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: Provide direction on November 8, 2022, City Charter Ballot Measure and associated Real Property Transfer Tax ACTION REQUESTED:
Conduct a public hearing, and take action pursuant to either Option 1 or Option 2 below:
Option 1:
Direct staff to prepare documents for submitting to the City of Hercules electorate a measure to approve a City Charter (Exhibit A to the resolution) and the proposed Real Property Transfer Tax (RPTT), which would become effective only if adopted by 50 percent plus one vote of the Hercules electorate. If approved by the voters, the City would be converted from a general law city to a charter city, and the Real Property Transfer Tax increase would be approved.
Decide on a Real Property Transfer Tax amount and approve an ordinance (Exhibit B to the resolution) authorizing a Real Property Transfer Tax.
Decide on the scope of charter language; to grant local charter authority with respect to municipal revenues including taxation and assessment, or to limit local charter authority to a specified increase to the Real Property Transfer Tax.
Request that the Contra Costa County Board of Supervisors consent to the consolidation of this election with the statewide general election to be held on November 8, 2022 and direct the registrar of Voters to provide all services necessary to conduct the election and print a measure on the ballot as described in the resolution.
Option 2:
Decline to direct staff to prepare a measure to approve a City Charter and proposed RPTT for the November 8, 2022, General Election.
BACKGROUND
On June 14, 2022, the City Council held the second of two required public hearings to take public comment and discuss a proposal for Hercules to become a charter city for the purpose of gaining local control over taxing authority, and specifically to allow for a voter-approved increase to the Real Property Transfer Tax (RPTT). Council conducted the required public hearing and directed that the matter be brought back for further discussion and possible action to place the matter on the ballot for the November 8, 2022 General Election. If the decision is made to place the Charter/RPTT measure on the ballot for November 8, the ballot materials must be submitted to the County by the first week in August 2022.
Currently in California, roughly one out of every four cities is a charter city. Local charter cities include Albany, Emeryville, Berkeley, El Cerrito, Richmond, Oakland, Alameda, Piedmont, San Francisco, San Leandro, and San Rafael.
A general law City such as Hercules has the authority to act locally but its acts must be consistent with the California Constitution, state statutes and state administrative regulations. A charter city has the additional authority to adopt laws regarding municipal affairs that differ from state statutes, but the charter must still be consistent with U.S. and California Constitutions.
Ultimately, the issue most frequently cited in discussions of whether to become a charter city is local control over municipal affairs pursuant to the concept of “home rule”:
• The home rule provision in the California Constitution allows cities to adopt a charter and ordinances that replace state laws in areas related to municipal affairs, subject only to the limitations within the charter, the U.S. Constitution, federal laws, the California Constitution, and state laws regarding matters of statewide concern. • The decision to become a charter city therefore turns on the question of which legislative body should make decisions regarding municipal affairs: The State Legislature or the City Council.
The Courts decide on a case-by-case basis what constitutes municipal affairs, which results in a concept that is fluid and changes over time. Areas that the courts have said constitute municipal affairs include:
• The form of city government.
• Procedural aspects of resolution and ordinance adoption. • Local elections, including qualifications for office and public funding of campaigns. • Some aspects of zoning and land use.
• The process of contracting for public works.
• Scope of authority related to taxes and assessments.
One of the more common reasons general law cities seek to become charter cities, and the reason the City of Hercules has been exploring becoming a charter city, is to provide local control over taxes and assessments, and in particular the ability to increase the Real Property Transfer Tax (RPTT). The RPTT cannot be increased by a general law city; only a charter city can have that authority. If the City became a charter city and enacted an RPTT higher than the current rate allowed for general law cities, the biggest impact for the City would be the revenue associated with the implementation of a RPTT; the RPTT would be a general tax that could be used for operations, capital, reserves, or debt service.
The decision to place a charter city measure on the ballot requires an affirmative vote of a simple majority of the Council but in this case, since the charter city proposal and the enhanced RPTT would be combined in a single measure, to be consistent with California Government Code Section 53724(b) requiring voter approval of a tax measure, placing the combined Charter/RPTT measure on the ballot would require the affirmative vote of 2/3 of the Council. Meeting the 2/3 affirmative vote requirement on a five-member council means that four of five council members would have to vote in the affirmative to place the proposed measure on the ballot.
MEASURE OVERVIEW
The ballot measure provided in the attachments to this report has the following key components:
New City Charter, maintaining the current municipal code.
Inclusion of a RPTT at a rate of $ [to be determined by Council] per $1,000 of cost.
Provides greater local control in municipal affairs and to maintain and/or increase the current level of services and facilities provided by the City.
Independent audits of revenues generated would be required as part of the City’s annual outside audit.
