October 12, 2010 > What is Measure U?
What is Measure U?
By Simon Wong
Measure U is the City of Newark's proposed five-year, 3.5 percent utility user tax (UUT) on the November 2 ballot. Approval by a majority (50 percent plus 1) of voters would raise approximately $2.3M annually to prevent further cuts to essential public services, help restore some of the services and personnel lost because of previous budget cuts and protect General Fund reserves.
The city's main revenue sources (sales, property and transient occupancy taxes (aka hotel tax)) have declined dramatically over the past five years because of the recession. Sales tax was the largest revenue source until 2008. Since then, sales tax revenue has fallen by $4.9M. It peaked at $12.4M in 2005, but city staff forecasts revenue for 2010 will be $7.5M.
The city's largest source of income is now property tax, but a year-on-year decrease of $500,000 is expected from 2009 to 2010. This reduction is attributable to the fall in property values, both residential and commercial. Traditionally, property tax has been a stable income stream.
The recession has decimated business and leisure travel and occupancy rates in Newark's hotels. Consequently, only $2.2M of hotel tax revenue is anticipated in 2010, $1M less than two years ago.
Poor investment performance for the city's funds exacerbates matters. Investment income has fallen by $1M because of low interest rates; moreover, use of reserves (PERS Reserve) to balance the budget means there has been less to invest. Slow economic recovery is anticipated, meaning revenues will not increase as rapidly as they declined and will take many years to return to the levels prior to the start of the recession. Property taxes can only rise by a maximum of two percent per annum.
In the past five years, the city has closed budget gaps arising from the declines in revenue by cutting public services extensively. The 2010-12 Biennial Budget and Capital Improvement Plan will pare services to the bone, reducing them to levels to which citizens are unaccustomed. Expenditure reductions are the only way to balance the budget; there is no recourse to PERS Reserve which will be depleted.
Most of the budget cuts entailed layoffs, reductions in contract services and closure of the Senior Center and partial closure of the Community Center.
The approved 2011 operating budget is $4.7M less than the 2010 budget. In the last three years, the city has slashed the budget by $7.7M and lost 132 full-time equivalent (FTE) positions, or 43 percent of staff. These include 46 former Newark Fire Department employees who transferred to Alameda County Fire Department. Remaining city departments must share the cuts. In the past year, staffing has contracted by 31 percent. Previously-agreed employees' salary concessions will remain in force.
Other cuts include elimination of the high school's School Resource Officer (SRO), crossing guards, closure of the library on Sundays, shorter opening hours at City Hall, reducing code enforcement staff by half, less park and landscape maintenance, less street maintenance and sweeping, increase in 9-1-1 response times to non-critical police calls, Neighborhood Watch, paratransit, recreation programs for youth and delays to capital projects.
The budgetary process is based on available information and future expectations but always includes some uncertainty. Actions by the State of California, the housing market and other adverse factors conspire to create shortfalls even after a budget has been approved. The 2010-12 Biennial Budget has been balanced, in part, by transferring $500,000 of Gas Tax funds, intended originally for street services, to the operating budget. This will reduce the amount of infrastructure work possible and, ultimately, result in greater expense to restore roads to an acceptable condition.
The balanced budget does not include equipment replacement. In the last five years, planned replacement costs have amounted to $1M annually with only $400,000 budgeted. Deferring actual equipment replacement means obsolete systems, with higher repairs and maintenance costs.
Nor does the budget include replenishment of reserves depleted over the past five years. The 2010 budget is balanced with the remaining PERS Reserve or "rainy day" funds. The current budget delivers the absolute minimum level of services. Adjustments will only be possible by raiding the unallocated General Fund Reserve, but this is a "reserve of last resort" to enable continued city operations in situations such as a natural disaster.
Newark's current fiscal position is unsustainable without severe deterioration of the quality of life in the city. Council, therefore, voted unanimously to declare a fiscal emergency on June 24, 2010, as a prelude to calling a special municipal election for November 2, 2010, and placing a revenue-enhancement measure on the ballot. Funding options included a local sales tax, parcel tax, 9-1-1 emergency communications tax, general obligation bond, creation of community facility districts (Mello-Roos), transient occupancy tax and UUT.
November's UUT measure is similar to that on the November 2009 ballot. A UUT can be levied on the consumption of utility services, such as electricity, gas, water, sewer, telecommunications and video services. The municipality identifies the utilities subject to the tax, the tax rate, duration, and how revenue will be used and the electorate votes. A UUT can be a Special Tax (revenue for a specific purpose) or a General Tax (funding a variety of services at Council's discretion). Utility companies collect and remit the tax to the city.
A UUT's tax base consists of property owners, renters, commercial, and industrial businesses. It does not single out particular groups but includes all users of the utilities subject to the tax. It is a local tax the State cannot appropriate. It is based on consumption; thus, taxpayers can control what they pay by adjusting usage. For the city, the stability of UUT revenue, despite economic volatility, facilitates longer-term budget planning. Approximately 150 California cities and four counties, including eight Alameda County cities, have a UUT.
With the benefit of hindsight, Measure U has a proposed rate of 3.5 percent for five years applicable to electricity, gas, telecommunications and video services, expiring on December 31, 2015. The school district and Ohlone College are exempt, as are seniors, aged 70 and older, and low-income residents covered by PG&E's California Alternate Rates for Energy (CARE) Program.
"Water, garbage and internet services will not be taxed. Satellite TV is excluded by federal law," explained Mayor David Smith in a recent letter to the Newark Chamber of Commerce.
"UUT revenue will not be spent on development projects such as Areas 3 and 4 or capital projects like a new city hall. Developers pay 100 percent of all costs associated with a project. It's Council's policy that all development projects pay their own way or generate revenue for the city. No Measure U funds would be used to advance these projects.
"Taxes with low rates and short 'sunset' periods are temporary measures to help see cities through the recession and will not solve the city's budget problem but will help us to restore certain services and programs and prevent additional cuts if revenues continue to fall or the State takes additional local revenue to balance its budget. Service restorations would include increasing the number of police officers and patrol support, crime prevention efforts, reinstatement of the high school SRO, re-opening the Senior Center and increasing park and street maintenance."
Voter Registration forms are available at City Hall, 37101 Newark Boulevard at the Cashier's counter on the First Floor or the City Clerk's office on the Fifth Floor. The forms may be obtained online at www.sos.ca.gov/nvrc/fedform.
For more information about the City of Newark's special municipal election and Measure U, visit www.ci.newark.ca.us.