CITY COUNCIL AGENDA REPORT. DEPARTMENT: City Manager s Office MEETING DATE: December 19, 2017

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1 CITY COUNCIL AGENDA REPORT DEPARTMENT: City Manager s Office MEETING DATE: December 19, 2017 PREPARED BY: Oliver Chi, City Manager AGENDA LOCATION: AR-3 TITLE: Calling for a Special Election on Tuesday, June 5, 2018, to Submit for Voter Consideration a Proposed Ordinance Increasing the Rate of the City s Transient Occupancy Tax From Ten Percent to Twelve Percent, and Establishing the Priorities for Written Arguments in Support of and / or Against the Measure, Resolution Nos and No OBJECTIVE: To call for a special election on June 5, 2018, at which time voters will be asked to consider increasing the City s Transient Occupancy Tax (TOT) from ten percent to twelve percent. BACKGROUND: During the past five years, the California Public Employee Retirement System (CalPERS) implemented a series of significant rate adjustments to address rising Unfunded Accrued Liability (UAL) levels associated with California s public sector pension system. Taken together, these policy changes were projected to increase the City s required UAL payments by around 80% during the next five year period, growing from a current cost of $4.9 million in FY 2017/18 to $8.9 million in FY 2022/23. And from that point, unfunded pension liability costs were projected to continue growing through FY 2030/31, when our overall UAL costs would be around $11 million. As staff assessed this issue, our financial modeling indicated that the costs associated with the pending CalPERS UAL repayment schedule would strain Monrovia s General Fund to the point of rendering the City insolvent in either FY 2021/22 or FY 2022/23. In response to this violent escalation of unfunded pension liability costs, the City adopted an overall CalPERS Response Plan on November 7, The overall proposal contained five key components, including: 1. Adoption of Side Letters of Agreement with all employee bargaining units to increase employee contributions toward pension related costs. 2. Authorizing the issuance of a Pension Obligation Bond (POB) to refinance all of the City s existing UAL and pension liability debt, thereby stabilizing our pension liability payments at a uniform and level annual amount. 3. Adoption of a new UAL Funding Policy in the City to address any new future pension liabilities. 4. Directing staff to proceed with establishing a ballot measure in 2018 to increase the City s Transient Occupancy Tax (TOT) Rate from 10% to 12%. 5. Directing staff to move forward with the creation of Community Facility Districts (CFDs) on significant new residential development projects in the City. AR-3

2 Since approval of the proposed program, staff has begun implementing the different components associated with the CPR Plan. To that end, in accordance with Resolution No (Attachment A), which was approved unanimously by the City Council, staff has prepared the requisite documents to call for a special election on June 5, 2018, at which time a proposed increase in the City s TOT rate from 10% to 12% will be submitted for voter consideration. ANALYSIS: A TOT assessment is charged to travelers when they rent accommodations (i.e., a room, rooms, entire home, or other living space) in a hotel, inn, tourist home / house, motel, or other lodging for a period of less than 30 days. Currently, Monrovia s TOT rate is set at 10%, and as part of the City s CPR Plan, it was identified that increasing the City s TOT rate by 2% (to 12%) would be one revenue enhancement area that we should consider. If approved, the 2% increase in the TOT rate would generate around $400,000 / year in additional revenues, and should not impact the competiveness of our existing hotel base here in Monrovia. In analyzing the TOT assessment in the communities located west of the City, staff was able to determine that Pasadena, Burbank, and Glendale all have effective TOT rates that are set at 12% or higher. In addition, each of those three communities also charges additional accommodation / tourism taxes on top of the TOT assessment, which creates an effective TOT rate for those three jurisdictions of between 13% - 16%. Of the jurisdictions located west of the City, only Arcadia currently assess a TOT rate as low as the 10% rate assessed in Monrovia. However, based on discussions with representatives from Arcadia, they have indicated that they will be asking their community to support a 1% sales tax increase in the future, which is a much more impactful and significant revenue enhancement measure than a TOT increase. Staff has also met with representatives from our most significant local hotel operators in Monrovia including the DoubleTree, Courtyard Marriott, and the developer of the proposed Marriott TownePlace Suite Hotel regarding the proposed 2% increase to our TOT rate. Based on those discussions, all three parties have indicated their concurrence that the adjustment would be fairly non-impactful to their operations, especially when considering the TOT rate of the hotels located west of Monrovia. Given these considerations, and pursuant to the unanimous endorsement of the City Council on November 7, 2017, that staff move forward with placing the proposed TOT increase on the ballot for voter consideration in calendar year 2018, staff has developed the following items for consideration: Resolution No (Attachment B), which, if approved, would place the following question on the June 5, 2018 ballot for consideration by Monrovia voters: o Shall an ordinance, placed on the ballot by the City Council, be adopted to increase the rate of the City s existing transient occupancy tax, paid only by visitors to the City, from ten percent (10%) to twelve percent (12%) to raise an additional $400,000 per year in revenue to fund general City services such as public safety, parks and recreation, and senior services? Resolution No (Attachment C), which, if approved, would fulfill the requirement that the City Council establish priorities for written arguments in support of and / or against the proposed TOT increase. Also of note, because the proposed TOT adjustment is a revenue enhancement measure, the City Council must unanimously approve Resolution No in order for the item to appear on the June 5, 2018 ballot for voter consideration. Included as part of that particular resolution is a declaration that the TOT adjustment is needed in part to help address the ongoing fiscal emergency caused by the increasing costs of unfunded pension obligations, among other items. Without unanimous City Council

