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SR-11-A e e 1/-4 AUG 1 1 1987 CjEO:EDD:PC:JPM:pw council Meeting: August 11, 1987 Santa Monioa, California TO: The Mayor and City Council FROM: city Staff SUBJECT: Adoption of a Resolution by the City council Amending the Fee Levied for the Operation, Maintenance and Repair of Public Improvements in the Third street Mall and Downtown Assessment District INTRODUCTION This staff report recommends that the City council adopt the attached resolution amending the fee levied for operation, maintenance and repair of public parking structures and conunon areas in the Third Street Mall and Downtown Assessment District. The proposed amendment to the fee levied for operation, maintenance and repair is intended as a concomitant action to be effective upon installation of parking meters in the downtown parking structures. BACKGROUND At its June 23, 1987 meeting, the City Council approved in concept a plan to install parking meters in the downtown parking structures and reduce the annual Mall Maintenance Fee which is levied against all holders of business licenses in the third street Mall and Downtown Assessment District. Furthermore, the council directed staff to prepare and submit the necessary documents to create a new parking meter zone in the Downtown area and amend the existing Maintenance Fee. - 1 - subsequently, Council 1/-;4 AUG 1 1 1987 . . has conducted two public hearings for the introduction of an amendment to the Municipal Code relating to the creation of a new parking meter zone for the affected six parking structures within the Downtown Assessment District. Staff has commenced acquisition of the previously authorized 1,434 parking meters and scheduled installation for October I, 1987. The concomitant proposed fee reduction is a result of an earlier council request that staff evaluate the equity of the formula for determining the Maintenance Fee. To pursue this evaluation, staff worked with the various constituent groups in the District including property owners, merchants, professional office tenants, Chamber of Commerce representatives and the Third Street Development Corporation. The evaluation consisted of a comprehensive analysis of all revenues and expenses generated in the District to determine a fair and equi table level for the Maintenance Fee. Most importantly, consideration was given to adjusting the Maintenance Fee so that the emerging barrier to the economic health of businesses in the District could be mitigated without enlarging the General Fund or citywide contribution. It was generally understood that the loss of funds resulting from any adjustment in the Maintenance Fee formula would have to be offset by a new source of revenue. DISCUSSION Given the projected annual parking meter revenue derived from 1,434 meters being installed by October 1, 1987 and an additional 300 meters being installed by January I, 1988, the new source of - 2 - . . annualized revenue should be approximately $693,600. Considering minimum administrative and operating expenses in managing the parking meter operation, this new revenue source would generally allow the Maintenance Fee to be lowered as follows: EXISTING FEE (1986-87) PROPOSED FEE (1987-88) PROPOSED FEE (1988-89) o Maximum 5x Business License Tax to ex- ceed $15,000 (or the adjusted amount in- creased by the CPI) . o Maximum 3.5x Bus- iness License Tax or $15,000 or $0.10/sq. ft./mo., adjusted annually by the CPI, which- ever is less, o On-site parking credit. o Maximum 3x Busi- ness License Tax or $15,000 or $O.lO/sq. ft./mo., adjusted annually by the CPI, which- ever is less, o On-site parking credit. The gradual reduction of the primary Business License Tax formula is intended to relieve the financial burden being experienced by Mall merchants, restaurant operators and service businesses tenants. Staff believes the prevailing Maintenance Fee formula of five times Business License Tax will discourage new or expanding businesses from locating in the Mall district. The eventual reduction of the formula to three times business license tax will effectively make the combined lease rates and Mall Maintenance Fee competitive with commercial/retail rental rates in other parts of the market area. As a result, the vital ground floor tenant spaces fronting on the common areas of the Mall will be better able to attract a broad spectrum of retailers and service businesses that serve the community. The purpose of the square foot limitation is to resolve a significant problem occurring with office leasing. Some office tenants must pay significant fees due to the City I s business - 3 - . . license tax rate for professionals, but often occupy very small square footage areas. Thus the $0.10 per square foot per month cap would provide assurance to potential tenants that their effective rent for office