City of Vernon. Special Tax Funding Option. March 2012

Transcription

1 City of Vernon Special Tax Funding Option March 2012 Main Office Temecula Parkway, Suite 100 Temecula, CA Toll free: Fax: Regional Office 870 Market Street, Suite 1223 San Francisco, CA Toll free: Fax:

2 SUMMARY Beginning early 2011, the City of Vernon (the City ) engaged NBS to analyze its budget and recommend funding strategies to fill a General Fund deficit. Based on recent projections, the City s General Fund shortfall is expected to be $16 million for the upcoming 2012/13 fiscal year. NBS analyzed many funding options available to the City and evaluated several special tax formulas using flat rate options, tiered options, and minimum levy amounts. The various models also considered both maintaining and dissolving the existing warehouse parcel tax. The special tax formulas were directed at securing funding to support essential government services including public safety, health, public works and capital improvements at their current level. After thorough review and analysis it was determined that the most consistent method would be to create a new parcel tax that would levy all parcels or portions thereof not currently being levied the exisiting warehouse parcel tax using a special tax formula based on lot square footage. This would create a uniform way in which all parcels within the City are being levied a special tax. The proposed special tax rate would be $0.234 per lot square foot. The proposed parcel tax includes 907 new parcels that are not currently within the existing warehouse parcel tax, and 144 parcels that currently are levied only a portion of their total lot square footage for the existing warehouse parcel tax. The proposed special tax rate will also include an annual cost of living inflator in order to take into account future increases in costs. In addition, on an annual basis prior to calculating the levy, City Staff will review the upcoming fiscal year projected expenses and determine the appropriate rate to levy the special tax so long as it does not exceed the maximum annual special tax rate approved by the voters. In order for the City to place the proposed parcel tax on the upcoming 2012/13 County secured property tax roll, the City would seek approval from the registered voters at a July 24, 2012 election. The City Council has set a Public Hearing on April 17, 2012.

3 TABLE OF CONTENTS 1. FUNDING OPTIONS Bonded Assessment District Business Improvement District Community Facilities District Fire Suppression Services Assessment District Maintenance Assessment District Parcel Tax Measure Utility User Tax Summary of Funding Options PUBLIC SAFETY SERVICES IN VERNON Service Levels Public Safety Costs Insurance Premium Response to Fire Department Level of Service PARCEL CHARACTERISTICS Property Use Types Top Property Owners by Assessed Value Top Property Owners by Acreage Railroad Parcels Existing Warehouse Parcel Tax Residential Parcels Registered Voters UTILITY CHARACTERISTICS Top Utility Users Utility Rates SCENARIOS Scenarios Special Tax Formulas Scenarios Utility User Tax FUNDING SOLUTION PARCEL TAX FINAL RECOMMENDATIONS

4 1. FUNDING OPTIONS The City projects a 2012/13 General Fund shortfall of approximately $16 million. NBS and the City reviewed many different funding mechanisms available to the City. The following details various funding options to support essential services such that the City may keep its current levels of service Bonded Assessment District A 1913/1915 Act Assessment District ( Bonded Assessment District ) can be formed pursuant to the Municipal Improvement Act of 1913 ( 1913 Act ) and bonds would be issued pursuant to the Improvement Bond Act of 1915 ( 1915 Act ). This type of funding mechanism can only pay for capital costs and not ongoing maintenance costs. As this is an assessment district, there is a higher standard of benefit assignment and the formula distributing costs must be detailed and substantiated with a report prepared by a Professional Engineer. The proportionate special benefit received by each parcel must be determined in relationship to the entirety of the capital cost of the public improvement. Parcels within the boundary that are owned by a public entity are not exempt from the assessment unless the City can show by clear and convincing evidence that the property in fact receives no special benefit. This is not a viable option for the funding of police and fire protection services Business Improvement District A Business Improvement District (BID) is a property or business based assessment district. A BID is used to support various local improvements and services, including public safety, which enhances a targeted area. It is a self-imposed and self-governed district that unifies business and property owners of a common goal. This may be a viable funding option for police services. However, NBS does not feel that this is one of the best funding options given the threshold of special benefit that will need to be shown. Also, it is difficult to establish special benefit for citywide police protection services Community Facilities District A Community Facilities District ( CFD ) can be formed pursuant to the Mello -Roos Community Facilities Act of 1982 ( CFD Act ). Services that may be funded include police and fire protection services and flood and storm control maintenance as well as capital projects that include infrastructure needs and facilities. There is great flexibility in both the geographic area to be levied and the formula by which to levy when using a CFD. A CFD may include non-contiguous geographic areas and there is no requirement that the special tax be apportioned on the basis of benefit to any property. Property owned by a public entity is generally exempt from the CFD special tax. Successful creation of a CFD requires approval of 2/3 of the registered voters voting in the election (or approval of the landowners if less than 12 persons are registered to vote within the CFD boundary). With a voter election, each voter has one vote regardless of their weighted share of the proposed special tax levy. In a landowner election, the vote is one vote per acre or portion thereof. Special Tax Funding Option Report City of Vernon 1-1

