HomeMy WebLinkAboutAgenda Report - October 18, 1995 (73)OF
CITY OF LODI
COUNCIL COMMUNICATION
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AGENDA TITLE: Resolution Supporting the League of California Cities' Resolution on Sales Tax
Redistribution to Increase the Amount Received by Cities to 2%
MEETING DATE: October 18, 1995
PREPARED BY: City Clerk
RECOMMENDED ACTION: That the City Council adopt the attached Resolution supporting the
League of California Cities' resolution on sales tax redistribution to
increase the amount received by cities to 2%.
BACKGROUND INFORMATION: This item appears on the agenda at the request of Mayor Mann.
On August 3, 1995, the Los Angeles Division of the League of California Cities adopted a resolution which
directs the League to pursue legislative action to redistribute 1 % sales taxes paid per dollar from the State
to cities. In an effort to have this resolution adopted by the League's General Assembly on October 24,
1995, the City of Covina has requested that each city in California adopt a supporting resolution.
Currently, the statewide sales tax rate per dollar is 7.25%. Of this, the State receives 5%, counties
receive 1.25% for public safety and health and welfare, and cities and counties receive 1 % depending on
place of sale. Because the amounts of sales tax revenues collected and retained by the State often
exceeds the total general fund revenues collected by individual cities, the issue of redistribution has arisen
and is the main theme of this resolution.
Redistribution is an issue for a number of other reasons, too. First, in recent years, the State has taken
action to shift property tax money away from cities. This has resulted in revenue shortages in many cities,
forcing them to establish new taxes, increase existing ones, or make cuts in services. Second, the
revenue that many cities expected from Proposition 172 (.5% sales tax for public safety services) has not
been realized in amounts sufficient to offset property tax revenue losses. While it is true that public safety
funding has increased, about 90% of the revenues are kept by counties statewide due to the allocation
formula.
In addition, recession has continued in many parts of the State meaning that revenues from sales taxes
are down. Recession, combined with State takeaways, increased demand for local services, and an
increased number of State mandates in recent years has led to an explosive political environment in many
cities. This situation has forced cities to face tough decisions while the State budget continues to
increase --the State's budget increased from $53.083 billion in fiscal year 1993/94 to $57.508 billion in
fiscal year 1995/96, an increase of 8.3%.
APPROVED:
THOMAS A. PETERSON
City Manager
cc -1
LCC Resolution on sales tax redistribution
October 18, 1995
Page Two
To save many essential services provided by cities, it is believed that cities need to form a unified voice to
effect the same changes at the State level that cities have been forced to make. In a very real sense, this
issue is about the State's abuse of power --the continued willingness of the State to take money away from
cities without constraint and recognition of what it takes to manage cities. The League resolution is a
response to this situation by seeking to shift money from the State to cities.
If a 1% shift in sales taxes is accomplished, it would result in less than a 5% reduction in the State's
budget, or a shift in about $2.8 billion based on the most recent four quarters of statewide taxable sales.
Because cities now receive a 1% share, and because there is no change proposed in how the sales tax
revenues would be allocated to cities, the 1% shift in statewide sales taxes would result in an approximate
doubling of the money received in sales tax revenue by the City of Lodi.
Because of State actions in recent years and increased demands for local services, it is recommended
that the City Council adopt the supporting resolution and forward a copy to the City of Covina. Covina
together with other cities will seek to have the League's Revenue and Taxation Committee approve the
resolution on October 21, 1995 and then the League's General Resolutions Committee on October 23,
1995, and finally the League's General Assembly on October 24, 1995.
FUNDING: None required.
ni er M ernn
ity Clerk
Attachments
cc: Acting Finance Director
, 5 1=.-A 31_-8513-5550
CITY OF COVIN A
1.25 East College Street A Covina, California 91723-2199
August 31, 1995
Mr. Thomas M. O'Leary
Mayor
City of Covina
1:5 East College St.
