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HomeMy WebLinkAbout2019-08-29; City Council; ; Informational Symposium on Public Financing of City Infrastructure and Services(i S~~fi R~port Meeting Date: To: From: Staff Contact: August 29, 2019 Mayor and City Council Scott Chadwick, City Manager Laura Rocha, Deputy City Manager laura.rocha@carlsbadca.gov CAReview (C£3_ Subject: Informational Symposium on Public Financing of City Infrastructure and Services Recommended Action None Executive Summary The City of Carlsbad is holding an informational symposium on public financing of city infrastructure and services. The presentation is intended to inform the City Council and the public about the financing of infrastructure and services within the city and is specifically intended to inform the City Council's strategic goal setting sessions scheduled in September and October. Increasing costs, population growth, and new demands require thoughtful and innovative financing mechanisms. The presentation will generally cover background and topics impacting public infrastructure and service financing, a survey of financing tools and methods used successfully by the City of Carlsbad, and a look ahead to future financing mechanisms that may be appropriate to a changing urban landscape. Speakers will include the City's Deputy City Manager of Administrative Services Laura Rocha, law firm Best Best & Krieger partner Warren B. Diven, and Principal of Special Districts Financing and Administration Barbara Hale-Carter. Discussion Some of the specific topics covered will include: • The difference between funding and financing • Trends and challenges of financing local infrastructure • The city's Growth Management Plan as a funding tool • User charges and fees • Federal and state grants • Assessment districts • Reserves and fund balances • Current laws and policies • New funding sources and financing options August 29, 2019 Item #1 Page 1 of 30 SPEAKERS INTRODUCTION TO PUBLIC FINANCING Laura Rocha Deputy City Manager, Administrative Services Laura Rocha has more than 25 years of experience as an accounting professional with more than 20 years of senior public sector experience in finance and consulting for city government and special district operations. As the deputy city manager for administrative services in the City of Carlsbad, Laura oversees all aspects of the city's finance, IT and human resources operations. Other experience includes work for the cities of San Marcos, San Juan Capistrano, Santee and San Diego. Rocha holds a bachelor of science degree in business administration with an emphasis in accounting from San Diego State University. She is a certified public accountant and a member of the California Board of Accountancy, Government Finance Officers Association and the California Society of Municipal Finance Officers. WHERE WE'VE BEEN: CARLSBAD'S APPROACH TO PUBLIC FINANCING Warren 8. Diven Partner, Best, Best & Krieger Warren Diven, a partner in the Public Finance practice group of Best Best & Krieger LLP, has practiced public finance and public agency law for nearly four decades. Warren has served as city attorney for the cities of San Marcos and Solana Beach and as general counsel for several community services districts. A noted expert and frequent speaker, Warren's background includes general obligation bond, revenue bond, assessment district and community facilities district financings; Proposition 218; Proposition 39; judicial foreclosure proceedings for assessment districts and community . fc!cilities districts; and restructuring and workouts of distressed assessment districts and community facilities districts. He also contributed to continuing education programs at the University of California in San Diego, Los Angeles and Davis. Warren is a member of the National Association of Bond Lawyers and the California Government Finance Officers' Association. Additionally, he serves on CASTOFF, a statewide committee of bond lawyers, financial consultants and underwriters addressing issues pertaining to assessment and community facilities district financing and Legal Advisory Committee for the Coalition for Adequate School Housing. FUTURE OPPORTUNITIES FOR PUBLIC FINANCING Barbara Hale-Carter Principal, Special District Financing & Administration Barbara Hale-Carter has more than 32 years of professional experience in California public finance. During her career she has gained expertise special assessment bonds, general · obligation bonds, joint exercise of powers agency and non-profit co rporation lease revenue bonds, Mello-Roos Community Facilities District bonds and refunding bonds. She also brings experience in developer mitigation negotiations, special tax consultant, feasibility analysis, August 29, 2019 Item #1 Page 2 of 30 development projections, and residential and nonresidential fee justification reporting. Barbara's experience includes the formation of some of the first Community Facilities Districts ever created, and she has gone on to form CFDs with zones, improvement areas, single and multiple owners, agency-wide, annexable, with joint-powers agreements with other agencies, and those to fund both facilities and services. Fiscal Analysis There is no fiscal impact associated with this item. Next Steps None. Environmental Evaluation (CEQA} This informational presentation does not qualify as a "project" under CEOA per state CEQA Guidelines section 15378. Public Notification and Outreach Noticed under the special meeting requirements of the Ralph M. Brown Act and was available for public viewing and review at least 48 hours prior to the meeting date and time. Exhibits 1. "Understanding Municipal Revenues in California: Cities, Counties and Special Districts" Published by the Institute. for Local Government {ILG) The link to the paper can be found at: https://www.ca-ilg.org/sites/main/files/file- attachments/basics of municipal revenue 2016.pdf 2. Carlsbad Public Financing Symposium: Summary of Financing Obligations August 29, 2019 Item #1 Page 3 of 30 Understanding the Basics of Municipal Revenues in California: Cities, Counties and Special Districts 2016 Update August 29, 2019 Item #1 Page 4 of 30 Table of Contents Overview............................................................................ 2 City Revenues In California ................................................ 4 County Revenues In California .......................................... 5 Special District Revenues In California .............................. 6 The Players: The State Legislature, Local Governments And The Voters ............................................ 7 Taxes .................................................................................. 8 Property Taxes ................................................................. 10 Sales And Use Taxes ......................................................... 12 Service Charges, Assessments, And Fees ......................... 15 Revenues From Other Government Agencies .................. 17 Rent For Use Of Public Property ...................................... 18 Fines, Forfeitures And Penalties ....................................... 18 Other Revenues ............................................................... 19 Acknowledgements ......................................................... 20 August 29, 2019 Item #1 Page 5 of 30 OVERVIEW Each one of California's 39 million residents lives within the boundaries of one of the state's 58 counties. Nearly 33 million people also live in one of California’s 482 cities.i Californians are also served by 2,156 independent special districts. Counties, cities and special districts provide a vast array of municipal services to residents and businesses. These services include public safety (police, fire and emergency services), parks and recreation, roads, flood protection, sewers, water, electricity, refuse disposal, recycling and other utilities. Counties have an additional role as a provider for many state-mandated services, such as foster care, public health care, jails, criminal justice and elections.ii These municipal local governments rely on a variety of revenues to pay for the services and facilities they provide. The amount and composition of revenues: • Differ between cities, counties and special districts largely because of differences in responsibilities; and • Vary among cities, among counties and among special districts depending in part on differences in governance responsibilities. There is a complex web of legal rules for collecting and using the variety of revenues available to municipal governments in California. These rules derive from the state constitution, state statute and court cases further interpreting those laws. This guide provides an overview of the sources of county, city and special district revenues in California. It is an introduction to a complex topic. You can find further information in the resources listed on the last page. How To Use This Information These materials are not technical or legal advice. You should consult technical experts, attorneys and/or relevant regulatory authorities for up-to-date information and advice on specific situations. August 29, 2019 Item #1 Page 6 of 30 CITY REVENUES IN CALIFORNIA Incorporated cities (including those that refer to themselves as “towns”) are responsible for a broad array of essential frontline services tailored to the needs of their communities. These include: • Law enforcement and crime prevention, • Fire suppression and prevention, natural disaster planning and response, emergency medical response and transport, • Land use planning and zoning, building safety, • Local parks and open spaces, recreation, • Water supply, treatment and delivery, • Sewage collection, treatment and disposal, • Storm water collection and drainage, • Solid waste collection, recycling and disposal, • Local streets, sidewalks, bikeways, street lighting and traffic controls, and • Public transit. Cities that are responsible for providing all or most of these functions are called “full service” - the services can be provided in-house or contracted through a private entity or another public agency. In other cities, some of these functions are the financial responsibility of other local agencies such as the county or special districts. For example, in about thirty percent of California cities, a special district provides and funds fire services. In sixty percent, library services are provided and funded by another public agency such as the county or a special district. The mix of service responsibilities and local choice regarding service levels affects the amount and composition of revenues of each city. August 29, 2019 Item #1 Page 7 of 30 COUNTY REVENUES IN CALIFORNIA California counties are responsible for three general areas of municipal services: 1) delegated state and federal programs, 2) countywide public services and 3) essential frontline services for residents not receiving those services from a city or special district, often in unincorporated areas (outside city boundaries). In unincorporated areas, counties provide the essential frontline services that cities provide that are not provided by a special district. These can include police protection (through a county sheriff), roads, planning and building safety. Counties also provide public services to all county residents, whether they live in or outside of cities. These countywide functions include: • Public assistance (notably welfare programs and aid to the indigent), • Public health services (including mental health and drug/alcohol services), • Local elections, • Local corrections, detention and probation facilities and programs (including juvenile detention), and • Property tax collection and allocation for all local agencies, including school districts. Funding from the federal and state government, primarily for health and human services, is the largest source of county revenues. Property taxes and sales and use taxes are the primary funding sources for many county services that do not have a dedicated state or federal funding source. General and Functional Revenues Municipal revenues may be viewed as falling into two broad categories: general revenues and functional revenues. General revenues can be used for any legitimate public purpose. General purpose taxes, especially property and sales taxes, account for most general city revenues statewide. Functional revenues are restricted by law to a particular use. These include funds derived from fees or rates that the local agency charges for public services, including municipal utilities such as water, sewer, and garbage collection, airports, marinas, harbors and water ports. Functional revenues also include most state or federal grants as they are usually restricted for particular programs. August 29, 2019 Item #1 Page 8 of 30 SPECIAL DISTRICT REVENUES IN CALIFORNIA Most special districts provide one or a few municipal services to a particular geographic area. These include both enterprise and non- enterprise services. Enterprise services are funded primarily through charging a fee for service. For example, water and irrigation districts charge utility rates and fees from consumers of those services. Non- enterprise services generally do not lend themselves to fees and are primarily funded by property taxes, with relatively small amounts of fee and state and federal grant revenue. Library and fire protection services are examples of non-enterprise services. Other districts are multifunction, providing a number of municipal services. Community services districts (CSDs) can provide as many as 32 different types of services, approximating the scope of some cities. Multifunction districts have both enterprise and non-enterprise elements and may, like cities or counties, use an array of different revenue sources. Types of Special Districts • Air Quality Management / Air Pollution Districts • Airport Districts • Cemetery Districts • Community Services Districts • Flood/Drainage Districts • Fire Districts • Harbor Districts • Healthcare Districts • Irrigation Districts • Library Districts • Memorial Districts • Municipal / Resort Improvement Districts • Open Space Districts • Parks and Recreation Districts • Police Protection / Ambulance Districts • Public Utility Districts • Reclamation Districts • Resource Conservation Districts • Sanitary Districts • Waste Management Districts • Water Districts August 29, 2019 Item #1 Page 