5 This may be a viable funding option for police and fire protection services given the flexibility of a CFD. With a CFD residential parcels can be excluded, a landowner election can be held instead of a voter election, and special benefit does not need to be established for the services being provided Fire Suppression Services Assessment District A Fire Suppression Services Assessment District can be formed pursuant to California Government Code Section et seq. The assessment may be used for fire services, including maintaining equipment, salaries and benefit of personnel. A report would need to be prepared, and special benefit would need to be shown between the fire services being provided and the parcels receiving the assessment. The assessment may be levied against any parcel to which fire services may be made available whether or not the service is actually used. The City Council can consider approving the district and to impose the annual assessment if there is no majority protest. A majority protest exists if the assessments represented by ballots submitted in opposition exceed those submitted in favor of the assessment. All returned ballots are tabulated and weighted according to the financial obligation of each particular parcel. A fire suppression assessment brings many issues and special scenarios to be addressed with a very detailed engineer s report that has a higher probability of being challenged (given the outcome of recent court cases). This may be a viable funding option for fire services. However, in light of recent court cases, NBS does not feel that this is one of the best funding options given the threshold of special benefit that will need to be shown, and it is difficult to establish special benefit for citywide fire services. In addition, if residential parcels are shown to receive special benefit from the fire services, then they will need to be included within the District Maintenance Assessment District A Maintenance Assessment District can be formed pursuant to the Landscaping and Lighting Act of 1972 ( 1972 Act ). The main improvements available for finance through the 1972 Act include landscaping, lighting, ornamental structures, park and recreational improvements, and any facilities appurtenant to those improvements. As this is an assessment district, there is a higher standard of special benefit assignment and the formula distributing costs must be detailed and substantiated with a report prepared by a Professional Engineer. The proportionate special benefit derived by each parcel must be determined in relationship to the total ongoing maintenance costs. Parcels within the boundary that are owned by a public entity are not exempt from the assessment unless the City can show by clear and convincing evidence that the property in fact receives no special benefit. This is not a viable option for the funding of police and fire protection services given the limitations of the 1972 Act. Special Tax Funding Option Report City of Vernon 1-2

6 1.6. Parcel Tax Measure A Parcel Tax Measure can be created pursuant to Article XIII C of the California Constitution ( Article XIII C ). A special tax would be levied against all taxable property within the City. There is great flexibility in the formula used to levy a special tax. Property owned by a public entity is generally exempt from a special tax. Successful creation of a parcel tax requires approval of 2/3 of the registered voters voting in the election. Each voter has one vote regardless of their weighted share of the proposed parcel tax levy. This may be a viable funding option for police, fire protection and additional services. However, approval by registered voters, not land owners, is required. The special tax formula will also be able to account for annual changes in development and residential parcels can be excluded from the special tax. The City already has a parcel tax in place, so implementing a new parcel tax would allow for a uniformed way to levy all taxable parcels within the City Utility User Tax Utility User Tax (UUT) can be assessed on the consumer of one or more of the following services: electricity, gas, cable television, water and telephone. A UUT is collected as part of the regular utility billing procedure. The imposition of a UUT would require compliance with Article XIIIC of the Constitution. The approval threshold is 2/3 voter approval for a special tax or a majority voter approval for a general tax. Alternatively, an A/B advisory vote strategy can be used. This method structures the UUT as a general tax requiring only majority voter approval, but is paired with another measure (an advisory measure ) regarding the specific use of the funds. All UUTs in California are designated as a general tax except for the City of Desert Hot Springs UUT approved in This may be a viable funding option for increasing revenues for the General Fund. In addition, the City would receive the additional revenue on a monthly basis, instead of on a semi-annual basis through the property tax bill as is for a special tax. However, given the recent increases in the utility rates, this would add an additional burden to those customers. Special Tax Funding Option Report City of Vernon 1-3

