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AGENDA BILL Agenda Item No. 5(D) Date: February 18, 2014 To: El Cerrito City Council From: Scott Hanin, City Manager Sky Woodruff, City Attorney Subject: Request Support from Skinner related to Transaction and Use Tax Legislation ACTION REQUESTED Authorize Mayor Abelson to request support from Nancy Skinner in seeking legislation that would allow the City of El Cerrito the flexibility to consider a measure that could increase the current level of transaction and use taxes above the cumulative local limit of 2% (which includes the City, Contra Costa Transportation Authority, and BART). BACKGROUND California Revenue and Taxation Code Section 7251.1 imposes a 2% limit on the cumulative transaction and use tax (sales tax) rate. The text of the statute states, “The combined rate of all [local transactions and use] taxes . . . in any county may not exceed 2 percent.” That means that local agencies with overlapping boundaries in the same county may levy such taxes only up to a combined rate of For example, if a city levied a tax of 0.75%, a county levied a tax of 0.75%, and a special district levied a tax of 0.5%, and all of their boundaries overlapped, the combined rate of all of their taxes would be As a result, none of those agencies would be able to enact an additional transactions and use tax. The voters of El Cerrito have approved two transactions and use taxes in recent years. Measure A, the Pothole Repair, Local Street Improvement and Maintenance measure, was passed in 2008 and is a 0.5% tax that generates funding strictly for the comprehensive street repair and maintenance program in El Cerrito. Measure R, the Preservation of Citywide Services measure, was passed in 2010 and is a seven-year general tax of 0.5% which is due to sunset in 2018. In addition to the two El Cerrito sales taxes, the voters have also approved taxes for the Contra Costa Transportation Authority and BART which bring the current total to the 2% cap. Because the City’s rates combined with those of other public agencies are at the maximum, it is currently not possible to increase the City’s rate should that be the desire of the City Council and ultimately the voters in El Cerrito. Last year, to address the current prohibition on additional county-wide transactions and use taxes, the Contra Costa Transportation Authority sought and received approval of State legislation in the form of AB 210 (2013), which added Revenue and Taxation ---PAGE BREAK--- Agenda Item No. 5(0) Code sections 7291 and 7292 and allows for a tax in excess of up to 0.5% above the 2% cap. ANALYSIS The City Council has not yet considered any changes or increases related to current or future taxes for the City of El Cerrito. However, it has considered the possibility of a ballot measure in November 2016 related to a new library which could impact the schedule for any other potential measures. Staff anticipates a discussion and possible direction from the City Council in March on any potential new or adjusted taxes. If the Council wanted to pursue an increase in the City's transaction and use taxes to support current service levels, it would not be able to do so absent legislation similar to the bill AB 210 approved for CCT A. Because of the long lead time necessary to get legislation approved and ultimately signed by the Governor, staff feels it is important to start the process now - at the beginning of the legislative session- to allow for an increase to be considered in 2014. Because general taxes must be considered at General Elections when Councilmembers are elected, the number of available election dates is limited. With the sluggish economic recovery, reduced assessed property values and the loss of redevelopment, El Cerrito is struggling to maintain the high level of service that our constituents expect. This legislation will provide the flexibility for the City Council over the next 8-10 years, should they wish, to allow our residents and businesses the opportunity to control their own destiny by determining through the voting process whether they wish to increase revenues, rather than reduce services. The legislation would not require the City to take any action but merely allow the option to exist. FINANCIAL CONSIDERATIONS There is no impact at this time. Should the City Council ultimately decide in the future to place an initiative of up to 0.5% increase in the sales tax rate before voters and the initiative is approved, the increase in annual revenues could be as much as $1.5 million. Reviewed by: aren Pinkos, Assistant City Manager Attachment: 1. Draft letter from Mayor Abelson Page2 ---PAGE BREAK--- OFFICE OF THE MAYOR CITY HALL 10890 San Pablo Avenue, El Cerrito, CA 94530 Telephone (510) 215-4305 Fax (510) 215-4379 http://www.el-cerrito.org February 18, 2014 Honorable Nancy Skinner State Assembly, 15th District State Capitol P.O. Box 942849 Sacramento, CA 94249-0015 Dear Skinner, The City of El Cerrito would like to request your assistance in sponsoring legislation that would allow, but not require, the City to seek voter approval of a local transactions and use tax of up to 0.5%, which would exceed the 2.0% cumulative rate presently allowed by Revenue and Taxation Code section 7251.1. Under current law, local agencies may only impose local transactions and use taxes that in total cannot exceed 2.0%. Because the City’s rates combined with other public agencies are at the maximum, it is currently not possible to increase the amount should that be the desire of the City Council and ultimately the voters in El Cerrito. As you know, the Contra Costa Transportation Authority sought and received similar legislation in the form of AB 210 (2013), which added Revenue and Taxation Code sections 7291 and 7292. With the sluggish economic recovery, reduced assessed property values and the loss of redevelopment, El Cerrito has struggled to maintain the high level of service that our constituents expect. This legislation will provide the flexibility to allow our residents and businesses to control their own destiny by determining through the voting process whether they wish to increase revenues, rather than reduce services. The City Council has not yet considered a potential future increase or the timing of such an increase. This request is made in order to ensure that the choice is available if desired and ultimately approved by our voters. Thank you for your consideration. Sincerely, Janet Abelson Mayor Agenda Item No. 5(D) Attachment 1