9 of 30 THE STATE LEGISLATURE, LOCAL GOVERNMENTS AND THE VOTERS The options available to local officials in governing, managing their finances and raising revenues to provide services needed by their communities are limited. Voters have placed restrictions as well as protections in the state constitution. The state’s voters and the California Legislature have acted in various ways, to support and provide, and to limit and withdraw financial powers and resources from cities, counties and special districts. Some of the most significant limitations on the local revenue-raising include: • Property taxes may not be increased except with a two-thirds vote to fund a general obligation bond. • The allocation of local property tax among a county, and cities, special districts and school districts within each county is controlled by the Legislature. • Voter approval is required prior to enacting, increasing or extending any type of local tax. • Assessments to pay for public facilities that benefit real property require property owner approval. • Fees for the use of local agency facilities and for services may not exceed the reasonable cost of providing those facilities and services. • Fees for services such as water, sewer and trash collection are subject to property owner majority protest. The Legislature has enacted many complicated changes in state and local revenues over the past 30 years. Voters have approved state constitutional protections limiting many of these actions at times followed by even more complicated maneuvers by the Legislature in efforts to solve the financial troubles and interests of the state budget. Reacting to actions of the Legislature and the deterioration of local control of fiscal matters, local government interests placed on the ballot, and voters approved, Proposition 1A in 2004 and Proposition 22 in 2010. Together, these measures prohibit the state from: • Enacting most local government mandates without fully funding their costs. The definition of state mandate includes a transfer of responsibility or funding of a program for which the state previously had full or partial responsibility. • Reducing the local portion of the sales and use tax rate or altering its method of allocation, except to comply with federal law or an interstate compact. • Reducing the combined share of property tax revenues going to the county as well as cities and special districts in a county. • Borrowing, delaying or taking motor vehicle fuel tax allocations, gasoline sales tax allocations, or public transportation account funds. August 29, 2019 Item #1 Page 10 of 30 TAXES According to the California Constitution, every local agency charge is a “tax,” unless it falls into a list of specified exceptions:iii • User fees for a specific benefit, privilege, service or product provided to the payor. Items include: fees for parks and recreation classes, some utilities, public records copying fees, DUI emergency response fees, emergency medical and ambulance transport service fees. • Regulatory fees for reasonable regulatory costs of issuing licenses and permits, and performing inspections and enforcement such as health and safety permits, building permits, police background checks, pet licenses, bicycle licenses and permits for regulated commercial activities. • Rental fees imposed for entrance to or use of government property. These include: facility room rentals, equipment rentals, park, museum and zoo entrance fees, golf greens fees, on and off-street parking and tolls. • Fines or penalties such as parking fines, code enforcement fees and penalties, late payment fees, interest charges and other charges for violation of the law. • A charge imposed as a condition of property development such as building permit fees, construction and grading permits, development impact fees and fees for California Environmental Quality Act requirements. • Benefit assessments and property related fees imposed in accordance with the provisions of Article XIII D (Proposition 218) such as a lighting and landscape assessment and fees for property related services such as many retail water and sewer fees.iv In contrast to an assessment or a fee, a tax need not be levied in proportion to specific benefit to a person or property. Tax revenues are an important source of funding for both county and city services and for many special districts. In addition to local taxes, counties rely significantly on tax dollars allocated from the state and federal governments. TAX- General TAX- Parcel or Special (earmarked) G.O. BOND (w/tax) Fee / fine / rent City / County Majority voter approval Two-thirds voter approval Two-thirds voter approval Majority of the governing board* Special District n/a Two-thirds voter approval Two-thirds voter approval Majority of the governing board* K-14 School n/a Two-thirds voter approval (parcel tax) 55% voter approval** Majority of the governing board* State For any law that will increase the taxes of any taxpayer, two-thirds of each house of the Legislature - or approval of majority of statewide voters. Statewide majority voter approval Majority of each house * Additional procedures apply for property related fees. ** Per Proposition 39 (2000), maximum tax rate limits and other conditions apply for a 55% threshold school bond or threshold is two-thirds. August 29, 2019 Item #1 Page 11 of 30 Counties and cities may impose a variety of taxes. Taxes fall into one of two categories: general or special. A general tax is imposed to raise general-purpose revenues. Counties and cities may use revenues from a general tax for any lawful public purpose. A majority of voters must approve the decision to impose, increase or extend a general tax. A general tax may only be submitted for voter approval at an election for city council or board of supervisors unless a unanimous vote of the governing board declares an emergency. A special tax is a tax imposed for a specific purpose. For example, a city may increase the sales and use tax by adding a special use tax for public safety, the acquisition of open space or transportation projects. All taxes imposed by special districts are considered special taxes. Since the tax is for a specific purpose, the revenues may only be used for that purpose. Two-thirds of voters must agree to enact, increase or extend a special tax. General Tax Special Tax Use of Revenues Unrestricted Specific purpose Governing Body Approval • Counties and general law cities: two-thirds • Charter cities: majority • Transactions and use taxes: two-thirds • Special districts may not adopt general taxes. Majority Voter Approval Majority Two-thirds Other Rules A general tax election must be consolidated with a regularly scheduled general election of members of the governing body, unless an emergency is declared by unanimous vote (among those present) of the governing body. Special tax funds must be deposited in a separate account. The taxing agency must publish an annual report including: 1) the tax rate; 2) the amounts of revenues collected and expended; and 3) the status of any project funded by the special tax. County Property Tax Administration County Assessor. The assessor sets values on property and produces an annual property tax assessment roll. County Auditor-Controller. The auditor-controller receives the assessed values from the assessor and calculates the amount of property tax due. County Treasurer-Tax Collector. The treasurer-tax collector administers the billing, collection, and reporting of property tax revenues levied annually throughout California for not only the county, but also cities, schools and special districts. August 29, 2019 Item #1 Page 12 of 30 PROPERTY TAXES All counties and cities in California receive property tax revenues. Many special districts do too. For all counties and most cities and non-enterprise special districts, property taxes are the largest source of discretionary revenues. How Property Taxes Are Calculated in California The property tax is imposed on “real property” (land and permanently attached improvements such as buildings) and tangible personal property (movable property such as boats, aircraft and business equipment). The maximum tax rate permitted on real property for general purposes is one percent of the property's assessed value plus voter approved rates to fund indebtedness (general obligation bonds, requiring two- thirds voter approval). The tax rate is applied to the assessed value (AV) of the property. The assessed value of real property is the “full cash value” of the property in 1975-76 or at change of ownership, whichever is more recent, adjusted annually by the change in the Consumer Price Index (CPI), not to exceed an annual increase of two percent. The value of new construction is additional. If a property changes hands, then the assessed value becomes the full cash value upon change in ownership. If a property’s market value falls below its factored base year value, it may be temporarily reassessed to its lower actual value but in future years may be reassessed at the lesser of its actual value or its factored base year value. This can result in increases of more than two percent as a property’s actual value returns to its earlier value, as when the housing market rebounds from a slump. Property Tax Revenue Distribution Counties allocate property taxes to the county as well as cities, special districts and school districts within the county according to state law. Allocations among local agencies vary from place to place due to differences in the service responsibilities among agencies serving different areas and differences in the tax rates enacted by those agencies prior to Proposition 13 in 1978. Full-service cities generally receive higher shares than those that do not provide the complete range of municipal services. For example, in a city where fire services are provided by a special district, the city will get a lower share, with a portion of the property tax revenues going instead to the special district. August 29, 2019 Item #1 Page 13 of 30 Property tax revenues among local governments are, of course, also dramatically affected by differences in the assessed value of properties among jurisdictions. A ten percent share in a community of average property values will result in less revenue than in a similar size wealthy bedroom community, or a community that also has a sizable business/industrial area. Property Tax in Lieu of Vehicle License Fee In addition to their regular apportionment of property taxes, cities and counties receive property tax revenues in lieu of Vehicle License Fees (VLF). In 2004, the Legislature permanently reduced the VLF rate from two percent to 0.65 percent and compensated cities and counties for their revenue loss with a like amount of property taxes, dollar-for-dollar. Each agency’s property tax in lieu of VLF allocation increases annually in proportion to the growth in gross assessed valuation in that city or county. What is “ERAF?” The property tax revenues received by school districts in each county include amounts from the county “Educational Revenue Augmentation Fund” (ERAF) created by the California Legislature in 1991 as a way to reduce state general fund spending on schools. These funds receive some property tax that was previously allocated to counties, cities and special districts. Since 2004, California’s Constitution has prohibited the Legislature from increasing the amount of property tax shifted from counties, cities and special districts to ERAF or similar schemes. The state Constitution requires a two- thirds vote of the Legislature to change the allocation of property tax among the county, cities and special districts within a county. August 29, 2019 Item #1 Page 14 of 30 SALES AND USE TAXES Consumers are familiar with the experience of going to a store, buying something and having an amount added for sales tax. Services are generally exempt from the sales tax as well as certain items, like most groceries and medicine. The sales tax is assessed as a percentage of the amount purchased. The “base” statewide sales tax rate of 7.25 percent includes amounts to: • The state general fund (3.9375 percent),v • County realignment programs (state health/ welfare and corrections / law enforcement programs shifted from the state, 1.5625 percent), • Supplemental local law enforcement grants (0.50 percent),vi • Transportation programs in the county where the transaction occurs (0.25 percent), and • The city where the transaction occurs (1.00 percent).vii If the transaction occurs in an unincorporated area, the 1.00 percent amount goes to the county. Cities, counties and countywide transportation agencies may impose sales tax rates to be added on to the “base” statewide sales and use tax rate. The add-on rates are actually “transactions and use taxes” and are allocated to the jurisdiction where the taxed product is received or registered (as in the case of a motor vehicle purchase). Over 120 cities have enacted transaction and use taxes of up to one percent, most commonly with majority voter approval for general purposes. Many counties and county transportation agencies have enacted rates, most commonly with two-thirds vote for specific purposes. Under current state law, the maximum combination of transactions and use tax rates in any location may not exceed two percent.viii State Sales and Use Tax Administration The State Board of Equalization collects local sales and use tax revenues from the retailer and sends revenue from local rates and allocations back to cities and counties. In addition to administering the sales and use tax system, the State Board of Equalization collects and allocates other state taxes including fuel, tobacco and alcohol taxes. The “Use Tax” Part of the Sales and Use Tax California’s sales tax has a relative called the “use tax.” While the sales tax is imposed on the seller, the use tax is imposed on the purchaser and at the same rate as the sales tax. The most common example of use tax is for the purchase of goods from an out-of-state retailer for use in California. Out-of-state retailers doing business in California are required to report to the State Board of Equalization the jurisdiction to which sold items are delivered. If the retailer has a physical presence (nexus) in California, they must collect use tax when goods are delivered to purchasers in this state. If the seller does not collect and remit the use tax, the purchaser is legally obligated