REPORT TO COUNCIL
SUBJECT
Title
Adopt a Resolution Ordering the Submission of a Ballot Measure to the Qualified Electors of the City; Calling for a Special Municipal Election to be Held in the City of Santa Clara on Tuesday, November 3, 2020 for the Purpose of Submitting to City Voters a Measure to Increase the Transient Occupancy Tax (TOT) Rate in an Amount Up to 4%; Requesting Consolidation with the Presidential General Election and Election Services from Santa Clara County; Directing the City Attorney to Prepare an Impartial Analysis; and Setting Priorities for Ballot Arguments [Council Pillar: Deliver and Enhance High Quality Efficient Services and Infrastructure]
Report
BACKGROUND
At the 2019 Council Priority Setting Session, the City’s Ten-Year Financial Forecast was presented to the City Council indicating ongoing deficits beginning in Years 3 and 4. The City Council requested that staff explore potential revenue measures and schedule a study session to further evaluate options. In addition, the Council authorized the City Manager to retain consultant services to assist with voter research and community engagement to determine the viability of any potential ballot measure. In February 2020, a study session on potential revenue strategies was presented to the City Council. Included in the presentation was a comparison of the City’s TOT rate which showed that Santa Clara was among the lowest in the area:
The Council directed staff to conduct voter research on two strategies: a general obligation bond and an increase in the transient occupancy tax (TOT) rate. The City contracted with the Lew Edwards Group (LEG) and EMC Research (EMC) to conduct voter research which included a multi-modal survey of 645 likely November 2020 voters conducted in English, Spanish, Chinese and Vietnamese during the week of May 12-18, 2020.
Survey results indicate that:
} Constituents continue to feel positively about the job the City of Santa Clara is doing;
} Many anticipate at least some personal financial impact in the coming months as a result of the COVID-19 pandemic;
} Constituents are not ready to support a bond at the level needed this year. LEG/EMC encourages the City to continue engaging its residents on these issues over the long-term; and
} Interest in a potential TOT measure to maintain/protect vital city services including disaster and emergency preparedness, street and pothole repair, and fire protection services is well above the simple majority (50% + 1 vote) needed for passage. (70% approval)
Based on the results of the survey and the Council discussion, it was agreed that staff would bring forward on July 14, 2020 additional discussion towards the placement of a measure on the November 3, 2020 General Election Ballot that would increase the TOT rate by an amount up to 4%.
DISCUSSION
This report details the necessary steps required to place a TOT measure on the November 3, 2020 general election ballot.
The proposed TOT rate increase is a general tax measure that requires approval by a simple majority (50% + 1 vote). If approved by voters, the additional revenue generated would be allocated to the City’s General Fund for general government purposes to maintain and protect essential City services such as 9-1-1 emergency medical/disaster preparedness, police and fire protection, bicycle and pedestrian safety, roadways and storm drains, and other vital services including but not limited to parks, recreation and library services. The following chart illustrates the additional revenue that would be generated based on percentage increases to the TOT rate. The table below reflects the projected rate of revenue based on the pre-COVID rates of hotel occupancy, events at the Santa Clara Convention Center and previous economic activity:
|
Transient Occupancy Tax Scenarios |
|
|
4% |
3% |
2% |
1% |
|
General Fund Revenue |
$7,000,000 |
$5,250,000 |
$3,500,000 |
$1,750,000 |
As noted in the FY 2020/21 budget presentation, an increase in revenue generation is a is a critical element of the City’s overall budget balancing strategy to close an on-going budget deficit estimated to be least $23 million-a TOT increase is a viable option. For this reason, it is recommended that the City Council consider placing a TOT measure on the November 3, 2020 General Election Ballot that would allow increases up to a 4% in the TOT rate. Given the impacts of COVID-19, it is important to note that any increase in the TOT rate will not restore pre-COVID revenue (or add new revenue) but will simply slow the pace of revenue loss. New revenue will be generated when the economy recovers to pre-COVID rates of occupancy.
At the July 14, 2020 Council meeting, it is recommended that the City Council consider placing a TOT measure on the November 3, 2020 General Election Ballot that would allow increases up to a 4% in the TOT rate. In order to generate new revenue, the City would need to experience a complete restoration of the former levels that the economy once generated. That scenario is not likely to happen over the next year and, based on recent information, the economy may take longer for full recovery. The “up to 4%” strategy is designed to allow the Council flexibility to set the rate by City ordinance and adjust it through an ordinance amendment process. This allows the City to act strategically going forward and adjust for market activity.
As part of this strategy, it is also important to recognize that the hospitality industry has been one of the hardest hit industries and is a critical partner in revenue generation for this TOT strategy. Without a strong Destination Marketing Organization (DMO) or Tourist Improvement District (TID), or until the economy is back to pre-COVID levels, it is unlikely that the TOT will generate the desired revenue. The DMO and TID provide sound guidance on the market activity with respect to adjustments to the TOT rate, as both have direct market participation in the hospitality industry.
