February 22, 2022
Economic Development
DATE: February 22, 2022
TO: Mayor Butt and Members of the City Council
FROM: Shasa Curl, Interim City Manager
Lina Velasco, Director of Community Development
Samantha Carr, Environmental Manager
Subject: Receive an Update from Sci Consulting Group on the Potential Vacant Property Tax Ballot Measure and Provide Direction
FINANCIAL IMPACT: There is no identified available funding source. The proposed expenditure directed by City Council requires
an appropriation of $46,500 to the current Fiscal Year
2021-2022 budget (Account String 01361165 400201).
PREVIOUS COUNCIL
ACTION:
November 16, 2021; June 22, 2021
STATEMENT OF THE
ISSUE:
City staff members and SCI Consulting Group (“SCI”) are continuing to work on Phase II of the potential Vacant
Property Tax ballot measure. City staff members and SCI are providing an update to City Council and are seeking Council direction on next steps.
RECOMMENDED ACTION: RECEIVE a presentation on the potential Vacant Property Tax ballot measure; PROVIDE DIRECTION on
next steps; APPROVE a contract amendment no. 2 with
SCI Consulting Group modifying the potential vacant
parcel tax service plan to include Phase III tasks,
increasing the payment limit by $46,500, for a total not to exceed amount of $111,770, and extending the term to
December 31, 2022; and APPROPRIATE $46,500 for the
contract expenditure to the Fiscal Year 2021-2022
Budget - City Manager’s Office, Economic Development
(Shasa Curl/Lina Velasco, 510-620-6512).
AGENDA
REPORT
February 22, 2022
DISCUSSION:
Background
The City of Richmond (“City”) is considering placing a potential Vacant Property Tax (“VPT”) measure before Richmond voters in order to address blight and code compliance, encourage the development of unused and vacant properties, and generate revenue. Accordingly, the City engaged SCI Consulting Group (“SCI”) to assist with “Phase I” feasibility analysis and recommendations, and “Phase II” implementation planning, stakeholder engagement, opinion survey, and potential tax ordinance development. In addition to this work, SCI provides financial consulting services to the City of Richmond and is the primary consultant supporting implementation of the City of Oakland’s VPT.
Vacant Property Tax
A VPT is a tax placed upon unused and under-utilized properties. The tax is collected annually on property tax bills based upon the City-determined vacancy status of the property. The general annual collection process involves:
Identifying potentially taxable parcels,
Communicating with the owners of those parcels, and
Providing specific opportunities for these owners to petition the vacancy determination and/or apply for an exemption.
Currently, VPTs are not common but have recently been successfully implemented in Oakland, California and Vancouver, British Columbia. A growing number of California cities are considering VPT measures. However, the effectiveness and results of VPTs to address blight and code compliance are still inconclusive. An article that discusses this approach can be found at the following link https://www.governing.com/archive/gov- cities-blight-taxes-lc.html. In both Vancouver and Oakland, the VPT generates significant revenue, but it does require considerable parcel research and analysis, administrative resources, and community outreach.
Phase II: Community Engagement and Outreach
As part of the scope of work, SCI, the City Manager’s Office, and the Community Development department hosted three community workshops and mailed approximately 7,000 surveys to registered voters to receive input and facilitate the development of a community and stakeholder informed ballot measure. A matrix of the questions and comments are included in Attachment 1. In addition, City staff members met with representatives of the various City employee unions, who expressed their support of a potential Vacant Property Tax.
February 22, 2022
Two workshops were held in July 2021 and one in January 2022. In total, there were 42 attendees. Recordings of the workshops and copies of the PowerPoint presentations are available on the City’s Potential Vacant Property Tax webpage.
On November 25, 2021, about 7,007 surveys were mailed to registered voters within the City. The survey mailings included general information (i.e., a survey guide) about vacant property taxes, blight, illegal dumping, blight abatement and code compliance services, and a questionnaire with an enclosed postage-paid return envelope (Attachment 2). Survey recipients were also given the option to respond to the survey online. This data collection method has proven to be highly reliable for predicting the results from an actual funding measure. In total, 638 surveys were received representing a response rate of 9.1 percent. This response rate is generally consistent with SCI’s experience from other similar survey projects.
Upon the closing of the survey response period (+/- six weeks), SCI tabulated and analyzed the results. Survey results are intricately broken down in SCI’s VPT Survey Report and are included in Attachment 3. The survey findings support the fact that blight, illegal dumping, code compliance, and the impact of vacant properties are highly prioritized by the community, and that projects and services to address these issues are currently desired by the community. SCI’s analysis suggests there is projected support for the proposed VPT.