3 support of Resolution No , the proposed TOT adjustment cannot be considered until the City s next general municipal election in March FISCAL IMPACT: If approved by a majority of Monrovia voters at the June 5, 2018 election, increasing the City s TOT rate from 10% to 12% will generate an estimated $400,000 / year in additional transient occupancy tax revenues for the City. ENVIRONMENTAL IMPACT: None. OPTIONS: The following options are presented for City Council consideration: 1. Adopt Resolution Nos and , thereby calling for a Special Election on Tuesday, June 5, 2018, to submit for voter consideration a proposed ordinance increasing the rate of the City s Transient Occupancy Tax from ten percent to twelve percent, and establishing the priorities for written arguments in support of and / or against the measure. 2. Do not adopt Resolution Nos and , and provide staff with additional direction. RECOMMENDATION: Staff recommends that the City Council select Option 1, thereby calling for a Special Election on Tuesday, June 5, 2018, to submit for voter consideration a proposed ordinance increasing the rate of the City s Transient Occupancy Tax from ten percent to twelve percent, and establishing the priorities for written arguments in support of and / or against the measure. COUNCIL ACTION REQUIRED: If the City Council concurs, the appropriate action would be a motion to adopt Resolution Nos and

4 RESOLUTION NO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MONROVIA, CALIFORNIA, DIRECTING STAFF TO MOVE FORWARD WITH DEVELOPING A BALLOT MEASURE IN 2018 TO INCREASE THE CITY S TRANSIENT OCCUPANCY TAX RATE ( HOTEL BED TAX ) FROM 10% TO 12%. THE CITY COUNCIL OF THE CITY OF MONROVIA, CALIFORNIA, DOES hereby resolve as follows: WHEREAS, recent changes to the California Public Employees Retirement System (CalPERS) have created a pension cost structure that requires all California governmental agencies to reevaluate their operations or risk facing insolvency; and WHEREAS, as part of the Fiscal Year 2017/19 Budget approval process, the City Council directed staff to develop and execute an overall CalPERS Response Plan to address the pending budget crisis related to rising pension costs; and WHEREAS, the City identified multiple strategies needed to effectively address rising pension costs; and WHEREAS, the City currently imposes a Transient Occupancy Tax at the rate of ten percent (10%) upon the guests of hotels and other transient accommodations located throughout the City; and WHEREAS, an identified strategy to address rising pension costs is to increase the rate of the Transient Occupancy Tax by two percent (2%) to a total of twelve percent (12%) to be imposed upon the guests of hotels and other transient accommodations throughout the City pursuant to the Monrovia Municipal Code; and WHEREAS, pursuant to Article XIIIC, Section 2(b) of the California Constitution and California Government Code section 53723, no local government may impose, extend, or increase any general tax unless and until that tax is submitted to the electorate and approved by a majority vote of the qualified electors voting in the election; and WHEREAS, the increased pension costs related to the cost structure changes in CalPERS will begin taking effect on July 1, 2018; and WHEREAS, the City Council desires to hold an election in 2018 for the purpose of submitting a ballot measure to the voters related to an increase in the existing Transient Occupancy Tax rate to help address rising operational costs. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MONROVIA DOES resolve as follows: SECTION 1. The City Council finds that all of the facts set forth in the Recitals of this Resolution are true and correct. SECTION 2. The City Council directs staff to proceed with developing a measure to increase the Transient Occupancy Tax from ten percent (10%) to twelve percent (12%).

