Sr-112707-1M~_
~;,Yof City Council Report
Santa Monica
City Council Meeting: November 27, 200h7~
Agenda Item: 1 ~ I'' s
To: Mayor and City Council
From: Mona Miyasato, Deputy City Manager
Subject: Approval of survey research for a potential ballot measure
Recommended Action
Staff recommends that the City Council approve survey research to assess community
attitudes and support for a potential ballot measure to modernize the City's Utility Users
Tax regarding telecommunications. If approved, staff would enter into a professional
services agreement with Fairbank, Maslin, Maullin and. Associates for $35,000 plus
contingencies.
Executive Summary
Staff is evaluating options to modernize the City's Utility Users Tax as it relates to
telecommunication technology. The City's current ten percent tax applies to all
telecommunication services, including wireless communications. Several legal,
legislative and technological challenges recently have threatened the validity of UUT
ordinances in other jurisdictions. Santa Monica's ordinance is valid, and has been
clarified twice in the last several years to address these challenges. Nevertheless, the
ordinance should be updated to address 21St century modes of communication. Such
changes would require voter approval under Proposition 218, as new definitions would
potentially expand the tax base.
Opinion research conducted in the next several months would measure public support
for a potential November 2008 ballot measure. If Council agrees with this approach,
staff has administrative authority to enter into professional services agreement with
Fairbank, Maslin, Maullin and Associates for $35,000 to conduct this research.
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Discussion
The City's ten percent Utility Users Tax (UUT) is applied to electricity, natural gas,
telephone, cable, water and wastewater services. The tax, which has been applied for
14 years at this rate in Santa Monica, constitutes 13 percent of the City's General Fund
revenue. These revenues pay for general city activities such as police and fire service,
community and recreational programs, library services, planning and community
development expense, as well as other General Fund expenditures.
Recent federal legislative changes and legal challenges in other jurisdictions regarding
the utility users taxes on wireless telecommunications have raised concerns statewide.
These other jurisdictions' ordinances vary from the City of Santa Monica's ordinance
and have been more or less vulnerable to these changes and threats. While the Santa
Monica ordinance is valid, unpredictable court decisions or legislative changes could
threaten the City's continued flow of UUT revenue, potentially reducing .the City's
general fund revenue by $8 to $12 million annually. Therefore, a change could further
protecYthe City's revenue. This potential loss has been imbedded into the City's five-
yearforecast and has been discussed with Council several times over the last year.
Additionally, there could be advantages to modernizing the language of the ordinance.
Since it was first adopted, new technologies have been developed. The present
wording of the ordinance is broad enough to cover them. However, modernizing the
language would likely make its application clearer.
Proposition 218 requires a majority voter approval (50% plus 1 vote) for actions that
would impose, extend or increase any general tax, such as the UUT. The measure
under consideration would not increase the tax rate; however, depending upon the
exact language of the measure and the expansion of technologies, it could potentially
expand the tax base, in which case voter approval would be required. Proposition 218
requires that the approval be sought in an election consolidated with a regularly
scheduled general election of City Council members.
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Consultant Selection
To adequately plan for a potential November 2008 ballot measure, staff needs survey
research conducted in the next few months to gauge community support for a measure,
in the context of understanding voter attitudes, priorities and concerns regarding city
services. Staff has selected on a sole source basis Fairbank, Maslin, Maullin and
Associates, who recently conducted similar research for the City on Measure V, the
Clean Beaches and Ocean Parcel Tax initiatives in 2006, as well as the Santa Monica
Malibu Unified School District in its facility bond (Measure BB). FMMA, who are based
in Santa Monica, have extensive experience in working with cities statewide on UUT
measures and are currently working with the cities of Los Angeles, Hermosa Beach,
Pasadena, San. Bernardino and Inglewood to explore options. FMMA's UUT
experience, familiarity and knowledge of Santa Monica, and availability to complete the
assignment quickly, uniquely qualifies them for this assignment. Staff has the
administrative authority to enter into a professional services agreement should Council
approve this approach.
Previous Council Actions
Council has not previously approved survey research for a UUT ballot measure. In
2000 and 2006, Council clarified the existing ordinance and made other minor changes.
Next Steps
If approved, staff would proceed with the survey research and report the surveys
general findings to the Council in early spring for consideration of future actions leading
to a November 2008 ballot measure.
Alternatives
Staff could proceed as described above. One risk is waiting until November 2008
should other legislative or legal actions occur. If is difficult to predict what actions could
occur and what degree of risk they could impose at this time.
Another option is for staff to proceed with the survey research and accelerate the
initiative by holding a special election in the summer. Council could do this by declaring
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a financial emergency, which would allow a Proposition 218 ballot measure to be
considered at a special election. The City of Los Angeles, which has $270 million
potentially at risk, is proceeding in this way and will be holding a special election in
February 2008 to coincide with the state's presidential primary election. Staff
recommends against this option. A special election would not draw the largest voter
turnout and would be costly ($150,000 to $170,000). Lastly, Council could request that
staff not conduct the survey research at this time, and instead, wait until legal
challenges to other jurisdictions' ordinances have been finalized to assess our legal or
legislative risks.
Financial Impacts and Budaet Actions
The cost of entering into a contract with FMMA is $35,000 plus contingency, available in
the City Manager's budget at account # 01202.555060. A successful ballot measure
that could result from this survey research. may assist the City in fortifying its future UUT
tax revenue stream. The City's five-year forecast currently assumes a loss of $4.8
million next fiscal year, and approximately $7 million thereafter, due to potential threats
to the UUT's application on telecommunication services. This risk may be significantly
reduced should a ballot measure be successful. The modernization of the ordinance
and applicability to new technologies could potentially capture additional revenue in the
future, although the amount cannot be determined at this time.
Prepared by:
Mona Miyasato, Deputy City Manager
Approved:
Forwarded to Council:
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Mona Miyasato (f P. L'a ont Ewell
Deputy City Manager Ci anager
Reviewed by:
Carol Swindell, Finance Director
Joseph Lawrence, Assistant City Attorney
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