As such, should the voters approve the measure, it is strongly recommended that the initial TOT increase be set at 2% and that further increases be established based on certain economic thresholds that demonstrate any increase would have a favorable revenue outcome (keeping in mind the economy and the ability to remain competitive in the hospitality industry). The City Manager has met with the DMO and TID separately, and in a joint DMO-TID meeting to discuss the City’s interest to advance a ballot measure. Staff is committed to working with the TID and DMO to ensure that future adjustments to the TOT rate are transparent and in the spirit of a strong, competitive local economy, that demonstrate our inter-dependent partnership and that strategically addresses our mutual economic needs. While ultimately the City Council has the complete taxing authority, it is important to recognize the market industry for which these tax revenues are generated.
Next Steps
In order to place an item before the voters, the Council must adopt a resolution. The attached draft resolution calls for the following:
1. Approval of the ballot language to be presented to the voters of the City of Santa Clara;
2. A Special Election to be held on November 3, 2020 and requesting consolidation with the Presidential General Election and the services of the Registrar of Voters to conduct the election;
3. Direction to the City Attorney to prepare an impartial analysis for the measure;
4. Direction on ballot arguments to the City Clerk to be printed in the Sample Ballot; and
5. Approval of a draft amendment to the Municipal Code to incorporate the proposed changes if the measure is approved by the voters.
Ballot Language
The State Elections Code Section 9051 requires that a ballot question not exceed 75 words. The proposed compliant ballot question is as follows:
“To maintain and protect the level of essential city services including 9-1-1 emergency medical/disaster preparedness, police and fire protection, bicycle and pedestrian safety, roadways and storm drains and other vital services including parks, recreation, libraries and senior services, shall a measure increasing the hotel rate up to 4%, generating up to 7 million dollars annually, paid only by hotel/motel guests, until ended by voters, be adopted?”
The revenue projection in the proposed ballot language is based on FY 2020/21 revenue projections from April 2020. Obviously, based on the rate set by the Council, and market recovery activity, the actual amount of revenue will differ.
Calling of an Election
As required by the State Elections Code, the City Council must adopt a resolution calling an election, requesting consolidation with the Presidential General Election and requesting the Registrar of Voters to provide election services. The attached resolution meets those requirements.
Impartial Analysis by the City Attorney
The State Elections Code Section 9280 authorizes the Council to direct the City Attorney to prepare an impartial analysis of the measure. This authorization is included in the attached resolution.
Ballot Arguments
State Elections Code Section 9282(b) provides for the filing of ballot measure arguments by the following: City Council or any member(s) of the Council authorized by the Council, any individual voter eligible to vote on the measure, bona fide association of citizens or any combination of voters and associations.
The City Council determines whether the Council or members of the Council authorized by the Council will draft the argument supporting the ballot measure or whether it will, instead, allow a third party to do so. The City Charter and the California Elections Code authorize, but do not require, the City Council to write the argument in support of the ballot measure. If the City Council chooses to write the ballot argument, it should designate a maximum of three Council members to draft the argument. These designees would prepare and sign the argument and submit it to the City Clerk. Alternatively, the Council may designate the Mayor to sign on behalf of the entire Council. A total of five individuals and/or organizations may sign the ballot argument and the Council may designate which individuals or organization fill any available signature slots. If the City Council decides not to draft the argument itself, any registered voter or bona fide association of citizens may submit a proposed argument to the City Clerk. If the City Clerk receives multiple proposed arguments, the City Clerk shall select one of the arguments in adherence to Elections Code Section 9287.
The City’s ballot measure resolution is due to the Registrar of Voters by August 7th; with arguments due by August 11th; and rebuttal arguments and impartial analysis due on August 19th. In order to meet these deadlines, the resolution is being brought forward for Council action on the July 14, 2020 agenda to allow for the required 14-day public comment period for arguments and the 10-day public comment period for rebuttals that must be completed before submission of the required documents to the Registrar of Voters. As such, in accordance with Elections Code Section 9285(a) the City Clerk as the local Elections Official has set the following deadlines: adoption of the ballot resolution on July 14, 2020; arguments due by 5:00 p.m. to the City Clerk’s office on July 28, 2020; rebuttals due by 5:00 p.m. to the City Clerk’s office on August 7, 2020. The City Attorney shall draft an impartial analysis on the measure, which is also due on Friday, August 7, 2020.
Draft Amendment to the Santa Clara Municipal Code Section 3.25.030
The proposed increase to the TOT requires an amendment to the City of Santa Clara Municipal Code and voter approval. The rate change would not take effect unless and until approved by a vote of at least 50% plus one of the voters voting on the questions at the election.
The proposed amendment is as follows (with new language shown in underline):
3.25.030 Tax imposed.
(a) For the privilege of occupancy in any hotel, each transient is subject to and shall pay a tax as imposed from time to time by City Council resolution. Said tax shall be a percentage of the rent charged by the operator to the occupant. An increase that exceeds ten percent of the rent charged by the operator shall be authorized only with an amendment to this section.
(b) On and as of July 22,1992 and continuing thereafter until further change by City Council resolution, the amount of the tax imposed is nine and one-half percent of the rent charged by the operator.
