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City of Salinas, California
DATE: FROM: SUBJECT: February 15, 2005 Vanessa W. Vallarta, City Attorney Informational Report re Tax Measure Options
Agenda Item Number Administrative Report 1 7:30 PM Department Director Approval Finance Review ________________________ Attorney Review ________________________ City Manager Approval
BACKGROUND: Since April 2003, the City Council has had to reduce the General Fund budget a total of $15.3 million dollars or 24%, including the elimination of 123.25 positions. These reductions have broadly impacted services throughout the City and undermined the public health, safety and welfare. In the November 2004, general election, Measure A (Temporary Transaction and Use Tax) and Measure B (Utility Users Maximum Tax) failed to garner sufficient votes to pass. Both were submitted as general tax measures. Measure A failed by only 1,087 votes. There are 44,555 registered voters in the City of Salinas. At its December 14, 2004 meeting, the Council directed staff to return to the Council with a report analyzing the alternatives for presenting a ballot measure to the voters as soon as possible to secure a permanent source of funding for the library as well as other City services that have been reduced and eliminated. ISSUE: What options do the Council and the voters have to propose other taxes to the electorate? DISCUSSION: Types of Taxes Taxes are either imposed on real property or they are imposed on an activity. Since the passage of Proposition 13 in 1978, cities have not had the power to impose property taxes. Although there is a property tax, it is imposed by Art. XIIIA, §1 of the California Constitution.
Taxes that are imposed on an activity are generally referred to as “excise taxes,” “license taxes” or “privilege taxes.” These include: • • • • • • • • Transient occupancy taxes (TOT); Business license taxes; Utility users taxes; Real property transfer taxes; Sales and use taxes; Parcel taxes; Development taxes; and Transactions and use taxes.
Any tax that the Council may wish to propose to the voters would thus be an excise tax. The City’s ability to enact some excise taxes has been preempted by the state. For example, the ability to enact a sales and use tax was preempted by the Bradley Burns Uniform Sales and Use Tax Law (Rev. & Tax Code, §7200 et seq.); although the City has enacted a sales and use tax, it can only do so consistent with the authority of the Bradley Burns Act. Similarly, since 2004, cities have had the ability to impose transactions and use taxes because the Legislature enacted Rev. & Tax Code §7285.9 providing that authority. One of the taxes the Council proposed in November 2004 was a transactions and use tax. One practical matter that a council will want to consider prior to proposing a tax to the voters is who will pay the tax. For example, the transactions and use tax that was proposed in November 2004 would be imposed on retailers but would be paid by the general public; the utility users tax would be paid by utility users; and the business license tax would be paid by the business owners. A parcel tax would be paid by the occupants of real property for the availability and use of City services. Another practical matter to consider is how the tax will be collected. A transient occupancy tax would be collected by the hotel/motel operator; a business license tax would be collected by the City; a utility users tax would be collected by the utility; a real property transfer tax or documentary transfer tax is collected by the County Recorder; a sales and use tax is collected by the State Board of Equalization; a development tax would be collected at issuance of building permits; and a transactions and use tax would be collected by the State Board of Equalization. Parcel taxes may be collected by the County Tax Collector along with real property taxes, if the County agrees to collect the tax and if there is a high correlation between ownership and occupancy of property. General vs. Special Taxes Taxes are categorized as either “general” or “special” taxes for purposes of determining: o When is the election? o What is the vote required for passage? o How can the tax revenues be used?
