CITY OF SIGNAL HILL RESOLUTION OPPOSING THE TAXPAYERS RIGHT TO KNOW AND VOTE INITIATIVE

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1 CITY OF SIGNAL HILL 2175 Cherry Avenue Signal Hill, CA AGENDA ITEM TO: FROM: SUBJECT: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL KENNETH C. FARFSING CITY MANAGER RESOLUTION OPPOSING THE TAXPAYERS RIGHT TO KNOW AND VOTE INITIATIVE Summary: The City Council directed the preparation of a resolution opposing the Taxpayer s Right to Know and Vote Initiative, a proposed amendment to the City s Charter scheduled for the June 3, 2014 Statewide Primary Election. Recommendation: Waive further reading and adopt the following resolution, entitled: Fiscal Impacts: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SIGNAL HILL, CALIFORNIA, OPPOSING THE RIGHT TO KNOW AND VOTE INITIATIVE The independent fiscal expert found that the Tax Payers Right to Know and Vote Initiative will create $2,141,662 in fiscal impacts annually to the City general operating budget (a 13% impact). Specific departments impacted include the Police Department ($452,614), Public Works ($772,662), Community Development ($530,881), Community Services ($209,463) and General Government ($175,844). The Initiative will create an adverse impact $3,515,533 to the City s Water Department (a 100% impact).

2 Page 2 of 10 Background: At the June 3, 2014, Statewide Primary Election, Signal Hill voters will be asked to decide on fundamental changes to the City s Charter that will affect our municipal finances. Known as the Taxpayers Right to Know and Vote Act, this City Charter amendment would place a much greater responsibility on a few Signal Hill voters to make many complicated, technical, and interrelated financial decisions on the City s behalf. While at the same time the Initiative would reduce the ability of the elected City Council and the City staff to manage the city s budget and fiscal affairs by requiring a 2/3rds voter approval on all local fees, taxes and assessments. The proposed change to the City of Signal Hill s Charter fundamentally affects the Signal Hill City Council s power to manage city finances. Currently, according to Section 906 (a) of the Signal Hill City Charter, The City shall have the full power to enact any taxes, assessments, fees or any other measures for the purposes of raising revenues. In the City s annual budget process, the City Council projects its future expenses and plans for revenue to cover the expenses, and the budget is then approved at a public hearing. The proposed Charter amendment takes the revenue raising function and transfers this power directly to voters. It requires that voters must approve of any increase in taxes, assessments, fees, charges, or rates. Approval must be by a two-thirds vote. In addition, the Initiative sunsets all taxes and fees enacted by the voters in 10 years and all such assessments in 20 years, and, again requires a two-thirds vote for reauthorization. In plain English, the Initiative would require the City Council to set either general or special elections and win two-thirds voter approval for each and every increase in taxes, fees, assessments, and charges in the City s approximate $35.8 million dollar budget. Two-thirds voter approval would appear to be required on increases to everything from the setting of overdue book fees, DVD rentals, garage sale permits, dog and cat licenses, picnic table reservation fees, municipal water rates, business license fees, building permits and construction inspections, developer agreements, and the annual cost of living adjustment to the Oil Production Barrel Tax, plus virtually every other city fee, tax, mitigation fee, or assessment increase. As discussed below, the proponents initial motivation concerning the Initiative seemed centered on whether the City might be too aggressive in giving governmental assistance to future developers; however, the Initiative as drafted is very broad and goes well beyond this. According to Urban Futures, Inc., independent consultants hired to assess the Initiative s fiscal impacts, the Initiative would ultimately degrade the City s financial viability. It is likely that legal issues will arise over the interpretation of the Initiative. This Summary is intended to educate the public on the purposes and impacts of the Taxpayers Right to Know & Vote on Taxes Initiative.

