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January 20, 2010 > Utility user tax being considered for Union City

Utility user tax being considered for Union City

By Shavon Walker

Godbe Research conducted a feasibility survey in November 2009 for a potential utility user tax (UUT) and presented its findings and information on key issues to Council on January 12.

Council considered a UUT on the ballot in 2003 and 2008 to address severe budget cuts and maintain essential public services but opted for public-safety parcel taxes (Measure K 2004 and Measure UU 2008) that received more than 67 percent voter-approval. Other municipalities have introduced a UUT as a general tax, e.g. Hayward's voters approved Measure A (5.5 percent UUT for 10 years) in May 2009. San Leandro voters originally approved a UUT in 1972 and re-affirmed their support in November 2008 when 83.82 percent of the voters approved Measure RR which changed the structure of the original UUT and introduced definitions of newer technologies.

Although Union City closed a $6.7M budget gap in June 2009, it foresees continued fiscal challenges. Not only has a revenue source yet to be found to replace the $2.7M generated annually by the 9-1-1 fee before its August 2008 invalidation, declines in property and sales tax revenues due to the poor economy, increased retirement costs to the City because of poor CalPERS investment performance, rising health insurance and workers compensation costs conspire to create a sense of urgency to secure funding that will avoid further cuts to City services. Ideally, such services might be restored to the levels to which the public was previously accustomed.

Godbe Research's polling shows strong support for a UUT with a fairly low rate, i.e. 2.75 percent, and a maximum five-year term. Those questioned prefer to vote on the tax in November rather than June. Voter-approval of a UUT measure will depend crucially on keeping the electorate well-informed on matters such as tax affordability, city employees' salaries and the City's serious intent to use the tax money as promised.

The ballot question should include high priority funding needs, such as 9-1-1 and paramedic services, police services, after-school programs for youth, emergency and disaster preparedness and programs for special needs youth and adults.

UUT revenue would generate local funds for local needs and help stabilize funding in an unstable economic environment. It would facilitate restoration of neighborhood police patrols and of free recreation programs, which have suffered 50-75 percent budget cuts this fiscal year, for children, youth and teens and families. There would be annual audits to ensure correct use of funds. Low-income seniors and residents would be exempt from the tax, as per California Alternative Rates for Energy (CARE) program guidelines.

To meet the early-March 2010 deadline for submitting ballot measures to the Alameda County Registrar of Voters for the June 8 Primary Election, Council must make a decision by February 23. A public hearing will be required. Once Council reviews the June election calendar when it meets on January 26, Council might decide to place a UUT measure on the November 2 ballot which would move the calendar forward four months.

June 2010 is a Special Election for Union City, i.e. not a Regular Municipal Election, so a UUT measure would require two-thirds' voter-approval to pass. Alternatively, Council can qualify the UUT as a simple majority-vote tax measure on the June 2010 ballot by declaring a state of fiscal emergency. November 2010 is a regular municipal election requiring a simple majority for a UUT measure to pass.

The biggest issue for the City is to reconcile the need for revenue with the voters' willingness to support higher tax rates. Once the tax is in place, voters tend to be supportive of extensions and expansions.

Council must consider the duration of a UUT and the City's election cycle. Measure UU (Public-Safety Parcel Tax 2008) has an eight-year term. Polling suggests a term of five years or less for a UUT in 2010.

Staff has reviewed how other jurisdictions have applied a UUT. Gas, electricity, telephone and cable television are the most common services. The City of Piedmont includes water service. Council is likely to consider a cap, say, of $15,000, or $1,250 a month, slightly more than the maximum parcel tax assessment ($13,622.61) for large non-residential parcel owners, to avoid adverse consequences for large utility users.

On January 26, staff will present estimates of how much revenue each percentage of the UUT is expected to generate, findings to support a declaration of fiscal emergency and other analyses, as directed by Council. The fiscal impact of a UUT will not be known until additional information is gathered.

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