A general tax must be submitted to the electors at a regularly scheduled general election at which members of the Council will be elected, unless the Council by unanimous vote finds there is an emergency which justifies placing the proposed tax before the voters at a special election. (Cal. Const. Article XIIIC §2.) A proposed general tax will take effect if approved by a majority of the voters voting at the election. (50% +1) The proceeds of the tax may be placed in the general fund and used for any governmental purpose. A special tax may be submitted to the electorate at a general or special election. (Cal. Const. Article XIIIC §2(d).) A proposed special tax will take effect if approved by two-thirds of the voters voting at the election. (See also, Salinas City Charter, Section 69: “No special tax shall be levied by the Council unless such levy shall first have been submitted to an election of the people and approved by at least two-thirds of the qualified electors who voted thereon….”) The proceeds of a special tax must be placed in a special fund and may be used only for the purposes specified in the measure. Procedural Requirements for the Adoption of General or Special Taxes The Council would adopt a resolution calling an election. The resolution calling the election must include the type of tax, the tax rate, the method of collection, and the date of the election. The resolution calling an election on a special tax must describe the purpose of the tax (Government Code § 53724(a)) and must include accountability measures restricting the tax revenue to the identified purpose of the special tax, creating a special account for the proceeds, and requiring the preparation of an annual report by the chief financial officer describing any expenditure of the proceeds and the status of any projects funded by the tax. (Government Code § 50075.1.) The proposed ordinance or resolution imposing the tax would be attached to the resolution calling the election and, if approved by the voters, would be adopted by the people. It would become effective ten days after the results of the election are certified. (Elections Code § 9217.) The resolution calling the election would also include the ballot question, which can be no longer than 75 words. The Council can designate one or more of its members to write the argument in favor of the measure. (Elections Code §9287.) If the Council were to designate one member to write the argument in favor on behalf of the City Council, the Council could also authorize that councilmember to allow representatives of “bona fide” organizations wishing to support the measure to sign the ballot argument. There is a limit of five signatures on a ballot argument. Although the Council can place a measure before the voters, can endorse it and can authorize one or more of its members to write the argument in favor of the measure, the Council cannot spend money to promote the passage of the measure. (Stanson v. Mott (1976) 17 Cal.3d. 206, 221; Government Code §§82013(b), 82031.)
Timing Considerations for Special and General Taxes Special Tax: (2/3) vote – may be considered at either a regular or special election. General Tax: (50%+1vote) – may only be considered: o At a regularly scheduled general election at which members of the Council will be elected (November 2006), or o At a special election if the Council finds by a unanimous vote that there is an emergency, which justifies placing the proposed tax before the voters at a special election. (Cal. Const. Article XIIIC §2.) The Emergency Requirement No cases have addressed the broadly worded requirement for an emergency to place a general tax before the voters at a special election. None of the ballot materials mention this requirement. The proponents of Proposition 218, which enacted Article XIIIC, prepared an annotated version over a month after the election; the annotations note that the requirement for unanimity should be interpreted consistent with existing case law as requiring a unanimous vote of those present at the meeting, not of all members of the legislative body, because “the nature of the emergency might keep some members of the local legislative body from attending a meeting.” This statement implies that the drafters thought an emergency could consist of some event that would interfere with elected officials’ ability to travel, but this interpretation does not appear to be the only interpretation of what constitutes an emergency, it was made over a month after the election, and it was not before the voters when they voted, so its relevance is limited. In the absence of any cases interpreting Article XIIIC §2, the courts may look to other cases interpreting other emergency declarations. Most cases that address a local governing body’s emergency powers define an emergency as, “An unforeseen situation calling for immediate action … Not only must the urgency be present, the magnitude of the exigency must factor. Emergency is not synonymous with expediency, convenience or best interests, and it imports more than merely general public need. Emergency comprehends a situation of ‘grave character and serious moment.’ It is evidenced by an imminent and substantial threat to public health or safety.” Los Osos Valley Associates v. City of San Luis Obispo, 30 Cal.App.4th 1670, 1680-1681 (1994). In this case, the court considered whether the City of San Luis Obispo could avoid liability for inverse condemnation by arguing its actions constituted an emergency. In addressing the courts’ role, the court noted that “although courts generally defer to legislative determinations, “the mere declaration of the City council that the ordinance passed for the immediate preservation of the public health is neither conclusive or sufficient.” Id, at 1682 [emphasis added] (Citing Crown Motors v. City of Redding (1991) 232 Cal.App.3d 173, 179).