7 1.8. Summary of Funding Options Community Facilities District Fire Suppression Assessment District Parcel Tax Measure Utility User Tax Approval threshold 2/3 of registered voters voting in the election or property owners Majority protest ballot proceeding 2/3 of registered voters voting in the election Majority approval or 2/3 of registered voters Approving parties Voters or Property Owners Property Owners Voters Voters Benefit determination None Only special benefits may be levied (highest standard) None None Levy changes with development changes Levy changes to the extent outlined in the formula Levy changes to the extent outlined in the formula Levy changes to the extent outlined in the formula No annual levy, based on utility usage amounts Annual administration Parcels Exempted What can be funded May require a consultant depending on the complexity of the formula All government entities; and any other parcels specified in the special tax formula Capital Improvements, Police and Fire Services, Maintenance costs May require a consultant depending on the complexity of the formula Only those parcels specifically shown to receive no benefit Fire Services only no Police Services May require a consultant depending on the complexity of the formula All government entities and any other parcels specified in the special tax formula Capital Improvements, Police and Fire Services, Maintenance costs Collected as part of regular utility billings All government entities including gas and electric companies General Fund expenditures Special Tax Funding Option Report City of Vernon 1-4

8 2. PUBLIC SAFETY SERVICES IN VERNON 2.1. Service Levels Vernon s Fire Department is rated Public Protection Class 1. Vernon s average fire response time is only 3 minutes, which is less than the neighboring cities of Montebello (8:07 minutes), Monterey Park (7:48 minutes), San Gabriel (6:45 minutes), and Alhambra (6:54 minutes). The Fir e Department has 4 fire stations, 2 HazMat units, 8 fire engines, 2 paramedic units, and 2 urban search and rescue units. The Police Department s average response time is less than 3 minutes for Priority 1 calls, as compared to the as much as 6 minutes for the County Sheriff. All of Vernon s police officers are trained to handle offenses unique to an industrial community and are outfitted with the latest technology. Fiscal Year Police Employees 1 Fire Employees 2 Dispatch Employees 2005/ / / / / / / Includes Prisoner Care, Records Clerk and Secretary employees 2. Includes Administrative Assistant employees 2.2. Public Safety Costs The table below provides the historical public safety costs for the past six fiscal years: Fiscal Year Expenses for Public Safety Revenues for Public Safety Police Employees 1 Fire Employees 2 Dispatch Employees 2005/06 $19,163,951 $5,008, /07 20,333,160 4,430, /08 22,993,043 4,740, /09 25,198,861 1,632, / ,926,502 2,018, / ,690,047 1,286, Includes Prisoner Care, Records Clerk and Secretary employees 2. Includes Administrative Assistant employees 3. Amount includes department s medical insurance costs that were previously budgeted in another department in previous years, for accounting purposes. The estimates provided by the City show an approximate 2% annual increase in public safety costs. Accordingly, it is recommended that any new special tax methodology include an annual inflator of at least 2%. Special Tax Funding Option Report City of Vernon 2-1

9 2.3. Insurance Premium Response to Fire Department Level of Service The Vernon Chamber of Commerce attempted to determine the impact on property insurance premiums should the Vernon Fire Department be downgraded from its Class 1 rating to Class 2 or 3. The information obtained by the Chamber showed a possible increase in insurance premiums of 4% to 8% assuming a downgrade to Class 2 and 3 respectively. Special Tax Funding Option Report City of Vernon 2-2

