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HomeMy WebLinkAbout08/01/2006, C3 - FINAL ADOPTION OF ORDINANCE NO. 1495 ADDING CHAPTER 3.15 TO THE MUNICIPAL CODE: ""ESSENTIAL SERVICES" council M.� 8-1-06 accnaa Report 3 CITY O F SAN LUIS O B i S P 0 FROM: Ken Hampian, City Administrative Officer �? 9, Bill Statler, Director of Finance &Information Technology SUBJECT: FINAL ADOPTION OF ORDINANCE NO. 1495 ADDING CHAPTER 3.15 TO THE MUNICIPAL CODE: "ESSENTIAL SERVICES AND TRANSACTIONS (SALES) AND USE TAX" CAO RECOMMENDATION Adopt Ordinance No. 1495 (2006 Series), subject to subsequent voter approval in November 2006, establishing a general-purpose 1/2-cent sales tax for a term of eight years. DISCUSSION Overview. On July 18, 2006, the Council voted 5:0 to introduce Ordinance No. 1495 (2006 Series), which adds Chapter 3.15 to the Municipal Code, "Essential Services and Transactions (Sales) and Use Tax." The attached ordinance reflects the Council's direction at the July 18, 2006 meeting to reduce the sunset period from ten years to eight years. In a related action, the Council also voted 5:0 (Resolution No 9820, 2006 Series) at the July 18, 2006 meeting to place this ordinance before the voters for consideration as a ballot measure in conjunction with the general municipal election to be held on November 7, 2006. As set forth in State law, final adoption requires two-thirds Council approval and subsequent majority voter approval. Background. The report presented to the Council on July 18, 2006, provides detailed information on the background leadingt'the introduction of this ordinance and its placement on the November 2006 ballot for consideration by City voters. The key provisions of the ballot measure and attached ordinance were developed based on substantial community input, including information gathered through: 1. Public input strategies used during our budget processes. 2. Scientific community public opinion surveys (March 2005 and June 2006). 3. . Twenty-seven-member ad hoc community group. 4. Public input received, both verbally and in writing, during the information effort over the last twelve months, including 46 presentations to community groups and responses to community mailers. 5. Testimony from a number of speakers at the July 18, 2006 Council meeting. l ' Final Adoption of Ordinance No. 1495 Page 2 Key Features of the Ballot Measure and Ordinance. Based on this input, the following summarizes key features of the ballot measure and ordinance: 1. Adopts a local option sales tax of 112-cent. The current sales tax rate in the City (7.25%) is the lowest in the State. Even with a '/2-cent increase, it will be equal to or lower than the rate paid by 85% of the State's residents. A '/2-cent increase is the same rate already adopted (or being considered for adoption) by five other cities in the County. This local-option sales tax will be administered by the State Board of Equalization, and the attached ordinance includes the provisions the Board requires to do so. 2. Allocates the proceeds for general purposes. This includes essential services like street paving, police protection, fire and paramedic services, traffic congestion relief, neighborhood code enforcement, open space protection and senior programs. Stated simply, the fiscal problem facing the City is not related to funding a specific project or a specific service. Instead, our problem is in funding basic day-to-day, core City services. This is what the General Fund exists to do, and as such, it is appropriate for the proceeds to be General Fund revenues. As a general purpose revenue measure, passage will require majority voter approval. 3. Includes strong fiscal accountability provisions. Along with the City's ongoing commitment to citizen involvement as a fundamental principle of good government, specific citizen oversight and fiscal accountability provisions include: a. Independent annual financial audit. The amount of revenues generated by this measure and how it is used will be included in an annual financial audit performed by an independent certified public accountant. b. Integration of the use of funds into the City's budget and goal-setting process. The estimated revenue and proposed use of funds generated by this measure will be an integral part of the City's budget and goal setting process, and significant opportunities will be provided for meaningful participation by citizens in determining priority uses of these funds. c. Annual community report. A written report will be provided annually to every household in the community detailing how much revenue is being generated by the measure and how funds are being spent. d. Annual citizen oversight meeting. An invitation will be extended each year to the entire community inviting them to participate in a forum to review and discuss the use of the revenue generated by this measure. City staff will also be available to meet with any group that requests a specific briefing with their members to discuss and answer questions about the revenues generated by the measure and their uses. 4. Provides that the measure will expire in eight years, unless extended by the voters. An eight-year "sunset" will allow enough time to develop a solid track record of use, while