The survey results further indicate that a special tax is preferred by the community over a general tax. A VPT is considered a parcel tax and, therefore, a VPT enacted as either a special tax or a general fund tax requires 66.7 percent voter support. The total voter support for the special tax based on the survey results exceeds the 66.7 percent threshold, with 70.15 percent in favor of a Vacant Property Tax on vacant parcels used less than 30 days per year, according to the survey results.
CURRENT VPT RECOMMENDATIONS AND IMPORTANT CONSIDERATIONS
1. Categories of Parcels Subject to VPT
The following are the recommended use categories of parcels that would be subject to the VPT:
Vacant parcels (undeveloped, raw ground)
Not-in-use developed parcels:
Single-family detached homes and multi-family
Nonresidential parcels (commercial, industrial)
February 22, 2022
Not-in-use condominium, duplex, and townhome units
Not-in-use ground floor commercial spaces
The proposed tax ordinance will establish definitions for the use and vacancy status of each parcel of real property in the City. Developed blighted properties not in compliance with the Richmond Municipal Code will be subject to the tax.
2. Determination of Vacancy Method
The definition of vacancy of undeveloped and developed properties is critical to an effective VPT. The following elements are recommended in the Phase 2, Task 1 Report for the definition of vacancy for specific use categories of parcels (Attachment 4):
A. All undeveloped, “raw ground” parcels should be regarded as vacant (and subject to the tax) except:
Undeveloped parcels contiguous to an owner-occupied residential parcel being used by owner (e.g., side yard parcels)
Undeveloped parcels serving as ingress and egress for persons or vehicles (e.g., driveways)
B. The recommended definition of vacancy defines a developed property as vacant and subject to the tax if it is “in use less than thirty (30) days during a calendar year”. For reference, the City of Oakland’s VPT defines a developed property as vacant and subject to the tax if it is “in use less than fifty (50) days during a calendar year”. Broader definitions of vacancy, which result in more parcels subject to the tax, will generate more revenue but may sacrifice political and community acceptance.
An expanded definition of “in-use” should be included to capture the City’s Zoning Ordinance, as it relates to the following parcel types:
Residential – lawfully occupied.
Non-residential or undeveloped parcel or ground floor commercial space – definition of “use” to capture the City’s Zoning Ordinance.
To clarify, it is recommended that improved and unimproved parcels may be considered in-use only if the activity occurring on the parcel is legal as the City’s Zoning Ordinance defines those terms. The application of the City’s Zoning Ordinance as a standard is intended to avoid subjective determinations about what activities should and should not be taxed.
The inclusion of a petition process is also recommended to allow property owners to contest the determination of vacancy. For example, many owners of an undeveloped parcel contiguous to their developed residential parcel would likely actively petition for re-determination.
February 22, 2022
3. Timing
It is important to note that a tax on vacant property is typically a retroactive tax. It is recommended Richmond’s potential VPT be applied retroactively so that the calendar year in which a parcel is determined to be subject to tax precedes the imposition of the tax on the secured property tax bill. For example, if the parcel is determined in 2023 to be subject to the VPT, the property would see the tax on the fiscal year 2024-2025 secured property tax bill. A retroactive tax is recommended to facilitate the administrative work of identifying vacant properties due to the work of identifying those parcels requiring a data-driven review of indicators that are reflected in property and other records which only become available following the calendar year. Notably, a retroactive tax will also facilitate the administrative work of processing property owner exemption applications while enhancing the usefulness of those exemptions.
In addition, if placed on the June 2022 ballot, implementation of the VPT would not start until Fiscal Year 2024-2025 allowing time for both property owners to act and the City to complete necessary actions for implementation.
4. Identification of Potentially Taxable Parcels
As part of the implementation of the VPT, the City or possibly a consultant would perform parcel analysis to identify the subset of parcels likely subject to the tax. This analysis may include vacancy indicators such as parcel use data from the County Assessor’s Office (e.g., vacant), inconsistent property and mailing addresses, City permit records, City code enforcement records, and low or no utility use. Therefore, there may be data-related limitations on the identification process when defining the type of parcel uses to be taxed and the definition of vacancy.
ITEMS FOR COUNCIL DIRECTION
City staff members and SCI are seeking direction from City Council on the following items in Table A:
Table A
Item Staff Recommendation
A Special Tax or General Tax? Special Tax earmarked for special categories B June 2022 or December 2022
Ballot?
