Staff ReportPREPARED BY: JENNIFER CALLAWAY CHRISTINA GILMORE
Assistant Town Manager Assistant to the Town Manager
Reviewed by: Assistant Town Manager Town Attorney Finance
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MEETING DATE: 03/15/2016
ITEM NO: 6
COUNCIL AGENDA REPORT
DATE: MARCH 10, 2016
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE REGARDING PLACING
POTENTIAL REVEUNE GENERATING MEASURES ON THE NOVEMBER 2016
GENERAL ELECTION BALLOT
RECOMMENDATION:
Receive the report from the Ad Hoc Citizen Committee and implement the following
recommendations:
1. Authorize the Town Manager to enter into consulting agreements with both a lead consulting
firm and a public opinion research agency to conduct polling for a sales tax revenue ballot
measure or a Utility User Tax (UUT) revenue ballot measure for consideration during the
November 2016 general election with appropriate budget adjustments from year-end revenues
over expenditures.
2. Direct staff to prepare a draft ordinance and resolution for future consideration, placing a tax
measure on the November 2016 ballot to increase the Transient Occupancy Tax (TOT) by 2%
for a total of 12%.
3. Provide further direction on the continued scope and role of the Ad Hoc Citizen Committee.
BACKGROUND:
At its September 15, 2015 meeting, the Town Council reviewed and identified two potential revenue
sources for long range capital funding that includes exploration of (1) a Transient Occupancy Tax
(TOT), and (2) a Utility Users Tax (UUT). The Town Council also established an Ad Hoc Citizen
Committee (Committee) consisting of two Council Members and three Los Gatos residents to conduct
the exploration of the funding options. Following an extensive community-wide recruitment process,
resident appointments to the Ad Hoc Committee where made at the October 20 and December 15,
2015 Council meetings.
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MAYOR AND TOWN COUNCIL
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE
MARCH 10, 2016
BACKGROUND (cont’d):
Per Council direction, the Committee was formed to work with Town staff to study the issues for each
proposed revenue measure, seek public input through a community survey, and report back to the
Council with a recommendation and drafted ballot language, if any.
DISCUSSION:
Committee Work
The Committee met three times on February 4, 18, and 23. At its February 18 meeting, the Committee
received and discussed Town budget information and other financial data from 2007/08 to the present
to understand the financial management of the Town and the need for a dedicated revenue source for
capital improvement projects. The Committee also reviewed and discussed information on past Town
ballot measures, comparable taxes in local jurisdictions, and the unfunded infrastructure needs of the
Town. The Committee’s focus was on the elements, advantages, and disadvantages of both a TOT and
UUT measure. The Committee packet is provided in Attachment 1.
On February 18, 2016, the Committee voted 3-2 (Vice Mayor Sayoc and Committee Member
VanNada were opposed) to submit a recommendation to the Town Council to place a tax measure
initiative on the November 2016 general election ballot to increase the Town’s TOT tax by 2% for a
total of 12%. The two dissenting members commented that they supported a recommendation to
increase the TOT by 3% increase for a total of 13%. The Committee’s general consensus was that a
TOT increase would tax visitors to the Town rather than local residents, having the least impact to the
residents.
While the Committee discussed having only one measure on the 2016 ballot, for its February 23, 2016
meeting the Committee requested information regarding draft ballot language and proposed cost and
timeline estimates from consultants on the feasibility of pursuing a UUT measure at this point in the
election year. In addition, the Committee discussed that any measures moving forward should be
general in nature, thereby requiring a majority vote to pass. However, the Committee did recommend
restricting language to use of funds for such things as infrastructure, roads, sidewalks, parking, etc.
The consultants work would help to identify and narrow down specific language which would be most
effective for any successful ballot measures.
Between the February 18 and February 23 Committee meetings, staff reached out to a lead consultant
and a public opinion research firm to understand ballot measure timelines, costs, and options.
On February 23, 2016, the Committee received staff’s presentation regarding the information obtained
from the consultants. Attachment 2 contains the Committee packet for this meeting. The consultants
confirmed that there is sufficient time for the Town to consider ballot measures for the November
2016 election; however, the timeframe does not provide a lot of flexibilit y in terms of decision
making. Based on the preliminary timelines provided, if the Council authorizes the Town Manager to
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MAYOR AND TOWN COUNCIL
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE
MARCH 10, 2016
DISCUSSION (cont’d):
enter into an agreement with one or more consultant firms, the consultants would immediately begin to
develop an opinion research survey and initiate interviews. Also, two of the consultants indicated that
UUT measures in general are difficult to pass as they are often complex, confusing, and difficult for
the community to fully understand what is being taxed.