(c) On and as of January 1, 2021 and continuing thereafter until further change by City Council resolution, the amount of the tax imposed is eleven and one-half percent of the rent charged by the operator. As approved by voters, any future changes in the amount of tax imposed may be made by City Council resolution up to a cap of thirteen and one-half percent of the rent charged by the operator
(d) 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, or any person paying rent on the transient’s behalf, 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 paid with each installment. The unpaid 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 Director of Finance may require that such tax shall be paid directly to the Director of Finance. (Ord. 1847 § 2, 10-20-09).
Election Timing
To place a measure on the November 3, 2020 ballot, the Registrar of Voter’s deadline is August 7, 2020. This item is being considered on July 14, 2020 in order to allow sufficient time for arguments, rebuttals and preparation of the impartial analysis.
Community Outreach
Community Outreach was conducted with key stakeholder groups. The City Manager and City staff met with the TID Board on June 11th, the Silicon Valley/Santa Clara DMO, Inc. Board of Directors on June 22nd, and the TID and DMO Boards jointly on July 7th. The City Manager provided a brief presentation on the impact of the current public health and economic crisis on the City’s operations, shared potential cost control measures, and discussed and gathered feedback on the potential measure. The TID Advisory Board expressed concerns that a marked increase in the TOT (of more than 2%) would reduce the TID hotel competitiveness in the market by pushing the TID hotels into the highest overall hotel rates (average room night plus fees) compared to other destination cities, and would not allow room for a future change in the TID assessment from $1.00 per occupied room night to 1.5%. The TID Advisory Board further expressed the desire to generate funds that could fully support and sustain the new DMO to market Santa Clara throughout the tourism industry. Staff will continue to work collaboratively with the TID and DMO Boards on efforts to expand market reach and hotel occupancy.
Should the Council submit a ballot measure for the November 3, 2020 general election, a communications plan will be created that will leverage the recent “Prioritize Santa Clara” educational efforts as well as the City’s many public education channels including but not limited to:
• City website and e-notify
• Social media (Facebook, Twitter, Next Door, etc.)
• Government Access Channels
• Media Releases
• Ads in local and ethnic media outlets
• Mailers to Santa Clara likely voters
• Utility Bill Inserts
• Educational videos like those used in the Prioritize Santa Clara campaign
Likewise, engagement with the TID and DMO on future increases will continue to take place collaboratively where conditions of both the market industry and the City’s overall fiscal health are considered. If the Council conceptually supports this TOT ballot measure strategy, staff could continue to meet with both the TID and DMO during the Council recess and provide updates on these discussions with a formal report in either September or December, based on future Council and/or voter action.
Conclusion
The City anticipates a FY 2020/21 budget deficit in excess of $23 million dollars. Statistically valid community research showed strong support for an increase of up to 4% in the TOT rate (70%). Should the Council wish to place a measure on the November 3, 2020 General Municipal Election, appropriate documentation supporting formal action by the Council must be received by the Santa Clara County Registrar of Voters no later than August 7, 2020. The purpose of this report is to seek Council direction on the placement of a ballot measure to increase the TOT rate up to 4% on the November 3, 2020 ballot.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA guidelines section 15378(b)(5) in that it is a governmental organization or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
Based on recent (pre-Covid) projections, it is estimated that a 2-4% increase in the TOT rate would generate between $3.5-7 million dollars annually in additional revenue. The costs associated with placing a ballot measure and requesting the services of the Registrar of Voters of Santa Clara County to conduct the election is approximately $210,798. Additional expenditures of approximately $70,000 would be required for printing, translation services, publishing of notices and other related costs. Funding for these expenses is available in the FY 2020/21 budget.
COORDINATION
This report has been coordinated with the Finance Department and City Attorney’s Office.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov>.
ALTERNATIVES
1. Adopt a resolution ordering submission of a ballot measure to the qualified electors of the City; calling for a Special Municipal Election to be held in the City of Santa Clara on Tuesday, November 3, 2020 for the purpose of submitting to City voters a measure to increase the Transient Occupancy Tax Rate in an amount up to 4%; requesting consolidation with the Presidential General Election and election services from Santa Clara County; directing the City Attorney to prepare an impartial analysis; setting priorities for ballot arguments; and approval of the draft amendment to the Santa Clara City Code to incorporate the proposed changes if the measure is approved by the voters.
2. Other direction as approved by the City Council
RECOMMENDATION
Recommendation
Alternative 1:
Adopt a resolution ordering submission of a ballot measure to the qualified electors of the City; calling for a Special Municipal Election to be held in the City of Santa Clara on Tuesday, November 3, 2020 for the purpose of submitting to City voters a measure to increase the Transient Occupancy Tax Rate in an amount up to 4%; requesting consolidation with the Presidential General Election and election services from Santa Clara County; directing the City Attorney to prepare an impartial analysis; setting priorities for ballot arguments; and approval of the draft amendment to the Santa Clara City Code to incorporate the proposed changes if the measure is approved by the voters.
Staff
Reviewed by: Cynthia Bojorquez, Assistant City Manager
Approved by: Deanna Santana, City Manager
ATTACHMENTS
1. Resolution