The only other jurisdiction known to have placed a general tax measure on the ballot at a special election after making a finding of a fiscal emergency is the City of Santa Cruz in March 2004. There, the City cited its budget crisis and proposed a temporary transactions and use tax increase of one-quarter percent (1/4%). The measure was consolidated with a statewide election on March 2, 2004 and passed with a 69% approval rating. The Santa Cruz experience may be of little precedential value, however, in that the election was never legally challenged. The Council Can Declare an Emergency but Should First Hold a Public Hearing and Should Make Findings to Support the Declaration of the Emergency The Council can declare an emergency, provided all members who are present vote in favor of the declaration of emergency, and call a special election to place a general tax before the voters. In the City of San Luis Obispo case, the court noted that courts generally defer to legislative determinations of legislative bodies but indicated that a “mere declaration” was neither conclusive nor sufficient. In order for a court to give deference to the City Council’s declaration of an emergency under Article XIIIC §2(d), the declaration must be more than a “mere declaration.” A declaration of an emergency to call a special election to consider a general tax will likely be upheld if challenged if (1) the Council adequately documents the possible negative impacts on the public health, safety and welfare of the residents of Salinas from the cuts that have been made due to lack of revenues; (2) the Council considers the report at a noticed public hearing and considers testimony from the public; and (3) the Council adopts findings, supported by the City Manager’s report and public testimony, that there has been and will continue to be a negative impact on the public health, safety and welfare of the City’s residents, and that that negative impact was exacerbated by the failure of the two proposed taxes in November 2004. Possible Findings to Support Declaration of Emergency The Council may make findings to support its declaration of emergency that the City’s lack of revenues has broadly adversely affected the health, safety and welfare of residents. For example, the Council may find that the City’s financial crisis has resulted in: o The closure of all City’s public libraries, a resource used by numerous young people, some of who may no longer have a safe place to go after school, on weekends or vacations; o Elimination of school crossing guards throughout the City resulting in increased hazards to children and at least one incident involving bodily injury; o The closure of five (5) City recreation centers, eliminating the use of these facilities for City sponsored programs for residents of all ages; o Maintenance reductions in every City park, resulting in increasing deterioration of facilities and less availability for safe use by residents of all ages;
o Elimination of fire safety training in City schools (“stop, drop and roll”); o Elimination of graffiti abatement program resulting in increased vandalism and visual evidence of gang labels in the City; o Reduction of one (1) on-duty firefighting position per shift, resulting in decreased ability to respond to emergencies and potentially increasing risk to remaining on-duty personnel; o Elimination of previously authorized sworn police officer positions resulting in the City’s lack of adequate resources to assure adequate public safety for residents; o Significantly reduced maintenance of all City facilities, streets and roads, landscaping and street trees resulting in quicker deterioration of facilities and increased unsightliness that will impact quality of life in the City; o Elimination of all General Fund reserves so that the City will not be able to finance response to emergencies that may occur. Special Election – Possible Dates The City’s Charter provides that elections shall be held in accordance with the provisions of the Elections Code, unless otherwise provided by ordinance or resolution. (Salinas Charter, § 26.) Under the Elections Code provisions, if the Council proposes a tax to the voters and calls a special election, the only “established election dates” in 2005 are June 7, 2005 and November 8, 2005. The Council will have to call an election for June 7, 2005 no later than 88 days prior to June 7, or by March 11, 2005. (Elections Code § 9222.) The Council would have to call an election for November 8, 2005 no later than 88 days prior to November 8th or by August 12, 2004. Alternatively, the Council may also adopt a resolution calling for a special election on a date certain or adopt a more general ordinance to provide for other election dates for special elections. For example, the Council could adopt a generic ordinance providing additional dates for special elections, such as in the months of July, August, September or October. Mail Ballot Elections California Elections Code Section 4001 details conditions for mail ballot elections that are specific to Salinas because Salinas is within Monterey County. Specifically, Section 4001 states that notwithstanding the requirements of Elections Code Sections 1502 and 4000, any election in Monterey County may be conducted as an all-mailed ballot election, subject to all of the following conditions: (1) The City Council, by resolution, authorizes the all-mailed ballot election and notifies the Secretary of State of its intent to conduct an all-mailed ballot election at least 88 days prior to the date of the election.
(2) The election does not occur on the same date as a statewide primary or general election (November 8, 2005 and June 7, 2005 are the upcoming restricted dates). (3) The election is not a special election to fill a vacancy in a state office, the Legislature or Congress. (4) The statute makes it a condition that one polling place is provided in each city within the jurisdiction. This should be interpreted to mean, in light of Section 4001(a)(1), that at least one polling place be provided in the City. (5) The return of mailed ballots is subject to Elections Code Section 3017, i.e. "return of cast absentee ballot" procedures. Section 4001 is in effect only until December 31, 2005. Thus, an all mailed election may be held any date this year, except December 31, 2005 and the two restricted dates above. (Absent Section 4001, Salinas would be subject to section 4000 which would limit Salinas to mail ballot elections only on May 3, 2005 and August 30, 2005.) Based on the above, the City may hold an all-mailed ballot election for a measure imposing a special or general tax. A Tax May Also be Proposed to the Voters by Initiative A tax may also be enacted through the initiative process. (Elections Code §§9200 et seq.) After drafting an initiative measure, proponents of the initiative must file a "notice of intention" to circulate a petition for signatures with the City Clerk, along with the text of the proposed measure and a request for ballot title and summary. (Elections Code §9202.) The City Attorney then provides an impartial analysis and non-argumentative ballot title and summary within 15 days of the filing of the notice of intent. (Elections Code §9203.) Proponents of the initiative must publish the notice of intention, ballot title, and summary in a local newspaper of general circulation. (Elections Code §9205.) Proponents have 180 days from the receipt of the ballot title and summary to circulate a petition for signatures; signatures must be secured, and the petition and all sections filed within 180 days of the receipt of the title and summary. (Elections Code §9208.) If the local elections official determines that the requisite number of valid signatures has been gathered, he submits the initiative to the City Council. During the circulation of the petition, the City may refer the proposed initiative measure to any City department for a report on such things as the measure's fiscal impact.