Covina, CA 917'23-2199
Dear Mr. O'Leary.
We are writing you to request the City of Covina's support for the attached resolution which
was adopted by the Los Angeles Division of the League of California Cities on August 3, 1995.
As you are aware, Division -sponsored resolutions are being forwarded to the League's General
Resolutions Committee on October 23, 1995, and then to the General Assembly on October 24,
1995.
The subject resolution seeks to redistribute 1 % sales tax from the State to cities. The State
currently gets 5% and cities get 1% of the sales taxes paid an each do3h, throughout California.
The resolution directs the League to initiate legislative actions, either through the State
legislature or through a ballot initiative, to change the percentage split to 4% for the State and
2% to cities. if the shift in sales taxes is accomplished, it would mean that the amount of sales
taxes cities now receive would double.
In essence, the resolution seeks to shift money from the State to cities using an existing tax
mechanism and an existing allocation method. The resolution is relatively simple and in
"temis of complexity" stands in sharp contrast to a number of efforts underway on government
restructuring, constitutional revision, and modification of the taxation system. Consequently,
the proposed resolution should not be compared to these acti-Aties. The issue for this resolution
is not the structure of government, the constitution, or the taxation system -- it is how much
money different agencies receive. We believe cities and counties are getting a disproportionately
small share of availacie revenues.
For example, the City of Covina, located in eastern Los Angeles County with a population of
44,000, will receive about $19.S million in general fund revenue during this next fiscal year from
over a dozen sources, including an 825% utility users tax. Of this total, sales tax revenue is
about $5.7 million. The State will get five times this amount or about $25.5 million — all from
Covina transactions. The amount of sales tax revenue going to the State exceeds the City's total
general fund revenue from ovex a dozen sources! And while Covina's budget has been reduced
in recent years like a number of other cities and counties throughout California, the State's
budget continues to in=ease, irom SM.Ofi3 billion in fiscal year 1995-1994 to $57.508 billion in
fiscal year. 1995+1996, an increase of 8-1%.
P. 02:
Page 2 of 2 -
As
As most city administrators throughout California know, part of the problem here is that
property tax revenue and other funds have been lost due to State takeaways. A recent Los
Angeles Times article put the amount of property tax revenue taken away by the State at $3.9
billion. Although many would agree that schools need more funding, it is unlikely that many
would agree it should be taken out of the pockets of cities and counties since we have been
heavily impacted by numerous State and Federal mandates as well as increased demands for
Police, Fire, Public Works, Community Development, Parks and Recreation, and Library- services
amid continuing recession in many parts of the state.
Adding to the plight and dismay of cities is the outcome of Proposition 172. Proposition 172 was
approved by voters in November 1993 and increased statewide sales taxes a half percent to
augment public safety funding, funding for police and fire services, for example. While it
appeared that this measure would offset losses in property tax revenue, most cities only receive a
small fraction of the money collected from this Proposition due to the formula used to
aymortion these funds. For example, Los Angeles County received $370 millson so far for 1994-
1995 from Proposition 17Z, yet has allocated only about $35 million to cities in Los Angeles
County, less than 10% of the revenues. Of the fonds allocated to cities, Covina received
$213,000, an amount far less than a half percent sales tax. If these funds were allocated using the
formula used to allocate other sales tax revenues, Covina would have received over $2.5
million.
We all know what is at stake regarding the financing of local government services. The true
impacts of the recession and the need for increased government revenues have been pushed
down to the local level by the State. To save many essential services that are now being
threatened, we need to form a anified voice to effect the same changes at the State level that we
have been forced to make as cities and counties. Through this resolution we are seeking a shift
of an estimated $2.8 billion from the State to cities and counties. This amounts to less than a 5%
cut in the State's fiscal year 1995-1996 budget. This is not an unreasonable reduction considering
the kinds of drastic cuts being made this year by many cities and counties throughout California.