3 Page 3 of 10 What does The Taxpayers Right to Know & Vote on Taxes Initiative do? Each year, the City sets an annual budget and estimates revenues from property and sales taxes, assessments, fees, charges, and what is owed through bonded indebtedness. Then, revenues are balanced against expenditures and adjusted, if needed, to ensure revenues cover all expenses in a balanced budget as required by state law. The Council will attempt to cut expenses to stay within revenue, but may seek to increase revenue to pay for increased expenses. Not surprisingly, over any 10- year period, expenses will increase to some degree. For example, the City s budget has grown by about 2% annually over the past ten years, including the addition of 6 police officer positions, and in total the City s staffing has gone from 103 to 107 positions over this same time period, while the City s population has grown from 10,111 to 11,218, an increase of 11%. Under the Initiative, the five elected city council members might not be able to set or approve a balanced budget and increase in revenues where needed, until an election could be set and each individual fee or rate that needed to be adjusted upward could be voter approved. Should voters reject these changes, it is unknown what would happen next or how the City could proceed, fiscal experts have advised. This is known as ballot box budgeting. For example: The Signal Hill Public Library charges $.35 per day for overdue books. Should an adjustment in that rate be needed to cover growing library expenses, the City Council under present Charter provisions could make an adjustment on its own, by a simple majority vote after noticed hearings and debate. Should the Initiative pass, any increase in overdue book fees would have to receive two-thirds voter approval in an election called to decide the matter. Proponents of the Initiative have argued that the Initiative does not apply to all fees. The operative language in the Initiative is a fee or charge for services and the City Attorney can find no language excluding library fees. The legal uncertainty of the Initiative is discussed below. The same holds true for water rates, false alarm penalties, police department vehicle impound fees, parking ticket rates, reserving a picnic table in city parks, recreation fees, building permit fees, all construction-related inspection fees, more than a dozen categories of business license fees, and even garage sale permit fees. Moreover, big ticket items such as the Oil Production Barrel Tax, bonded indebtedness for municipal infrastructure projects like streets and roads, or the approval of developer agreements which confer financial incentives to developers or businesses to locate new businesses deemed beneficial to the City, would be subject to a two-thirds election.

4 Page 4 of 10 What does the Initiative mean for the California Crown Landscape and Lighting Maintenance District? Regarding assessments, the California Crown Landscape and Lighting Maintenance District has been responsible for the upkeep of the common landscape areas in this neighborhood of 90 single-family homes since The annual maintenance assessments can only be approved by a majority vote of the parcel owners residing in the boundaries of the district. The Initiative would appear to require that the entire City now vote and approve landscape maintenance assessment measures by a two-thirds majority. Would parcel owners be required to pay for a citywide election? The proponents state that the Initiative is not intended to apply to California Crown, but the operative Initiative language is an assessment on property for municipal purposes, special benefits, or capital construction and appears to broadly apply to the City s assessment authority. What does the Initiative mean for me, a Signal Hill resident? The Initiative places a much greater responsibility on Signal Hill voters to make many complicated, technical and interrelated fiscal decisions on the City s behalf while at the same time reducing the ability of the elected City Council and their City staff to manage the city s budget and fiscal affairs, which is what city councils throughout California are elected to do. Instead of five council members elected and empowered to manage city affairs and approve increases in taxes, fees, assessments, etc., on the voter s behalf, the Initiative requires that two-thirds of all voters directly fulfill this role themselves. What are the positive aspects of the Initiative? The City of Signal Hill is a low property tax City deriving only 4% of its budget revenue from property taxes. Accordingly, since the adoption of the City s Redevelopment Project Area in 1974, the City was extremely aggressive in utilizing its redevelopment funds to remediate oil field cleanup and in promoting commercial development in the redevelopment area. Some 85% of the City s top 25 sales tax generators received redevelopment assistance to locate in Signal Hill. Sale tax revenues now comprise 67% of the total general fund revenue. The Los Angeles County Civil Grand Jury recently determined that the City of Signal Hill is in the top 10 cities in excellent financial health out of the 88 cities in Los Angeles County. In 2011, Governor Brown persuaded the State Legislature to eliminate redevelopment in order to grab local money to alleviate the State budget deficit. Signal Hill was left owning some 25 acres of vacant, contaminated oil field land with no redevelopment program to encourage its development. The City Council used its authority under the Charter to enact its own economic development program. This program is similar to assistance programs in surrounding cities Signal Hill competes with, including Long Beach. The Taxpayers Right to Know & Vote on Taxes Initiative arose over a concern that in providing economic assistance to developers, the City Council might assist unworthy

5 Page 5 of 10 projects or provide excessive assistance and that the voters themselves should have the right to approve such deals. Although there are provisions in the economic development ordinance requiring a cost benefit analysis of the assistance and a public hearing to approve transactions, the proponents of Initiative thought these provisions were insufficient. The Taxpayers Right to Know & Vote on Taxes Initiative would clearly subject such future economic development transactions involving City assistance to a vote of the people, and for someone worried about such assistance to private development, there are strong arguments in favor of the Initiative. The questions concerning the Initiative arise because either the intent of the proponents went beyond this, or due to poor drafting, the impacts of The Taxpayers Right to Know & Vote on Taxes Initiative as drafted are far greater than were anticipated. What is the most significant risk of passing the Initiative? As a part of the City s strategic plan update, the City recently retained an independent consultant, FM3, to survey community attitudes about a number of issues. Significantly the consultant found the following: 75% percent of residents believe that things are going in the right direction in Signal Hill, while only 10% percent believe that the City is on the wrong track. 72% percent of residents consider it highly important to them personally that the Signal Hill Police Department has the funding it needs, while only 9% percent feel providing sufficient funding is not important. 77% percent of residents want to maintain current city services, while 14% percent are alright with cuts to police, road repairs, afterschool programs, and library services, as needed. 84% residents view the Signal Hill Police Department positively, while 11% view the department unfavorably. 71% of residents believe that the City is well run, while 17% feel that major reforms are needed at City Hall. As noted by the survey consultant, these positive findings are extremely high as compared to cities in Los Angeles County. In fact, the community satisfaction level with Signal Hill residents is the highest the consultant has found in recent surveys. From this outcome, it appears the community is highly satisfied with the level of community services and particularly the police services which account for 43% of the City s total budget. Only 20% of residents are concerned with local taxes, and only 3%

