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March 11, 2009 > Hayward declares fiscal emergency

Hayward declares fiscal emergency

By Simon Wong

Hayward City Council unanimously declared a fiscal emergency on March 3, 2009, to place a general Utility User Tax (UUT) measure on a Special Election Ballot for May 19, 2009. The State Constitution requires that a general tax may only appear on a general election ballot unless a fiscal emergency is declared.

The proposed 5.5% UUT will be levied on electricity, gas, telecommunication and video (cable) services and have a ten-year term (expiring on June 30, 2019) unless re-enacted by voters in a regular election in 2018 or before. Currently, 5.5% is equivalent to the lowest UUT rate in Alameda County and at least 2% lower than the highest.

The UUT will not apply to water, sewer or garbage. Low-income households or Lifeline Service users will qualify for exemptions or rebates.

In the past year, the City's main revenue sources, viz. property and sales taxes, have been impacted severely by the foreclosure crisis and economic recession.

Moreover, a 60% decline in Real Property Transfer Tax (RPTT) revenue accounted for almost two-thirds of last year's budget deficit which required a drawdown on reserves. RPTT revenue is forecast to fall further by 30% this fiscal year.

The current fiscal year began with a $14 million deficit which was expected to reach $19 million by fiscal year-end. Without severe cost-cutting and use of one-time monies to balance the budget, General Fund reserves would have been exhausted by the end of the first quarter of FY2010 (September 30, 2009).

The spending reductions over the past 16 months have impacted services but City employees are supporting the Council's priorities of public safety, which accounts for 80% of General Fund expenditure, and cleanliness to the fullest extent possible.

Next year's outlook is also bleak. A budget deficit in excess of $10 million is forecast, equivalent to losing 60 police officers or closing 3 fire stations, a third of either force.

Additionally, the benefits and impacts of the State Budget are unknown.

"Distribution of property and sales taxes is often misunderstood," said City Manager Greg Jones. "Hayward receives only 16 cents of each property-tax dollar. 58% goes to the State then back down to school districts. Special districts and the County receive the remainder.

"Alameda County has an 8.75% sales tax. 6.25 cents (about 70%) goes to the State. 0.75 cents (less than 10%) is redistributed to Hayward for local use."

According to a Sidewalk Strategies opinion poll, a majority support a UUT because it is a local tax that is applied, collected and used locally and not subject to State takeaways. It is also equitable with all utility consumers taxed.

A UUT is a common tax throughout California. As of September 2008, 146 cities and 4 counties have a UUT. Unincorporated Alameda County and 7 cities within the County levy a UUT.

Hayward's UUT is expected to generate $13.2 million per annum for the General Fund, if a majority of the voters approve the measure. The actual revenue will depend, however, on the City's unique mix of economic, residential, commercial and industrial utility users.

Along with the ballot measure, the City will partner with PG&E and Waste Management Authority's StopWaste.org program to develop an energy conservation program to help utility users, particularly non-profits and large users, reduce their energy bills. Staff will design and present a program to Council in fall 2009.

The City's Special Municipal Election will be consolidated with the State Special Election on May 19, 2009.

For more information, visit www.ci.hayward.ca.us

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