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