June 7, 2022, Ballot. If Council agrees, SCI and City Staff will return to City Council on February 24 , 2022 or
March 1, 2022, to present the proposed Vacant Property
Tax ballot measure and ordinance to the City Council
C Exemptions? If yes, which
ones?
Very low-income owners (1 person $35,962; 3
persons $46,237)
Low-income local senior owners (1 person
$76,750; 3 persons $98,650)
Active development or active construction
February 22, 2022
o Owners who have submitted substantially
complete application and actively pursuing
for development
o Owners with active entitlement approvals
o Active construction
o Submitted substantially complete
application and actively pursuing Building
Permit
Owners for whom paying the tax would constitute
a financial hardship
Owners who are unable to develop their parcel
due to a demonstrable hardship that is not
financial
Exceptional physical circumstances
o Not able to be developed due to physical
circumstances such as geologic or soil
conditions.
Approval of exemptions are dependent on the property’s
compliance with the Richmond Municipal Code
D Development of a potential
assistance program from tax
collected?
Pay for permit or impact fees
Expedited permitting process
E Tax relief or mitigation
option?
If a non-profit purchases the property and has submitted a substantially complete planning application that is being actively pursued, the Vacant Property Taxes imposed by
the City from the past three (3) years will be reimbursed.
F Tax Rate? Tiered tax rate by parcel type and size $3,000 - $8,000, with the annual CPI tied to index not to exceed 3 percent.
G Include a sunset in the
ordinance?
SCI’s recommendation is to not include a sunset but if
Council prefers to include a sunset, a 20-year sunset is recommended and standard for VPT.
H Other attributes? None recommended, but could include special considerations for family -held investment pr operties; temporally graduated tax rates (ramping -up over time); incentivized development (with a waiver of City permit
fees); development assistance (with an expedited
permitting process), etc.
A. Special Tax VS. General Tax Considerations
A VPT is considered a parcel tax and, therefore, a VPT enacted as either a special tax or a general fund tax requires 66.7 percent voter support. However, the specific purposes to be funded by the special tax, must be identified in the balloting material provided to voters at the time of the special tax election.
February 22, 2022
Benefits of imposing the VPT as a special tax include natural enhancement to the VPT’s messaging by emphasizing the nexus between the funding purposes of the tax and the underlying issues surrounding vacant properties such as blight, illegal dumping, and code compliance, etc. A VPT enacted as a special tax would create a stronger link between the VPT’s purpose of encouraging the optimal use and development of vacant properties, and the societal effects of vacant properties within the community, while providing the resources to better address the challenges associated with blight and illegal dumping.
Enactment of the VPT as a special tax may be preferred by the community and is recommended due to the reasons provided above.
B. June 2022 or November 2022 Ballot
The potential Richmond VPT ballot measure is now proposed for the June 7, 2022, Election as there is a potential for other tax measures to be on the November 2022 ballot.
C. Recommended Exemptions
The list of recommended VPT exemptions is included below. The exemption section would clearly define the process and criteria in order to avoid the need for subjective determinations about what qualifies for an exemption from the tax:
Very low-income owners (In 2021, this figure is 1 person $35,962: 3 persons $46,237)
Low-income local senior owners (In 2021, this figure is 1 person $76,750: 3 persons $98,650)
Active development or active construction
o Owners who have submitted substantially complete and actively pursuing application for development project
o Owners with active entitlement approvals
o Active construction
o Owners who have submitted substantially complete application and actively pursuing Building Permit
Owners for whom paying the tax would constitute a financial hardship Owners who are unable to develop their parcel due to a demonstrable hardship that is not financial
Exceptional physical circumstances
o Not able to be developed due to physical circumstances such as geologic or soil conditions.
For example, owners wishing to be granted income-based exemptions would be required to submit income verification documents showing household income does not exceed certain Department of Housing and Urban Development limits for Contra Costa County. Another example, owners seeking an exemption for properties under active
February 22, 2022
development would be required to submit proof of active building permits to qualify for an exemption.
Approval of exemptions are dependent on the property’s compliance with the Richmond Municipal Code. Under this approach, properties considered blighted, or a nuisance would not qualify for exemption from the tax.
D. Potential Assistance Program
The community expressed a desire for the City to provide assistance for the development of the vacant parcels. An assistance program could pay for permit or impact fees and an expedited permitting process based on funding available generated from VPT funding. Priority would be given to non-profit organizations.
