At their December 16, 2009 meeting, the Finance and Operations Committee received an update from the Revenue Enhancement Workgroup regarding revenue enhancement possibilities, including a Countywide fee policy to ensure cost recovery, establishment of a Utility Users’ Tax (UUT) for unincorporated areas, an expanded business license tax, renewed efforts to pass Measures Q and R, and increasing Transient Occupancy Tax (TOT) from 10% to 12%. The Finance and Operations Committed directed staff to refer this matter to the full Board for discussion and possible direction to staff. This report provides a summary of the various revenue enhancement possibilities available to the County as well as a matrix prepared by County Counsel summarizing legal requirements for each type of enhancement.
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So that the Board is in the best position to evaluate revenue enhancement options, staff has performed the following work:
• The County’s A-87 Cost Plan consultant has completed a full cost plan for the County. The County Manager’s Office, through the Controller’s Office, has requested a proposal from the consultant to develop a uniform methodology for calculating fees based on full cost recovery. The methodology will be incorporated into a County Fee Policy and brought to the Finance and Operations Committee and Board for its consideration in June 2010.
• Review of the diverse and complex business license tax methodologies adopted by neighboring jurisdictions indicates the need to contract with a consulting firm specializing in tax measures to develop a recommended business license tax base and rate structure that would best suit San Mateo County’s business base.
• County Counsel has examined whether the County could increase its property transfer tax, which is codified in the Revenue and Tax Code section 11911 et seq., and determined that the County cannot increase the tax. Even though San Mateo is a charter county, its home rule powers are limited to "matters concerning the structure and operation of local government." This contrasts with charter cities whose home rule powers are substantially more expansive as they are given the power to "make and enforce all ordinances and regulations in respect to municipal affairs..." There is no corresponding grant of authority or autonomy over "county affairs" for charter counties. The revenue and tax code limits the amount to the $1.10 per $1,000 of property value currently collected and requires the County to share 50% of the proceeds with the cities in which the transactions occur. For transactions within the Unincorporated Area, the County retains the entire $1.10. Charter cities may raise the transfer tax amount by popular vote under Prop 218. There are two charter cities in the County – San Mateo and Redwood City. The City of San Mateo has increased its transfer tax and receives $5.00 per $1,000 of value and the County receives $1.10 per $1,000 of value. Absent the City of Redwood City amending its transfer tax, there are no opportunities for the County to increase this tax rate.
• County Counsel has prepared the attached matrix which outlines the legal authority, voting requirements and election timelines for five tax types: Utility Users Tax, Sales Tax, Business License Tax, Transient Occupancy Tax, and Franchise Fees.
As shown on the attached matrix, taxes levied for general purposes require simple majority approval and those levied for special purpose require two-third voter approval. Taxes imposed in unincorporated areas must be submitted to the countywide electorate. For a sales tax, however, the taxes are not only voted on countywide, but also imposed countywide. November 2009 election results provide an indicator of voter support for various tax measures. Voters in six San Mateo County cities approved an increase in Transient Occupancy Tax from 10% to 12%, making the County Unincorporated Area the only jurisdiction at 10%. Voters in Redwood City rejected an increase in the Business License Tax and Palo Alto voters rejected a new business license tax. Voters in San Mateo approved a 0.25% sales tax increase, while the electorate in San Carlos rejected a similar measure.
In regard to timing, if the Board determines that a tax measure will be placed on the ballot, potential election dates are June 8, 2010 and June 6, 2012. For the June 8, 2010 ballot, the Board would need to adopt a resolution calling for the election by March 12, 2010 to meet the 88-day requirement.
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The table below shows what a 1% tax (except sales tax, which shown at .25%) would generate, by tax type:
Utility Users Tax (Phone, Wireless, Electric, Gas, Water & Cable)
$2,000,000
Commercial Parking Facility Operators (Measure Q)
$500,000
Vehicle Rental Businesses (Measure R)
$3,000,000
Uniform Business License Tax
TBD*
Transient Occupancy Tax**
$100,000
Sales Tax (.25%)
$30,000,000
*Rates can be based on a number of variables, including gross revenue and number of employees, and may include rate and/or payment caps. The ultimate structure will largely determine the amount of tax generated. **Increasing the Transient Occupancy Tax from 10% to 12% would generate approximately $200,000 annually.
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