6 Page 6 of 10 think that local taxation and fees are a serious issue. The survey found that no one concern dominated the public thinking on serious issues; one in three survey respondents could not even name the most serious issue facing Signal Hill. So based on the fact that some 75% of the City s population is generally satisfied with the direction of the City, what is the biggest risk of the Taxpayers Right to Know & Vote on Taxes Initiative? The risk is that it will initiate a long-term decline in the City s financial ability to continue to provide the high quality services now valued by the public. Proponents of Initiative say that it is only new and increased taxes fees and assessments which are covered. Over any given 10 year period, the City s revenues will need to rise to cover increased expenses; and taxes, fees, and assessments will be increased. Thus, ultimately all of the City s revenue sources are likely to fall under the need to obtain a two-thirds vote. Since a two-thirds vote requirement means it takes 2 yes votes to offset a no vote, the no votes have greater value. The Initiative would impact 13% of the City s budget or $2.1 million in revenues. This includes $452,641 in impacts to the Police Department and $772,622 in impacts to the Public Works Department. (Source: City of Signal Hill Know and Vote Initiative Independent Fiscal Analysis, Urban Futures, November 2013, Page 14). It was based on these considerations that the Urban Future s financial study concluded the following: The Initiative would fundamentally alter the management of the City s municipal finances, and budget planning, by impacting the City Council s ability to implement fiscal policy consistent with the City Charter and the State Constitution (Page 1) Over time, requiring a vote to adjust fees for enforcement activities could impact the City s ability to recover costs for services and potentially erode public safety, especially the proactive patrol programs (Page 21). In other words, the requirement that future increases to all of the City s revenue services would be subject to a super majority vote is likely over time to erode the financial capacity of the City to provide the service levels now enjoyed by residents and businesses. Will the Initiative improve public safety or affect our police and fire departments? The Taxpayers Right to Know & Vote on Taxes Initiative will impact public safety in a number of ways. Although Signal Hill is one of the smallest cities in Los Angeles County, it has always been able to provide a full range of police services rather than contracting with the Sheriff s Department, which is a common alterative for cities lacking the resources for their own department. In the current fiscal year, of the City s FY general fund budget, some $8.1 million or 43% of the budget is spent on public safety. Some of the Department s funding will be directly affected, including vehicle impound

7 Page 7 of 10 fees and false alarm fees. Additionally, any significant decrease in the City s general revenue must necessarily affect the City s most important service. The Urban Futures study predicted that over time the measure could impact the City s ability to recover costs for services and eventually erode public safety, especially proactive patrol programs as the City seeks to provide matching funds for state and federal law enforcement grants that would be subject to voter approval. Does the Taxpayers Right to Know & Vote Initiative impact how Signal Hill would respond to an emergency? The Taxpayers Right to Know & Vote on Taxes Initiative speaks not one word about what would happen in an emergency. Past experience in many California cities suggests that the City s flexibility to respond to a major emergency like an earthquake or a major public disturbance would be affected. For example, how would an earthquake on the active Newport-Inglewood fault on which the city sits affect Signal Hill? According to the Independent Fiscal Consultant, in earthquakes, water wells can collapse and water mains can rupture. The City s ability to rapidly shift funds around or raise water rates to cover the cost of imported water while repairs on the City s water system are underway will be slowed until the matters can be put to a public vote. Instead of a fast-acting city council decision in the wake of a public safety emergency, the city council s hands would be tied until a special election could be scheduled and a two-thirds voter approval of an emergency change in rates or fees is obtained. Will the Initiative make Signal Hill city government more or less costly? The Taxpayers Right to Know & Vote on Taxes Initiative could make Signal Hill city government more costly. The Urban Futures study says that the Initiative will increase bureaucracy and the cost of government in Signal Hill. The report estimates that to implement the initiative will require additional city staff in both the City Manager s and City Clerk s departments to manage the many items that will have to be placed on the ballot. In addition, the cost of running the required elections are estimated to cost $75,000 per election, including regular County election costs of $35,600, legal costs of $20,000, and $19,400 for other election support services. Also, the Initiative requires for each ballot measure that the City have an impartial financial and legislative analysis prepared by an independent law firm or accounting firm jointly selected by proponents and opponents of the measure. While such costs are speculative at this point, the City s recent independent study of the financial impacts of the Taxpayers Right to Know & Vote on Taxes cost $32,665 and this expense could occur with each future measure. Additionally, the Initiative does not say how the opponents would be picked to make the joint selection of the law or accounting firm.