5 SECTION 3. The City Council further directs that staff proceed with placing the measure to increase the Transient Occupancy Tax before the voters in a municipal election to be held in PASSED, APPROVED AND ADOPTED on this 7 th day of November, Tom Adams, Mayor City of Monrovia ATTEST: APPROVED AS TO FORM: Alice D. Atkins, CMC, City Clerk City of Monrovia Craig A. Steele, City Attorney City of Monrovia

6 RESOLUTION NO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MONROVIA, CALIFORNIA, CALLING A SPECIAL MUNICIPAL ELECTION FOR JUNE 5, 2018 AND ORDERING THAT A MEASURE RELATED TO INCREASING THE CITY S TRANSIENT OCCUPANCY TAX BE SUBMITTED TO THE VOTERS AT THE SPECIAL MUNICIPAL ELECTION THE CITY COUNCIL OF THE CITY OF MONROVIA DOES RESOLVE AND ORDER AS FOLLOWS: Section 1. The City Council, pursuant to its right and authority, does hereby call a Special Municipal Election to be held on June 5, 2018, for the purpose of submitting a measure or measures to the voters. Section 2. The City Council hereby unanimously orders that the following measure be submitted to the voters at the said Special Election, to help address the ongoing fiscal emergency caused by the increasing costs of unfunded pension obligations, increasing costs of essential public services, increasing costs of responding to Southern California s continuing water supply crisis, the increasing public safety costs resulting from criminal justice reforms enacted by the State government, among others. Shall an ordinance, placed on the ballot by the City Council, be adopted to increase the rate of the City s existing transient occupancy tax, paid only by visitors to the City, from ten percent (10%) to twelve percent (12%) to raise an additional $400,000 per year in revenue to fund general City services such as public safety, parks and recreation, and senior services? YES NO Section 3. The text of the proposed ordinance to be submitted to the voters as attached hereto as Exhibit A is hereby approved and incorporated herein by reference. The type of tax proposed is an existing Transient Occupancy Tax collected by hotel (as defined) operators from guests as a percentage of the amount paid for lodging, and the rate is proposed to increase from 10% to 12%. A majority of votes case is required for the measure to pass Section 4. The ballots to be used at the election shall be in form and content as required by law

7 Section 5. The City Clerk is hereby authorized and directed to contract with the Los Angeles County Registrar/Recorder s election department to procure and furnish any and all official ballots, notices, printed matter and all services, supplies, equipment and paraphernalia that may be necessary in order to properly and lawfully conduct the election. The Los Angeles County Registrar/Recorder is authorized to canvass the returns of the election. The City will reimburse the County for costs incurred. Section 6. The polls for the election shall be open at seven o clock a.m. on the day of the election and shall remain open continuously from that time until eight o clock p.m. of the same day when the polls shall be closed, except as provided in California Elections Code Section Section 7. The City Attorney is directed to prepare an impartial analysis of the ballot measure, and the City Clerk is directed to establish and provide notice of the deadlines to submit ballot arguments. Section 8. In all particulars not recited in this Resolution, the election shall be held and conducted as provided by law for holding municipal elections. Section 9. by law. The City Clerk shall give notice of the special election as provided Section 10. The City Clerk shall certify to the passage and adoption of this Resolution and shall enter it into the book of original resolutions. PASSED, APPROVED and ADOPTED this 19th day of December, Attest: Alice D. Atkins, CMC, City Clerk Tom Adams, Mayor

