what is the utility user's tax? - Moreno Valley

MODERNIZING THE CITY’SUTILITY USER’S TAX ORDINANCEa presentation to theMoreno ValleyNoon Rotary ClubOctober 7, 20081

THE PURPOSE OF THIS PRESENTATIONThe City has a responsibility to educate thecommunity about issues that impact Citygovernment and the lives of its residents andbusinesses2

THE PURPOSE OF THIS PRESENTATIONAn important Utility User’s s Tax measure will appearon the November 4, 2008 General Election ballot.If approved by the Moreno Valley voters, it will:• Reduce the tax rate from 6% to 5.75% on all utilityservices• Apply the UUT equally to users of differenttelecommunications technology• Prevent the potential loss of up to $5 million inGeneral Fund revenue3

WHAT IS THE UTILITY USER’S TAX?• A 6% general tax applied to utility bills ofresidents and businesses on consumption ofutility services• A general tax used for a variety of services atthe discretion of the City Council• Levied by the City, collected by each utility as apart of its regular billing procedure, and thenremitted to the City4

ON WHICH UTILITIES IS THE TAX LEVIED?• ELECTRICITY5

ON WHICH UTILITIES IS THE TAX LEVIED?• NATURAL GAS6

ON WHICH UTILITIES IS THE TAX LEVIED?• WATER7

ON WHICH UTILITIES IS THE TAX LEVIED?• CABLE TV8

ON WHICH UTILITIES IS THE TAX LEVIED?• TELEPHONE9

ON WHICH UTILITIES IS THE TAX LEVIED?• And CELLULAR PHONE10

WHY WAS THEUTILITY USER’S TAX IMPLEMENTED?Implemented in 1991 due to:• rapid City growth and limited and decliningrevenues because of economic recession• continued and permanent take-awaysaways of localrevenue by the State of California11

wWHAT WERE SOME OF THE STATE’STAKE-AWAYS OF LOCAL REVENUES?Liquor LicenseFees1981Financial Aid toLocal AgenciesBank In-Lieu1981Highway CarriersUniformBusiness Tax1981Business InventoryExemption Reimb.1984Vehicle Code Fines1988Cigarette Tax1990Property TaxAdmin. Charges1991ERAF1992Trailer CoachMobile Home Fees1992Vehicle License Fees2003ERAF and Sales Tax2004Booking Fees200412

FACTS ABOUT THE EXISTING UUT• Approved by Moreno Valley voters in November,1996• Currently provides 19% of General Fund revenue,about $16.5 million• Provides funding for numerous City services,including: police, fire, paramedics, school crossingguards, animal control, libraries and street and parkmaintenance, and others13

UTILITY USER’S TAX REVENUECOMPONENT BY UTILITY PROVIDER(based on actual FY 2006-07)Water$2,337,22415%Natural Gas$1,717,80611%Cable TV$812,7485%Electricity$5,742,98838%Telecom$4,852,52631%14

UUT AS A PERCENTAGE OF THE TOTALGENERAL FUND REVENUE BUDGETGeneral FundFiscal Year 2008-09 Budgeted Revenues$88,689,000Fines & Forfeitures$1,000,000 1%Investment Income$5,381,000 6%Development Services$8,044,000 9%Other Revenues$3,346,000 4%Utility Users Tax$16,500,000 19%Parking Control Fees$1,300,000 1%Property Tax$14,300,000 16%Franchise Fees$4,800,000 5%Gross Receipts Tax$1,000,000 1%Property Tax In-Lieu of VLF$17,400,000 20%Sales Tax & Property Tax In-Lieu of Sales Tax$13,000,000 15%Special Fees$1,668,000 2%Motor Vehicle License Fees$950,000 1%15

REASONS FOR NEW UUT ORDINANCE• Evolving technology in telecommunications andvideo services results in different tax treatment forthe same service depending on the technologyused• Recent changes in federal law call into questionwhether the City may continue to collect up to $5million of telecommunications UUT revenue16

EFFECT OF EVOLVING TECHNOLOGY• Since the UUT was adopted, new types oftelecommunications technology have beendeveloped• The new technology was not included in theexisting UUT ordinance• Persons who have the new technology are nottaxed• Persons who prefer or cannot afford newtechnology continue to use old technology and aretaxed17

EFFECT OF CHANGING FEDERAL LAW• Existing UUT ordinance, like many other cities,refers to the Federal Excise Tax• Federal Excise Tax has been partially repealedwith respect to some telephone services• Some service providers have argued that repealof Federal Excise Tax automatically repeals anylocal UUT referring to it• Litigation is ongoing throughout the State• Could result in City losing up to $5 Million in UUTrevenue18

