Honorable Mayor and Members of the Hermosa Beach City Council
Special Meeting of February 15, 2024
Title
CONSIDERATION OF PLACING A LOCAL CONTROL CITY
SERVICES MEASURE ON THE NOVEMBER 5, 2024 GENERAL
MUNICIPAL ELECTION BALLOT ASKING THE VOTERS TO
APPROVE A GENERAL TRANSACTIONS AND USE TAX (SALES
TAX or TUT) AT THE RATE OF THREE-QUARTER CENT (3/4¢)
(Continued from January 23, 2024)
(City Manager Suja Lowenthal)
Body
Recommended Action:
Recommendation
Staff recommends City Council:
1. Consider adding a measure to approve a general Transactions and Use Tax (Sales Tax or TUT) at the rate of three-quarter cent (3/4¢) to the November 5, 2024 General Municipal Election ballot and select one or more argument writer(s) in favor of this measure should a determination be made to submit this measure to the voters;
2. Adopt Resolution for the placement of a locally controlled general tax measure on the ballot for the November 5, 2024 General Municipal Election for the submission to the qualified voters of an ordinance to enact a General Transactions and Use Tax (Sales Tax or TUT) at the rate of three quarter cent (3/4¢) (Attachment 1);
3. Adopt Resolution requesting the Board of Supervisors render the election consolidation services for this measure (Attachment 2); and
4. Adopt Resolution setting priorities for filing a written Argument and Rebuttal Argument regarding an ordinance to enact a general Transactions and Use Tax (Sales Tax or TUT) at the rate of three-quarter cent (3/4¢) to be submitted to voters at the General Municipal Election to be held on Tuesday, November 5, 2024, and directing the City Attorney to prepare the impartial analysis (Attachment 3).
The Resolution to place the general Transactions and Use Tax (Sales Tax or TUT) measure on the ballot must be approved by a two-thirds (2/3) vote of the membership of the City Council (4 affirmative votes) to pass.
Body
Executive Summary:
At its December 12, 2023 meeting, Mayor Massey requested, and Councilmembers Detoy and Jackson supported, directing staff to return to Council with an item regarding the placement a general Transactions and Use Tax (Sales Tax or TUT) at the rate of three quarters of one cent (3/4¢) on the November 2024 General Municipal Election ballot.
Background:
At its March 3, 2022 meeting, City Council held a Revenue Study Session. The purpose of the study session was to review revenue sources with the intention to update or make recommendations for changes where necessary. Revenue sources including taxes; property-related revenue; parking fees and fines; and other service charges were reviewed. Staff provided oral reports regarding its progress updating some sources and recommendations for possible future updates on others. These updates are designed and intended to maintain strong, up-to-date, revenue streams to support the quality programs that residents want and deserve.
During the Revenue Study Session, the City’s sales tax consultant presented information regarding a general Transactions and Use Tax (Sales Tax or TUT) at the rate of three quarters of one cent (3/4¢) and provided an estimate of $3,000,000 in additional annual General Fund revenue. At the end of the study session, an adjourned meeting was held wherein the City Council directed staff to bring back an item regarding placement of a general Transactions and Use Tax (Sales Tax or TUT) at the rate of three quarters of one cent (3/4¢) on the November 8, 2022 General Municipal Election ballot.
Attachment 5 provides a link to the Revenue Study Session staff report and time markers to the presentation made at the study session by the City’s sales tax consultant and to other comments or discussion about the transactions use tax (TUT). The time markers and items are also provided in the Past Council Actions table below.
At its July 26, 2022 meeting, City Council voted to add a measure to approve a general Transactions and Use Tax (Sales Tax or TUT) at the rate of three-quarter cent (3/4¢) to the November 8, 2022 General Municipal Election ballot. Measure B was placed on the official ballot and asked Hermosa Beach registered voters the following question:
“To maintain Hermosa Beach's long-term financial stability with locally controlled funds, to be used for programs such as public safety/911 response, enforcement against property crime; street/pothole repair; protection of beach/coastal waters; school safety; cleaning of public areas; retention/attraction of local businesses; homeless services and for general governmental use; shall an ordinance be adopted establishing a ¾¢ sales tax requiring public spending disclosure/independent audits, generating approximately $3,000,000 annually until ended by voters?”
Based on votes cast, Measure B did not pass. The final vote was 44.8 percent “Yes” and 55.20 percent “No”.