8 EXHIBIT A ORDINANCE NO AN ORDINANCE OF THE CITY OF MONROVIA, CALIFORNIA, AMENDING THE PROVISIONS OF MONROVIA MUNICIPAL CODE SECTION TO INCREASE THE RATE OF THE CITY S EXISTING TRANSIENT OCCUPANCY TAX FROM TEN PERCENT (10%) TO TWELVE PERCENT (12%) THE PEOPLE OF THE CITY OF MONROVIA DO ORDAIN AS FOLLOWS: Section 1. Section of Chapter 3.44 of Title 3 of the Monrovia Municipal Code is hereby amended as follows: For the privilege of occupancy in any hotel, each transient is subject to and shall pay a tax in the amount of 10% 12% of the rent charged by the operator. Said tax constitutes a debt owed by the transient to the city which is extinguished only by payment to the operator or to the city. The transient shall pay the tax to the operator of the hotel at the time the rent is paid. If the rent is paid in installments, a proportionate share of the tax shall be due upon the transient's ceasing to occupy space in the hotel. If for any reason the tax due is not paid to the operator of the hotel, the Tax Administrator may require that such tax shall be paid directly to the Tax Administrator. Section 2. Notwithstanding Section 9217 of the California Elections Code, without a vote of the people, the City Council may do any and all of the following: (i) repeal this Ordinance; (ii) reduce the rate of the transient occupancy tax below twelve percent (12%); or (iii) increase the rate of the transient occupancy tax back to a rate not to exceed twelve percent (12%) if it has been previously reduced below such rate; (iv) amend any other provision of Chapter 3.44 of the Monrovia Municipal Code that does not increase the rate of the tax above 12%. In no event shall the City Council increase the rate of the transient occupancy tax in excess of twelve percent (12%) without approval by a majority of the voters voting in an election on the increase. Section 3. If any section, subsection, sentence, clause, phrase, or portion of this Ordinance is for any reason held to be invalid or unenforceable by a court of competent jurisdiction, the remaining portions of this Ordinance shall nonetheless remain in full force and effect. The People of the City of Monrovia hereby declare that they would have adopted each section, subsection, sentence, clause, phrase, or portion of this Ordinance, irrespective of the fact that any one or more sections, subsections, sentences, clauses, phrases, or portions of this Ordinance be declared invalid or unenforceable. Section 4. If adopted, this Ordinance will increase the rate of the City s existing Transient Occupancy Tax, which is a general tax of the City collected by hotel operators from guests, by 2%. This Ordinance was proposed by the City Council of the City of Monrovia through the approval and introduction of the Ordinance and the

9 adoption of Resolution No by the affirmative votes of not less than four of its Members as required by Government Code Section 53724(b). Section 5. The Mayor is hereby authorized to attest to the adoption of this Ordinance by signing where indicated below. This Ordinance shall take effect ten (10) days following certification of the vote by the City Council. I hereby certify that the foregoing ordinance was PASSED, APPROVED and ADOPTED by the People of the City of Monrovia voting on the day of, Attest: Alice D. Atkins, CMC, City Clerk Tom Adams, Mayor

10 RESOLUTION NO A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MONROVIA, CALIFORNIA, SETTING PRIORITIES FOR FILING WRITTEN ARGUMENTS REGARDING A CITY MEASURE WHEREAS, a Special Municipal Election has been called in the City of Monrovia on June 5, 2018, at which time there will be submitted to the voters a measure relating to the rate of the City s Transient Occupancy Tax. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MONROVIA HEREBY RESOLVES AND ORDERS AS FOLLOWS: SECTION 1. The City Council authorizes (Council Member in Favor/Against) (Council Member in Favor/Against) (Council Member in Favor/Against) (Council Member in Favor/Against) (Council Member in Favor/Against) to file a written argument in favor of or against the measure as specified above in accordance with Article 4, Chapter 3, Division 9 of the Elections Code of the State of California and to change the argument until and including the date fixed by the City Clerk after which no arguments for or against the City measure may be submitted to the City Clerk. Except as provided herein, the City Clerk shall prioritize written arguments submitted regarding the measure as directed by the California Elections Code. SECTION 2. The City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions. PASSED, APPROVED and ADOPTED this 19th day of December, ATTEST: Tom Adams, Mayor Alice D. Atkins, CMC, City Clerk