While interviewing consultants, staff learned that several local jurisdictions are considering a sales tax
measure, including a potential sales tax measure from Santa Clara County and Santa Clara County
Valley Transportation Authority. Based on this information, staff felt it was prudent to provide both
the Committee and Council with this information. A proposed sales tax measure for Los Gatos is
discussed in more detail later in this report.
As a result of the consultant information, the Committee unanimously recommended that the Town
Council enter into an agreement with one of the two consultants to initiate polling to determine if sales
tax versus a UUT would be palatable to the Town of Los Gatos residents. The Committee discussed
that the survey should not be too long, and asked that staff check consultant references and bring forth
more detailed cost proposals for Council consideration.
Sales Tax Measure
During discussion with the consultants, an emerging issue within the County was raised with respect
to California’s legislative sales tax cap of 9.5%. California law presently sets a statewide sales tax rate
of 7.5%. Cities and Counties may add up to an additional 2.0%, making the maximum allowable sales
tax cap in any California jurisdiction 9.5%. The sales tax rate for Los Gatos is currently 8.75%,
leaving a 0.75% increment before the 9.5% cap is reached. The Santa Clara County Valley
Transportation Authority (VTA) is considering a 0.5% sales tax measure for the November 2016 ballot
and Santa Clara County is considering a 0.25% sales tax measure to address homelessness issues
within the County.
The Town can elect to place a sales tax measure on the ballot in any amount, however depending on
the County’s and VTA’s actions and results of the election, the combined measures could feasibly
exceed the maximum allowable sales tax cap and would then require California State legislation to
allow the cap to be exceeded. The Committee has considered that a competing Town measure, even if
unsuccessful, may also prevent the County-wide measures from being successful. Staff has been
unable to find any State precedent or legal opinions with respect to determining which measures would
take priority if all three (County, VTA, and Town) were to pass. There is clearly State recognition of
the cap limitations as the legislature passed Assembly Bill (AB) 464 in 2015 to increase the cap to
10.5%. AB 464 was designed to provide for more local control and flexibility, giving voters the
ability to raise revenues to fund local services. AB 464 was subsequently vetoed by the Governor.
If the County, VTA, and the Town all placed sales tax measures on the November ballot and all three
measures were successful it is expected that the State would step in and increase the tax cap for the
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MAYOR AND TOWN COUNCIL
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE
MARCH 10, 2016
DISCUSSION (cont’d):
local jurisdiction as no action otherwise would essentially be disallowing voters to elect to raise their
own taxes. As this is an emerging issue, staff is reaching out to the Board of Equalization (BOE) for
further advice. If new information is obtained from BOE staff will provide this in an addendum or
desk item for Council consideration.
The consultants identified at least three local jurisdictions that are also considering local ballot
measures for the November 2016 ballot. These jurisdictions are exploring multiple options similar to
the recommendations of the Committee and no determinations or final recommendations have been
made at this point.
The Committee had thoughtful discussion surrounding the sales tax issues and voted unanimously to
recommend that the Council reconsider evaluating a sales tax measure as stated in its unanimous
motion to initiate polling on this and UUT.
Consultant Services and Recommendation
The Committee discussed the role of the consultant and value added by hiring a consultant in polling,
community outreach, education, etc. The Committee agreed that if a TOT measure was the only
measure going to the ballot, then consultant services would not be necessary. With an interest in
exploring either a sales tax or UUT measure, the Committee recommended that the Council consider
entering into agreements with a lead consultant firm and polling research firm to assist the Town in
preparing strategies, conducting research, preparing ballot language, and, producing informational
materials.
The consultants would work collaboratively and also assist in identifying potential risks, problems,
opportunities, community themes, messaging, and other relevant issues. The Committee did not
formally recommend a sales tax percentage increase, UUT percentage, or formally identify which
utilities would be taxed, although ideas were discussed as to potential utilities to tax such as electricity,
etc. With the information available to date, the Committee felt that those specific recommendations
would be best determined after the polling occurred. In addition, the Committee reiterated a desire to
have only one measure on the November ballot, and acknowledged that the results of the polling and
consultants work could best guide the Committee and/or Council in making a final determination as to
what measure(s) to pursue.
Staff obtained one proposal from a lead consulting firm, the Lew Edwards Group (LEG) which is
provided as Attachment 3 and two proposals from research polling groups, Godbe Research
(Attachment 4) and Fairbank, Maslin, Maullin, Metz & Associates (FM3) (Attachment 5).