space would not exceed this amount. The square foot cap would be effective on a request basis only, with applicants having the burden to demonstrate to the City that they qualify for a fee reduction. This is because the City does not keep records on lease spaces with buildings (and they change frequently as well). Applicants requesting a reduction will be required to submit a copy of their lease and other documentation as to the amount of gross square footage they are leasing. The Department of Community and Economic Development, in conjunction with the Finance Department, will work with tenants and building owners on an individual basis to determine eligibility and appropriate reductions in Fees. It is anticipated that approximately 30 requests for reduction will be submitted for the city's consideration. The revised Maintenance Fee also provides a credit for businesses when the following conditions are met: parking is within a 300 foot radius; parking is provided free to the public; and, the fee-payer seeking the credit owns, controls and is the sole user of the parking facility. If all of these conditions exist, the business will be eligible for a percentage credit determined by dividing the amount of parking provided by the amount required by the zoning code. Finally, the parking credit would be available on a request basis only, with applicants having the burden to demonstrate to the city that they qualify per the aforementioned - 4 - . . conditions. It is anticipated that fewer than five requests will be made. TIMING OF METERS AND FEE REDUCTION The Maintenance Fee for each fiscal year is normally collected through quarterly installments. It is recommended that the payment be lowered from the 5x rate to the 3.5x rate commencing the second quarter of FY 1987-88, which should coincide with the installation of the meters. For ease of transition, during FY 1987-1988, the adjusted Fee shall be collected in three equal installments, on October 1, 1987, February 1, 1988, and June 1, 1988. Thereafter, the adjusted Fee shall be collected each fiscal year, in four equal quarterly installments at a rate of 3 times business license tax. Starting in FY 1988-89 the first installment would become due July 1st of each fiscal year, and would become delinquent on August 31st ~ the second installment would become due on October 1st of each fiscal year, and would become delinquent on November 30th, the third installment would become due on January 1st of each fiscal year, and would become delinquent on February 28th~ and the fourth installment would become due on April 1st of each fiscal year, and would become delinquent on May 31st. BUDGET/FISCAL IMPACT The proposed reduction in the fee and provision of credits will result in a loss of approximately $336,465 from this revenue source in FY 1987-88 compared with the estimated revenue that would have been generated in FY 1987-88 using the current fee - 5 - . . multiplier of 5 times the business license tax. This loss in revenue is less than the projected new revenue which will be generated from the meters. The meters are projected to generate about $490,200 in FY 1987-88 and $693,600 in FY 1988-89 (the first stabilized year for meter revenue) and annually thereafter. Thus the gap of District revenues versus costs is made smaller. And because net revenues to the ci ty are increased, the ci ty subsidy is reduced and the District moves closer to self-sufficiency in operations. The budgeted capital cost of the purchase and installation of all the necessary parking meters is $736,950. Projected parking meter revenue to the City in FY 1987-88 will be $490,200 and $693,600 in FY 1988-89 assuming that 1,434 meters are installed by October 1, 1987 and an additional 300 meters are installed by January I, 1988. Projected Maintenance Fee revenue will be $387,600 in FY 1987-88 and $344,200 in FY 1988-89 assuming the Maintenance Fee is reduced as outlined in this report. Thus, the net benefit to the City as a result of these actions, assuming a straight five-year amortization of the $736,950 capital costs for meter purchase and installation, will be $22,550 in FY 1987-88 and $157,000 in FY 1988-89 when annualized meter revenue is fully realized. - 6 - . . RECOMMENDATION It is respectfully recommended that the City Council: 1) Adopt the attached resolution amending the fee levied for the operation, Maintenance and Repair of Public Improvements in the Third street Mall and Downtown Assessment District. Prepared by: Peggy Curran, Director Community and Economic Development Department Jeffrey P. Mathieu, Manager Economic Development Division Attachment: A Resolution of the city Council of the City of Santa Monica Amending the Fee Levied for the Operation, Maintenance and Repair of Public Improvements in the Third street Mall and Downtown Assessment District (feeamen2) - 7 -