8 Page 8 of 10 What other city services might be impacted by the Initiative? The City s Community Development Department which carries out various planning, building, and zoning activities receives about 40% of its annual budget from fees charged for services. Fees for services cover everything from building permit fees to developer impact fees, including inspections by the department s Building Division, which conducts various inspections. Clearly one objective of the Initiative has been to prevent assistance to development projects without a vote of the people. This could slow the pace of community revitalization both residential and commercial throughout the City. Although many development projects have been built without public assistance, some of the most important have required assistance, such as the Hilltop development, the Auto Center, and the Town Center developments which have brought Home Depot, Costco, Food-4- Less, and other development. These assisted projects now bring $7 million (2012) to the City annually paying 40% of the City s general fund budget. These businesses generate over 1,861 direct jobs. In addition, the amount of franchise fees now paid to the City by more than 10 companies including companies such as Tesoro Pipelines, EDCO, Texaco/TDPI, and Signal Hill Petroleum, would also be called into question. The City s independent consultant found that the City will not be able to assess cost-of-living increases on these franchises, without a two-thirds vote of the electorate. Are there current state laws governing enactment of taxes, fees and assessments and how do they fit with the Initiative? Clearly there are extensive State laws dealing with all forms of taxes (property, sales, utility), fees (property related, user, utility, development, and franchise) and assessments (municipal, special, and capital). In fact, the current Signal Hill Charter generally provides that taxes, fees and assessments will be imposed in accordance with California law generally. While we cannot here deal with all State laws on this subject, the most important California constitutional restriction on a City s ability to impose taxes, fees, and assessments is Proposition 218, enacted by the voters in Proposition 218 comprehensively deals with how cities enact taxes, property-related fees, and assessments. Proposition 218 states No local government may impose, extend or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote. Only a special tax would require a two-thirds vote. Assessments may only be imposed on parcels receiving a special benefit after a noticed public hearing where ballots are weighted in accordance with the proportional financial obligation of the affected property. Finally, under Proposition 218, noticed public hearings are also

9 Page 9 of 10 required to impose property-related fees, and except for sewer, water, and refuse services, property-related fees are required to be approved by the electorate. Proposition 218 does not apply to non-property related fees, or fees for services. The provisions of the Initiative are inconsistent with State law in a number of ways which can only be briefly summarized here. For example, Proposition 218 would permit a tax to be passed by a majority vote unless it is special tax, but the Initiative always requires a two-third vote. Under Proposition 218 assessments can be increased after a public hearing involving affected property. The Initiative requires a citywide election with a two-thirds vote. Proposition 218 requires an election for property-related fees but does not restrict how the City imposes fees on services, including services for sewer, water, and refuse. Which requirement prevails the State Constitution or the City Charter? Is the question a municipal affair or one of State preemption? These are just some of a myriad of questions which will arise if the Taxpayers Right to Know & Vote on Taxes Initiative passes. Are there other legal issues which arise with the Initiative? The legal questions which arise over the inconsistencies of the Taxpayers Right to Know & Vote on Taxes Initiative with State law are compounded by the fact the language is evidently subject to multiple interpretations. It has already been pointed out that the language of the Initiative seemingly makes the Taxpayers Right to Know & Vote on Taxes applicable to all assessment districts established by the City without exceptions, but the proponents do not agree with this interpretation. Likewise, with respect to the example of library fees, the Taxpayers Right to Know & Vote on Taxes states that it applies to charges for services and benefits but the proponents argue library services are not covered. One negative of city charters is that each is its own constitution and there is not a body of law, for example, interpreting the Signal Hill Charter like there would be for State laws. Accordingly, the City Attorney has warned that there are no legal precedents from the plain language of the Taxpayers Right to Know & Vote on Taxes to guide in its interpretation, so the public needs to be prepared for potentially many years of litigation to establish a judicial interpretation of the Taxpayers Right to Know and Vote on Taxes Initiative. This could also ultimately affect the City s financial viability. How can I learn more about the Taxpayers Right to Know & Vote on Taxes Initiative? The City of Signal Hill has created a page on its website where residents can get more information about The Taxpayers Right to Know and Vote on Taxes Initiative. Click on The Know & Vote button at the City of Signal Hill home page or insert this link into your browser,

10 Page 10 of 10 Voters will be asked to vote to approve or decline The Taxpayers Right to Know & Vote on Taxes Initiatives on the June 3, 2014 ballot. It requires only a majority vote to pass. The last day to register to vote for this election is May 19, 2014, and the final date to file an application to Vote-By-Mail is May 27, 2014.