10 3. PARCEL CHARACTERISTICS The City of Vernon covers 5.2 square miles south of downtown Los Angeles. There are approximately 1,743 parcels within the City boundaries. Those parcels are almost exclusively industrial in use code, which is to be expected given the City s motto, Exclusively Industrial Property Use Types Use Code (1) Use Description Parcels % of Parcels 3300 Industrial - Warehousing % 8100 Miscellaneous - utility, pumping plant, state assessed % 3100 Industrial - Light Manufacturing % 300V Industrial - Vacant % 3200 Industrial - Heavy Manufacturing % 3400 Industrial - Food Processing Plant % 8800 Government Owned % 3800 Industrial - Parking Lot % 2700 Commercial - Parking % 1700 Commercial - Office/Professional Building % 3900 Industrial - Open Storage % 2600 Commercial - Auto, Equipment Sales % 3700 Industrial -Mineral Processing 9 0.5% 3010 Industrial - Miscellaneous 8 0.5% 2500 Commercial - Service Station 8 0.5% 1100 Commercial - Store 7 0.4% 2100 Commercial - Restaurant 7 0.4% 100V Vacant Commercial 5 0.3% 2300 Commercial - Bank 3 0.2% 300L Industrial - Lift 2 0.1% 0100 Residential - Single Family 1 0.1% 0200 Residential - Duplex 1 0.1% 850L Miscellaneous - Rights of ways - Lift 1 0.1% 4010 Irrigated Farm - Private rural pumping plant 1 0.1% 7102 Instructional - church 1 0.1% 30T0 Industrial - Tower 1 0.1% 3350 Industrial - Public Storage 1 0.1% 3600 Industrial - Lumber Yard 1 0.1% 1410 Commercial - Super Market 1 0.1% 2670 Commercial - Auto Service - no gas 1 0.1% (1) Combined in some cases No Use Code Assigned % Special Tax Funding Option Report City of Vernon 3-3

11 3.2. Top Property Owners by Assessed Value The following table shows the top ten property owners within the City, by total assessed value: Customer Total Assessed Value 1 Acreage Number of Parcels CLOUGHERTY PACKING CO $115,663, LBA REALTY FUND III COMPANY IV G LLC 67,100, SEVEN UP RC BOTTLING CO OF SO CALIF INC 54,135, BAKER COMMODITIES INC 52,807, CATELLUS FINANCE 1 LLC 48,990, MARS PETCARE US INC 45,380, KINROSS HOLDING LLC & PREF FREEZER SRVCS LB 42,949, MOBIL OIL CORP 42,889, NL VENTURES VI HANNIBAL LLC 39,685, NORAN COMPANY 36,472, Total Assessed Value is the Total Value from the Los Angeles County Secured Roll as of January 1, Top Property Owners by Acreage The following table shows the top ten property owners within the City, by acreage: Customer Acreage Total Assessed Value 1 Number of Parcels A T AND S F RY CO $900, L A CO FLOOD CONTROL DIST , L A JUNCTION RY CO L A CITY DEPT OF WATER AND POWER ,547, VERNON CITY ,284, MOBIL OIL CORP ,889, UNION PAC R R CO OWENS GLASS ,664, LBA REALTY FUND III COMPANY IV G LLC ,100, CENTURY CAST PLATE INC ,192, Total Assessed Value is the Total Value from the Los Angeles County Secured Roll as of January 1, Owens Glass includes parcels under Owens Illinois Glass and Owens Brockway Glass ownership. Special Tax Funding Option Report City of Vernon 3-4

12 3.4. Railroad Parcels Several railroads run through the City. The City attempted to levy the railroad parcels during the formation of the warehouse parcel tax, but the railroad companies refused, citing that they were exempt from the parcel tax. The matter was settled and has resulted in an annual payment from the BNSF Railroad Company to the City in the amount of approximately $500,000. The City desires to levy railroad parcels under any scenario imposing a tax/assessment upon property owners. One option may be a levy upon possessory interests. Los Angeles County maintains a database of possessory interests, assigns values, and produces tax bills for those interests. The possessory interest number (PIN) represents a leasehold interest that a private entity holds upon a piece of land owned by a government agency. If private companies are leasing land owned by the federal government in order to operate their enterprise, it is possible they have been assigned PINs. Also, several parcels owned by BNSF have State Board of Equalization (SBE) numbers and thus taxes can be submitted on the SBE roll via the Los Angeles County Auditor. Generally government-owned parcels are exempt from the levy of special taxes. It may be necessary, as funding solutions are identified, to acquire a legal opinion on the levy of possessory interest numbers. In addition, given that NBS is unaware of the exact terms of the settlement reached for the railroad parcels, it will be necessary for legal counsel to ensure that these parcels can be included in any of the proposed funding options, as well as if the City forfeits any of the annually paid $500, Existing Warehouse Parcel Tax The City currently levies an annual special tax upon certain parcels within the City. The 2010/11 special tax levy was imposed upon 456 parcels or portions thereof throughout the City for a total levy of $8,812, Currently, the parcel tax rate is $0.26 per square foot, and the City anticipates the rate to increase for 2012/13 to $0.28 per square foot. There is no geographic concentration of parcels subject to the special tax. The City currently imposes a parcel tax on properties used for warehouses, truck terminals, freight terminals, railroad facilities, and distribution facilities for the City s construction, improvement, and maintenance of streets, bridges, and rights-of-way. The special tax revenues were originally designated for street maintenance, but in 2009 a new ordinance was passed allowing the City to use the special taxes to pay for police and fire protection services Residential Parcels There are currently 2 parcels with a residential property use type and 1 parcel with a church property use type. These 3 parcels are not included in the scenarios provided. It is the City s intention to exempt these use types from a parcel tax Registered Voters Per the Los Angeles County Registrar of Voters, there are currently 74 registered voters within the City of Vernon. Special Tax Funding Option Report City of Vernon 3-5

