional, The Lew Edwards Group (LEG) that a No Tax Increase UUT Renewal measure is viable, but only if it appears on the ballot itself, with NO other local revenue-related measure.
Through LEG subcontractor FM3 Research, the City’s longstanding public opinion research professional, two surveys were conducted this year to test the viability of the UUT Renewal Measure. The first survey was conducted on January 3-17 of this year. In that study, the viability of the measure was at 66% for a simple majority renewal on the third ballot test for the sole placement of this measure only, on the ballot.
The second survey was conducted May 28th – June 5th of this year. Viability of the UUT Renewal dropped a full 13 points, to 53% on the last ballot test, a 13 point erosion. LEG has advised the City of its professional judgment that the existence of a potential Charter/RPTT Measure clearly affected the viability of the UUT. Under those circumstances the UUT Renewal no longer meets LEG’s criteria as being viable, as it is within—not above—the margin of error. Therefore, LEG’s recommendation of proceeding with the UUT Renewal as a viable measure is wholly contingent on no other revenue measures sponsored by the City being on the ballot simultaneous to that one.
Below are two slides from each of the two public presentations to the City Council earlier in the year and on June 14, 2022, by Curtis Below of FM3 Research. These slides show the difference between a sole test of the UUT Renewal as a stand-alone measure, and as tested when appearing on the ballot as one of two measures.
UUT Renewal Viability As a Stand-Alone Measure: Vote Progression UUT Renewal Viability As a Measure in Conjunction with Charter/RPTT: Within MOE Following the June 14th presentation, the City Council directed Staff to prepare a ballot measure that would extend the existing UUT at the current rate (no tax increase), until ended by the voters (or repealed by Council pursuant to existing municipal code provisions). The City Council directed Staff to return with the necessary actions to place a UUT extension measure on the ballot for the November 8, 2022 General Election. This report and agenda item implement Council’s directive. In order to place a proposed UUT No Tax Increase Extension Ordinance on the ballot for the November 8, 2022 election, Staff has prepared the attached Resolution that does the following:
Calling and giving notice of the holding of an election on Tuesday, November 8, 2022, to consider the extension of the existing Utility Users Tax; Ordering the submittal of a measure extending the Utility Users Tax to the Voters at the Election; Approving an Amended Ordinance extending the Utility Users Tax for submission to the Voters; Requesting that the Contra Costa County Board of Supervisors Consent to the Consolidation of this Election with the Statewide General Election to be held on the same date; and Directing the Registrar of Voters to conduct the election.
BALLOT QUESTION
The State Elections Code requires the ballot measure to be printed in the ballot pamphlet in the form of a “yes or no” ballot question of no more than 75 words. The ballot question must include a true and impartial statement of the nature of the ballot measure. The ballot question for City Council consideration is as follows:
CITY OF HERCULES NO TAX INCREASE/ FINANCIAL STABILITY MEASURE. Shall an ordinance to maintain Hercules’ financial stability and essential services, such as neighborhood police patrols; meeting local water quality health standards; retaining/ attracting local businesses, and other general community services, by renewing a voter-approved 8% utility users’ tax, generating approximately $3,600,000 annually until ended by voters or repealed by the City Council, with no tax increase, low-income exemptions, independent citizens’ oversight, annual audits, and funding that cannot be taken by Sacramento, be adopted? Additional election details addressed by the proposed Resolution direct the preparation of the ballot impartial analysis, arguments and rebuttals:
Impartial Analysis: The State Elections Code provides for the City Council to direct the City Attorney to prepare an impartial analysis of no more than 500 words, showing the effect of the measure on existing law. This analysis must be submitted to the City Clerk by August 19, 2022.
Ballot Arguments: The State Elections Code allows the City Council to determine its interest in authoring an argument in favor of the ballot measure. Arguments of no more than 300 words each for and against the ballot measure can then be included in the Voter Sample Ballot. The primary arguments for and against the measure must be submitted by August 24, 2022. Further, the Resolution would enable the Mayor to submit the written argument in favor of the proposed measure, and the argument may also be signed by members of the City Council or bona fide associations or by individual voters who are eligible to vote on the Measure.
Ballot Rebuttals: In the event that an argument against the Measure is filed, the Resolution would authorize the Mayor to submit a rebuttal argument on behalf of the City Council, which may be signed by members of the City Council or bona fide associations or by individual voters who are eligible to vote on the measure. The deadline for the submittal of rebuttal arguments is August 29, 2022.
Pursuant to Hercules Municipal Code Sec. 8-8.408 and consistent with California Government Code Section 53724(b), the decision to place a measure on the November 8th ballot to continue the UUT beyond the sunset date of January 1, 2025 requires the affirmative vote of 2/3 of the Council. Meeting the 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 UUT continuation measure on the ballot.
According to City Clerk Lauren Berges, Hercules Election costs have been estimated by the County to be between $33,950 and $55,169. This range covers the two seats for council and the potential for up to 3 measures.
CONCLUSION
The proposal to extend the UUT beyond the January 1, 2025 expiration date does not increase the current 8% rate as previously adopted by Hercules voters. Eliminating the sunset provision would mean the UUT would remain in place at the existing, voter-approved 8% rate until ended by voters in the future, or repealed by the City Council, and could not be increased by Council without voter approval. The draft ordinance that is Exhibit A to the attached draft resolution removes the sunset provision and also removes language regarding the Finance Commission’s role in recommending whether the temporary 2% increase continues; this particular task would not be required if the sunset provision is eliminated.
Attachments:
Draft Resolution calling an election on November 8, 2022, for a ballot measure to extend the UUT at the current 8% rate, and a draft Ordinance amending the Hercules Municipal Code Title 8, Chapter 8 to extend the 8% UUT rate until ended by voters.