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SR-8-A (174) 2/-2 -(/0/ 2/ ;':"7 -CC6 FIN:CMD:ymk:srrptt.word.pobas city council: July 23, 1991 i-A JUL 2 ';l i9;1 Santa Monica, Californ1a ~ STAFF REPORT TO: Mayor and City Council FROM: City Staff SUBJECT: FIRST READING OF ORDINANCES INCREASING THE REAL PROPERTY TRANSFER AND TRANSIENT OCCUPANCY TAXES AND AUTHORIZATION FOR CITY MANAGER TO NEGOTIATE AND EXECUTE AN AGREEMENT WITH LOS ANGELES COUNTY TO COLLECT TAX RECEIPTS Introduction During deliberations on the City's FY1991-92 Budget, the city Council added twenty police positions, approved additional funding for improvements to Palisades Park, determined that these additional costs were to be financed by increasing the Real Property Transfer and/or Transient Occupancy Taxes, and directed staff to return to Council to indicate in what proportion the additional costs should be distributed between these two revenue sources. This staff report is to transmit to the city Council the attached ordinances increasing both taxes, however staff recommends that these additional costs be financed by an increase in the Real Property Transfer Tax and that the Transient Occpancy Tax not be increased. It is further recommended that the tax increase ordinance(s) selected be introduced for first reading, and that the City Manager be authorized to negotiate and execute an agreement with Los Angeles County to collect the City's Real Property Transfer Tax receipts. I-A - 1 - JUl 2 J :991 Background Currently, the City's Transient Occupancy Tax rate is 12% and the value. Real Property Transfer Tax rate is $.55/$1,000 of property sale Comparison tax rates for those cities in the general Westside/South Bay area and other selected California cities which are tourist destinations are as follows: City Transient Occupancy Tax Rate Real Property Transfer Tax Rate (per $1,000 Sales Value) General Westside/South Bay Area 11% $ .55 Beverly Hills Culver City El Segundo Hawthorne Inglewood Long Beach Los Angeles Manhattan Beach Redondo Beach West Hollywood Los Angeles County (Marina del Rey) 12% 4.50 8% .55 8% 12% 10% 12.5% 8.5% 10.0% 12.0% 12.0% .55 .55 .55 4.50 .55 1.10 .55 1.10 other Selected California cities Anaheim Monterey Newport Beach Palm Springs San Diego San Francisco Santa Barbara 11.0% 10.0% 9.0% 10.0% 9.0% 11. 0% 10.0% - 2 - Comment -City budget was adopted as of 7/16/91. Staff will return to Council recom- mending a 12% TOT tax rate. -city Budget not adopted as of 7/16/91. The current Los Angeles Transient Occupancy Tax rate of 12.5% appears to be the highest in the state, whereas the Los Angeles Real Property Transfer Tax rate of $4.50/$1,000 of property sale value is significantly less than the $9.50 tax rate in the city of Oakland which is believed to be the highest in the state. Cost Increase and Alternate Financinq Sources Staff has determined that the annual cost of adding twenty Police positions (17 officers and 3 sergeants), associated support costs in the city Attorney's Office and Police Department, and improvements to Palisades Park is $2.0 million. Attached is a schedule detailing these costs. To finance these additional costs, the City Council determined that either or both of the Real Property Transfer and Transient Occupancy Taxes be increased. The city council also directed staff to return to the Council and indicate how the additional costs should be distributed between these two revenue sources. staff does not recommend that the Transient Occupancy Tax (TOT) rate be increased. It has been the City's practice to maintain tax rates at or somewhat lower than those in surrounding jurisdictions in order to provide a competitive advantage to the City's businesses in the region's economy. This practice is one of the reasons the city has been able to weather the current recession in a relatively strong fiscal condition. To increase the TOT tax rate up to or in excess of the current Los Angeles tax rate of 12.5% would eliminate this competitive advantage. Further, potentially having the highest TOT tax rate in the state - 3 - would be counter productive to maintaining city revenues which are required to continue the high level of public services provided to City residents. However, should the city council wish to generate additional revenues from this source, attached for first reading is an ordinance increasing the City's TOT rate from 12.0% to 13.0% effective October 1, 1991. This tax rate change would increase revenues by $.4 million for FY1991-92. It has been the practice of the city to have a delayed implementation date for TOT rate increases to allow hotel and motel operators to fulfill prior commitments for Summer lodging without having to change the terms of those commitments. In place of increasing the TOT rate, staff recommends that the Real Property Transfer Tax rate be increased to $3.14/$1,000 of property sale value. The projected impact of this tax rate increase on the sale of a $500,000 property is as follows. The tax payment is the legal responsibility of the property seller. Current Proposed $ 500,000 7 1,000 500 x 1.10 $ 550 $ 500,000 x : 1,000 500 4.24* 2,120 of which $1,570 goes to city of Santa Monica, and $550 goes to Los Angeles County. ** of which $275 goes to City of Santa Monica, and $275 goes to Los Angeles County. $ * $1.10 for Los Angeles County + $3.14 for City of Santa Monica. ** The law specifies that if a City's tax rate is increased above $.55/$1,000 of property sale value, the City's previous share of the total $1.10/$1,000 of property sale value reverts to the County. - 4 - Hence, the proposed tax rate increase represents an increase from .11% to .42% of the sale value of $500,000. If selected, this revised Real Property Transfer Tax rate will be lower than the rate being charged by the cities of Los Angeles and Culver city. Attached for first reading is an ordinance which will affect this tax rate increase and implement other necessary procedural changes. Implementation of the Real Property Transfer Tax Rate Increase Payment of the Real Property Transfer Tax is due upon the sale of any real property in the city of Santa Monica. currently, the Los Angeles County Registrar-Recorder collects the $1.10/$1,000 of property sale value transfer tax upon the filing of each new deed and simply forwards the City's share ($.55/$1,000 of property sale value) to the city. However, staff have been informed that the County Registrar-Recorder will charge (by crediting against actual tax receipts) a nominal fee per deed filing if the City establishes a revised tax rate. staff believes contracting with the County Registrar-Recorder is the most efficient method of collecting these tax receipts. It is therefore necessary to authorize the City Manager to negotiate and execute an appropriate tax collection agreement with Los Angeles County. - 5 - Budqet/Financial Impact Increasing the City's Real Property Transfer Tax rate to $3.14/$1,000 of property sale value will increase FY1991-92 revenues by approximately $1.5 million as the implementing ordinance and a tax collection agreement with the County Registrar-Recorder will not be in force until approximately the end of September, 1991. Should the city Council also decide to increase the Transient Occupancy Tax from 12% to 13%, FY1991-92 revenues will be increased by $.4 million, and it will only be necessary to increase the Real Property Transfer Tax rate to $2.46/$1,000 of property sale value to generate the remaining $1.1 million for FY1991-92. Since expenditures related to the additional Police positions and associated support costs will not occur until FY1992-93 due to the length of time it takes to recruit and train new officers, FY1991-92 tax receipts will be used to help finance one-time capital improvements to Palisades Park. The adopted FY1991-92 city budget will be revised to reflect these revenue and expenditure increases. Recommendation It is recommended that: 1) The FY1991-92 budget be amended to reflect additional revenues of $1.5 million and a $1.5 million capital expenditure for improvements to Palisades Park; 2) The attached ordinance(s) be introduced for first reading; and - 6 - 3) The City Manager be authorized to negotiate and execute an agreement with Los Angeles County to collect the city's Real Property Tax receipts. Prepared by: John Jalili, City Manager Robert M. Myers, city Attorney Mike Dennis, Director of Finance - 7 - ADDITIONAL CITY COUNCIL APPROVED COSTS OF JUNE 25, 1991 o Additional Police positions* - Salaries $ 831,100 - Employee Benefits, Special pays/ Allowances, Worker's Compensation Costs 542,100 - Supplies and Expenses (Uniforms, Protective Clothing, etc.) 75,500 - Capital outlay (Police vehicles and assessories, portable radios, etc.) o Associated Support Costs** One additional City Attorney position 137,900 103,300 Three additional Police Records Management section positions Capital Improvements to Palisades Park*** 127,100 o 183,000 Total $2,000,000 * 17 Police Officers and 3 Sergeants ** position allocations and costs to be finalized for FY1992-93 budget. *** These additional funds will be combined with reallocated capital improvement funds already included in the FY1991-92 budget to finance various improvements to palisades Park. CMD:7/23/91 (polpos) CA:RMM:rmd1283/hpca1/pc city council Meeting 7-23-91 Santa Monica, California ORDINANCE NUMBER (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AMENDING SANTA MONICA MUNICIPAL CODE SECTIONS 61000, 61002 AND 61008, AND ADDING SECTION 61010 TO THE SANTA MONICA MUNICIPAL CODE THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES ORDAIN AS FOLLOWS: SECTION 1. Santa Monica Municipal Code Section 61000 is amended to read as follows: SECTION 61000. Title. This Ordinance shall be known as the "Real Property Transfer Tax Ordinance of the Ci ty of Santa Monica. rI It is adopted pursuant to the authority contained in Part 6.7 (commencing with section 11901) of Division 2 of the Revenue and Taxation Code of the state of California and other authority held as a charter city. SECTION 2. Santa Monica Municipal Code Section 61001 is amended to read as follows: SECTION 61001. Transfers Affected and Amount of Tax. Effective September 15, 1991, there is hereby imposed on each - 1 - deed, instrument, or writing by which any lands, tenements, or other real ty sold within the city of Santa Monica shall be granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his or her or their direction, when the consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale) exceeds $100.00, a tax at the rate of $3.14 for each $1,000.00 of property sale value or fractional part thereof. SECTION 3. Santa Monica Municipal Code Section 61008 is amended to read as follows: SECTION 61008. Agreement with County Recorder. The County Recorder shall administer this Ordinance in conformity with the provisions of Part 6.7 of