E. Tax Relief or Mitigation
If a non-profit purchases the property and has submitted a substantially complete planning application that is being actively pursued, the Vacant Property Taxes imposed by the City from the past three (3) years will be reimbursed.
F. Tiered Tax Rates by Parcel Size
It is recommended that the tax rates be tiered by parcel size and use categories in order to balance optimal revenue generation with political viability and fairness, as shown in Table B. The suggested tiered tax rate by parcel type and size is $3,000 - $8,000, with the annual CPI tied to index, not to exceed three (3) percent.
TABLE B:
As shown below in Table C, the City has approximately a total of 32,891 legally defined parcels. Of those parcels, approximately 954 are vacant “undeveloped, raw ground” parcels as determined by the County Assessor’s office. Note that only a portion of these vacant parcels would be subject to the VPT because many are contiguous to a residential parcel of the same owner and are being used as a driveway or side yard or subject to another exemption. For revenue modelling purposes, SCI adjusted the number of taxable vacant lots from 954 down to a range of 192 – 283, based upon a cursory review of the data and their experience with implementing Oakland’s VPT.
February 22, 2022
TABLE C: Citywide Property Statistics – All Parcels
Parcel Type
Number of
Parcels % of Total
Residential 28,618 87
Non-residential 2,609 8
"Vacant" - as defined by County Assessor 954 3
Government-owned 710 2
Total Number of Parcels in Richmond 32,891 100
Undeveloped vacant lots are distributed by parcel size throughout the City in the percentages shown below in Table D:
TABLE D:
Parcel Size Percentage
Smaller than 5,000 sq.ft. 47
5,000 sq.ft. – 1 acre 36
Larger than 1 acre 17
Several revenue scenarios are shown below in Table E, applying the recommended tax rates of $3,000 - $8,000, tiered by acreage and use category, and modeled by the estimated number and acreage of parcels taxed. Potential first-year revenue generation ranges from $3,000 to $8,000 per year per parcel and the corresponding total revenue estimates, ranging from $1,189,000 to $1,745,000. The scenario estimates are based on current City property statistics including the share of undeveloped parcels distributed within the acreage-tiered tax rates, expected vacancy rates for undeveloped and improved parcels, and expected approved property owner exemption applications, developed from SCI’s experience administering the City of Oakland’s VPT.
TABLE E: Potential First-Year Revenue Scenarios
Vacant Parcel Uses
Subject to VPT
Approximate
Number of
Units
Low End
Middle
High End
Vacant Parcels
(undeveloped, raw
ground) 192 - 283 $879,000 $ 1,084,000 $ 1,290,000
Single Family / Multi-
family - Not in use 55 - 80 $249,000 $ 307,000 $ 366,000 Condos - Not in use 20 - 30 $61,000 $ 75,000 $ 89,000 Non-Residential - Not in
use TBD TBD TBD TBD
Residential Ground Floor
Retail -- Not in use TBD TBD TBD TBD
Estimated Revenue Generated $1,189,000 $ 1,466,000 $ 1,745,000
February 22, 2022
G. Inclusion of Sunset
SCI’s recommendation is to not include a sunset but if Council prefers to include a sunset, a 20-year sunset is recommended and standard for VPT.
H. Other Attributes
The City may consider with further research, other ideas, and attributes such as special considerations for family-held investment properties; temporally graduated tax rates (ramping-up over time); incentivized development (with a waiver of City permit fees); development assistance (with an expedited permitting process), etc.
NEXT STEPS
Following direction received from City Council, SCI and City staff members will:
Incorporate the feedback into the draft ordinance and ballot measure. If directed by City Council tonight, SCI and City Staff members will return to City Council on February 24, 2022 or March 1, 2022, to present the proposed Vacant Property Tax ballot measure and ordinance to the City Council for potential inclusion in the June 2022 Election.
If City Council directs staff to move forward with the Vacant Property Tax and place the initiative on the June 7, 2022, Ballot, the City will need to amend the contract with SCI Consulting Group to modify the potential vacant parcel tax service plan to include Phase III tasks, increasing the payment limit by $46,500, for a total not to exceed amount of $111,770, and extending the term of the contract to December 31, 2022 (Attachment 5).
Funds would also need to be appropriated into the FY 2021-2022 budget to cover these additional expenditures.
DOCUMENTS ATTACHED:
Attachment 1 – Community Feedback from Workshops and Survey Attachment 2 – VPT Survey
Attachment 3 – VPT Survey Report
Attachment 4 – SCI Phase 2, Task 1 Report Jan 2022
Attachment 5 – Draft Contract Amendment No. 2