HomeMy WebLinkAboutStaff Report 9039
City of Palo Alto (ID # 9039)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 3/20/2018
City of Palo Alto Page 1
Summary Title: Initial Public Opinion Survey for Infrastructure Funding Needs
Title: Review of Options to Address Funding Gap for Infrastructure Plan
Projects, and Approval of Objectives and Elements of Initial Public Opinion
Survey Regarding Potential 201 8 Ballot Measure to Raise Revenue
From: City Manager
Lead Department: Administrative Services
Recommendation
Staff recommends that Finance Committee review options for addressing the funding gap for
the Infrastructure Plan projects, and approve the objectives and elements of an initial public
opinion survey regarding a potential ballot measure to raise revenue, as provided in
Attachment A.
Background
On February 6, 2018, Finance Committee discussed the next steps for addressing the existing
funding gap1 for the Council Infrastructure Plan projects. The Council Infrastructure Plan
includes the following nine projects:
Public Safety Building
Highway 101 Pedestrian/Bicycle Bridge
Bicycle/Pedestrian Plan Implementation
Charleston/Arastradero Corridor
Byxbee Park
California Avenue Parking Garage
Downtown Parking Garage
Fire Station 3 Replacement
Fire Station 4 Replacement
Committee members described the need to obtain public opinion research information on the
public’s support for a potential November 2018 ballot revenue measure to help address the
1 Information on the 2014 Council Infrastructure Plan funding gap is provided in the February 6, 2018 Finance
Committee report at https://www.cityofpaloalto.org/civicax/filebank/documents/63293
City of Palo Alto Page 2
funding gap. There was also an interest in determining the level of public support for funding
other “community asset” projects, such as the second phase of the new Junior Museum and
Zoo and implementation of elements of the Parks Master Plan. These projects are not currently
included in the Council Infrastructure Plan. Committee members also requested a comparison
of Palo Alto’s tax rates compared to those of neighboring jurisdictions, and information on how
removing or deferring individual projects on the Council Infrastructure Plan would impact the
funding gap for the plan.
Discussion
Following the February 6, 2018 Finance Committee meeting, staff has continued to assess
available and expected new revenue sources to address the funding gap for the Council
Infrastructure Plan, and to develop approximate costs for implementing community asset
projects that are not currently part of the Infrastructure Plan.
Project Costs
The funding gap for the Council Infrastructure Plan, using current project cost estimates and
including a placeholder contingency of $20 million to ensure funding for any unanticipated
escalation in cost, is $76 million. Staff has included the following unbudgeted projects as
potential community asset projects:
• New Junior Museum and Zoo - Phase II
• New Animal Shelter
• Construction of priority projects in the Parks Master Plan
The estimated cost of these projects is $55-65 million. Table 1 summarizes these figures.
TABLE 1: Estimated Project Costs
Infrastructure Plan Gap (current estimates) $56 million
Contingency Funding for unanticipated future cost escalation $20 million
Infrastructure Plan Total $76 million
Junior Museum and Zoo Construction Phase II $5 million
New Animal Shelter (tentative estimate) $10-15 million
Parks Master Plan (priority projects, tentative estimate) $40-45 million
Community Assets Total $55-65 million
City of Palo Alto Page 3
Projected Project Funding Options
Staff have worked to identify multiple types of funding sources, ranging from current funding,
anticipated new funding, and potential revenue generating ballot measures. Below is a
summary of possible funding options. In addition to these funding options, Attachment B
outlines the estimated total project cost of each of the nine Council Infrastructure Plan projects
and estimates the savings that could be realized for each project if the project was eliminated
from the plan or deferred beyond the five-year CIP.