to report and pay. August 29, 2019 Item #1 Page 15 of 30 Business License Tax (BLT) Most cities and a few counties have enacted business license taxes. Business license tax rates are set individually by each city and county most commonly based on gross receipts (overall business revenue) or levied at a flat rate, but may be based on the quantity of goods produced, number of employees, number of vehicles, square footage of the business or some combination of factors. If a business operates in more than one city, a city may only tax that portion of the business’s activities conducted within the city. In most cases, business license taxes are not imposed for regulatory purposes (as the term “license” might imply) but to raise revenues for general municipal purposes (i.e. a tax). If imposed as a fee to pay for the cost of regulating the business, the fee may not exceed the reasonable cost of regulating the business. (See “regulatory fees.”) Transient Occupancy Tax (TOT) or Hotel Bed Tax Most cities and some counties impose a transient occupancy tax or hotel bed tax on persons staying thirty days or less in hotels, motels and similar lodgings, including mobile homes. A county may impose a transient occupancy taxes only in the county area outside city limits. Typically, the lodging provider collects the tax from guests and turns the funds over to the county or city. Transient occupancy taxes are imposed by most cities and counties and range from three and a half percent to 15 percent. For cities with a transient occupancy tax, it provides seven percent of general revenues on average, and as much as 17 percent in some cities. Any increase or extension of a local tax requires voter approval. Utility User Tax (UUT) Many cities impose utility user taxes on the consumption of utility services, including (but not limited to) electricity, gas, water, sewer, telephone (including mobile phone and long distance), sanitation and cable television. Counties may levy utility user taxes in county area outside city limits. Any increase or extension of a local tax requires voter approval. Utility companies usually collect utility user's taxes from their customers as part of their regular billing procedures and remit the funds collected to the city or county which imposed the tax. Over 150 cities and a few counties levy utility user rates varying from one to 11 percent. For those jurisdictions with utility user taxes, it provides an average of 15 percent of general revenue and often as much as 22 percent. Parcel Tax A parcel tax is a special tax on a parcel – or unit – of real property. Unlike the property tax, a parcel tax may not be based on the value of property. Instead, parcel taxes are generally based on a flat per-parcel rate. A parcel tax may be enacted, increased or extended by a city, county, special district or school district only with two-thirds voter approval, even for general purposes. Documentary Transfer Taxes and Property Transfer Taxes A documentary transfer tax is a tax imposed on the transfer of interests in real estate. Counties tax at a rate of 55 cents per $500 of the property’s value. Cities may impose the tax at up to one half of that amount, which is credited to the payment of the county tax. The Constitution allows charter citiesix to August 29, 2019 Item #1 Page 16 of 30 enact a property transfer tax, with voter approval, on the value of real estate that is sold. In these cases, the entire county documentary transfer tax rate goes to the county. All cities and counties in California have documentary transfer taxes or property transfer taxes. Other Taxes A city or county may impose other types of taxes within the limitations of and if not prohibited by state law. These include: admissions taxes, parking taxes, construction/development taxes, local vehicle registration taxes. August 29, 2019 Item #1 Page 17 of 30 SERVICE CHARGES, ASSESSMENTS AND FEES Utility Rates Utility rates are fees for utility services charged to users who pay for special district, county or city provided water, sewer, electric or other utility services. Utility rates cover some or all of the cost of providing the service, which may include operations, maintenance, overhead, capital improvements and debt service. Utility rates for water, sewer services and certain other utilities belong to a special category of fees called a “property-related fees.” A local government must follow certain specific procedures to impose, extend or increase a property-related fee. To impose a property-related fee, the agency must first hold a public hearing. At the hearing, a majority of affected property owners can prevent the fee’s adoption by filing written protests. If a majority of affected property owners do not protest the fee and the fees pays for sewer, water or refuse collection, then an election is not required and the governing body may approve the fee. Other property-related fees require approval, either of two-thirds of the electorate residing in the affected area or of a majority of the owners of the property who would pay the fee. Benefit Assessments Assessments are charges by cities, counties or special districts on real property to pay for public facilities or services within an area which benefit either real property or businesses. A common type of assessment is one used to pay for landscaping and lighting in a neighborhood. The amount of the assessment must reflect the special benefit to the property that results from the improvements. Assessments on property are typically collected through the owner’s annual property tax bill. A local government must follow certain specific procedures to impose benefit assessments. When a local agency considers an assessment, a majority of property owners may defeat the assessment in a public hearing procedure. If the proposed assessment is not defeated in a public hearing procedure, then a majority of the property owners subject to the charge must approve the assessment by a mailed ballot. The property owners’ votes are weighted according to how much their property will be charged. User Fees A city, county or special district may impose fees, charges and rates for services and facilities it provides. Examples include fees for checking plans for new construction or for recreation classes. The amount of a fee may not exceed the cost of providing the service or granting a benefit or privilege. This cost may include overhead, capital improvements and debt service. Regulatory Fees Regulatory fees pay for the cost of issuing licenses and permits, performing investigations, inspections and audits and the administrative enforcement of these activities. Examples include a fee to pay for the cost of processing pesticide license applications or a fee to inspect restaurants for health and safety compliance. August 29, 2019 Item #1 Page 18 of 30 Development Impact Fees Development impact fees are imposed on new construction (like new houses, apartments, shopping centers or industrial plants). They pay for improvements and facilities required to serve new development and to reduce the impacts of new development on a community. Development impact fees (also known as “AB 1600 fees” after legislation adopted that governs such fees) pay for community amenities such as streets, sewers, parks and schools. They may not be used for day-to-day operating expenses. The ordinance or resolution establishing the fee must explain the connection between the development project and fee. For example, a library impact fee must be connected to the demand for library services created by the construction of the development project. The amount of the fee must not exceed the cost of providing the service or improvement that the fee pays for. Local Debt Financing Tools Local governments borrow money to pay for land, facilities and equipment that may require more funding than current revenues provide. Not a revenue source, but a way to leverage the timing of revenues, debt financing methods are important tools in government finance. Local governments may issue bonds and other debt instruments to finance improvements and services. These loans are paid off through taxes, assessments or fees. A variety of debt financing tools are available: • General Obligation Bonds. General obligation bonds are essentially IOUs issued by public entities to finance large projects. General obligation bonds are backed by property tax revenue, which is used to repay the bond over a twenty- to thirty-year period. Increasing the property tax to repay the debt requires two-thirds voter approval and may only be done to acquire or improve real property. • Lease-Purchase Agreements. In a lease- purchase agreement, sometimes called “certificates of participation,” the agency leases an asset for a period of years with the option to purchase the land or improvement at the end of the lease. The amount of the lease is equivalent to the principal and interest that would be paid if the transaction were financed as a loan. • Benefit Assessment and Special Tax Financing. Benefit assessment financing is supported by benefit assessments on the property to fund acquisition of property and improvement of infrastructure and additional facilities of benefit to the property that is charged. Similarly special taxes, such as Mello-Roos taxes, may be financed with bonds to provide public improvements. • Revenue Bonds. Revenue bonds are issued to acquire, construct or expand public projects for which fees, charges or admissions are charged. Because the debt service is paid from income generated by the facility or related service, such debt is considered self-liquidating and generally does not constitute debt of the issuer, subject to constitutional debt limitations. • Tax Allocation (Tax Increment). Tax allocation bonds (sometimes referred to as tax- increment financing) are issued by Enhanced Infrastructure Financing Districts or Community Revitalization and Investment Authorities and repaid from the growth in property tax revenue (i.e., tax increment) and other designated revenues over a certain period, largely as a result of the funded projects in the area. August 29, 2019 Item #1 Page 19 of 30 REVENUES FROM OTHER GOVERNMENT AGENCIES Counties, cities and many special districts also receive revenues from the state and federal government. For example, over half of county revenues statewide come from state and federal sources. This reflects the role of counties in implementing state policy and programs for health and human services. Gas Tax or Highway Users Tax The state imposes per gallon tax on gasoline of 27.8 cents as of July 1, 2016. These funds are apportioned to cities and counties, primarily on the basis of their populations. Local gas tax revenues must be spent on research, planning, construction, improvement and maintenance of public streets, highways and mass transit. The federal government’s 18.4 cents per gallon rate pays primarily for federal highways with some local grants. Motor Vehicle License Fee (VLF) The Motor Vehicle License Fee is a state imposed and collected tax on ownership of a registered vehicle. Counties receive vehicle license fee revenues to fund certain health, social service and public safety programs that were realigned to counties in 1991 and 2011. State Public Safety Sales Tax Proposition 172, a ballot measure approved in 1993, imposed a one-half percent state sales tax to be used for local public safety activities. The state distributes Proposition 172 revenues to each county based on its proportionate share of statewide taxable sales. Many cities receive a share of those funds based on losses to the state’s ERAF property tax diversions. State Mandate Reimbursement The state constitution requires the Legislature to reimburse local governments for their costs to implement a state-mandated new program or higher level of service in an existing program. The Constitution requires the Legislature to suspend most state mandates in any year in which full funding is not provided for that mandate. The Commission on State Mandates determines the level of reimbursement in response to a claim for reimbursement filed by a local agency. The process typically takes several years during which time, local governments must spend money to comply with the mandate. Federal and State Grants and Aid The federal and state governments provide a wide variety of funds to counties, and a more limited set to cities and special districts. Federal and state grants comprise a large proportion of county revenues because of the many programs and responsibilities counties carry out on behalf of the federal and state governments. These funds are almost entirely restricted to specified uses. Examples include certain health, mental health, social and child welfare services. August 29, 2019 Item #1 Page 20 of 30 Categorical grants support a defined program area. Categorical grants typically go to local agencies that either meet predetermined funding criteria or compete for project funding through an application process. Block grants provide funding to a broad functional area. For example, federal Community Development Block Grant (CDBG) funds support local housing and economic development activities. RENT FOR USE OF PUBLIC PROPERTY Rents, Royalties and Concessions Another way cities and counties and some special districts pay for public services is to charge rent for use of the public’s property. An example is royalties from natural resources taken from land the public owns. Others include selling advertisements in publications or on buses, as well as, receiving a percentage of net profits from concessionaires operating on public property. Franchise Fees Franchise fees are a form of rent for use of public streets and roadways. Examples of businesses that pay franchise fees include trash collectors, cable television companies, electric utilities and oil and natural gas pipeline companies. Federal and state law limits the amount of some franchise fees (for example, video and cable television franchise fees). Franchise fees for provision of video services (like television programming) are limited and administered by the state. FINES, FORFEITURES AND PENALTIES Violations of the law often result in a fine of some kind. Fines, forfeitures and penalties may be imposed for many reasons. Typical examples include traffic violations, court fines, penalties and interest on late or unpaid taxes. • State law determines the distribution of fines and bail forfeitures