By statute, the City Council has two choices: (1) It can enact the measure as presented; or (2) It can call an election and present the measure to the voters. (Elections Code §§9214, 9215.) If 10% of the voters sign the initiative petition, the election is held at the next regular municipal election. (Elections Code § 9215.) If 15% of the voters sign the initiative petition, the election is held at a special election to be called within 88 to 103 days later. (Elections Code §9214.) Notwithstanding the fact that the Council has the choice, by statute under the Elections Code, to enact the initiative measure as presented, the Council’s choices appear to be more limited if the initiative proposes the enactment of a tax which is governed by the Constitutional provisions enacted by Prop 218. The Elections Code provisions provide two choices. Subsequent to the enactment of these Elections Code provisions, the voters enacted Proposition 218, which added Article XIIIC, §2 to the Constitution, which provides that no local government can impose a tax unless it is submitted to, and approved by, the electorate. The later-enacted Constitutional provision would likely prevail over the Legislatively-enacted statute. Given the limited case law on the subject, a court would likely find that Elections Code §§9214 and 9215 provide one choice for initiatives that propose taxes. (See Ventura Group Ventures (VGV), Inc. v. Ventura Port District (2001) 24 Cal.4th 1089; Hawn v. County of Ventura (1997) 73 Cal.App.3d 1009 [Court invalidated an initiative because it violated the Constitutional guarantee of equal protection].) That choice is to call an election and present the measure to the voters. Another issue that may arise that will require reconciliation between the Elections Code provisions applicable to initiatives and Proposition 218 is whether the proponents or the Council, after the requisite valid signatures are submitted for an initiative, would need to make findings of an emergency in order to hold a special election. The answer depends on the facts. Because there are no cases discussing this question, there is no clear answer. If more than 15% of registered voters sign an initiative, which proposes a general tax, and if the initiative ordinance includes a declaration of an emergency in it that the people would make if they adopt the ordinance, the Council is required by the Elections Code to call a special election within 88 to 103 days. (Elections Code §§9214, 1405(a).) Proposition 218, however, provides that a general tax can only be submitted to the voters at a special election if the governing body declares an emergency by a unanimous vote. ((Cal. Const. Article XIIIC §2.) Although the people's right to the initiative is derived from Article II, §11 of the Constitution, the Constitution does not include the requirement for a special election if 15% of the voters sign the
petitions. That requirement is found in Elections Code §9214. As discussed above, we have a conflict between a statute and a later-enacted Constitutional provision. Article XIIIC, §2 does allow a general tax to be placed before the voters at a special election but only if the governing body votes unanimously to declare an initiative. If the Council received an initiative that included a declaration of an emergency, and if the Council received information at the meeting at which it must call the election to support a finding of an emergency, and assuming a unanimous vote of the councilmembers present to declare an emergency based on findings and call a special election, a court would most likely find that the City interpreted Proposition 218's requirements in a manner to protect both the people's right to the initiative and Proposition 218's purpose of limiting local government revenue and enhancing taxpayer consent. (Proposition 218, §5.) If some of the factors listed above are not present (e.g., less than 15% of voters sign the initiative petition, the initiative does not itself include a declaration of emergency, the Council does not have facts before it to support a declaration of emergency but merely concludes there is one) it may be less likely a court would find a special election was consistent with Proposition 218. SUMMARY AND CONCLUSION: At a future meeting, the Council may consider a variety of ballot measures to secure a more stable source of funding for the City’s libraries and other essential services. The Council and/or the voters will first need to decide upon the type of tax and appropriate tax rate. Thereafter, the Council, and/or the electorate by initiative, may propose a: (1) General tax, upon a finding of an emergency, to be voted on at a special election, upon not less than 88 days notice. This may be a mail ballot election so long as it is held before December 31, 2005 and not on June 7, 2005 or November 8, 2005; (2) General tax to be voted on at the next regularly scheduled election for members of the City Council (November 2006); (3) Special tax to be voted on at one of the established election dates in 2005 (June 7, 2005 or November 8, 2005) or such other date at the Council may establish by resolution or ordinance.
Distribution: City Manager Department Directors
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