still allowing voters a meaningful timeframe for reconsideration. It will also coincide with a Final Adoption of Ordinance No. 1495 Page 3 regularly scheduled election as suggested by the ad hoc community group as well as tie to the City's eight-year cycle for neighborhood street paving. ATTACHMENT Ordinance No. 1495 adding Chapter 3.15 to the Municipal Code: "Essential Services and .Transactions (Sales) and Use Tax" R:Revenue Ballot Measure Recommendation/August 1,2006 Agenda Report/Council Agenda Report,8-1-06 ORDINANCE NO. 1495 (2006 Series) AN ORDINANCE OF THE CITY OF SAN LUIS OBISPO ADDING CHAPTER 3.15 TO THE MUNICIPAL CODE, "ESSENTIAL SERVICES TRANSACTIONS (SALES)AND USE TAX,"TO SUNSET IN EIGHT YEARS, WITH CITIZEN OVERSIGHT AND INDEPENDENT ANNUAL FINANCIAL AUDITS, TO BE ADMINISTERED BY THE STATE BOARD OF EQUALIZATION WHEREAS, the City of San Luis Obispo is facing significant fiscal challenges in providing essential community services such as neighborhood street paving and pothole repair, traffic congestion relief, police protection, fire and paramedic services, flood protection, senior citizen services and facilities, neighborhood code enforcement, open space preservation and other vital general purpose services; and WHEREAS, this is largely due to State budget takeaways, which have cost the City more than $22 million over the last 15 years, and now costs the City$3 million each and every year; and WHEREAS, Proposition IA, adopted by the voters of California in November 2004, helps protect the City from additional State takeaways in the future, it does not restore any of the past or current State takeaways; and as such, the City continues to lose $3 million each and every year in State budget takeaways, and this is going to be the case indefmitely into the future; and WHEREAS, in responsibly balancing its budget, the City has been forced to cut back significantly on essential community services, such as reducing overall infrastructure maintenance by 50%; cutting street paving and pothole repair by 67% (which meant eliminating the neighborhood street paving and pothole repair program); reducing sworn police positions (including traffic enforcement); removing virtually all City funding for flood protection or storm drain maintenance projects; discontinuing City funding for open space preservation (which has been successful in the past in leveraging over $7 million in grants and other outside funding sources); and cutting other vital general purpose services; and WHEREAS, while it has been prudent to do so in the past as a stop-gap measure, the City cannot continue to use its reserves in mitigating even deeper cuts to essential services; and WHEREAS, new revenues will be needed in order to restore cuts in essential services and provide vital general purpose services in the future; and WHEREAS, a City-adopted sales tax is an appropriate way of adding new funds, since: the current sales tax rate in the City is the lowest in the State, and as such,even with an increase of 1/2-cent, it will be equal to or lower than the rate paid by 85% of the State's residents; it is broad-based and does not single-out any one type of consumer, business or industry; basic commodities and services like housing, food and prescription drugs are exempt from sales taxes; and over 50% of the proceeds will be paid by non-residents. NOW, THEREFORE, BE IT ORDAINED by the Council and the Voters of the City of San Luis Obispo as follows: SECTION 1. TITLE. This ordinance shall be known as the "City of San Luis Obispo Essential Services Transactions (Sales) and Use Tax Ordinance." The City of San Luis Obispo hereinafter shall be called the "City." This ordinance shall be applicable in the incorporated territory of the City. Ordinance No. 1495(2006 Series) Page 2 of 7 SECTION 2. PURPOSE. This ordinance is adopted to achieve the following, among other purposes,and directs that the provisions hereof be interpreted in order to accomplish those purposes: A. To protect and maintain essential services — such as neighborhood street paving and pothole repair; traffic congestion relief; public safety, including restoring eliminated traffic patrol, Fire Marshal and fire/paramedic training positions; flood protection; senior citizen services and facilities; neighborhood code enforcement; open space preservation; and other vital general purpose services — by establishing a general purpose retail transactions and use tax of one-half percent in accordance with the provisions of Part 1.6 (commencing with Section 725 1) of Division 2 of the Revenue and Taxation Code and Section 7285.9 of Part 1.7 of Division 2, which authorizes the City to adopt this general purpose tax ordinance, which shall be operative if two-thirds of the Council and a majority vote of the electors voting on the measure, vote to approve the establishment of this new general purpose revenue source at an election called for that purpose. B. To adopt a retail transactions and use tax ordinance that incorporates provisions identical to those of the Sales and Use Tax Law of the State of California insofar as those provisions are not inconsistent with the requirements and limitations contained in Part 1.6 of Division 2 of the Revenue and Taxation