The Finance Commission would review the use of the funds as part of its annual budget review.
All revenues would be kept local.
The ballot question describes both the Charter and the RPTT and potential uses of funds to avoid confusion and ensure voters understand that approval of the Charter is also an approval of the RPTT.
ANALYSIS
In November of 2021, the City of Hercules commissioned the Lew Edwards Group (LEG) and FM3 Research (FM3) to conduct one or more surveys of local voters to determine support for two possible measures. The first would be an extension of the existing Utility Users Tax (UUT) beyond its current January 2025 expiration date (this is the topic of another public hearing scheduled for this evening).
The second would be to become a charter city for the limited purpose of enacting an increased Real Property Transfer Tax (RPTT).
LEG has advised the City that the Charter/RPTT Measure does not meet LEG’s criteria as being viable for placement on the November 2022 ballot, but that the City could certainly consider this measure for the November 2024 ballot. At the Council Meeting of June 14th, City Council received a presentation from Curtis Below of FM3 showing that the final ballot test of the .4% rate ($4 per $1,000 in value) and the 1.2% rate ($12 per $1,000 in value) garnered only 35% and 33% yes respectively—well below the simple majority threshold needed for passage, and concluding the Measure at either rate is not viable. On the following page is a slide graph showing the vote progression at both rates.
Charter/.4% and 1.2% rates only garner 35% and 33% yes, respectively and are not viable.
As described in the UUT Agenda Report, LEG has advised the City that the existence of the Charter/RPTT measure on the ballot simultaneously with the UUT affects the latter’s viability, such that the UUT would no longer meet LEG’s criteria for being viable.
NEXT STEPS
If the City were to decide to move forward with the Charter/RPTT proposal, the ordinance (Exhibit B to the resolution) would be subject to voter approval and contains the details of the RPTT collection. The proposed resolution would approve the ordinance as written and calls for the measure to be submitted to the voters of the City at an election to be consolidated with the City Council and a statewide election to be held on November 8, 2022. The proposed resolution also directs the City Attorney to prepare an impartial analysis and authorizes the Mayor to prepare an argument in favor of the measure.
It should be noted that if the proposed measure were placed on the ballot and approved by the voters, the city attorney recommends additional cleanup of related code provisions within the Hercules Municipal Code for clarity; these additional edits would not require voter approval since they would not change the amount or structure of the proposed tax.
STRATEGIC PLAN CONSIDERATIONS
Implementing a City Charter and a Real Property Transfer Tax serves to fulfill the Strategic Plan Goal of achieving long-term financial sustainability, including the following strategies:
• Continue to pursue and support opportunities for new funding, including outside grants and ballot measures • Develop a financial plan to address ongoing and deferred maintenance of facilities and infrastructure • Develop a plan to ensure that Citywide revenue meets the cost of providing Citywide services, including adequate reserves for unanticipated revenue shortfalls.
ENVIRONMENTAL CONSIDERATIONS
This proposed action is exempt from the California Environmental Quality Act (Public Resources Code §§ 21000 et seq., (“CEQA”) and 14 Cal. Code Reg. §§ 15000 et seq., (“CEQA Guidelines”)). The tax to be submitted to the voters is a general tax that can be used for any legitimate governmental purpose; it is not a commitment to any particular action. As such, under CEQA Guidelines section 15378(b)(4), the tax is not a project within the meaning of CEQA because it creates a government funding mechanism that does not involve any commitment to any specific project that may result in a potentially significant physical impact on the environment. If revenue from the tax were used for a purpose that would have such effect, the City would undertake the required CEQA review for that particular project at the earliest feasible time prior to approval of the project, consistent with CEQA Guidelines Sections 15004 and 15352. Therefore, pursuant to CEQA Guidelines section 15060 CEQA analysis is not required.
FINANCIAL CONSIDERATIONS
If the measure as presented is placed on the November 8, 2022, ballot and passed by the voters, General Fund revenues could increase considerably depending on the tax amount decided by the City Council. General Fund revenues are used to fund core City services such as Police, Recreation, increasing emergency reserves, capital projects, and maintenance of parks, playfields, open space, and facilities.
ELECTION COSTS
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.
LEGAL CONSIDERATIONS
The City Attorney has reviewed and approved all the documentation with respect to this measure, including all public information and outreach materials as well as the attached resolution and ordinance. Staff will continue to work with the City Attorney to ensure that all activities of the City and its employees are strictly limited to providing accurate, fair, and impartial information about the ballot measure and the election process.
Attachments:
1 . Resolution
2. Draft Charter (Exhibit A to Resolution)
3. RPTT Ordinance (Exhibit B to Resolution)
4. City Council Presentation from June 14 meeting