13 4. UTILITY CHARACTERISTICS About half of California s residents live in a city or a county that levies a Utility User Tax (UUT). A UUT is assessed on the consumer of one or more of the following services: electricity, gas, cable television, water, and telephone. Most of the 146 cities and 4 counties with UUTs adopted them by a vote of the city council (or county board of supervisors) prior to A county can impose a UUT on the parcels in the unincorporated areas within its jurisdiction. Los Angeles County is one of four counties that impose a UUT. A UUT is collected as part of the regular utility billing procedure. Currently, the City of Vernon does not have a UUT on the gas or electricity utilities being provided. The imposition of a UUT would require compliance with Article XIIIC of the Constitution. The approval threshold is 2/3 voter approval for a special tax (where the use of the funds is specific) or a majority voter approval for a general tax (funds go to the general fund for non-defined uses). Alternatively, an A/B advisory vote strategy can be used. This method structures the UUT as a general tax requiring only majority voter approval, but is paired with another measure (an advisory measure ) regarding the specific use of the funds. All UUTs in California are designated as a general tax except for the City of Desert Hot Springs UUT approved in On average, the UUT provides 15% of general purpose revenue in cities that levy it. UUT revenues commonly fund police, fire, parks, and library services. Most entities imposing a UUT levy both residential and non-residential property, sometimes with differing rates for the two categories. From 2002 through 2008, 30 proposals for new or increased UUTs were placed before voters. Just six of the 30 passed. Several of Vernon s neighboring cities impose a UUT. Below are some sample UUT rates for those cities. City Electricity (Commercial) Rates Gas (Commercial) Bell 10.00% 10.00% Huntington Park 7.00% 7.00% Los Angeles 10.00% 10.00% Maywood 7.00% 7.00% Santa Fe Springs 5.00% 5.00% Special Tax Funding Option Report City of Vernon 4-1

14 4.1. Top Utility Users The following lists the top 10 electric utility customers, based on their KWH for the period between July 2010 and June Customer Customer Number Current Period KWJ MATHESON TRI GAS ,342,749 OWENS ILLINOIS INC ,429,540 CLOUGHERTY PACKING ,066,770 REHRIG PACIFIC CO ,693,602 EXIDE TECHNOLOGIES ,533,724 OVERHILL FARMS INC ,092,355 P W P INDUSTRIES ,752,620 SERVICE PACKING, DBA ,448,346 CROWN POLY INC ,649,180 PABCO PAPER PRODUCTS CO ,437, Utility Rates The Vernon Light & Power Department s electrical power system provides reliable services and costs up to 30% less than other nearby utility providers. Vernon s natural gas distribution system also provides savings of 10% to 30% over the private utility alternatives in the City. Effective December 1, 2009, the City increased its electric rates 4.7% for electrical energy distributed and supplied by the City within its boundaries. According to the City s 2009/10 CAFR, the Light & Power charges for electricity service totaled $118,589,706. The charges for service related to gas totaled $50,541,903. However, a large portion of gas revenues are from the sale of natural gas to the Sacramento Municipal Utility District (SMUD). In June 2011, the City Council approved a two-stage light and power adjustment for the City s utility customers. The electric rates increased 8% effective July 2011 and 8% effective January Special Tax Funding Option Report City of Vernon 4-2

