Council To Look at Tax Revenue Options

Wallet Taxes
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Wallet Taxes

The Davis City Council, according to a city staff report, has until February 16 to put a revenue measure on the June ballot. On Tuesday they will be asked to determine which tax measure should be submitted to the voters and then to direct staff to return with language for an ordinance.

Furthermore, if “the Council determines to submit a general tax measure,” they should “determine if the Council would also like to submit an advisory measure or measures providing nonbinding direction of how the proceeds of the tax should be used.”

It has been nearly a year and a half since the voters passed the sales tax measure intended to shore up structural deficits in the general fund. However, while the sales tax measure did accomplish that, there remain needs for additional revenue to address unmet city needs like roads, parks and other infrastructure.

Staff notes, “While one aspect of the city’s revenue strategy hinges upon the expansion and enhancement of economic development, it is widely understood that this mechanism will take time before it generates significant new revenue to the city.”

The amount of revenue would depend on what type of tax measure the council chooses, but staff writes, “In general, however, each percent of a tax on all utilities is estimated to raise approximately $1,080,000, a one-cent tax on each ounce of a sugar-sweetened beverage could potentially raise approximately $800,000 to $1,000,000 annually; a 1% increase in Transient Occupancy Tax could currently generate an additional $130,000 per year (more if hotel rooms that currently have entitlements are built and overall overnight stays increase), and each dollar of a parcel tax could raise approximately $28,000.”

By state law, any general tax, which would require a simple majority, must be placed on the same ballot on which council members are elected. Special taxes like parcel taxes or any taxes that are specified for a particular purpose, would require a 2/3rds vote, but may be submitted to the voters at any duly called election.

Staff notes that they have had ongoing discussions about city needs, primarily in the area of infrastructure. They note, “While there is general consensus around the concept that the City has a significant list of unmet needs, there are mixed opinions about what defines a need and whether new revenue should be pursued to address those needs.”

They note, “Most of the discussion has centered around infrastructure needs, specifically the city’s transportation infrastructure (streets, bike lanes, bike paths), although additional projects have been identified (pool enhancement and/or replacement, urban forest, city facilities, parks infrastructure, etc.) as long term concerns.”

Many of the recent discussions have focused around the utility user tax (UUT) which would be “levied as a percentage of the direct cost of the utility service delivered, and may be levied on utilities such as gas, electric, telephone/communications, water, sewer, sanitation and/or cable TV. The tax appears in the monthly billing paid by the customer and the tax is paid to the utility, which in turn remits the taxes to the local government that levied the tax.”

Staff notes, “It should be noted that one advantage of a UUT is that is a durable tax that is more consistent than the City’s most significant general taxes. UUT inflates with time and it tracks with growth in consumption of the elements that are subject to the tax. It is less susceptible to economic downturns than property tax and sales tax, though it must be acknowledged that effective resource conservation may have some impact upon future consumption patterns.”

The staff report notes that the Finance and Budget Commission has studied a potential UUT at multiple meetings. “While the Commission on the whole was sympathetic to the fact the City has unmet needs, considerable conversation was devoted to defining actual needs (vs. preferences or wants) and determining true unfunded costs.”

One of the key provisions of the commission’s recommendation is that the city update “multi-year projections of revenues and expenditures to include unfunded liabilities.” They argue that the UUT should be fair and broad-based, with a 4 to 6 year sunset, a written plan to explain how the revenues would be spent and an annual review of the expenditures.

The city also had a focus group feedback where, again, “there were mixed viewpoints about whether a utility user tax was the right mechanism to fund unmet needs. Primary reasons included a concern about the city’s ability to continue to rein in costs in the face of additional revenue, the sense that the City had not yet cut expenditures sufficiently and concern that a utility user tax was not the correct taxing mechanism to generate revenue for infrastructure needs.”

A majority of participants “concurred that taxing all utilities made the most sense.” Finally, “while there were mixed viewpoints about whether to put forward a general tax or a special tax, there was consensus that the city needed to provide as much information and transparency as possible to the public about the need for the tax and the projects which such a tax would fund. Preferences were leaning toward special tax or general tax with advisory measure(s).”

Key questions would focus on which utilities, the rate, the duration, whether the tax be general or specific, and whether there is an advisory measure.

Staff writes, “If the tax is a general tax, staff recommends a companion advisory measure to indicate the proceeds of the tax are intended to fund infrastructure costs related to transportation and other city assets such as city facilities, parks, or trees.”

The Vanguard will review a potential soda tax and a transient occupancy tax separately.

—David M. Greenwald reporting

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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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9 thoughts on “Council To Look at Tax Revenue Options”

  1. Barack Palin

    They argue that the UUT should be fair and broad-based

    We often read comments on the Vanguard that taxes aren’t fair, but here we read that the commission says the UUT tax should be fair.  So how can a UUT be fair when people who have solar will pay much less tax than others who don’t?

  2. Tia Will

    BP

    “We often read comments on the Vanguard that taxes aren’t fair”

    We most often seem to read this comment when you post it. Again, I would challenge you to consider “fair to whom, and under what circumstances ?” A UUT taxes those who use a given resource. I am quite sure that it appears “fair” to those who do not use that resource.

    Since you seem to feel that those who are affluent enough to have solar would be “unfairly” advantaged by a UUT, would you favor increasing a tax on either their income, savings, or investments to “even out” the disparity you see ? Or are you simply against all taxes ?  If not, what form of taxation would you like to see implemented for short term needs since no one believes that economic development is a short term needs solution.

    1. Barack Palin

      The thing is the commission themselves stated the “UUT should be fair”  so how can something that is needed to basically survive be taxed for some while others of means can dodge the tax simply because they can afford solar?  It’s the commission who’s saying it should be fair, well then make it fair so everyone pays their fair share, not just people who can’t afford solar panels and will get hit with an extra tax on top of their already high electric bills.

      1. David Greenwald Post author

        I’m not convinced on your point Barack. Part of the fairness issue is charging across all utilities – electric, gas, water, sewer, cable, sanitation, telephone. So solar would only preclude costs on one of seven possible utilities. Moreover, the council will consider increments of 1%, 3%, 5.5%. So how much are we talking. If you’re monthly bill is $100, you would pay $1, $3, or $5.5 depending on the tax. It goes up from there according to usage, but a key factor is that we’re not talking a huge amount and while electricity is the single-highest utility in terms of revenue, it’s about one-third of the total revenue.

        1. Barack Palin

          Yes, but it’s still unfair.  At $100/month electricity a 5.5% tax will hit people that can’t afford solar with an extra $66/year.  What if you were hit with a $66 parcel tax that other homeowners (except seniors) didn’t have to pay because they happened own something you couldn’t afford?  Be honest, you would be writing columns about it.

  3. SODA

    The Council would be wise to discuss openly and adopt the advisory language ‘to indicate the monies go toward infrastructure’. At the forum on Saturday there was little mention of the upcoming MOUs for the remaining bargaining units and how the 3% COLA increases just passed would affect them. A question not asked but begging to be asked in my mind is how the CC will deal with these unions wanting the same as precedent. Brett talked about the first unions partnering with the city and that was a main reason for his positive vote but I question whether they will hold the line with the upcoming units?

     

    1. David Greenwald Post author

      I think there is an alternative to advisory measure that would accomplish the same thing, without a measure, and more clearly. I’ll be laying it out later in the week in a piece.

      1. SODA

        Look forward to it; would it address the issue of the upcoming MOUs of the remaining bargaining units? What are your comments on that? Sorry didn’t have a chance to ask that on Saturday. Great forum and thanks for it.

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