imposed by the state. • State law apportions revenues for parking violations and surcharges between issuing agencies and the counties. • A city or county may impose fines, forfeitures and penalties for civil violation of local ordinances. • Bail for local code violations charged criminally is established by the local courts with input from the city or county. Maintenance of Effort Requirements (MOE) When cities and counties receive funding for programs from the state or federal government, such funding may come with strings attached. A common condition is that the city or county commit to a certain level of funding. This commitment is called “maintenance of effort.” Local agencies also receive reimbursement for revenue lost as a result of some tax exemptions and reductions. An example includes the homeowners’ property tax exemption, which eliminates the property tax on a small portion of the assessed valuation of owner- occupied residential property. August 29, 2019 Item #1 Page 21 of 30 OTHER REVENUES There are other local government revenues, comparatively minor in amounts. These include interest earned on investments, sales of surplus property and gifts. August 29, 2019 Item #1 Page 22 of 30 ACKNOWLEDGEMENTS Special thanks to Michael Coleman whose expertise contributed to the 2016 update of this publication. Michael Coleman is a leading expert on California local government revenues, spending and financing. He is the creator of CaliforniaCityFinance.com, the California Local Government Finance Almanac, an online resource of data, analyses and articles on California municipal finance and budgeting. The Institute also appreciates the contributions from the staff of the California Special Districts Association, the California State Association of Counties and the League of California Cities for their contributions and suggestions to this revised document. August 29, 2019 Item #1 Page 23 of 30 ENDNOTES i California Department of Finance, Demographic Research Unit www.dof.ca.gov/Forecasting/Demographics/Estimates/ ii Cal. Const. art. XI, § 1(a). See also Cal. Gov’t Code § 23002 (“The several existing counties of the State and such other counties as are hereafter organized are legal subdivisions of the State.”). People ex rel. Younger v. County of El Dorado, 5 Cal. 3d 480, 491, 96 Cal. Rptr. 557 (1971) iii Cal. Const. art XIIIC, section 1(e) iv A complete discussion of this list of seven exceptions can be found in the Proposition 26 Implementation Guide published by the League of California Cities. v Proposition 30 imposed an additional state general fund sales tax of 0.25 percent from 2013 through 2016, for a total base rate of 7.5% during that time. vi See “State Public Safety Sales Tax” under “Revenues From Other Government Agencies.” vii In some cities, by historic agreement, the city collects less than 1.00 percent, with the difference allocated to the county. For example, in San Mateo county each city receives 0.95% of transaction within its jurisdiction and 0.05% goes to the county general fund. For a full list of local sales tax rates see Table 23A of the California State Board of Equalization Annual Report. http://www.boe.ca.gov/annual/table23a.htm viii Except in the counties of Los Angeles, Alameda and Contra Costa where the maximum is 2.5 percent. Revenue and Tax Code §7251 et seq. ix For more information on Charter Cities see www.cacities.org/chartercities Resources for Further Information Coleman, Michael. California Municipal Revenue Sources Handbook, League of California Cities 2014. Multari, Michael, Michael Coleman, Kenneth Hampian, Bill Statler. Guide to Local Government Finance in California, Solano Press Books, 2012. California Legislative Analyst’s Office. www.lao.ca.gov “California Local Government Finance Almanac: Data, Statistics, Analyses on California City, County and Special District Finance.” www.californiacityfinance.com “Financial Management for Elected Officials.” Institute for Local Government. www.ca-ilg.org/post/financialmanagement “Learn About Cities.” League of California Cities. www.cacities.org/Resources/Learn-About-Cities “What Do Counties Do?” California State Association of Counties. www.csac.counties.org/californias-counties “What are Special Districts and What Do They do?” California Special Districts Association. www.csda.net/special-districts/ August 29, 2019 Item #1 Page 24 of 30 Notes __________________ __________________ ______________ _________________________________________ August 29, 2019 Item #1 Page 25 of 30 ABOUT THE INSTITUTE FOR LOCAL GOVERNMENT The Institute for Local Government (ILG) is the nonprofit 501(c)(3) research and education affiliate of the League of California Cities, the California State Association of Counties and the California Special Districts Association. Its mission is to promote good government at the local level with practical, impartial and easy-to-use resources for California communities. For more information and to access the Institute’s resources, visit www.ca-ilg.org. © 2016 Institute for Local Government. All rights reserved. August 29, 2019 Item #1 Page 26 of 30 www.ca-ilg.org 1400 K Street, Suite 205 Sacramento, CA 95814 August 29, 2019 Item #1 Page 27 of 30 09960.00000\32286843.1 1 CARLSBAD PUBLIC FINANCING SYMPOSIUM SUMMARY OF FINANCING OBLIGATIONS INSTRUMENT ISSUER SECURITY LEGAL AUTHORITY ADMINISTRATIVE PROCEEDINGS RESTRICTIONS DIRECT BONDS Assessment Bonds City Assessments levied only on properties within the assessment district specially benefitting from financed improvements. No obligation to advance City funds to cover delinquencies Municipal Improvement Act of 1913, Improvement Bond Acts of 1911 and 1915; State Constitution – Article XIII, Section 4 (Proposition 218).  Public hearing required  Assessment ballot process - Property owners submit ballots in favor of or opposed to assessment (not an election) General benefits may not be assessed, assessments may not exceed special benefit to properties. Subject to majority protest of property owners submitting ballots – ballots weighted by amount of assessment Typical Projects: Works of a “local nature” that provide special benefit to properties assessed. Improvements authorized by the specific authorizing legislation. Project Examples: Street, road, sewer, water, drainage improvements. General Obligation Bonds City Ad valorem taxes levied to pay principal of and interest on bonds Government Code Section 43000, Article XVI, Section 18 and Article XIIIA Section 1(b)(2). 2/3rds vote of City Council required to (a) initiate proceedings to issue bonds and (b) adopt ordinance ordering submission of proposition to qualified voters Requires two-thirds majority approval of voters in specified area (with some exceptions) Typical Projects: Projects may include acquisition and improvement of real property. Project Examples: Buildings for general municipal purposes; acquisition of property for open space, parks, future public use. August 29, 2019 Item #1 Page 28 of 30 09960.00000\32286843.1 2 Special Tax Bonds also known as Mello-Roos Bonds Community Facilities District (CFD) Special taxes levied only on properties within the boundaries of the CFD. Not an obligation of the City or taxpayers outside the CFD. Mello-Roos Community Facilities Act of 1982 Public hearing required Subject to majority protest by voters registered to vote within t0he CFD or owners of land within the CFD Requires two-thirds majority voter approval Registered voter election or landowner election if no voters registered to vote in the CFD Typical Projects: Purchase or rehabilitation of real or other tangible property with a useful life of at least five years. Project Examples: Streets, local parks, recreation facilities, open-space, libraries, childcare centers. Public Enterprise Revenue Bonds City, Carlsbad Municipal Water District (CMWD) Revenue from the enterprise Revenue Bond Act of 1941. Resolution of City Council required to initiate proceedings Requires majority voter approval Typical Projects: Revenue producing enterprises such as water or wastewater systems. Project Examples: Water distribution systems or sewer collection or treatment systems. Public Lease Revenue Bonds Carlsbad Public Financing Authority or other Joint Powers Authorities, Parking Authorities Lease payments Instruments structured as leases, not classified as debt for purposes of debt limit and voter approval. Maturity cannot be longer than useful life of project. A legally enforceable lease must be created. Typical Projects: Capital improvements to be leased by a public agency. Project Examples: Parking facilities, convention centers, water or sewer system infrastructure. CONDUIT BONDS Conduit Revenue Bonds – Multifamily Housing City, Housing Authority Revenue derived from project or lending program CDLAC volume cap. Various rent and income limitations. Typical Projects: Financing and/or refinancing construction, renovation, rental housing developments for private developers. Project Examples: Multifamily projects, including apartment buildings. August 29, 2019 Item #1 Page 29 of 30 09960.00000\32286843.1 3 Marks-Roos Bonds Carlsbad Public Financing Authority or other Joint Powers Authorities Revenue derived from participating local agency, e.g., golf course revenues, water revenues, fare box revenues Marks-Roos Local Bond Pooling Act of 1985-Government Code Section 6584. Public hearing may be required depending on facilities financed Typical Projects: Assisting City or CMWD with infrastructure financing needs. Capital improvement bonds or bond pooling. Project Examples: Public buildings, water and sewer facilities, police or fire stations, libraries, transportation facilities and equipment. Single Family Mortgage Revenue Bonds Cities, Counties, Joint Powers Authorities, Housing Authorities Revenue from bond- financed mortgage loans California Health and Safety Code 52000 and following. CDLAC volume cap, various rent and income limitations Typical Projects: Below market loan programs for low to moderate-income families, acquisition, rehabilitation, and improvement of single-family homes. Project Examples: Purchase mortgage loans originated by one or more lenders participating in the program. LEASES Certificates of Participation/Financial Leases City, CMWD Lease payments Instruments structured as lease, not classified as debt for purposes of debt limit and voter approval. Annual budget and appropriation for lease payments Typical Projects: Public buildings and facilities. Project Examples: Water or wastewater system improvements, police, and fire facilities; transportation equipment. SHORT TERM DEBT/OTHER Tax and Revenue Anticipation Notes (TRANs) City General Fund General and individual entity authorizations detailed in Government Code Section 53820- 53859.08 General and individual entity authorizations detailed in Government Code Sections 53820- 53859.08 15-month maturity, 85 percent of estimated uncollected taxes, income, revenue, or other sources needed to repay notes Typical Projects: Fund cash flow deficits in a fiscal year. Project Examples: Provide funds to cover operating expenses (salaries, miscellaneous expenses) for the City. August 29, 2019 Item #1 Page 30 of 30 Page 1 SALES TAX RATE ABOVE SAN DIEGO COUNTYWIDE BASE OF 7.75% Examples of San Diego County cities with voter approved sales tax initiatives: Jurisdiction Total Sales Tax Rate Most Recent Ballot Measure Purpose / Term City of Chula Vista 8.75% 0.5%; June 2018 (Measure A) [Previously approved 0.5% in 2016; expires 2026] City Services (faster responses to 9-1-1 emergency calls, increase neighborhood police patrols, reduce gang and drug-related crimes, address homelessness, improve firefighter, paramedic and emergency medical response, and general city services) No Term City of Del Mar 8.75% 1.0%: Nov 2016 (Measure Q) General City Services and Infrastructure Projects (improvement of streets and sidewalks, utility undergrounding, public landscapes, improvement of community parks, trails and recreation facilities; police, crime prevention, fire prevention and other public safety services) No Term City of National City 8.75% Renewal of 1%; Nov 2014 (Proposition D) Public Safety (maintain public safety and prevent cuts to neighborhood police patrols and officers; gang/drug prevention; 911 emergency response; fire protection and firefighters; graffiti removal; street/pothole repair; senior/youth/library programs; and other City services) Approved for 20 years Page 2 Jurisdiction Total Sales Tax Rate Most Recent Ballot Measure Purpose / Term City of La Mesa 8.50% 0.75%; Nov 2008 (Proposition L) Essential City Services (natural disaster response/preparedness programs; youth anti-gang/anti-drug prevention; retaining quality firefighters/paramedics and police officers; increasing street paving/pothole repair; enhancing trolley station security; maintaining the senior community center, after school tutoring and recreation programs; and other general services) Approved for 20 years City of Oceanside 8.25% 0.50%; Nov 2018 (Measure X) General City Services (police patrols, crime, drug, and gang prevention, fire , paramedic and 9-1-1 response, pothole repair, street maintenance, improved infrastructure, maintain safe, clean parks and beaches, and address homelessness) Approved for 7 years City of Vista 8.25% 0.50%; Nov 2006 (Proposition L) City Services and Infrastructure Projects (fund the construction two new fire stations, the renovation of one fire station, the addition of more fire personnel, and constructing public facilities - the Vista Sports Park (2009), a new stage house for the Moonlight Amphitheatre (2009), and a new civic center (2010)) Approved for 30 years City of El Cajon 8.25% 0.50%; Nov 2008 (Proposition J) General City Services (to prevent further cuts and preserve funding for general city services, including maintaining firefighters and police officers for adequate emergency response, reducing crime and criminal gang/drug activity, maintaining city streets/parks, and preserving youth/after-school programs) Approved for 20 years A Primer on CAliforniA City revenues for your city Douglas Jensen | Doug.Jensen@MuniServices.com Fran Mancia | Fran.Mancia@MuniServices.comwww.muniservices.com Sales & Use Tax Recovery Property Tax & CAFR Business License Tax Recovery Utility User Tax/ Franchise Fee Recovery Hotel Tax/Short-Term Rental Review & Recovery Cannabis Ordinance Review & Audit Business License Oversight Utility Use