TABLE 2: Project Available or Anticipated Funding
Additional Parking In-Lieu Funds (Downtown Garage) $2.8 million
FY 2019 estimated SB1 funding (Charleston/Arastradero Project) $1.2 million
Other sources (Charleston/Arastradero Project) $1.7 million
Infrastructure Reserve (currently “scheduled annual” General Fund
transfer for CIP investment between FY 2019 – FY 2023)
$25-30 million
Available Funding Sources (w/o ballot measure) $31-36 million
New estimated Transient Occupancy Tax receipts/estimated debt
issuance (anticipated opening FY 2020, Marriott hotels)
$35 million
Additional hotel development Transient Occupancy Tax
receipts/estimated debt issuance (in entitlement process)
$10 - $12 million
Transportation Tax measures (SB1, Measure B, through FY 2023) $12 million
Sale of City of Palo Alto real estate assets (Middlefield lots) TBD
Anticipated Funding Sources (with less certainty) $57-59 million
As demonstrated in Table 2, it may be possible that sufficient funding sources may be available
over the current planned five-year Capital Improvement Program (CIP) to address the Council
Infrastructure Plan funding gap and $20 million contingency. However, there are risks and
uncertainties associated with the funds identified above, including:
Currently Measure B and SB1 are both facing challenges through litigation and a
referendum. The outcome of these proceedings is uncertain.
Additional TOT revenues are contingent on the development and construction of new
hotels and on timely opening of permitted facilities
The funding model assumes continued economic growth through the projected five-
year period (present through FY 2023); no recessionary or contraction in the economy is
presumed or modeled.
Identified funding above would exhaust all funding options and delay the City’s ability to
invest in any projects outside of the 2014 Council Infrastructure Plan projects.
As a result, this approach could reduce the flexibility of the City to respond to unforeseen,
urgent capital needs and limit the ability to begin work on the additional community asset
investment projects identified in this report over the next five years. In addition, execution of
the five-year CIP assumes current projects remain within budgeted levels and that there are no
new capital requests to those projects.
City of Palo Alto Page 4
Potential Revenue Generating Ballot Measure
In order to allow for more flexibility in the five-year CIP and beyond, a ballot measure could be
used to generate additional revenues. As discussed at the February 6, 2018 Finance
Committee, there are a number of types of revenue generating measures that could be
explored, including but not limited to a parcel tax, increased rates for the Transient Occupancy
Tax (TOT) or Documentary Transfer Tax, and an increase to the sales tax. The latest information
available for some of the key tax rates in California and a short summary for each potential type
of tax that could generate additional revenues is below. Attachment C provides more specific
rate details for the various cities surrounding Palo Alto and other parts of the state.
Transient Occupancy Tax (each 1-percent estimated $1.7 million annually)
Palo Alto has a TOT (hotel tax) rate of 14 percent of the room rate. This rate increased from 12
percent to 14 percent in 2014 as approved by the voters and is consistent with other
destination cities such as San Francisco, Oakland, Santa Monica and Beverly Hills. The highest
rate in the state is currently 15 percent in Anaheim and the median rate in the state is 10
percent per Californiacityfinance.com. Some cities have other taxes included in addition to the
hotel tax, such as tourism tax and/or convention center tax. For every 1 percent increase in the
tax rate, additional revenues of $1.7 million are estimated to be collected.
Documentary Transfer Tax (estimated $1.0 million to $3.8 million annually)
California’s Documentary Transfer Tax Act allows counties and cities to collect tax on
transactions that transfer real estate. In addition to the county rate, cities may impose
additional documentary transfer taxes. The amount that the city ma y impose depends on
whether the city is a charter city or a general law city. A charter city is a city in which the
governing system is defined by the city’s own charter instead of by California law. In general,
charter cities have authority over their municipal affairs and have greater ability to impose
taxes (subject to voter approval). We are a Charter City. Only about 20 percent of California
cities are charter cities.
