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Staff Report PREPARED BY : ROBERT SCHULTZ Town Attorney Reviewed by: Town Manager, Assistant Town Manager, and Finance Director 110 E. Main Street Los Gatos, CA 95030 ● 40 8 -354 -68 32 www.losgatosca.gov TOWN OF LOS GATOS COUNCIL AGENDA REPORT MEETING DATE: 06 /05 /2018 ITEM NO: 17 D ATE : May 2 9 , 2018 TO : MAYOR AND TOWN COUNCIL FROM: LAUREL PREVITTI, TOWN MANAGER ROBERT SCHULTZ, TOWN ATTORNEY SUBJECT: ADOPTION OF A RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS, CALIFORNIA, SUBMITTING A LOCAL GENERAL REVENUE TAX MEASURE TO THE VOTERS AT THE TUESDAY, NOVEMBER 6, 2018 GENERAL MUNICPAL ELECTION AND INTRODUCTION OF AN ORDINANCE OF THE TOWN OF LOS GATOS, CALIFORNIA IMPOSING A G ENERAL TRANSACTIONS AN D USE TAX RECOMMENDATION : Staff recommends that Town Council accept public comment and then move : 1. For a dopt ion of a Resolution submitting a local general revenue tax measure to the voters at the Tuesday, November 6, 2018 general municipal election ; and 2. For the introduction and first reading of an Ordinance, by title only, imposing a general transaction and use tax for a period of twenty years . BACKGROUND : On October 4, 2017 , December 4, 2018 , and February 12, 2018 , the Council Finance Committ ee discussed placing a 1/8 cent general sales tax on the November 2018 ballot and recommended to the Town Council to proceed with preparing a ballot measure to place a 1/8 cent general sales tax on the November 2018 ballot . On March 6, 2018, the Town Council reviewed the recommendation of the Council Finance Committee and directed staff to move forward with a general tax, and return to Council with b allot language, ordinance, and resolution. PAGE 2 OF 3 SUBJECT: ADOPTION OF A RESOLUTION SUBMITTING A LOCAL GENERAL REVENUE TAX MEASURE TO THE VOTERS AND INTRODUCTION OF AN ORDINANCE OF THE TOWN OF LOS GATOS, CALIFORNIA IMPOSING A GENERAL TRANSACTIONS AND USE TAX M AY 29, 2018 S:\COUNCIL REPORTS \2018 \06 -05 -18 \17 Sales Tax Ordinance \Staff Report.FINAL.docx 5/31/2018 10:58 AM DISCUSSION: The Town of Los Gatos has a long tradition of fiscal pru dence with balanced budgets and development of strategic catastrophic and budgetary emergency reserves. H owever, despite these efforts the Town has over $70 million in deferred capital maintenance needs . T here is currently inadequate funding to fully address our aging infrastructure needs such as streets, sidewalks, and facilities . In addition, most economists advise that a recession is likely within the next five years. I n order for the Town to m aintain the high quality base level of services our residents currently enjoy during the next recession and work towards funding deferred maintenance needs , additional revenues will be necessary . Pursuant to all applicable authority, including the California Constitution and the California Elections Code, the Town Council may place a general tax measure on the ballot for the November 6 , 201 8 General Municipal Election. Staff has prepared the following ballot language based upon Council’s direction at the March 6, 2018 Council meeting : Shall the measure to fund essential Town services such as maintaining neighborhood police patrols; improving traffic flow to reduce congestion; repairing potholes and fixing neighborhood streets; a nd maintaining the Town’s long -term financial stability, shall a one -eighth cent ($0.125%) sales tax for 20 years, providing about $800,000 annually, requiring Independent Citizens Oversight with public review of spending, and all revenues controlled local ly be adopted? Pursuant to State law, the Council must adopt the proposed ordinance corresponding to th e measure, and approve the resolution corresponding to that measure. The proposed ordinance safeguards the use of public funds and ensures transparency and accountability. The ordinance requires independent citizens’ oversight and annual mandatory financial audits to ensure that all funds are spent as promised. Specifically, the Town Council would be required to appoint a citizens’ oversight committee th at would meet annually to review expenditures and an external auditor’s report on the use of these funds and report independently to the Town Council. T he resolution, if adopted, will submit the Council's ballot measure to voters at the November 6 , 201 8 regular municipal election. A two -thirds (2/3) vote of the City Council is required to adopt the resolution. A majority vote of the City's qualified voters will be needed to approve the ballot measure if the Council decides to place the general tax on th e ballot. Importantly, funds received from this one -eighth sales tax would be locally generated and therefore could not be taken by the State. By placing this matter on the ballot, the community will have the opportunity to consider a sales tax dedicat ed solely to the Town. PAGE 3 OF 3 SUBJECT: ADOPTION OF A RESOLUTION SUBMITTING A LOCAL GENERAL REVENUE TAX MEASURE TO THE VOTERS AND INTRODUCTION OF AN ORDINANCE OF THE TOWN OF LOS GATOS, CALIFORNIA IMPOSING A GENERAL TRANSACTIONS AND USE TAX M AY 29, 2018 S:\COUNCIL REPORTS \2018 \06 -05 -18 \17 Sales Tax Ordinance \Staff Report.FINAL.docx 5/31/2018 10:58 AM CONCLUSION : Council should move for the first reading of the introduction and adoption of the attached Ordinance by title only and move for adoption of the attached Resolution . FISCAL IMPACT : If approved by voters in November, a one -eighth cent sales tax would take effect on nearly all taxable transactions in Los Gatos as of April 1, 201 9 . While a precise estimate of the revenue impact cannot be made, a fairly conservative estimate i ndicates that a one -eighth cent sales tax would generate approximately $800,000 annually. These funds would be locally generated and therefore be safe from seizure by the State. In addition, they would enable the Town t o invest in services and infrastructu re that the community values. Total election costs for the Town for three Council seats and one ballot measure are yet to be determined; however, the cost for two seats and one ballot measure in 2016 was approximately $120,000. In addition, under the Reven ue and Taxation Code section 7272, the Board of Equalization (BOE) will bill a new special taxing jurisdiction for preparatory charges to administer the new district tax based on actual costs after the tax has been submitted by the various BOE units’ actua l charges. The statutory maximum amount of preparatory costs shall not exceed $175,000. Attachments: 1. Draft Resolution 2. D raft Ordinance