Tax/Franchise Fee Administration Cloud-Based Budget Reporting Revenue Information and Forecasting Web-Based Analytics Building Stronger Municipalities Since 1978 When municipalities fail to collect and capitalize on revenues they are owed, the effects are far-reaching, including less money for essential services and fewer dollars for schools, parks, public safety, and infrastructure. MuniServices helps local governments find and collect maximum revenue that will help your jurisdiction grow. We also reduce the administrative burdens on your staff and budget, so you can allocate more resources towards the services that matter. Over 1,000 jurisdictions agree – the answer is MuniServices. With our team on your side, you really can raise revenue without raising taxes. ©2016 League of California Cities®. All rights reserved. May not be reproduced without written permission. This material originally appeared as a two-part article in the November and December 2016 issues of Western City® magazine, the monthly publication of the League of California Cities®. CONTENTS 3 An Overview of City Revenue Sources 4 Overview of General Tax and Special Tax Requirements 4 Local Tax and Revenue Limitations: Proposition 13 and Its Siblings 7 Local Revenue Protections 9 Major City Revenues 9 Sales Tax: How Much Goes to Your City? 10 Responsibilities Differ Among Cities — and Consequently, So Do Budgets 12 Trends in California City Finance Publication Staff Editor Jude Hudson, Hudson + Associates (916) 978-9877; jude@surewest.net Managing Editor Norman Coppinger (916) 658-8277; email: ncoppinger@cacities.org Advertising Sales Manager Pam Maxwell-Blodgett (916) 658-8256; email: maxwellp@cacities.org Design Taber Creative Group Advertising Design ImagePoint Design Cover image: Bill Ragan/Shutterstock.com; color treatment, Taber Creative Group Working to Achieve Your Financing Goals Municipalities, local government entities and special districts throughout California depend on our public finance attorneys as bond counsel for the full variety of available public financing options. Whether the need is for new money, refunding or a combination of both, we are legal leaders in helping our clients finance: ● Government Infrastructure ● Economic Development Projects ● Public-Private Partnerships ● Water and Sewer Enterprises ● Transportation Infrastructure ● Schools and Housing www.BBKlaw.com Indian Wells | Irvine | Los Angeles | Ontario | Riverside Sacramento | San Diego | Walnut Creek | Washington, D.C. League of California Cities www.cacities.org2 A Primer on CAliforniA City revenues Michael Coleman is principal fiscal policy advisor to the League and can be reached at coleman@muniwest.com. More information on city finance is available at www.californiacityfinance.com. Coleman comments on local government finance topics on Twitter (@MuniAlmanac) and Facebook (www.facebook.com/MuniAlmanac). by michael coleman revenue basics You don’t have to scratch any local government issue very deeply to find the question of money: What’s this going to cost? What are we going to get for that price? Is this project worth it? How does your city pay its bills? What does the future hold for city service costs and funding? Though every city is dif- ferent — each with its own needs, local economy, expectations, protocols, respon- sibilities and finances — some essential elements of city revenues and spending are common to cities throughout California. an overview of city revenue sources Revenue, the bread and butter of city budgets, comes from a variety of sources. Some revenue is restricted by law to cer- tain uses; some revenue is payment from customers for a specific service. Other revenue requires voter approval for rate increases. Still other revenue comes from state and federal agencies, almost all of it with strings attached. The California Constitution and state law provide some specific distinctions among municipal revenue sources. california city revenues Utility Fees (water, sewer, refuse, electric, gas, etc.) 29% Development Fees/ Permits 2% Other Fees 12% Licenses, Permits <1% Fines, Forfeitures 1% Investments, Rents 1% Federal Grants 5% State Grants 4% Special Taxes 3% Benefit Assessments 2% Property Tax 14% Sales Tax 7% Business License 2% Utility User Tax 3% Transient Occupancy Tax 2% Other Tax 3% Franchises 2% State & Federal <1% Other 3% Other 5% Taxes Fees State & Federal Aid OtherThis is a statewide aggregation of city revenues. Individual cities vary. Source: Author's computations using 2014–15 data from California state controller; does not include the City and County of San Francisco. LEGEND Not Restricted 36% continued League of California Citieswww.cacities.org 3 Local Tax and Revenue Limitations: Proposition 13 and Its Siblings Local officials have limited choices in governing, managing their finances and raising revenues to provide services needed by their communities. Voters have placed restrictions as well as protections in the state Constitution. The Legislature has acted in various ways both to support and provide and to limit and withdraw financial powers and resources from cities, counties and special districts. Significant limitations on local revenue-raising include: • Property taxes may not be increased except with a two-thirds vote to fund a general obligation bond (most local school bonds can now be passed with 55 percent voter approval); • The Legislature controls the allocation of local property tax among the county, cities, special districts and school districts within each county; • Voter approval is required to enact, increase or extend any type of local tax; • Assessments to pay for public facilities that benefit real property require property-owner approval; • Fees for services and the use of local agency facilities may not exceed the reasonable cost of providing those services and facilities; and • Fees for services such as water, sewer and trash collection are subject to property-owner majority protest. taxes A tax is a charge for public services and facilities. There need not be a direct relationship between the services and facilities used by an individual taxpayer and the tax paid. Cities may impose any tax not otherwise prohibited by state law (Gov’t. Code Section 37100.5). The state prohibits local governments from taxing certain items, including cigarettes, alcohol and personal income; the state taxes these for its own purposes. The California Constitution distinguishes between a general tax and a special tax. General tax revenues may be used for any purpose. A majority of voters must approve a new general tax, its increase or extension in the same election in which city council members are elected. Special tax revenues must be used for a specific purpose, and two-thirds of voters must approve a new special tax, its increase or extension. Overview of General Tax and Special Tax Requirements A Primer on California City Revenues, continued fees, charges and assessments A fee is a charge imposed on an individual for a service that the person chooses to receive. A fee may not exceed the estimated reasonable cost of providing the particular service or product for which the fee is charged, plus overhead. Examples of city fees include water service, sewer service connection, building permits, recreational classes and development impact fees. Cities have the general authority to impose fees (as charges and rates) under the cities’ police powers granted by the state Consti- tution (Article XI, Sections 7 and 9). State law sets specific procedures for fee and rate adoption. Proposition 218 pro- vides special rules for property-related fees used to fund property-related services. Special benefit assessments are charges levied to pay for public improvements or services within a predetermined district or area, according to the benefit the parcel receives from the improvement or services. The state Constitution requires continued on page 6 GeneRaL Tax SPecIaL Tax Use of Revenues Unrestricted Specific purpose Governing Body approval Required • General-law cities: two- thirds approval is required. • Charter cities: majority approval is required. • Transactions and use taxes: two-thirds approval is required. Majority Voter approval Required Majority Two-thirds Other Rules A general tax election must be consolidated with a regularly scheduled general election of members of the governing body, unless an emergency is declared by unanimous vote (among those present) of the governing body. Special tax funds must be de- posited in a separate account. The taxing agency must publish an annual report including the tax rate, the amounts of rev- enues collected and expended and the status of any project funded by the special tax. League of California Cities www.cacities.org4 Overview of General Tax and Special Tax Requirements A Primer on California City Revenues, continued from page 4 property-owner approval to impose a benefit assessment. Other locally raised revenues include licenses and permits; franchises and rents; royalties and conces- sions, fines, forfeitures and penalties; and investment earnings. intergovernmental revenue Cities also receive revenue from other government agencies, principally the state and federal governments. These revenues include general or categorical support monies called subventions, as well as grants for specific projects and reimbursements for the costs of some state mandates. Inter- governmental revenues provide 10 percent of city revenues statewide. other city revenues Other sources of revenue to cities include rents, franchises, concessions and royal- ties; investment earnings; revenue from the sale of property; proceeds from debt financing; revenues from licenses and per- mits; and fines and penalties. Each type of revenue has legal limitations on what may be charged and collected as well as how the money may be spent. putting money in its proper place The law restricts many types of city revenues to certain uses. As explained earlier, a special tax is levied for a specific program. Some subventions are designated by law for specific activities. Fees are charged for specific services, and fee revenue may fund only those services and related expenses. To comply with these laws and standards, finance departments segregate revenues and expenditures into separate accounts or funds. The three most important types of city funds are special revenue funds, enterprise funds and the General Fund. Special revenue funds are used to account for activities paid for by taxes or other designated revenue sources that have spe- cific limitations on use according to law. For example, the state levies gasoline taxes and allocates some of these funds to cities and counties. A local government deposits gasoline tax revenue in a special fund and spends the money for streets and road- related programs, according to law. a fee may not exceed the estimated reasonable cost of providing the particular service or product for which the fee is charged, plus overhead. League of California Cities www.cacities.org6 Local Revenue Protections The Legislature has enacted many complicated changes in state and local revenues over the past 30 years, which at times have had significant nega- tive fiscal impacts on city budgets. In response, local governments and their allies drafted — and voters approved — state constitutional protections limiting many of these actions. At times, these protections have resulted in the Legis- lature undertaking even more complex maneuvers in efforts to solve the financial problems and protect the interests of the state budget. In response to actions of the Legislature and the deterioration of local control of fiscal matters, local governments placed on the ballot and voters approved Proposition 1A in 2004 and Prop. 22 in 2010. Together, these measures prohibit the state from: • Enacting most local government man- dates without fully funding the costs (the definition of a state mandate includes the transfer of responsibility for a program for which the state was previously fully or partially responsible); • Reducing the local portion of the sales and use tax rate or altering its method of allocation, except to comply with federal law or an interstate compact; • Reducing the combined share of property tax revenues going to the cities, county and special districts in any county; and • Borrowing, delaying or taking motor vehicle fuel tax allocations, gasoline sales tax allocations or public trans- portation account funds. Enterprise funds are used to account for self-supporting activities that provide ser- vices on a user-charge basis. For example, many cities provide water treatment and distribution services to their residents. Us- ers of these services pay utility fees, which the city deposits in a water enterprise fund. Expenditures for water services are charged to this fund. The General Fund is used to account for money that is not required legally or by sound financial management to be accounted for in another fund. Major sources of city General Fund revenue in- clude sales and use tax, property tax and locally adopted business license tax, hotel tax and utility user taxes. Public Law Labor & Employment Litigation Education Law Real Estate & Business Construction Law Environmental Law Fiercely Protecting Our Clients Since 1927 Law offices throughout California | 800.333.4297 | www.bwslaw.com League of California Citieswww.cacities.org 7 major city revenues major city revenues Sales and Use Tax. The sales tax an individual pays on a purchase is collected by the state Board of Equalization and includes a state sales tax, the locally levied Bradley-Burns sales tax and several other components. The sales tax is imposed on the total retail price of any tangible personal property. State law provides a variety of exemptions to the sales and use tax, including resale, interstate sales, intangibles, food for home consumption, candy, bottled water, natural gas, electric- ity and water delivered through pipes, prescription medicines, agricultural feed, seeds, fertilizer and sales to the federal government. A use tax is imposed on the purchaser for transactions in which the sales tax is not collected. Sales and use tax revenue received by cities is general purpose revenue and is deposited into a city’s General Fund. sales tax: how much goes to your city? Add-On Transactions & Use (e) varies City or County (a) 1.00% CountyTransportation (b) 0.25% StateGeneralFund 3.9375%Prop. 