We are not seeking a battle with the State over revenue. We simply feel that many local
services that are now being jeopardized represent a higher taxpayer priority (e.g., Police and Fire)
than other services provided by the State. This is the issue we wish to bring forward with this
resolution. We ask that your City Council adopt the attached supporting resoiution and either
FAX it or mail it to the City of Covina by October 18, 1095. FAX to Covina's City Manager, Mr.
Fran Delach at 818/858-5556, or mail it to him at I?F E. College Street, Covina, Cry 91723.
Following receipt of your supporting resolution, Covina will mail You a lapel pin that is now
being produced to promote this effort. If you have any questions a'aau: this resolution feel free
to call either of us at 818,1852-72 12.
Thank you,
Leary
Mayor ti,r
TMO'L/ V..17!CAY,
Francis M. �
City Manager
P.0
.19' 5 -555 EW. Si:CS. PAGE BS
INFORMATION & SOURCES
The statewide sates tax breaks down as follows according to the State Board of
Equalization. [Legal references were obtained from Mr. John Waid, Senior Legal
Counsel. State Board of Equalization (telephone 9161324-3828). Taxable sales
information is available from the Statistics Section, Planning and Research Division,
State Board of Equalization (telephone 9161445-0840)).
STATEWIDE SALES TAx BREAKDOWN
Percents received by Agencies
NO WZVIWVSM��
State Government
5.00%
R & T Code 6051 8 6051.3
County - Health & Welfare
.50%
R & T Code 60512 & 8201 W & 1 17600
Court - Public Safety*
.50%
Pro 172 added to State Constitution
Cities and Counties#
1.00%
R & T Code 7229UR
Counties - Transoortation
_25%
R 8 T Code 7202 d e
Total
7.25%
Notes:
'About 10% of the amount apportioned to counties is allocated to cities, except in Alameda
County.
*Apportioned by place of sale.
Do cities receive 1 % or 1 2xL%?_
The Bradley -Burns Uniform Local Sales and Use Law (Taxation and Revenue 7200 et
seq.), does establish the rate for cities and counties at 1.25 percent. But, according to
Mr. John Waid. Senior Legal Counsel. State Board of Equalization, .25 percent is
reserved for county transportation programs and goes to counties. This is pursuant to
sections 7202(d)(e). Hence, cities do not receive 1.25 percent, but 1% in non-
restricted general funds.
The amount designated for county health and social service programs of $1 .6 billion
(ac=rding to Western City, August 1995, p. 4), mostly goes only to oounlies, according
to the Sandy Rogerson, Supervisor of Health and Welfare Program, Apportionment Unit
of the State Controller's Office (9161322-51389). This is for the Health and Welfare
Realignment Program which was approved and went into effect in 1991. This program
is codified in Welfare 8 Institutions Code, Sections 17600 - 17609.15. Only seven
cities statewide receive any funds for this program (San Francisco, Berkeley, Pasadena,
Long Beach, and a Tri -City group).
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SEF'-21-1GS= E 2. 16 85E _=Sr F'.0$
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Public SafetyFids
These funds were voter approved through Prop 172 in November of 1993 and amount to
a .5% sates tax. They are designated for counties and cities that were subject to the
property tax shift and are apportioned to counties based on their percentage of statewide
taxable sates.
Counties aliocate funds to cities based on a formula established in Government Code
Sections 30052-30054. According to Mr. Lyman Jeung, Principal Accountant of the LA
County Auditor's Office (telephone 213!974-9362). and as stated In the Code, there is
a limit on how much cities can receive from Prop 172 revenue -- 50% of the amount
shifted in property taxes after deducting vehicle registration fee revenue. For example,
if a city lost $1 million in property tax revenue but received $200.000 in vehicle
registration fee revenue, then the city could receive no more than 5400,000 in Prop
172 revenue (1,000,000 - 200,000 = 800.000 ' .50 = 400,000).