15 5. SCENARIOS 5.1. Scenarios Special Tax Formulas NBS evaluated several formulas using a variety of property characteristics. The non-residential property within the City s boundaries provide a blend of commercial, industrial and governmental uses that come in a variety of parcel sizes, building sizes, shapes, and formats. Therefore, a combination of factors had been considered in the scenarios presented. Various property characteristics which could be used in the special tax formula include parcel size, building size, land use, etc. Given that the funds generated from the levy and collection of the tax revenue are to help offset the General Fund shortfall, including police and fire protection services, it was determined that parcel size and building size are the most appropriate factors, and have been used as the primary variables in the development of the special tax formulas. The parcels within the City s boundaries have been categorized into four major categories: commercial, industrial, non-taxable railroad, and non-taxable. The parcels were assigned to each category based upon the County s land use designation. There are some railroad and public agency (i.e. LA City Department of Water and Power) parcels included within the industrial category, since the County has assigned these parcels an industrial land use code. Further, all residential property has been assigned to the non-taxable category. The following is a summary of the four parcel categories, along with the parcel count, lot square footage and building square footage for all parcels within the City: Property Type Parcel Count Lot Square Footage % of Lot Square Footage Building Square Footage % of Building Square Footage Commercial 106 3,156, % 473, % Industrial 1,253 99,439, % 47,516, % Non-Taxable Railroad ,219, % 26, % Non-Taxable ,211, % 56, % Totals: 1, ,026, % 48,072, % Non-taxable railroad properties are those railroad parcels where the County has assigned a nontaxable land use designation. This category does not include the railroad property with an industrial land use designation. Those railroad properties are included in the industrial category and evaluated in all scenarios. NBS evaluated several special tax formulas using flat rate options, tiered options, and minimum levy amounts. The various models generated also considered both maintaining and dissolving the existing warehouse parcel tax. The special tax formulas were directed at securing funding to support essential government services including public safety, health, public works and capital improvements at their current level. The following summarizes various special tax formulas analyzed: Special Tax Funding Option City of Vernon 5-1

16 Special Tax formula based upon lot square footage o Special tax amount levied 100% upon lot square footage Special Tax formula based upon lot square footage and building square footage o Special tax amounts levied 50% upon lot square footage and 50% upon building square footage o Special tax amounts levied 25% upon lot square footage and 75% upon building square footage o Special tax formula based upon a lot square footage rate and a building square footage rate that results in a more level percentage increase to the overall property tax bills. While there can be no relationship between the special tax formula and the assessed value of the property, which corresponds to the annual property taxes paid, this scenario utilized the 2010/11 secured property tax amounts as part of the special tax rate development. Special Tax formula based upon a tiered rate structure for both lot square footage and building square footage. The tiered rate structure recognizes certain economies of scale achieved with the larger parcels and structures. o Varying rates depending on lot and building size: Lot size less than or equal to 75,000 square feet per lot square foot Lot size greater than 75,001 square feet per lot square foot Building size less than or equal to 25,000 square feet per building square foot Building size between 25,001 and 100,000 square feet per building square foot Building size greater than 100,001 square feet per building square foot o Special tax formula based upon tiered lot square footage rates and building square footage rates that result in a more level percentage increase to the overall property tax bills. While there can be no relationship between the special tax formula and the assessed value of the property, which corresponds to the annual property taxes paid, this scenario utilized the 2010/11 secured property tax amounts as part of the special tax rate development. Special Tax formula with a minimum special tax of $500 for each taxable parcel plus an additional lot square footage and building square footage special tax components. Special Tax Funding Option City of Vernon 5-2

17 5.2. Scenarios Utility User Tax NBS reviewed the monthly utility billings between July 2009 and June Specifically, NBS examined a Utility User Tax (UUT) on the gas and electricity services, as well as the impact of implementing a UUT on the top paying customers. A UUT may only be instituted by a vote of registered voters. The following shows the estimated revenues that would be generated from a UUT for gas and electricity use. The table below shows the estimated revenues on a monthly and annual basis, with a Utility User s Tax between 1% and 5%. Please note, the projected revenue below does not take into account the recent increases in utility rates. Electricity Gas Average Monthly Revenue Average Annual Total Revenue Average Billing $9,700, $390, $10,090, $121,080, % UUT 97, , , ,210, % UUT 194, , , ,421, % UUT 291, , , ,632, % UUT 388, , , ,843, % UUT 485, , , ,054, Given the recent increases in utility rates, creating a UUT would add an additional burden to current utility customers. After review and discussion, City Staff has decided against moving forward with implementing a UUT. Special Tax Funding Option City of Vernon 5-3