Division 2 of the Revenue and Taxation Code and the provisions of any county ordinance adopted thereto. The City Manager of the city of Santa Monica is authorized to negotiate and enter into a contract with the County of Los Angeles - 2 - or one of its officials for the administration of this Ordinance and payment to the County for its costs of administration. SECTION 4. section 61010 is hereby added to the Santa Monica Municipal Code to read as follows: SECTION 61010. Authority of Finance Director. (a) The Direct of Finance is hereby designated as the officer of the city responsible for maintaining relations with the County of Los Angeles for the purpose of administering the tax imposed under this Ordinance and receiving and accounting for the funds collected thereunder. (b) If the County of Los Angeles does not collect the tax due under this Ordinance, then the Director of Finance shall have the power and duty to enforce all of the provisions of this Ordinance. In such case, the City tax is due prior to any recordation with the County of Los Angeles of any written instrument subject to the tax and the Director of Finance may make an assessment for taxes not paid and make refunds. - 3 - SECTION 5. Any provision of the Santa Monica Municipal Code or appendices thereto inconsistent with the provisions of this ordinance, to the extent of such inconsistencies and no further, are hereby repealed or modified to that extent necessary to affect the provisions of this Ordinance. SECTION 6. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of any competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The city council hereby declares that it would have passed this Ordinance, and each and .." every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the Ordinance would be subsequently declared invalid or unconstitutional. SECTION 7. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The City Clerk shall cause the same to be published once in the official newspaper within 15 days after its adoption. This Ordinance shall become effective after 30 days from its adoption. APPROVED AS TO FORM: ~~-""'~~_.-P-~.< ,~....... - .....l '-" ....~~~~"'\.~~ , , K ROBERT M. MYERS City Attorney - 4 - CA:RMM:rmd1288/hpca1/pc city council Meeting Santa Monica, California ORDINANCE NUMBER (City Council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AMENDING SANTA MONICA MUNICIPAL CODE SECTION 6601 TO INCREASE BY ONE PERCENT THE TRANSIENT OCCUPANCY TAX OF THE CITY AND REPEALING SANTA MONICA MUNICIPAL CODE SECTION 6601A THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES ORDAIN AS FOLLOWS: SECTION 1. Santa Monica Municipal Code Section 6601 is amended to read as follows: SECTION 6601. Tax. On and after the effective date of this Ordinance, there is hereby imposed and levied on each and every transient, as defined in Section 6600(a), a tax equivalent to thirteen percent (13%) of the total amount paid for room rental by or for any such transient to any hotel; which said tax shall be collected from such transient at the time and in the manner hereinafter provided. Said tax is levied for revenue purposes and is necessary for - 1 - the usual financial operation of the City of Santa Monica. SECTION 2. hereby repealed. Santa Monica Municipal Code Section 6601A is SECTION 3. Any provision of the Santa Monica Municipal Code or appendices thereto inconsistent with the provisions of this Ordinance, to the extent of such inconsistencies and no further, are hereby repealed or modified to that extent necessary to affect the provisions of this Ordinance. SECTION 4. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of any competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The city Council hereby declares that it would have passed this Ordinance, and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the Ordinance would be subsequently declared invalid or unconstitutional. - 2 - SECTION 5. The Mayor shall sign and the city Clerk shall attest to the passage of this Ordinance. The city Clerk shall cause the same to be published once in the official newspaper within 15 days after its adoption. This Ordinance shall become effective after 30 days from its adoption. APPROVED AS TO FORM: r~~'.r~r-"<~ : -" ~...~ =...... _..-~_. ......~~ ROBERT M. MYERS City Attorney ..- - 3 - l1/d F/J July 167 1991 To Whom It May Concern: I understand the Santa Monlca C~ty Council ~s considering a 2% increase in the bed tax wlthin the city. I strongly object to thls move. Th~s tax (TOT or Transit Occupancy Tax) increased from 8% in 1987 to its present 12% figure. During the year 1991 I w~11 stay at The Hotel Santa Monica approximately 100 lllghts. This hotel serves my bedding needs very well for a figure of about $25 a night. I work in Santa Monica and often must stay in the area. Therefore I w111 pay about $2500 for this shelter during the year. At the present 12% rate that would be $300 in bed tax. Now there are plans for me to pay $50 more. Enough is enough. en July 15 sales tax in the state went up to 8 1/4% and was levled on such items as snack foods, bottled water and newspapers. The average man has been hit enough. I suggest the Clty Counell take a hard look at the need for this revenue. Or perhaps the Council can look to tax something that 15 not a necessi' Thank you for your conSloeratlon of t llS matter. Slncere1y, ~y~~ D1Ck Balos The Printing Palace 513 Wilshire Blvd. Santa Monica, CA 90401 (213) 451-5151