LA County received $370 million in fiscal year 94-95 (less 1 month) and retained
$335 million; cities in LA County were apportioned about $35 million -- less than
1090 of the total apportioned to LA County by the State. Mr, Lyman says that counties
lost a greater share of property tax revenue during the shift and this is why counties
receive a larger share of sales tax- revenue from this source. According to Ms. Kwong-
McGee at the State Controller's Office (9191324-8365), a number of cities are now
complaining how tittle funding they actually receive -- in some cases counties are
retaining up to 95% of these revenues. As an example of what this has meant to cities
consider the following example.
Prop 172 ushered in a 112 cent or .5% sales tax. A 1% sales tax results in $5.7
million to ft City of Covina (population 44,000) when it is apportioned based on place
of sate. Yet, the 112 cent sales tax imposed by Prop 172 resulted in only $213,000 to
Covina last year. This has to do with the tormula set forth in Government Code Section
30054. If this allocation formula was changed to return the funds based on place of
sate, Covina's revenue designated for public safety services would increase by over $2.5
million per year.
SEP -27-1991S 1 ?G- -':,'_-7: c c`: = �. - F P. 19
RESOLUTION NO. 95-142
A RESOLUTION OF THE LODI CITY COUNCIL
SUPPORTING THE LEAGUE OF CALIFORNIA CITIES'
RESOLUTION ON SALES TAX REDISTRIBUTION TO INCREASE
THE AMOUNT RECEIVED BY CITIES TO 2%
WHEREAS, the State receives five times as much sales tax revenue as cities
throughout California; and
WHEREAS, the sales tax revenue retained by the State from individual cities often
exceeds the general fund budgets of those cities where the sales tax revenue originates; and
WHEREAS, cities provide services that directly benefit the quality of life in
hundreds of communities throughout California; and
WHEREAS, the public benefits of cities' services include the maintenance of
property values, reduced risk to health and safety caused by crime, fires, medical
emergencies, poor sanitation, and poor building and road construction; and
WHEREAS, cities' services provide important cultural and economic benefits
through parks and recreation programs, library and senior programs, removal of blight from
inner cities and older neighborhoods, and through business attraction efforts that provide
jobs; and
WHEREAS, the State has acted to reduce the amount of revenue received by cities
in recent years forcing many cities throughout California to augment their revenues by
imposing local assessments, fees, or taxes -- or to make cuts in essential services; and
WHEREAS, because cities receive only a small fraction of the money collected
through voter -approved Proposition 172 (Public Safety Augmentation Fund), public safety
services like police and fire services face drastic financial reductions in many cities
throughout California in light of State takeaways and State -imposed mandates; and
WHEREAS, many taxpayers object to paying additional taxes for what they view as
diminishing local services caused by these factors, especially while the demand for police
services, for example, continues to increase due to rising crime; and
WHEREAS, on August 3, 1995, the Los Angeles County Division of the League of
California Cities adopted a resolution which seeks legislative action that would result in a
more equitable distribution of sales tax revenue by shifting 1% sales tax revenue from the
State to cities; and
WHEREAS, the League's resolution will help cities provide essential local services
without adding more burden to taxpayers; and
WHEREAS, on October 24, 1995, the General Assembly of the League of
California Cities will vote on this important resolution;
NOW, THEREFORE, BE IT RESOLVED, by the Lodi City Council that the City
of Lodi does hereby support the League of California Cities' resolution to Redistribute
Sales Taxes so that the total received by cities is 2% of the amount paid per dollar on
taxable sales.
Dated: October 18, 1995
I hereby certify that Resolution No. 95-142 was passed and adopted by the City
Council of the City of Lodi in a regular meeting held October 18, 1995, by the following
vote:
AYES: COUNCIL MEMBERS -
NOES: COUNCIL MEMBERS -
ABSENT: COUNCIL MEMBERS -
ABSTAIN: COUNCIL MEMBERS -
Attest:
JENNIFER M. PERRIN
CITY CLERK
95-142
STEPHEN J. MANN
Mayor