18 6. FUNDING SOLUTION PARCEL TAX The City has decided to maintain the existing warehouse parcel tax. Therefore, it was determined that the most consistent method would be to create a new parcel tax that would levy all parcels, based on lot square footage, that were not currently being levied the existing warehouse parcel tax (or whose portion of lot square footage was not being levied). This would create a uniform way in which all parcels within the City are being levied a special tax. The proposed special tax rate is as follows: Tax Rate Category $16M Budget Tax Rate Total Taxable Lot Square Footage 1 Lot square footage per lot square foot $ ,424, Total Taxable Lot Square Footage includes the portion of lot square footage (10,008,757.04) of parcels within the existing warehouse parcel tax that is not being levied. The City has a total of 1,359 taxable parcels within its boundaries; of those parcels 1,059 are included in the proposed parcel tax. The remaining 308 parcels are levied the existing warehouse parcel tax at 100% of their lot square footage. There are 144 parcels within the existing warehouse parcel tax that are currently being levied for only a portion of their total lot square footage. These parcels would also be included in the proposed parcel tax, but only the portion of the lot square footage that is not being levied the existing warehouse parcel tax would be levied the proposed parcel tax. For example, if a parcel has a total of 50,000 lot square feet and 75% (37,500 square feet) is being levied for the existing warehouse parcel tax, then the remaining 25% (12,500 square feet) would be levied the proposed parcel tax. The proposed special tax rate will also include an annual cost of living inflator in order to take into account future increases in costs. In addition, on an annual basis prior to calculating the levy, City Staff will review the upcoming fiscal year projected expenses and determine the appropriate rate to levy the special tax so long as it does not exceed the maximum annual special tax rate approved by the voters. Applying the above tax rate to the parcels assigned to the commercial and industrial categories, the top 10 tax payers are shown in the following table: Special Tax Funding Option City of Vernon 6-4

19 Owner Parcel Count 1 Lot Square Footage Proposed Tax Amount Existing Warehouse Parcel Tax 2 L A CITY DEPT OF WATER AND POWER 20 1,938, $453, $0.00 MOBIL OIL CORP ,468, , , OWENS GLASS 4 5 1,261, , CENTURY CAST PLATE INC 4 1,170, , CLOUGHERTY PACKING COMPANY 3 1,020, , AMB VERNON INDUSTRIAL PARK LLC 3 949, , NL VENTURES VI HANNIBAL LLC 8 925, , VERNON CITY , , NORAN COMPANY 2 832, , MARS PETCARE US INC , , ALL OTHERS 1,243 57,154, ,364, ,673, TOTALS: 1,359 68,424, $16,000, $8,788, There are 1,359 taxable parcels within the City. 2. There are four parcels that are currently being levied the existing warehouse parcel tax, but fall under the non-assessable category for the proposed parcel tax. 3. Mobil Oil Corp owns 2 parcels that are levied a portion of their lot square footage for the existing warehouse parcel tax. For the 2 parcels the remaining square footage to be levied the proposed parcel tax is 314, square feet. 4. Owens Glass includes parcels under Owens Illinois Glass and Owens Brockway Glass ownership. Special Tax Funding Option City of Vernon 6-5

20 7. FINAL RECOMMENDATIONS After review of the various funding options, and the unique needs of the City, the City has decided to move forward and implement a new parcel tax. The following items need to be discussed and confirmed. City to determine formula to be used. Based on the scenarios and total general tax revenue to collect, City to determine the rates and formula preferred. Railroad parcels City to confirm with City Attorney or Counsel the ability to levy these parcels as well as any implications to current deal in place. Currently, parcels classified by the County as nontaxable railroad are not included in the proposed parcel tax. City to obtain legal guidance to ensure compliance with Code. City to continue to meet with business committee to discuss special tax and gain support of the business community and property owners. City to confirm cost of living inflator. City will need to address that if the proposed special tax is not approved, the City may need to reduce the level of essential services being provided. Timeline The following items must occur prior to the levying and placement of the special tax on the tax bill: February 21 st Council Meeting to give notice and declare time and place of public hearing. April 17 th Public Hearing Submittal of Resolution calling for the election must be submitted no less than 88 days prior to the election date. Mail ballot to be held on Tuesday July 24 th. Resolution by City Council declaring election results and resolution to levy and collect special tax. NBS will continue to assist the City in forming the proposed parcel tax and community outreach. The intent is to have the proposed parcel tax approved by the registered voters and City Council, and able to be placed on the upcoming 2012/13 County secured property tax roll. Special Tax Funding Option City of Vernon 7-1