FACTS ABOUT MORENO VALLEY’SGENERAL FUND REVENUES• FACT: : The City of Moreno Valley ranks lastamong California cities of over 100,000 populationin general revenue per capita• FACT: : Including the Utility User’s s Tax, the City ofMoreno Valley receives 47% of the average totalgeneral revenue per capita for cities over 100,000in population19

STATEWIDE REPORT: GENERAL FUNDREVENUE PER CAPITA FOR CITIES OVER100,000 POPULATION1. Berkeley5. Torrance10. Los Angeles15. San Jose20. Santa Rosa25. Orange30. Visalia35. Oxnard40. Santa Ana45. El Monte48. Moreno ValleyCityGeneral RevenuePer Capita$ 1,005$ 927$ 769$ 664$ 602$ 543$ 503$ 469$ 447$ 393$ 285Source: State Controller – 2005-06 Cities Annual Report – All cities over 100,000population that pay for their own police and fire services – 48 CITIES TOTAL20

ABOUT THE STATE CONTROLLER’S CITIESANNUAL REPORT• Has been produced since 1910 by the StateController’s s Office• It’s s verifiable, consistent, and includes all 480California cities’ revenue and expenditure data• 2005-06 06 Annual Report is latest available• Moreno Valley is one of 48 cities with populationsover 100,000 that pay for their own police and fireservices• Can do comparisons among these 48 cities usingper capita (per person) calculations21

FACTS ABOUT CALIFORNIA UUT RATES• Of 480 California cities, 146 have a UUT• Of 58 California counties, 4 have a UUTUUT RATE> 0% TO 1%> 1% TO 2%>2% TO 3%>3% TO 4%>4% TO 5%>5% TO 6%>6% TO 7%>7% TO 8%>8% TO 9%>9% TO 10%>10% TO 11%TOTALCOUNT25191443271513372150Mean = 5.5%Standard Dev = 2.1%Population Weighted Mean = 6.7%Source:CaliforniaCityFinance.com22

FACTS ABOUT OTHER CITIESMODERNIZING THEIR UUT ORDINANCES• Since 2006, residents of at least 20 Californiacities have voted to approve similar newordinances• Approximately 20 more cities have a similarmeasure on the November 4, 2008 ballot• Cities whose voters have approved similarordinances include: San Bernardino, Richmond,Huntington Park, Los Angeles, El Monte,Ventura, Gilroy, Hermosa Beach, Redwood City,Compton, Emeryville, Los Altos, Benicia andTulare23

EFFECT OF MODERNIZED UUT IF PASSED• New UUT ordinance, if passed, would:– reduce the tax rate from 6% to 5.75% on all utilityservices – electricity, gas, water, phone, cable TV– update the definitions related to telecommunications• Overall, the City would lose an estimated$170,000 in UUT revenue in the first year24

EFFECT OF MODERNIZED UUT IF PASSED• Effects on persons and businesses:– Those using “land line” and normal cellulartelephone services would receive reduction inmonthly UUT charges – most residents– Those using newer telecommunicationstechnology would be taxed ontelecommunications, but receive reduction inUUT on electricity, gas, and water25

MODERN UUT ORDINANCE WOULDSTILL PROVIDE FOR EXEMPTIONS• Qualifying* low-income persons are exempt• Exemptions are applied for on an annual basis• Exemption form is available on City Web siteunder “City Hall - On-line Forms”* Annual household income must be less than sixty-five(65) percent of the median family income for the County ofRiverside as most recently established by the U.S.Department of Housing and Urban Development26

EFFECT OF VOTERS NOT APPROVINGMODERN UUT ORDINANCE• The current UUT ordinance continues at 6.00%(no reduction to 5.75%)• Some persons would continue to be taxed ontelecommunications services and others wouldnot, depending on the technology used• The City could be subject to litigation and/or theloss of up to $5 million in revenue27

EFFECT OF VOTERS NOT APPROVINGMODERN UUT ORDINANCEFunding for some or all of the following programsand services may have to be reduced:• Police, fire and emergency services• Maintenance programs including street repair,tree trimming and graffiti removal• Animal control• Literacy programs, library staff and purchases ofnew books and computers• Non fee-supported programs of Parks &Community Services28

THE UUT BALLOT MEASURE• On August 5th, the City Council unanimouslyvoted to place the new UUT ordinance on theballot for the November 4, 2008 General Election• Passage of the measure by the voters wouldrequire a simple majority (50% + 1) of votes cast29

FOR MORE INFORMATION• Please visit the City of Moreno Valley Web site:www.moreno-valley.ca.us• Click on the “Utility User’s s Tax Information” link• Or call Steve Chapman, City Finance Director at(951) 413-3074307430