Many of California’s 121 charter cities have enacted their own documentary transfer tax rates
which are typically articulated as a percentage or rate per $1,000 of property value. In Berkeley,
for example, the city documentary transfer tax rate is $15.00 for each $1,000 of property value ,
significantly higher than Palo Alto’s equivalent of $3.30 for each $1,000, and Santa Clara
County’s rate of $1.10 per $1,000 of property value. Typically, when a charter city imposes its
own tax rate in excess of the county’s tax rate, the county does not provide a credit for the city
tax. This means that the county and city property taxes in charter cities are cumulative. In Palo
Alto, property owners pay a total of $4.10 ($1.10 county rate plus $3.30 city rate) on each
$1,000 of property value transferred. In comparison to other Santa Clara County citie s, Palo
Alto’s rate is consistent with San Jose, and Mountain View, but higher than Sunnyvale and
Santa Clara which are at $0.55 per $1,000 even though they are charter cities. The City of San
Mateo is at 0.5% of the property value which translates to $5 p er $1,000. The County of
Alameda has an average rate of $11.00 per $1,000 for their cities.
City of Palo Alto Page 5
Cities that are not charter cities are known as general law cities. General law cities may impose
a transfer tax equal to one-half of the rate imposed by the county. When the general law city
imposes a tax, the county transfer tax is reduced by the amount of the city’s transfer tax so that
the amount that the taxpayer pays remains at 55 cents per $500 of property value or
consideration.
Depending on the amount of any increase in the tax rate, current collections are estimated to
generate an additional $1.0 million to $3.8 million. These estimates assume a rate of $3.80 per
$1,000 to $5.00 per $1,000 or a marginal increase between $0.50 and $1.70 per $1,000.
Utility Users Tax (estimated $1.4 million to $2.9 million annually)
This tax generally applies to utility services and the tax rate can vary depending on the utility or
commodity. To simplify comparisons to other jurisdictions, these various rates have been
grouped into “utilities” and “telecommunications.” In Palo Alto the utilities tax is 5.0 percent
and 4.75 percent for telecommunications. For cities in Santa Clara County that have a U tility
Users Tax (UUT) it ranges from 2 percent in Sunnyvale to 5 percent in Palo Alto and San Jose.
The highest in the region is Santa Cruz at 8.5 percent and the highest in California is Los Angeles
at 10 percent. Depending on the amount of any increase in the tax rate, current collections are
estimated to generate an additional $1.4 million to $2.9 million).
Sales and Use Tax Rates (estimated $5 million to $6.0 million annually)
The sales and use tax rate in Palo Alto is at 9 percent of which the City receives one percent
directly and is in line with most other cities in the County. (The State and County receive the
rest.) The Santa Clara and San Mateo county cities range from 8.75 percent to 9.25 percent
with the highest tax rate being in San Jose and Campbell. Assuming a 0.25 percent increase to
9.25 percent, current sales tax activity is estimated to generate an additional $5 million to $6
million annually.
City of Palo Alto Page 6
Potential Ballot Measure – Timeline
The City has contracted with Fairbank, Maslin, Maullin, Metz & Associates (FM3) to conduct
public opinion research on a potential ballot measure. Given Finance Committee’s interest in a
potential November 2018 ballot revenue measure, staff recommends that FM3 conduct an
initial survey, with an additional refinement survey if Finance Committee and Council wish to
follow up on the results of the initial survey. Table 1 outlines a schedule that provides for an
initial survey and a refinement survey, with a Council review of Finance Committee’s
recommendations for the refinement survey objectives and elements. (This schedule does not
anticipate City Council review of the initial survey objectives.) The schedule allows for Finance
Committee to bring a potential recommendation for a November 2018 ballot measure to
Council before the Council summer break, so that the remaining steps can occur in time to
meet the relevant election deadlines. This is a very constrained schedule that will require late
packet reports and assumes that decisions needed from Finance Committee and Council will be
made at the indicated meetings.
