September 28, 2010 > What is Measure AA?
What is Measure AA?
By Simon Wong
Measure AA is the proposed half-cent increase in local sales tax in the City of Union City that will appear on the November 2, 2010 ballot. Approval by the majority (50 percent plus one) of voters could provide the city with up to $3.55M per annum of desperately needed revenue over the next four years. The monies will prevent further deterioration and erosion of essential public services and begin to restore them to the levels to which residents have grown accustomed.
The poor economy has adversely impacted the city's main income streams, viz. property and sales taxes, with little prospect of recovery in the near future. At the same time, health insurance, workers compensation and retirement costs (attributable to poor PERS investment performance) have increased. Moreover, the city's revenue declined by $2.7M, annually, when it lost the ability to collect its 911 Fee in August 2008; a replacement funding source has not been found. So far, the city has not compromised public safety but the merger of Union City Fire Department with the Alameda County Fire Department means the city's remaining departments must cut costs to an even greater extent to help close projected budget gaps.
State appropriations of $9.1M from Union City to solve the California budget crisis and the threat of more raids exacerbate the city's fiscal position. In the last four years, State takeaways and the recession have reduced local revenues by $4.4M. In the last two years, there has been a 22 percent staffing reduction (22 full-time positions), a pay-freeze and furloughs for most employees, negotiations for a two-tier retirement system and depletion of emergency reserves. Public safety accounts for more than 67 percent of General Fund expenditure; further cuts are not possible without longer 9-1-1 emergency response times.
The city has wrestled with a $2.8M General Fund deficit this fiscal year (FY). A $0.6M budget gap is expected in FY 2011-12 but grows to $1.4M when taking into account one-time savings used to balance this year's budget. A further $0.3M deficit is anticipated in FY 2012-13. Consequently, total extra revenues of $1.7M are required over the next three years. Citizens will see continued sharp declines in service unless there are new revenue sources or existing sources recover.
The city faced fiscal crises in 2003 and 2008 and a UUT measure on the 2003 and 2008 ballots were options. Instead, Council opted for Public Safety Parcel Tax measures (Measure K 2004 and Measure UU 2008) which secured more than two-thirds voter approval.
Godbe Research conducted polling in November 2009 and June 2010 to ascertain and track public support in Union City for a UUT. In the interim, an average of 7 to 9 percent fewer voters favor such a tax and those who support it want a low tax rate (2 to 2.5 percent) and short term (four years or less). Low-income seniors and residents would be exempt from the tax.
Alameda County cities with a UUT have an average tax rate of 6.6 to 6.8 percent. In May 2009, Hayward voters approved Measure A which has a rate of 5.5 percent and 10-year duration. Union City might expect annual UUT revenue of $1.35M, based on the average. However, a more realistic, conservative estimate might be $1.08M, given Union City has a smaller tax base than those cities from which the average has been derived.
In late July 2010, Council voted 4-1 to place a Transactions & Use Tax (Sales Tax) measure on the November 2010 ballot in preference to a utility user tax (UUT) for several reasons.
First, administration of a sales tax is much simpler. The California Board of Equalization (BOE) regulates the collection and administration of all local sales taxes from retailers and remits funds to the city which is required to simply follow set procedures. Thus, cities need deploy only minimal resources to implement and manage local sales taxes. The State levies an administration fee of 0.5 percent of taxes collected. By comparison, a city must implement a UUT with the cooperation of numerous utility providers.
Second, California sales tax is currently limited to 8.25 percent. State law restricts local municipal sales taxes to 2 percent which is derived by adding County sales taxes to a city's sales tax. Alameda County's sales taxes total 1.5 percent (0.5 percent, each, for ACTIA, BART and Health Services), leaving 0.5 percent for local municipal sales taxes.
Local Sales taxes are administered in 0.25 percent increments. For Union City, whose annual sales tax revenue amounts to $7.1M, this translated to two choices - 0.25 percent (generating $1.775M per annum) or 0.5 percent (yielding $3.55M annually). Council settled upon the latter. These would be added to the current 1 percent total sales tax Union City receives from the State.
Third, consumer confidence tends to track the State of the economy and, potentially, there might be considerable increase in sales tax revenues as the economy recovers and consumer spending increases. It is, however, the BOE that decides what is subject to sales tax; cities have no control over the tax base for sales taxes.
Fourth, Council agreed upon a sales tax with a four-year life, mindful of the need for assured longer-term revenue and voters' dislike of tax measures with what they perceive as "too long a 'sunset' period." Given the State of the economy, taxes lasting for shorter periods are effectively temporary measures to help see cities through the recession though they do not solve all fiscal problems.
"Union City voters will have a decision to make about the level of municipal service they desire. Passing Measure AA in November will generate approximately $3.5M per year, with all of the revenue staying in Union City. It will not go to the county, State or federal levels of government. Since the State government seems to take an annual swipe at city revenue (and we are not alone in that category, every city is hurt by the State's dysfunctional budgetary process), we need to stabilize our revenue stream at the municipal level. The added revenue will enable us to halt the erosion of city services and start to recover some of the personnel, programs and projects we have seen diminish, eliminated or put on hold," States Mayor Mark Green.
"The polling evidence, on a State-wide basis, tends to indicate that more voters are willing to approve a sales tax increase than a UUT. Many regard a UUT as essentially inescapable whereas a sales tax is in many cases a product of what or when someone purchases. Individuals have greater control over discretionary spending and where they shop.
"The added revenue will go our General Fund and gives the city flexibility as to its use. Police, public works, the library, senior and sports centers, as well as youth and gang violence intervention and prevention programs, will all be considered for more attention," concluded Mayor Green.
The measure will be subject to independent citizen oversight, mandatory financial audits and annual reports to the community to ensure funds are spent as promised. If Measure AA passes, it will take statutory effect immediately and, in accordance with BOE guidelines, sales tax collection will commence in March/April 2011 after a campaign to raise public awareness.
The last day to register to vote in this election is October 18, 2010.
For more information, visit www.UnionCity.org (Union City) or call Tony Acosta, Union City Deputy City Manager, at (510) 675-5394 or email TonyA@ci.union-city.ca.us.
City of Union City Measure AA Ballot Question
To prevent severe cuts to essential services such as police, fire, paramedic, library, streets, parks and other services, shall Union City adopt an Ordinance enacting a half-cent sales tax expiring four years from the date it is first collected, reviewed by a citizen's oversight committee, with annual independent audits, and all funds for Union City and no funds for the State of California?