LEG is a full service consulting firm that has enacted more than $33 billion in California revenue
measures with a 95% success rate. LEG is currently working with the cities of Campbell, Monte
Sereno, Morgan Hill, San Jose, and Sunnyvale. LEG would provide, research, communications, and
community engagement and outreach services for the Town. Staff recommends entering into a
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MAYOR AND TOWN COUNCIL
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE
MARCH 10, 2016
DISCUSSION (cont’d):
consulting agreement for lead consulting services with LEG for an amount not to exceed $85,000.
This would include the $5,000 consulting fee for up to eight months and up to five mailings.
In addition to a lead consultant contract, staff recommends entering into a separate consultant
agreement with Godbe Research in an amount not to exceed $28,700 to conduct an 18-minute survey
of 400 Town voters.
While both Godbe Research and FM3 are highly qualified firms, Godbe Research proposed a higher
survey sample of 400 voters as compared to FM3’s 300 survey proposal. FM3’s proposal was less
than Godbe Research; however staff feels that a survey of 400 Town voters would provide a better
statistical sampling for the Council to review in making a final determination as to what measure(s), if
any, to place on the ballot.
Transient Occupancy Tax
As previously noted, during the February 18 Committee meeting a motion was made to place a tax
measure on the November 2016 ballot to increase the TOT by 2% for a total of 12%. The Committee
continued to discuss the strategies of placing either one or two measures on the November 2016 ballot.
Although a formal vote was not taken, there was much consideration of placing only one item on the
November 2016 ballot, however, the Committee would like to review and analyze the results of the
consultant poll to make a final recommendation to Council on this issue. Staff recommends that TOT
be added to the research polling to provide a comprehensive analysis of potential measures.
Continued Role of the Ad Hoc Citizens Committee
When the Ad Hoc Citizens Committee was originally established in September 2015, the scope of
work was defined as exploring funding options with respect to TOT and UUT, including draft ballot
language. During the course of the Committee’s work, the Committee expressed a desire and interest
to have a continued role in the polling process, should the Council accept the recommendations of the
Committee. Specifically, the Committee members would like to review the polling results and make a
final recommendation to the Council on which measure(s), if any, to proceed with. In addition, the
Committee could review and propose potential ballot language for any recommended measure(s).
CONCLUSION:
Staff recommends that the Town Council consider the Ad Hoc Citizens Advisory Committee’s work
and recommendation to:
1. Authorize the Town Manager to enter into consulting agreements with both a lead consulting
firm and a public opinion research agency to conduct polling for a sales tax revenue ballot
measure or a Utility User Tax (UUT) revenue ballot measure for consideration during the
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MAYOR AND TOWN COUNCIL
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE
MARCH 10, 2016
CONCLUSION (cont’d):
November 2016 general election with appropriate budget adjustments from year-end revenues
over expenditures.
2. Direct staff to prepare a draft and ordinance and resolution for future consideration, placing a
tax measure on the November 2016 t to increase the Transient Occupancy Tax (TOT) by 2%
for a total of 12%.
3. Provide further direction on the continued scope and role of the Ad Hoc Citizen Committee
ALTERNATIVES:
Alternatively, the Council could choose the following:
A. Enter into consultant agreements with LEG and FM3.
B. Not enter into consultant agreements and direct staff to pursue the revenue measures with
internal resources. Staff does not recommend this as research polling and community outreach
for revenue measures are a specialized skill and require significant allocation of time.
Furthermore, revenue measures have less of a success rate when completed in-house as
compared to using consulting services.
C. Not pursue a sales tax or UUT measure and direct staff to proceed internally with a TOT
measure only.
D. Not pursue any revenue measure.
COORDINATION:
This report was coordinated with the Town Manager’s Office, the Town Attorney’s Office and the
Finance Department.
FISCAL IMPACT:
Total consultant and public opinion research costs are estimated to be $113,700 and include consultant
fees for up to eight months, up to five informational mailings from The Lew Group, and an 18 minute
public opinion research survey of 400 Town voters with result analysis by Godbe Research. Staff
recommends a budget adjustment of $113,700 from year-end savings to fund this request.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
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MAYOR AND TOWN COUNCIL
SUBJECT: REPORT FROM AD HOC CITIZEN COMMITTEE
MARCH 10, 2016
Attachments:
1. February 18, 2016 Ad Hoc Citizen’s Committee Agenda Packet
2. February 23, 2016 Ad Hoc Citizen’s Committee Agenda Packet and Supplemental Information
3. Cost proposal and time line from The Lew Edwards Group
4. Cost proposal and time line from Godbe Research
5. Cost proposal and time line from FM3