Table 3: Estimated schedule for consideration and preparation of ballot measure
Activity
Estimated
Schedule
Finance Committee approval of initial survey objectives March 20
FM3 conducts initial survey and compiles results March 26 – April 6
Finance Committee review of survey results and recommendation on
refinement survey objectives (late packet distribution)
April 17
Council approval of refinement survey objectives (late packet distribution) April 30
FM3 conducts refinement survey and compiles results May 7 – May 14
Finance Committee review of survey results and recommendation on
placing measure on ballot (late packet distribution)
May 30
Council takes policy action to place measure on the ballot (late packet
distribution)
June 11
Council adopts resolution of necessity June 11
Council adopts resolution calling election June 11
Deadline to submit election measure to County August 10
Election Day November 6
Timeline
Following completion of the public opinion survey, staff anticipates returning to Finance
Committee to review the survey results on April 17.
Resource Impact
The recommended actions in this report do not have a resource impact as costs associated with
polling are anticipated to be funded from FY 2018 budgets. However, the result of this process
will assist in informing the both the FY 2019 budget development and proposed funding for
various infrastructure investments.
City of Palo Alto Page 7
Additional Resources
Attachment A provides a high level overview of the objectives of an initial survey. The
proposed survey will focus primarily on potential revenue measures to help address the
estimated $76 million funding gap in the 2014 Council Infrastructure Plan, and on support for
the community asset projects described above. The survey will also assess a range of potential
levels of funding support for grade separation work.
Attachment B compares the estimated total project cost of each of the nine Council
Infrastructure Plan projects with the actual incurred costs to date, and estimates the savings
that could be realized for each project if the project was eliminated from the plan or deferred
beyond the five-year CIP.
Attachment C provides a summary of estimated revenue increases resulting from potential tax
measures, and a comparison of Palo Alto’s tax rates with those of neighboring communities.
Attachments:
Attachment A: Initial Survey Objectives
Attachment B: Project Costs and Potential Savings
Attachment C: Tax Rate Comparisons
12100 Wilshire Boulevard, Suite 350 | Los Angeles, CA 90025
Phone: (310) 828‐1183 | Fax: (310) 453‐6562
1999 Harrison St., Suite 2020 | Oakland, CA 94612
Phone: (510) 451‐9521 | Fax: (510) 451‐0384
TO Brad Eggleston and Claudia Keith
City of Palo Alto
FROM Dave Metz and Miranda Everitt
FM3 Research
RE: Summary of Objectives for Public Opinion Research
DATE March 6, 2018
This memo outlines objectives for our upcoming public opinion research among Palo Alto voters. The survey will
aim to determine:
General attitudes about conditions in the City, including the performance of City government
Perceived need for funding for City infrastructure projects generally
Which finance mechanisms, if any, are acceptable to voters as ways of funding needed infrastructure
improvements
Impact of pro and con arguments on support for those mechanisms
Willingness to pay for these improvements based on cost impacts at the household level
Ranking of the relative importance of specific infrastructure projects
Support for a major grade‐separation project, overall and with awareness of cost impacts
Where possible, we will track questions from prior surveys to assess changes in opinion over time. Using voter
file data and demographic questions, we will also determine differences in opinion by major demographic and
geographic subgroups within the City.