172 Public Safety (c) 0.50% County RealignedPrograms (d) 1.5625% a. The local 1 percent rate is allocated based on a "point of sale" or "situs" of the sales transaction. The local rate goes to the city or unincorporated county area where the transaction occurs. b. The 0.25 percent rate for county transportation programs is allocated to the county in which the transaction occurs. c. Proposition 172 of 1993 established a 0.5 percent state sales tax to fund public safety programs (sheriff, police, fire, district attorney, etc.) to mitigate the impacts on those programs of state shifts of property tax revenues. d. In 1991 the California Legislature enacted a realignment of state and county programs, assigning various health and welfare program responsibilities to counties and providing funding for those programs including a 0.5 percent portion of the state-imposed sales and use tax rate. In 2011 the California Legislature enacted another realignment of state and county programs, assigning various corrections and rehabilitation program responsibilities to counties and providing funding for those programs, including a 1.0625 per- cent portion of the state-imposed sales and use tax rate. e. Some counties and some cities have imposed additional "transactions and use" tax rates, which may total no more than 2 percent in counties other than Los Angeles, Contra Costa and Alameda. In Los Angeles, Contra Costa and Alameda counties, the maximum combined additional rate is 2.5 percent.continued League of California Citieswww.cacities.org 9 A Primer on California City Revenues, continued Although cities vary widely, sales and use tax revenue provides on average 30 percent of city general purpose revenue — and often as much as 45 percent. Cities and counties may impose additional transaction and use taxes in increments of 0.125 percent with two-thirds city council approval and majority voter approval for a general tax; a special tax requires two-thirds voter approval. The combined rate of the city and county transaction and use taxes is capped at 2 percent in most counties. Property Tax. The property tax is an ad valorem (value-based) tax imposed on real property and tangible personal property. State law provides a variety of exemptions to the property tax, includ- ing most government-owned property; nonprofit, educational, religious, hospital, charitable and cemetery properties; the first $7,000 of an owner-occupied home; business inventories; household furnish- ings and personal effects; timber; motor vehicles, freight and passenger vessels; and crops and orchards for the first four years. California Constitution Article XIIIA (Proposition 13) limits the property tax to a maximum 1 percent of assessed val- ue, not including voter-approved rates to fund debt. The assessed value of property is the base year value plus the value of any improvements, plus annual inflation capped at 2 percent per year. The base year value is the value at the most recent sale or the 1975–76 market value. Prop- erty that declines in market value may be temporarily reassessed at the lower value. Property is reassessed to current full value upon change in ownership (with certain exemptions). Property tax revenue is col- lected by counties and allocated accord- ing to state law among cities, counties, school districts and special districts. The share of property tax revenue allocated to a city varies depending on a variety of factors, including: • The service responsibilities of the city (for example, in a city where fire services are provided by a special district, the city receives a lower share, with a portion of the property tax revenues going instead to the special district); and • The historic (1978) tax rates of the city in relation to other local taxing entities. City property tax revenues are also affected by local property values. Property Tax in Lieu of Vehicle License Fee (VLF). The VLF is a tax imposed by the state on the ownership of a registered vehicle in place of taxing vehicles. Cities receive additional property tax to replace VLF revenue that was cut when the state permanently reduced the VLF in 2004. This property tax in lieu of VLF grows with the change from the prior year in gross assessed valuation of taxable prop- erty in the jurisdiction. Property tax in lieu of VLF allocations is in addition to other property tax apportionments. Property tax revenue (including property tax in lieu of VLF) accounts for more than one-third of general revenue for the average full-service city. For cities that do not fund fire service, property tax revenue represents on average 25 percent of gen- eral revenue. Business License Tax. Most cities in California levy a business license tax. Tax rates are determined by each city, which collects the taxes. Business license taxes are most commonly based on gross receipts or levied at a flat rate but are sometimes based on the quantity of goods produced, number of employees, number of vehicles, square footage of the busi- ness or some combination of factors. In all cases, cities have adopted their tax as a general tax. On average, the business license tax provides about 3 percent of city general revenue and often as much as 6 percent. For businesses that operate in more than one city, state or county, cities can impose a business license tax on only that portion of the business transacted in that city. Transient Occupancy Tax (TOT) or “Hotel Bed” Tax. More than 400 cities in California impose TOT on people staying for 30 days or less in a hotel, inn or other lodging facility. Rates range from Responsibilities Differ among cities — and consequently, So Do Budgets Comparing revenues and expenditures of different cities can be difficult be- cause cities vary according to the needs of their constituents, the nature of the local economy and the city’s service and financial responsibilities. Less than 25 percent of California cities are full-service cities, responsible for funding all of the major city General Fund-supported services such as police, fire, library, parks and recreation and planning. In about three out of 10 California communi- ties, a special district provides fire services with property tax revenue that would otherwise go to the city. In six out of 10 California cities, another public agency provides and funds library services. Allocations of property taxes among local agencies vary from place to place due to differences in the service responsibilities among agencies serving different areas and differences in the tax rates enacted by those agencies prior to Prop. 13, which passed in 1978. Full-service cities generally receive higher shares than those that do not provide the complete range of municipal services. For example, in a city where fire services are provided by a special district, the city gets a lower share, and a portion of the property tax revenues goes instead to the special district. Property tax revenues among jurisdictions are also, of course, dramatically affected by differences in the assessed value of properties. League of California Cities www.cacities.org10 sales and use tax revenue provides on average 30 percent of city general purpose revenue — and often as much as 45 percent. continued 3.5 to 15 percent of the lodging cost. In nearly all cases, cities have adopted these as general taxes, but some cities make a point of budgeting the funds for tourism or business development-related programs. Among cities that impose a TOT, it pro- vides 7 percent on average of a city’s general revenues and often as much as 17 percent. Utility User Tax (UUT). More than 150 cities (collectively representing a majority of the state’s population) impose a utility user tax. UUT rates vary from 1 to 11 percent and are levied on the users of vari- ous utilities, which may include telephone, electricity, gas, water and cable television. For cities that impose the UUT, it provides an average of 15 percent of general revenue and often as much as 22 percent. Mark Adler Managing Director 310 297-6010 mark.j.adler@pjc.com Tom Innis Managing Director 415 616-1635 thomas.p.innis@pjc.com Katie Koster Managing Director 949 494-6110 katherine.a.koster@pjc.com Dennis McGuire Managing Director 916 361-6520 dennis.j.mcguire@pjc.com Russell Reyes Managing Director 310 297-6014 russell.c.reyes@pjc.com Victor Ume-Ukeje Managing Director 415 616-1662 victor.e.ume-ukeje@pjc.com Tony Rapista Vice President 310 297-6031 anthony.l.rapista@pjc.com League of California Citieswww.cacities.org 11 A Primer on California City Revenues, continued More Resources Online For additional information and links to related resources, read the online version of this publication at www.westerncity.com. Parcel Tax. This is a special non-value- based tax on property, generally based on either a flat per-parcel rate or a vari- able rate depending on the size, use or number of units on the parcel. Parcel taxes require two-thirds voter approval and are imposed for a variety of purposes, including police and fire services, parks, libraries and open space protection. Parcel taxes provide less than 1 percent of city revenues statewide. Rents, Royalties and Concessions. Examples of revenues generated through the use of city property include royalties from natural resources taken from city property, the sale of advertising in city publications, payments from concession- aires operating on city property, facility rentals, entry charges, on- and off-street parking charges and even golf fees. applications or a fee to inspect restaurants for health and safety compliance. City utilities and enterprises supported by service fees constitute a substantial por- tion of most city budgets. These include water, sewer, electricity and solid waste services. In some cities, a public or private agency other than the city provides and funds these services. and there’s more City budgets can be bewildering. Myriad laws and limitations make city funding a very complicated subject. Understanding the essentials of city finance is critical for any city decision-maker. Elected officials find their job is made easier when they are able to explain the basic elements of municipal finance to their constituents. ■ Franchises. In lieu of rent, franchise fees are collected from refuse collectors, cable television companies and utilities for the use of city streets. Some franchise charges are limited by statute. Fines, Forfeitures and Penalties. Cities receive a share of fines and bail forfeitures from misdemeanors and infractions com- mitted within city boundaries. State law determines the distribution and use of state-imposed fines and forfeitures, but cities determine penalties for violations of their municipal codes. Service Charges and Fees. Cities have authority to impose fees, charges and rates for services and facilities they provide, such as plan checking or recreation classes. Use of these revenues is limited to paying for the service for which the fees are col- lected, but may include overhead, capital improvements and debt service. Regulatory fees pay for the cost of is- suing licenses and permits, performing investigations, inspections and audits and the administrative enforcement of these activities. Examples include a fee to pay for the cost of processing pesticide license Trends in california city Finance • State and federal aid to California cities is declining, down from 21 percent of a city’s budget in 1974–75 to less than 10 percent today. Nearly all state and federal aid today is earmarked for specific purposes; • The sales tax base is declining relative to population and inflation growth, due to the gradual shift toward a service-oriented economy; • Voter-approved provisions in the state Constitution limit the types, approval procedures and use of local taxes, fees and other charges; • State population growth is higher in cities than in unincorporated areas; • Cities must respond to residents’ demand for a greater array of services that bring with them additional costs and new challenges (high tech, cable, transit, pollution control, etc.); • Spending on police and fire services is up largely due to employee pension and retiree health-care costs; and • Infrastructure improvements and maintenance are lagging. - Public Finance - Policy Recommendations - Financial Modeling - Strategic Capital Planning - Green Bonds NHAadvisors.com 415.785.2025 Every great leader's secret weapon is a trusted financial advisor. L et us be yo u rs. Municipal Advisors for: League of California Cities www.cacities.org12 Important Local Government Tools Financial Programs Created by the League of California Cities Purchasing Solutions Important Factors that Differentiate U.S. Communities from Other Purchasing Programs »No public agency fees or costs »Contract benchmarking to validate best pricing guarantee »Publicly solicited contracts by a large lead public agency »Public agency oversight by state and local government procurement professionals »Commitment to lowest government pricing from each supplier Contact: Northern CA (415) 328-8109 Southern CA (925) 588-5054 www.uscommunities.org/lcc Investments Your Pooled Public Agency Investment Solution »Four active account options offering diversification and flexibility • Short-Term • Medium-Term • Money Market Fund • Government Money Market Fund »Low minimum investment amount »Governed by city, county and special district treasurers and investment officers Contact: (888) 422-8778 www.caltrust.org League Health Benefits MarketplaceSM Flexible Health Care Solutions for Cities, Employees and Retirees Created by the League, the HBM features: »Retiree benefits solutions designed to help cities reduce OPEB liability »A technology-driven administrative platform to ease delivery of employee and retiree health benefits »A range of carriers and plan options tailored to active employees and retirees »ACA compliance/reporting, wellness program and voluntary benefit options Contact: (916) 658-8226 www.cacities.org/HBM Economic Development Local Government JPA Providing an Effective Tool for Financing Community-Based Public Benefits Projects »Multifamily & Senior Affordable Housing »501c3 Nonprofits »Statewide Community Infrastructure Program (SCIP) »Total Road Improvement Program »Property Assessed Clean Energy (PACE) »New Markets Tax Credits Contact: (925) 476-5887 or (925) 476-5644 www.cscda.org Oakdale, the “Cowboy Capitol of the World,” needed to grow its tax base, but it was nearly completely built out to existing city limits. Churchwell White worked with city leaders, staff and community to expand the boundaries by passing an updated general plan and new plans for residential and commercial development. We reworked development agreements and infrastructure phasing requirements—all geared toward creating new projects and revenue sources. And while at it, the city passed a climate action plan, too. All of this was done cost effectively and without any litigation. PUBLIC LAW | GOVERNMENT RELATIONS | REGULATORY ADVOCACY | CHURCHWELLWHITE.COM TAKING THE BULL BY THE TAX BASE. CW_043_102016_wc_finance_article_ad_11_03_dAf.pdf 1 11/3/16 3:57 PM City of Carlsbad Financing Symposium Infrastructure, Facilities & Services Scott Chadwick, City Manager, City of Carlsbad Laura Rocha, Deputy City Manager, Administrative Services Warren Diven, Partner, Best Best & Krieger LLP Barbara Hale-Carter, Principal, SDFA August 29, 2019 Welcome •Presenter introductions •Overview of today’s presentation •The “big picture” 2 3 Sources of Money $ $ = Today’s Topics 1.Fundamentals of infrastructure financing 2.What’s been used in Carlsbad 3.Current and future opportunities 4 Fundamentals of Infrastructure Financing Laura Rocha, Deputy City Manager Administrative Services Meeting the infrastructure financing challenge has emerged as one of the most urgent issues facing federal, state, and local government. 