Code. C. To adopt a retail transactions and use tax ordinance that imposes a tax and provides a measure therefore that can be administered and collected by the State Board of Equalization in a manner that adapts itself as fully as practicable to, and requires the least possible deviation from, the existing statutory and administrative procedures followed by the State Board of Equalization in administering and collecting the California State Sales and Use Taxes. D. To adopt a retail transactions and use tax ordinance that can be administered in a manner that will be, to the greatest degree possible, consistent with the provisions of Part 1.6 of Division 2 of the Revenue and Taxation Code, minimize the cost of collecting the transactions and use taxes, and at the same time, minimize the burden of record keeping upon persons subject to taxation under the provisions of this ordinance. SECTION 3. EIGHT-YEAR SUNSET. The authority to levy the tax imposed by this ordinance shall expire eight years from the operative date of this ordinance, unless extended by the voters. SECTION 4. FISCAL ACCOUNTABILITY PROVISIONS: CITIZEN OVERSIGHT AND.INDEPENDENT ANNUAL FINANCIAL AUDITS. Along with the City's ongoing commitment to citizen involvement as a fundamental principle of good government, specific citizen oversight and fiscal accountability provisions are hereby established as follows: A. Independent Annual Financial Audit. The amount generated by this new general purpose revenue source and how it was used shall be included in the annual audit of the City's financial operations by an independent certified public accountant. B. Integration of the Use of Funds into the City's Budget and Goal-Setting Process. The estimated revenue and proposed use of funds generated by this measure shall be an integral part of the City's budget and goal setting process, and significant opportunities will be provided for meaningful participation by citizens in determining priority uses of these funds. I Ordinance No. 1495 (2006 Series) Page 3 of 7 C. Annual Community Report. A written report will be provided annually to every household in the community detailing how much revenue is being generated by the measure and how funds are being spent. . D. Annual Citizen Oversight Meeting. An invitation will be extended each year to the entire community inviting them to participate in a forum to review and discuss the use of the revenue generated by this measure. City staff will also be available to meet with any group that requests a specific briefing with their members to discuss and answer questions about the revenues generated by the measure and their uses. SECTION 5. TRANSACTIONS (SALES) TAX RATE. For the privilege of selling tangible personal property at retail, a tax is hereby imposed upon all retailers in the incorporated territory of the City at the rate of 0.5% of the gross receipts of any retailer from the sale of all tangible personal property sold at retail in said territory on and after the operative date of this ordinance. SECTION 6. USE TAX RATE. An excise tax is hereby imposed on the storage, use or other consumption in the City of tangible personal property purchased from any retailer on and after the operative date of this ordinance for storage, use or other consumption in said territory at the rate of 0.5% of the sales price of the property. The sales price shall include delivery charges when such charges are subject to state sales or use tax regardless of the place to which delivery is made. SECTION 7. OPERATIVE DATE. "Operative Date"means the fust day of the first calendar quarter commencing more than 110 days after the adoption of this ordinance: April 1,2007. SECTION 8. CONTRACT WITH STATE. Prior to the operative date, the City shall contract with the State Board of Equalization to perform all functions incident to the administration and operation of this transactions and use tax ordinance; provided, that if the City shall not have contracted with the State Board of Equalization prior to the operative date, it shall nevertheless so contract and in such a case the operative date shall be the first day of the first calendar quarter following the execution of such a contract. SECTION 9. PLACE OF SALE. For the purposes of this ordinance, all retail sales are consummated at the place of business of the retailer unless the tangible personal property sold is delivered by the retailer or his agent to an out-of-state destination or to a common carrier for delivery to an out-of-state destination. The gross receipts from such sales shall include delivery charges, when such charges are subject to the state sales and use tax, regardless of the place to which delivery is made. In the event a retailer has no permanent place of business in the State or has more than one place of business, the place or places at which the retail sales are consummated shall be determined under rules and regulations to be prescribed and adopted by the State.Board of Equalization. SECTION 10. ADOPTION OF PROVISIONS OF STATE LAW. Except as otherwise provided in this ordinance and except insofar as they are inconsistent with the provisions of Part 1.6 of Division 2 of the Revenue and Taxation Code, all of the provisions of Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code are hereby adopted and made a part of this ordinance as though fully set forth herein. SECTION 11. LIMITATIONS ON ADOPTION OF STATE LAW AND COLLECTION OF USE TAXES. In adopting the provisions of Part 1 of Division 2 of the Revenue and Taxation Code: L Ordinance No.1495(2006 Series) Page 4 of 7 A. Wherever the State of California is named or referred to as the taxing agency,the name of this City shall be substituted therefor. However,the substitution shall not be made when: 1. The word "State" is used as a part of the title of the State Controller, State Treasurer, State Board of Control, State Board of Equalization, State Treasury, or the Constitution of the State of California; 2. The result of that substitution would require action to be taken by or against this City or any agency, officer, or employee thereof rather than by or against the State Board of Equalization,in performing the functions incident to the administration or operation of this Ordinance. 3. In those sections, including, but not necessarily limited to sections referring to the exterior boundaries of the State of California, where the result of the substitution would be to: a. Provide an exemption from this tax with respect to certain sales, storage, use or other consumption of tangible personal property which would not otherwise be exempt from this tax while such sales, storage, use or other consumption remain subject to tax by the State under the provisions of Part 1 of Division 2 of the Revenue and Taxation Code,or; b. Impose this tax with respect to certain sales, storage, use or other consumption of tangible personal property, which would not be subject to tax by the state under the said provision of that code. 4. In Sections 6701, 6702 (except in the last sentence thereof), 6711, 6715, 6737,6797 or 6828 of the Revenue and Taxation Code. B. The word "City" shall be substituted for the word "State" in the phrase "retailer engaged in business in this State" in Section 6203 and in the definition of that phrase in Section 6203. SECTION 12. PERMIT NOT REOUIRED. If a seller's permit has been issued to a retailer under Section 6067 of the Revenue and Taxation Code, an additional transactor's permit shall not be required by this ordinance. SECTION 13. EXEMPTIONS AND EXCLUSIONS. The following transaction shall be exempted and excluded: A. There shall be excluded from the measure of the transactions tax and the use tax the amount of any sales tax or use tax imposed by the State of California or by any city, city and county, or county pursuant to the Bradley-Bums Uniform Local Sales and Use Tax Law or the amount of any state-administered transactions or use tax. B. There are exempted from the computation of the amount of transactions tax the gross receipts from: 1. Sales of tangible personal property, other than fuel or petroleum products, to operators of aircraft to be used or consumed principally outside the county in which the sale is made and directly and exclusively in the use of such aircraft as common carriers of persons or property under the authority of the laws of this State, the United States, or any foreign government. c3 - �, Ordinance No.1495(2006 Series) Page 5 of 7 2. Sales of property to be used outside the City which is shipped to a point outside the City, pursuant to the contract of sale, by delivery to such point by the retailer or his agent, or by delivery by the retailer to a carrier for shipment to a consignee at such point. For the purposes of this paragraph, delivery to a point outside the City shall be satisfied: a. With respect to vehicles (other than commercial vehicles) subject to registration pursuant to Chapter 1 (commencing with Section 4000) of Division 3 of the Vehicle Code, aircraft licensed in compliance with Section 21411 of the Public Utilities Code, and undocumented vessels registered under Division 3.5 (commencing with Section 9840) of the Vehicle Code by registration to an out-of-City address and by a declaration under penalty of perjury, signed by the buyer, stating that such address is, in fact,his or her principal place of residence; and b. With respect to commercial vehicles, by registration to a place of business out-of-City and declaration under penalty of perjury, signed by the buyer, that the vehicle will be operated from that address. 3. The sale of tangible personal property if the seller is obligated to furnish the property for a fixed price pursuant to a contract entered into prior to the operative date of this ordinance. 4. A lease of tangible personal property which is a continuing sale of such property, for any period of time for which the lessor is obligated to lease the property for an amount fixed by the lease prior to the operative date of this ordinance. 5. For the purposes of subparagraphs.(3) and (4) of this section, the sale or lease of tangible personal property shall be deemed not to be obligated pursuant to a contract or lease for any period of time for which any party to the contract or lease has the unconditional right to terminate the contract or lease upon notice, whether or not such right is exercised. C. There are exempted from the use tax imposed by this ordinance, the storage, use or other consumption in this City of tangible personal property: 1. The gross receipts from the sale of which have been subject to a transactions tax under any state-administered transactions and use tax ordinance. 