At its December 12, 2023 meeting, Mayor Massey requested, and Councilmembers Detoy and Jackson supported, directing staff to return to Council with a discussion item regarding the placement of a Sales Tax measure on the November 5, 2024 ballot.
Discussion:
Residents have recently prioritized City services they would like additional local funding for including preventing thefts and property crimes; supporting public safety and 911 emergency response; recruiting and retaining well-trained police officers; protecting coastal waters and beaches from pollution; supporting safe schools; and, keeping parks and public areas safe and clean.
A sizeable portion of sales tax dollars collected in Hermosa Beach comes from tourists and visitors from surrounding areas. This measure would help make sure they are paying their fair share for police; for keeping our beach, Pier Plaza, and other public areas clean and safe; and for maintaining our roads and other community resources and infrastructure, such as our iconic Pier, in good condition and not left to be paid exclusively by City residents.
Hermosa Beach currently has a 9.50 percent sales tax on all purchases made in the City. Of that, 8.50 percent goes to the state and Los Angeles County agencies with 1 percent returning to Hermosa Beach to be spent locally.
Every year Los Angeles County collects five million dollars from Hermosa Beach from the last three county sales taxes alone, but only 13 cents on the dollar is returned to Hermosa Beach. By law, all funds raised by this measure are legally required to be used in Hermosa Beach, ensuring local control of Hermosa Beach tax dollars and a guaranteed source of funding for essential City services.
Residents also continue to prioritize public safety services and in 2022 alone, there were just over 600 thefts and burglaries reported, including 99 thefts from motor vehicles in the 1.4 square miles of the City. Finalized data for 2023 for all incidents, crime and quality of life, will be available approximately two weeks from the publishing of the agenda for the January 23 meeting. Staff can speak to the data during oral presentation of the item. The data across all incidents that require public safety resources is one aspect of resource allocation needs. The other aspect is the evolving approaches driven by technology applied by the Police Department to mitigate and prevent incidents. The Department’s enhanced use of technology has assisted in arrests and crime prevention. Funding from this measure could provide the Hermosa Beach Police Department additional resources to make neighborhoods and streets safer, increase police patrols, reduce response times, and increase crime prevention programs.
California has a sales tax rate of 7.25 percent. Los Angeles County, cities, and special districts within the County may increase the sales tax by a cap of 3 percent or to a combined rate of 10.25 percent. The County has already utilized 2.25 percent of the allowable 3 percent threshold, so 0.75 percent remains that may be added. A 0.75 percent TUT in Hermosa Beach is estimated to add $3 million in revenue to be spent locally.
According to HdL, the City’s sales tax consultant, Los Angeles County sought and received State legislative approval to propose a new 0.5% TUT for Homelessness and have it not count against the sales tax cap. If a new tax is proposed and approved by the voters, the current County Tax (Measure H), which is set at 0.25%, would expire. If this were to occur, there would be an additional 0.25% under the overall sales tax cap. If desired, the City could explore the option of proposing a 1% TUT instead of 0.75%. Estimated revenue for a 1% TUT would be $4,000,000. Should City Council contemplate a 1% TUT, it would require developing a contingent ballot measure with the additional 0.25% dependent on what happens with any Los Angeles County measure.
Presenting a balanced budget has been particularly challenging with the last two budgets and the budget for 2022-23 due to the pandemic and now with the additional effect of world events. The City maintained its Contingency Funds according to financial policies at 16 percent of operating expenses but has found it necessary to use one-time funds to bridge the gaps in revenue, even with freezing of positions and reducing expenditures. In order to maintain the level of service expected by residents, ensure long-term fiscal sustainability, to respond to evolving public service and public safety demands, and make progress toward funding of deferred capital needs, additional funds are necessary.
Advantages of adopting a TUT measure include:
• the tax is paid regionally, not entirely by residents;
• revenue generated in Hermosa Beach stays in Hermosa Beach;
• the tax has a statutory cap;
• revenue from autos purchased by residents comes to the City rather than going to the City where the auto was purchased; and
• revenue from deliveries to the City for building supplies, equipment and bulk fuel also comes to the City.
The City’s sales tax consultant indicates that they have not seen any measurable impact of the TUT on consumer buying habits because consumers are typically focused on the base cost of the item being purchased.
According to the California Department of Tax and Fee Administration, 56 cities out of 88 in Los Angeles County have a TUT. Four cities in Los Angeles County, Baldwin Park, Malibu, Monterey Park, and Torrance, added the tax through ballot measures in 2022. In California, 285 cities out of 489 (58%) have a TUT.