6 FUNDAMENTALS OF INFRASTRUCTURE FINANCING It is imperative that the city’s infrastructure capacity keep pace with its growing population and economic activity, all while continuing to provide a high level of service to our community. 7 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Introduction •What do we mean by infrastructure •Types and components of infrastructure •Fundamentals of infrastructure financing •Trends and challenges of financing infrastructure 8 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Infrastructure •A large, up-front investment that requires significant capital outlay •A long economic life •Often involve high risks, efficient and prudent financing is critical 9 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Infrastructure •A wide array of physical assets required to support both private economic activities and social services •Fundamentally different from daily operations of governments •Physical assets required to support both private economic activity and social services 10 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Economic Infrastructure 11 Transportation Sector •Surface –(roads, bridges, railroads, parking) •Public transit –(urban rail, bus rapid transit) •Aviation –(airports, navigation aid systems) •Water transportation –(inland and sea ports) FUNDAMENTALS OF INFRASTRUCTURE FINANCING Economic Infrastructure 12 Environmental Sector •Water supply and treatment (drinking) •Wastewater treatment (sewerage) •Solid waste management •Pollution control facilities FUNDAMENTALS OF INFRASTRUCTURE FINANCING Economic Infrastructure 13 Utility Sector •Electric power systems •Gas supply Telecommunication Sector •Telephone lines and networks •High-speed Internet FUNDAMENTALS OF INFRASTRUCTURE FINANCING Social Infrastructure Government Buildings and Facilities •Government administration buildings •Public safety and welfare facilities Civic and Cultural Buildings •Libraries, convention centers, others •Parks and recreation 14 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Social Infrastructure 15 Education Sector •Elementary schools and facilities •University buildings and facilities Public Health •Healthcare facilities •Hospitals FUNDAMENTALS OF INFRASTRUCTURE FINANCING Social Infrastructure 16 Judicial and Correctional Facilities •Prisons and jails •Court houses Housing and Community Development FUNDAMENTALS OF INFRASTRUCTURE FINANCING Funding vs. Financing Funding –refers to a revenue source or money that pays for infrastructure, facilities, or services Financing –refers to borrowing money to pay for infrastructure, typically bonds, loans, or debt 17 FUNDAMENTALS OF INFRASTRUCTURE FINANCING FUNDAMENTALS OF INFRASTRUCTURE FINANCING •General taxes –property tax, sales tax •Special dedicated taxes - earmarking •User charges •Capital reserves and fund balance •Federal & state grants or aids 18 Pay as You Go General Tax •Imposed to raise general-purpose revenues –Majority of voters must approve the decision to impose, increase or extend –May be used for any lawful public purpose 19 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Property Tax •Largest source of discretionary general revenue •Imposed on real property and tangible personal property –1% applied to assessed value of property •Referred to as “Ad Valorem” property tax –“full cash value” in 1975-76 or change of ownership –2% yearly cap became applicable to future years 20 FUNDAMENTALS OF INFRASTRUCTURE FINANCING 21 CURREITT OWNER SPCCIAL MESSAGES TAX BILL YEAR 2018-2019 SECURED TAX BILL 11111111m1111n 11111111 JOHN Q PUBLIC 12345 ANYWHERE STREET SAN DIEGO, CA 92101 $T02 PROPERTY SECURED BY THIS ACCOUNT, REFER TO 10 NO. 123-4S6-78-90 59088 ---:-...... ··-~, ! _..;; - Ii )1·11 I.II LOT2S09 MIRA MESA VERDE #100 0 MAP NO. 000661 S28689 (, l•M91)8@ii.fi\i• 08-20-98 0 OWNER OF RECORD OM JANUARY 1, 2018 00037 1/1 €) DESCRIPTION VALUES & EXEMPTIONS LANO s 119457 IMPllOVEMENTS 140536 TOTALL&I 259993 PERSONAL PROPERTY EXEMPTIONS: HOMEOWNERS s 7000 OTHER NET TAXABLE VALUE 2S2993 TAXPAYER PROPERTY INC 22 - ® YOUR TAX DISTRIBUTION ('D YOUR TAX DISTRIBUTION RATE / AGll:NCY CONTACTI TAXAMOUNl RA.TE I AGENCY CONTACT# TAX AMOUNT 1 % TAX ON NET VALUE NET 1.00000 2529.93 FIXED CHARGE ASSMTS: VOTER APPROVED BOND: CO MOSQUITO/RAT CTRL (858) 694-2888 3.00 SAN DIEGO COUNTY NET 0.00680 17.20 MIRA MESA MAINT (619) 533-6779 3.76 UNIFIED SCHOOL NET 0.09575 242.24 MWD WTR STANDBY CHRG (800) 755-6864 11.50 COMMUNITY COLLEGE NET 0.01786 45.18 CWA WTRAVAILABILITY (858) 522-6518 10.00 METRO WATER 01srn1cr NET 0.00610 15.43 COUNTY WTR AUTHORITY NET 0.00075 1.70 TOTAL DISTRIBUTION AMOUNT 2879.94 TOTAL ON NET VALUE 1.12726 2851.68 DETACH HERE DETACH HERE Property Tax •Counties allocate to cities, counties, special districts, and school districts according to state law •Allocations among local agencies differ 23 FUNDAMENTALS OF INFRASTRUCTURE FINANCING 24 PROPERTY TAX . • • 19% 15% city county 61% schools 5% special districts Property Tax •Tax rates enacted by agencies prior to Proposition 13 in 1978 –Rolled back property values to 1976 levels –Responsibility for allocation transferred to state –Reassessment upon change of ownership –Cut property tax revenues by 57% 25 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Special Tax •Imposed for a specific purpose –2/3 of voters must agree to enact, increase or extend –Revenues may only be used for that specific purpose 26 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Sales Tax •May be a general or specific tax assessed as a percentage of the amount purchased 27 FUNDAMENTALS OF INFRASTRUCTURE FINANCING 28 SALES TAX 77% state • • 13% 10% city county Sales Tax •Cities may impose additional sales tax rates to be added on to the base –Requires 2/3 vote for specific purpose 29 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Other Locally Imposed Taxes •Transient Occupancy Tax (TOT) or Hotel Tax •Business License Tax •Utility User Tax (UUT) •Parcel Tax 30 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Service Charges, Assessments, Fees •Utility rates •Benefit assessments •Regulatory fees •Development impact fees 31 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Pay as You Use Debt Financing •Local governments can borrow money to pay for land, facilities, and equipment •Allows for leveraging the timing of revenues •Bonds or other debt instruments may be used to finance infrastructure, facilities or services 32 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Loan and Bond Financing •Loan Financing –Private bank loans •Bond financing –General obligation bonds –Revenue bonds –Lease –purchase agreements –Benefit assessment and special tax financing 33 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Loan Financing •Secure direct loans from private commercial banks or industrial loan companies •Advantageous to smaller agencies •Usually more expensive and less transparent 34 FUNDAMENTALS OF INFRASTRUCTURE FINANCING General Obligation Bonds •Usually done to acquire or improve property –Backed by full faith and credit –Subject to constitutional debt limit –2/3 voter approval –20-30 year payback period 35 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Revenue Bonds •Nonguaranteed debt –Used to finance public facilities with definable users –Secured by pledge of defined revenue sources –Usually not subject to constitutional debt limit, may not require public vote 36 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Private Activity Bonds •Bonds issued by local agency on behalf of private business –Projects benefit private entity but also serve public purpose –Enables private users to benefit from tax exempt status, lower interest rates –Encourages private sector investment in public infrastructure 37 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Lease Purchase Agreements •Agency leases asset for a period of years –Option to purchase land or improvement at end of term –Principal and interest paid is equivalent to financing a loan –Referred to often as a “certificate of participation” 38 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Benefit Assessment Financing •Used to finance the costs of needed improvements or services by assessing property owners –Assessed only on properties that directly benefit from the service –Assessment is determined based on a benefit formula, not on property value –Fosters local control of resources 39 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Benefit Assessment Financing •The California Constitution defines a special benefit as: “a particular and distinct benefit over and above general benefits conferred on real property located in the district or to the public at large” 40 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Benefit Assessments and Prop 218 •Prop 218 transformed the landscape of benefit assessments –Shifted burden of proof to local agencies –Authorized more independent judicial review –Increased scrutiny of engineer’s report 41 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Benefit Assessment Financing •Benefit Assessment Districts are not cities or counties, special districts, or “mello- roos” districts –Assessment districts are financing tools that fund projects and services that property owners want 42 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Other Tools •Enhanced Infrastructure Financing Districts (EIFD) •Community Revitalization Investment Areas (CRIA) •Public-Private Partnerships •User Fees 43 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Trends and Challenges •State and federal aid to cities is declining •Sales tax base is declining •Relative to population and inflation •Gradual shift toward a service-oriented economy •Voter approved provisions limit types and approvals •Resident’s demand for a greater array of services 44 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Trends and Challenges •Infrastructure improvements and maintenance are lagging •Rising capital construction costs, health-care and pension costs •Resident’s demand for a greater array of services 45 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Questions and Comments 46 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Carlsbad’s Infrastructure and Services Financing History Warren Diven, Partner Best Best & Krieger LLP Drivers of Historical Infrastructure Financing •Passage of Proposition 13 in 1978 •Passage of Proposition H in 1982 •137.5% population growth from 1970-1980 •78% population growth from 1980-1990 •Passage of Proposition E in 1986 establishing a voter approved Growth Management Plan that in part insured that public facilities and improvements are available concurrent with the need created by new development 48 Financing of Infrastructure 1.Pay as you go 2.Debt obligations 3.Local obstacles to financing of infrastructure 49 CARLSBAD’S FINANCING HISTORY Pay As You Go •Development impact fees •Special taxes or assessments •General fund revenue •Enterprise fund revenue •Grants 50 CARLSBAD’S FINANCING HISTORY Development Impact Fees •Public facilities fees –major infrastructure pursuant to Growth Management Plan, e.g., Parks, libraries, fire stations, public buildings, major streets •Traffic impact fees –street improvements citywide •Park-in-lieu fees –park acquisition and improvements 51 CARLSBAD’S FINANCING HISTORY Development Impact Fees (Cont.) •Parking-in-lieu fees –acquisition of land for parking in the Village •Planned local drainage fees –drainage facilities in planned local drainage areas from which fees collected •Water and sewer connection fees –water and sewer improvements 52 Special Taxes or Assessments •Bridge & Thoroughfare District #1 –3 I-5 interchanges •Bridge & Thoroughfare District #2 –Aviara/Poinsettia •Bridge & Thoroughfare District # 3 –Cannon Road West 53 CARLSBAD’S FINANCING HISTORY Special Taxes & Assessments (cont) •Community Facilities District No. 1 –Funds major infrastructure mandated by growth management plan –Completed infrastructure: •Dove Library •I-5 Interchanges –Palomar Airport Road, La Costa Avenue, Poinsettia Lane •La Costa Avenue, Olivenhain Road, Cannon Road, Faraday Avenue 54 CARLSBAD’S FINANCING HISTORY Special Taxes and Assessments (Cont.) •CFD No. 1 infrastructure to be completed: –Civic center –Veteran’s Memorial Park –Orion Center (public works yard) –Cole Library expansion 55 Revenues •General Fund revenues –General Capital Construction Fund •Funds miscellaneous improvement projects –Infrastructure Replacement Fund •Funds miscellaneous improvement replacement projects 56 CARLSBAD’S FINANCING HISTORY Revenues (Cont.) •Water and Wastewater Enterprise funds –Funds improvements to the water and sewer systems •Gas tax revenue –Funds circulation system improvements, e.g., traffic signals, pedestrian improvements, payment markings, medians, trails 57 Revenues (Cont.) •TransNet/Transportation Development Act –Funds circulation improvements, e.g., adaptive traffic signal program, pedestrian lighting, street improvements, trails, ADA improvements •Non-jurisdictional fees –trash haulers –Funds improvements