2. Other than fuel or petroleum products purchased by operators of aircraft and used or consumed by such operators directly and exclusively in the use of such aircraft as common carriers of persons or property for hire or compensation under a certificate of public convenience and necessity issued pursuant to the laws of this State, the United States, or any foreign government. This exemption is in addition to the exemptions provided in Sections 6366 and 6366.1 of the Revenue and Taxation Code of the State of California. 3. If the purchaser is obligated to purchase the property for a fixed price pursuant to a contract entered into prior to the operative date of this ordinance. C 3 -� Ordinance No. 1495(2006 Series) Page 6 of 7 4. If the possession of, or the exercise of any right or power over, the tangible personal property arises under a lease which is a continuing purchase of such property for any period of time for which the lessee is obligated to lease the property for an amount fixed by a lease prior to the operative date of this ordinance. 5. For the purposes of subparagraphs (3) and (4) of this section, storage, use, or other consumption, or possession of, or exercise of any right or power over, tangible personal property shall be deemed not to be obligated pursuant to a contract or lease for any period of time for which any party to the contract or lease has the unconditional right to terminate the contract or lease upon notice, whether or not such right is exercised. 6. Except as provided in subparagraph (7), a retailer engaged in business in the City shall not be required to collect use tax from the purchaser of tangible personal property, unless the retailer ships or delivers the property into the City or participates within the City in making the sale of the property, including,but not limited to, soliciting or receiving the order, either directly or indirectly, at a place of business of the retailer in the City or through any representative, agent, canvasser, solicitor, subsidiary,or person in the City under the authority of the retailer. 7. "A retailer engaged in business in the City" shall also include any retailer of any of the following: vehicles subject to registration pursuant to Chapter 1 (commencing with Section 4000) of Division 3 of the Vehicle Code, aircraft licensed in compliance with Section 21411 of the Public Utilities Code, or undocumented vessels registered under Division 3.5 (commencing with Section 9840) of the Vehicle Code. That retailer shall be required to collect use tax from any purchaser who registers or licenses the vehicle, vessel or aircraft at an address in the City. D. Any person subject to use tax under this ordinance may credit against that tax any transactions tax or reimbursement for transactions tax paid to a district imposing,or retailer liable for a transactions tax pursuant to Part 1.6 of Division 2 of the Revenue and Taxation Code with respect to the sale to the person of the property the storage, use or other consumption of which is subject to the use tax. SECTION 14. AMENDMENTS. All amendments subsequent to the effective date of this ordinance to Part 1 of Division 2 of the Revenue and Taxation Code relating to sales and use taxes and which are not inconsistent with Part 1.6 and Part 1.7 of Division 2 of the Revenue and Taxation Code, and all amendments to Part 1.6 and Part 1.7 of Division 2 of the Revenue and Taxation Code, shall automatically become a part of this ordinance, provided however, that no such amendment shall operate so as to affect the rate of tax imposed by this ordinance. SECTION 15. ENJOINING COLLECTION FORBIDDEN. No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action or proceeding in any court against the State or the City, or against any officer of the State or the City, to prevent or enjoin the collection under this ordinance, or Part 1.6 of Division 2 of the Revenue and Taxation Code, of any tax or any amount of tax required to be collected. SECTION 16. SEVERABILITY. If any provision of this ordinance or the application thereof to any person or circumstance is held invalid, the remainder of the ordinance and the application of such provision to other persons or circumstances shall not be affected thereby. SECTION 17. EFFECTIVE DATE. This ordinance relates to the levying and collecting of the City transactions and use taxes and shall take effect immediately. Ordinance No. 1495(2006 Series) Page 7 of 7 SECTION 18. CODIFICATION. Upon adoption of this Ordinance by the voters, the City Clerk, in consultation with the City Attorney, is hereby authorized and directed to codify this Ordinance in the City's Municipal Code. INTRODUCED on July 18, 2006 AND FINALLY ADOPTED by the Council of the City of San Luis Obispo on August 1, 2006 on the following roll call vote: AYES: NOES: ABSENT: PASSED AND ADOPTED by the Voters of the City San Luis Obispo on November 7, 2006 by the following vote talley: AYES: NOES: David F. Romero,Mayor ATTEST: Audrey Hooper, City Clerk APPROAS TO FO onathan P. Lowell, City Attorney C � - io