Hermosa Beach should take advantage of the additional 0.75 percent tax that is available to ensure long-term fiscal sustainability.
Arguments in Favor and Against
The City Clerk will accept arguments in favor and against the proposed measure by Thursday, August 1, 2024, at 12:00 p.m. Each argument is limited to 300 words and will be titled “Argument In Favor of Measure __” and “Argument Against Measure __” in the Official Sample Ballot Booklet submitted to voters. Please email cityclerk@hermosabeach.gov or submit a hard copy (Attachment 3) by the deadline.
Per California Elections Code Section 9282 and 9287, the City Council has priority to and may authorize one or two members of the City Council to author the Argument in Favor. Should the City Council choose not to authorize one or two members of the City Council to author the Argument in Favor and more than one argument is submitted (in favor or against) to the Elections Official, the Elections Official will select an argument in accordance with California Elections Code Section 9287.
Rebuttals to Argument in Favor and Against
When the arguments are submitted, the Elections Official shall send a copy of the Argument in Favor to the authors of the Argument Against and the Argument Against to the authors of the Argument in Favor, along with a copy of the impartial analysis. An argument author may authorize another person to sign the rebuttal to the opposing argument using the form provided by the Elections Official (Attachment 4) and in accordance with California Elections Code Section 9285. Rebuttals to the Arguments in Favor and Against are due by Thursday, August 8, 2024, at 12:00 p.m. and are limited to 250 words.
Consolidation with Los Angeles County
The Los Angeles County Registrar-Recorder/County Clerk requests a formal decision by the City Council via resolution to render services and consolidate the Special Municipal Election with the Statewide General Municipal Election on November 5, 2024 Approving the staff recommendation will allow Los Angeles County to carry out all consolidation services outlined in Attachment 2 for this measure.
General Plan Consistency:
This report and associated recommendation have been evaluated for their consistency with the City’s General Plan. Relevant Policies are listed below:
Governance Element
Goal 1. A high degree of transparency and integrity in the decision-making process.
Policies:
• Open Meetings. Maintain the community’s trust by holding meeting in which decisions are being made, that are open and available for all community members to attend, participate, or view remotely.
• 1.6 Long-term considerations. Prioritize decisions that provide long-term community benefit and discourage decisions that provide short-term community benefit but reduce long-term opportunities.
Goal 2. The Community is active and engaged in decision-making processes.
Policy:
• 2.3 Public participation guidelines. Establish parameters and guidelines to ensure public participation in promoted through diverse methods.
Goal 5. Small beach town character is reflected throughout Hermosa Beach.
Policies:
• 5.5 Community benefits. Consider incentives for new development that provides a substantial economic benefit to the community such as retail sales taxes, transient occupancy taxes or higher-paying jobs. Prohibit the provision of incentives that outweigh the direct benefits from the use.
• 5.7 Visitor and resident balance. Recognize the desire and need to balance visitor-serving and local-serving uses as a key to preserving character and the economic vitality of the community.
Goal 6. A broad-based and long-term economic development strategy for Hermosa Beach that supports existing businesses while attracting new business and tourism.
Policy:
• 6.1 Long-term economic development. Support the development and implementation of long-term economic development strategies that seek to establish and keep new businesses and a strong middle class in Hermosa Beach over the decades to come.
Fiscal Impact:
Fiscal impacts associated with adding a sales tax measure to the Official Sample Ballot is $7,573.38 without the full text of the ordinance. Should the City Council choose to have the full text of the ordinance printed in addition to the Impartial Analysis, the cost would be $13,934.22. If approved, the amount will be budgeted in FY 2024-25. No additional cost to the budgeted total is expected from including this measure on the ballot.
Attachments:
1. Resolution (Sales Tax)-Add to Ballot
2. Resolution (Sales Tax)-Consolidate
3. Resolution (Sales Tax)-Arguments, Rebuttals & Impartial Analysis
4. Argument & Rebuttal Form
5. Authorization for Another Person to Sign Rebuttal Argument Form
6. Link to March 3, 2022 Revenue Study Session Staff Report
7. Link to July 26, 2022 City Council Staff Report
8. Link to December 12, 2023 City Council Agenda
Respectfully Submitted by: Myra Maravilla, City Clerk
Concur: Angela Crespi, Deputy City Manager
Noted for Fiscal Impact: Viki Copeland, Finance Director
Legal Review: Patrick Donegan, City Attorney
Approved: Suja Lowenthal, City Manager