necessary to mitigate trash hauler wear and tear on City streets 58 CARLSBAD’S FINANCING HISTORY Grants •SANDAG (Transnet) •State of California (e.g. CCC, sea level rise) •US Department of Housing and Urban Development •US Department of Transportation 59 Debt Obligations •Municipal bonds •Lease financing •Loans and reimbursements 60 CARLSBAD’S FINANCING HISTORY Municipal Bonds •Community Facilities District No. 3 Special Tax Bonds -payable solely from special taxes levied within the CFD –CFD encompasses industrial properties north of Palomar Airport Road and east of El Camino Real –Funded Melrose Drive to City of Vista, portions of Palomar Airport Road and Faraday Avenue 61 CARLSBAD’S FINANCING HISTORY Municipal Bonds (Cont.) •Assessment District Bonds –payable only from assessments levied within the Assessment Districts –AD No. 95-1 –encompassed Carlsbad Ranch and funded portions of Cannon Road, Palomar Airport Road, Armada Drive and Lego Drive –AD No. 96-1 –encompassed Rancho Carrillo and funded portions Melrose Drive and Palomar Airport Road 62 Municipal Bonds (Cont.) •Assessment District Bonds (cont.) –AD No. 2002-1 – Encompassed Bressi Ranch and La Costa Greens and funded portions of Poinsettia, El Fuerte and El Camino Real –AD No. 2003-1 –Encompassed Carlsbad Oaks North and funded portions of Palomar Airport Road, Faraday, Melrose and El Fuerte 63 Municipal Bonds (Cont.) •Redevelopment Tax Allocation Bonds –Payable only from tax increment –Funded, for example, streetscape improvements in Village, acquisition of property for Carlsbad Senior Center and other properties needed redevelopment •Carlsbad Public Financing Authority Revenue Bonds –Payable from net revenues of Carlsbad Municipal Golf Course and back up pledge of lease revenues 64 CARLSBAD’S FINANCING HISTORY Lease Financings •CMWD Certificates of Participation –Financed water storage reservoirs •Certificates of Participation –Financed the acquisition of Hosp Grove 65 CARLSBAD’S FINANCING HISTORY Loans •California State Water Resources Control Board State Revolving Fund Loans •RCW facility expansion 66 CARLSBAD’S FINANCING HISTORY Reimbursement Agreements •Rancho Santa Fe Road – developers reimbursed developer that financed improvements •Carlsbad Ranch Infrastructure Financing District – reimbursed Legoland for up front funding of infrastructure 67 CARLSBAD’S FINANCING HISTORY Infrastructure Financing Constraints •Proposition H –CMC Chapter 1.24 –Limitation on city General Fund spending of $1M or more to: •acquire property or •finance improvement projects –Without voter approval 68 CARLSBAD’S FINANCING HISTORY Infrastructure Financing Constraints (Cont.) •Policy 33 –Prohibition on passing assessments or special taxes on to residential homeowners •Reserve requirements may limit revenue funding 69 CARLSBAD’S FINANCING HISTORY Financing Infrastructure Services •General Fund revenues •Assessments –Lighting and Landscaping Districts –Buena Vista Channel District –adjacent property owners pay assessments to maintain channel 70 CARLSBAD’S FINANCING HISTORY Services Financing Constraints •Proposition 218 –Requires assessment ballot proceedings to increase assessments unless escalator approved when lighting and landscaping district formed 71 CARLSBAD’S FINANCING HISTORY Questions and Comments 72 FUNDAMENTALS OF INFRASTRUCTURE FINANCING Opportunities for Financing Public Infrastructure and Services Barbara Hale-Carter, Principal Special District Financing & Administration, LLC Opportunities •Revenue opportunities •Financing opportunities 74 CURRENT AND FUTURE OPPORTUNITIES Revenue Opportunities •Ad valorem property tax •Sales tax •Transient occupancy tax (“TOT”) •Parcel tax •Utility user tax (“UUT”) •Community facilities district (“CFD”) special tax 75 CURRENT AND FUTURE OPPORTUNITIES Ad Valorem Property Tax •Ad valorem property taxes are based on the net value of the property •A public agency can, through 2/3 voter approval, authorize the levy of an ad valorem property tax to generate funds above the tax revenue received from general property taxes 76 CURRENT AND FUTURE OPPORTUNITIES Ad Valorem Property Tax •This additional levy is used to support the repayment of general obligation bonds •The proceeds of the GO Bonds fund only specifically identified facilities •The ad valorem tax is levied only so long as bonds are outstanding 77 CURRENT AND FUTURE OPPORTUNITIES Ad Valorem Property Tax •GO Bond Tax Example: City of Escondido –Passed a “Fire, Police and Emergency Response” measure in November 2004 –Authorized and issued $84,350,000 –Purpose: construct, upgrade and acquire land for fire stations, including emergency response training center and combined police and fire headquarters facility –Levy for fiscal year 2018-19 on an example home assessed at $300,000 was $89.25 78 CURRENT AND FUTURE OPPORTUNITIES Ad Valorem Property Tax •GO Bond Tax Example: City of La Mesa –Passed a “Fire, Police and Emergency Services” measure in March 2004 –Authorized and issued $25,000,000 –Purpose: construct, upgrade and acquire land for fire and police stations and medical response equipment including an emergency operations center –Levy for fiscal year 2018-19 on an example home assessed at $300,000 was $25.55 79 CURRENT AND FUTURE OPPORTUNITIES Sales Tax •Total maximum sales tax is limited to 10% •Current countywide base is 7.75% •Approved tax measures are in addition to 7.75% •Possible future initiatives by NCTD and SANDAG, need to move quickly 80 CURRENT AND FUTURE OPPORTUNITIES Sales Tax •Tax measures with the revenue dedicated to a specific purpose require a supermajority (2/3) vote •Tax measures designed to deposit revenue into the general fund require a simple majority vote (50% plus 1 vote) •No term must be specified 81 CURRENT AND FUTURE OPPORTUNITIES Sales Tax •Average sales tax countywide is 8.06% •San Diego cities above 7.75% include –Chula Vista, Del Mar, National City (8.75%) –La Mesa (8.50%) –El Cajon, Oceanside, Vista (8.25%) •Groceries and prescription drugs are excluded 82 CURRENT AND FUTURE OPPORTUNITIES Sales Tax •Initiative language for currently approved sales tax within San Diego County include: –Public safety –General city services and infrastructure –General fund services –Essential city services 83 CURRENT AND FUTURE OPPORTUNITIES Sales Tax •Using the projected fiscal year 2019-20 sales tax revenue, the specified increase in sales tax would result in the following estimated additional revenue for Carlsbad 84 CURRENT AND FUTURE OPPORTUNITIES Tax Rate Increase Estimated Additional Revenue 0.25%7.5 million 0.50%15.0 million 0.75%22.5 million 1.00%30.0 million TOT •Transient Occupancy Tax “TOT” •Example businesses subject to TOT include hotels, motels, and short-term vacation rentals •TOT is not applied to time-shares and state park campgrounds •A TOT is applied to stays less than 30 days 85 CURRENT AND FUTURE OPPORTUNITIES TOT •New or increases in existing TOT must be voter approved (supermajority for specific purpose or simple majority for general governmental purposes) •No term is required to be specified •As an estimate, based on fiscal year 2018-19 TOT revenue, an increase of 2% (for a TOT total of 12%) would increase revenues approximately $5.2 million in Carlsbad 86 CURRENT AND FUTURE OPPORTUNITIES 87 Jurisdiction Type of Tax/Assessment Rate City of Carlsbad TOT -All lodging businesses, plus 10% Tourism Business Improvement District $1/day Golf Lodging Improvement District $2/day City of Encinitas TOT –All lodging businesses 10% City of Oceanside TOT -All lodging businesses; plus 10% OTMD Assessment –Short-term rentals 1.5% OTMD Assessment –Hotels/Motels 2.5% City of Solana Beach TOT –All lodging businesses 13% City of Vista TOT –All lodging businesses 10% City of San Marcos TOT -All lodging businesses 10% City of San Diego TOT –All lodging businesses; plus 10.5% TMD Assessment Lodging businesses, 70 or more rooms 2%TOT NEIGHBORING JURISDICTIONS 88 Jurisdiction Type of Tax/Assessment Rate City of Carlsbad TOT –All lodging businesses, plus 10% Tourism Business Improvement District $1/day Golf Lodging Improvement District $2/day City of Anaheim TOT –All lodging businesses 15% City of Palm Springs TOT –Group meeting hotels 13.5% TOT –All lodging businesses; plus 11.5% TBID –Hotels with 49 rooms or less 1% City of Sonoma TOT –All lodging businesses; plus 13% Sonoma Tourism Improvement District 2% City of Laguna Beach TOT –All lodging businesses; plus 12% Tourism Business Improvement District 2% City of Santa Barbara TOT –All lodging businesses; plus 12% TBID –per occupied room based on average daily rate $0.95 - $4.85 City of Newport Beach TOT –All lodging businesses 10%TOT DESTINATION LOCATIONS Parcel Tax •A fixed charge amount to fund facilities and/or services •Levied through the county property tax bill •The tax is not based on value •A supermajority (2/3) vote is required •Ballot measure may or may not provide a term 89 CURRENT AND FUTURE OPPORTUNITIES Parcel Tax •Authorized purpose of approved Parcel Tax ballot measures –Police Services / Public Safety –Library Services –Park Maintenance –Fire Protection –Street and Bike Path –Paramedic Services 90 CURRENT AND FUTURE OPPORTUNITIES Utility User Tax •A utility user tax (“UUT”) is a tax on public service businesses •A UUT may be imposed by cities and counties •The UUT is a charged on the consumption of certain utility services •A UUT must be approved by vote (supermajority for specific purpose or simple majority for general governmental purposes) 91 CURRENT AND FUTURE OPPORTUNITIES Utility User Tax •A UUT is collected by the utility and remitted to the city or county •California UUT range from 1% to 11%, with an average rate of 5.4% •As of January 2017, UUT generated $2 billion annually in California •There are exemptions 92 CURRENT AND FUTURE OPPORTUNITIES Utility User Tax California UUT Cities County Total Population Covered Number 157 4 161 54.0% Telephone 149 4 153 49.5% Electricity 156 4 160 52.7% Gas 156 4 160 52.7% Cable TV 90 1 91 22.8% Water 85 1 86 24.7% Sewer 14 1 15 2.7% Garbage 12 0 12 1.3% 93 CURRENT AND FUTURE OPPORTUNITIES CFD Special Tax •A Community Facilities District (“CFD”) can be formed to fund facilities and/or services •The boundaries of a CFD can contain the entire agency or a smaller defined area •A supermajority vote is required 94 CURRENT AND FUTURE OPPORTUNITIES CFD Special Tax •The amount levied is a special tax •The special tax may not be based on the value •CFDs formed to provide funding for services do not have a term 95 CURRENT AND FUTURE OPPORTUNITIES CFD Special Tax •Purposes for currently authorized CFDs within San Diego County which fund services –Public Services (police, fire, ambulance, paramedic, congestion management, public transportation, lighting, etc.) –Maintenance (landscape, preserve / open space, drainage, median, parking facilities, etc.) 96 CURRENT AND FUTURE OPPORTUNITIES Revenue Opportunities Revenue Project Type Nature of Funding Vote Required Term Required Ad Valorem Facilities Specific 67%Yes Sales Tax Facilities & Services Specific 67%No General 50%No TOT Facilities & Services Specific 67%No General 50%No Parcel Tax Facilities & Services Specific 67%No UUT Facilities & Services Special 67%No General 50%No CFD Special Tax Facilities Specific 67%Yes Services Specific 67%No 97 Financing Opportunities •The majority of revenue opportunities can be used to support debt financing of facilities AND can be used to support governmental services •Historical methods remain valid •Current requirements need to be evaluated and matched to identified revenue opportunities 98 CURRENT AND FUTURE OPPORTUNITIES Financing Opportunities •Public-private partnerships •Post-Redevelopment Area legislation •Proposed legislation 99 CURRENT AND FUTURE OPPORTUNITIES Partnerships •Public-private partnerships can be used to build infrastructure •Private capital funding relieves limited public dollars •Construction of project accelerated •Relieves public agency of some risk 100 CURRENT AND FUTURE OPPORTUNITIES Partnerships •Public-private partnership examples: –Desal Plant (Carlsbad) –Civic Center (Long Beach) –Academic buildings, recreational facilities, student housing (UC Merced) –Rental car facility, people mover (Los Angeles International Airport) –State routes 241, 261, 133 and 73 (Orange County) 101 CURRENT AND FUTURE OPPORTUNITIES Post-RDA Legislation •Infrastructure Financing District (“IFD”) -1990 –Purpose limited to purchase, construct, expand, improve, retrofit or rehabilitate –Improvements must be of “communitywide significance” to an area larger than the district –Facilities include highways, interchanges, ramps and bridges, arterial streets, parking facilities, sewage treatment and water reclamation plants –with a useful life of 15 years or longer –IFD limited to 30-year life after formation –Have been used infrequently 102 CURRENT AND FUTURE OPPORTUNITIES Post-RDA Legislation •Community Revitalization & Investment Authorities (“CRIA”) - 2017 –Similar to Redevelopment Law –Added restrictions to improve accountability –To date, no cities have implemented 103 CURRENT AND FUTURE OPPORTUNITIES Post-RDA Legislation •Affordable Housing Authority (2018) –Authorizes tax increment to finance low-and moderate housing –Must adopt a affordable housing plan that identifies goals, number of new, rehabilitated or price-restricted (very low, low-and moderate-income) units to be assisted within next five years and a five-year fiscal analysis –To date, no cities have implemented 104 CURRENT AND FUTURE OPPORTUNITIES Proposed Legislation •Assembly Bill 11 –Community Redevelopment Law of 2019 –Cities and counties would form an affordable housing and infrastructure agency (“AHIA”) –A designated redevelopment area within which tax increment could be redirected to the development of affordable housing –Exact terms remain in flux 105 CURRENT AND FUTURE OPPORTUNITIES Proposed Legislation •Senate Bill 1 –Affordable Housing and Community Development Investment Program –Cities and counties would apply to a lead committee which would be empowered to distribute funds for all projects across the state –As currently drafted the committee would allocate up to $200 million per year for fiscal years ending June 30, 2022 through June 30, 2026 and $250 million per year for fiscal years ending June 30, 2027 through June 30, 2030 –Exact terms remain in flux 106 CURRENT AND FUTURE OPPORTUNITIES Questions and Comments 107 FUNDAMENTALS OF INFRASTRUCTURE FINANCING