If you have any questions or if there is any further information we can provide, please do not hesitate to contact
us. You may reach us in our Oakland office as follows:
Dave Metz
Fairbank, Maslin, Maullin, Metz & Associates (FM3)
1999 Harrison Street, Suite 2020
Oakland, CA 94612
(510) 451‐9521 (Office)
dave@fm3research.com
Salaries and
Benefits
Design and
Construction
Project
Total
Salaries and
Benefits
Expended to
Date
Design and
Construction
Expended to
Date
Grants
and
Outside
Funding
Impact
and In-
Lieu fees
Estimated
Savings if
Project
Deferred
Public Safety Building $1.2 $91.0 $92.2 $0.4 $1.9 $89.9
California Avenue Garage $0.9 $40.4 $41.3 $0.1 $0.6 $40.5
Fire Station No. 3 $1.3 $8.6 $9.9 $0.6 $1.0 $8.4
Downtown Garage $1.0 $28.1 $29.1 $0.2 $0.4 $4.0 $24.4
Fire Station No. 4 $0.7 $7.5 $8.2 $8.2
Highway 101 Bike Bridge $2.2 $16.3 $18.5 $1.5 $2.0 $9.4 $5.7
Charleston/Arastradero Corridor $1.3 $14.6 $15.9 $0.6 $1.7 $1.5 $0.8 $11.4
Bike/Pedestrian Plan $0.8 $20.0 $20.8 $4.0 $0.2 $16.5
Byxbee Park $0.8 $2.8 $3.6 $0.1 $2.8 $0.6
* values stated in $ millions
Attachment B: Estimated Savings From Deferring/Eliminating Projects
Revised
Apil 15, 2017
Count 483
Mean 9.80%
Standard Deviation 1.85%
Median 10.00%
Minimum 3.50%
Maximum 15.00%
City County Rate
Anaheim Orange 15.0%
Garden Grove Orange 14.5%
Beverly Hills Los Angeles 14.0%
Culver City Los Angeles 14.0%
Healdsburg Sonoma 14.0%
Inglewood Los Angeles 14.0%
Los Angeles Los Angeles 14.0%
Oakland Alameda 14.0%
Palo Alto Santa Clara 14.0%
San Francisco San Francisco 14.0%
San Leandro Alameda 14.0%
Santa Monica Los Angeles 14.0%
Palm Springs Riverside 13.5%
Blythe Riverside 13.0%
Del Mar San Diego 13.0%
Indio Riverside 13.0%
Mammoth Lakes Mono 13.0%
Burlingame San Mateo 12.0%
Campbell Santa Clara 12.0%
Cupertino Santa Clara 12.0%
East Palo Alto San Mateo 12.0%
Los Gatos Santa Clara 12.0%
Menlo Park San Mateo 12.0%
Pacifica San Mateo 12.0%
Redwood City San Mateo 12.0%
San Bruno San Mateo 12.0%
San Mateo San Mateo 12.0%
Sunnyvale Santa Clara 10.5%
Mountain View Santa Clara 10.0%
Transient Occupancy Tax Rates
California Cities and Counties
SOURCE: CaliforniaCityFinance.com
SOURCE: CaliforniaCityFinance.com
California City Documentary and Property Transfer Tax Rates
CONTRA COSTA COUNTY $ 1.10 $ 1.10
RICHMOND Chartered $ 7.00 $ 1.10 $ 8.10
SAN MATEO COUNTY $ 1.10 $ 1.10
SAN MATEO Chartered 0.5% of value $ 1.10 $ 6.10
SANTA CLARA COUNTY $ 1.10 $ 1.10
CUPERTINO General Law $ 0.55 $ 0.55 $1.10
GILROY Chartered $ 0.55 $ 0.55 $ 1.10
LOS ALTOS General Law $ 0.55 $ 0.55 $1.10
LOS ALTOS HILLS General Law $ 0.55 $ 0.55 $1.10
MOUNTAIN VIEW Chartered $ 3.30 $ 1.10 $ 4.40
PALO ALTO Chartered $ 3.30 $ 1.10 $ 4.40
SAN JOSE Chartered $ 3.30 $ 1.10 $ 4.40
SANTA CLARA Chartered $ 0.55 $ 0.55 $ 1.10
SUNNYVALE Chartered $ 0.55 $ 0.55 $ 1.10
Governance
General Law or
Chartered
Per $1000 Property
Value City Rate
Per $1000 Property
County Rate
Per $1000 Property
Value Total
ALAMEDA COUNTY ALAMEDA $ 1.10 $ 1.10OUNTY
ALAMEDA Chartered $ 12.00 $ 1.10 $ 13.10
ALBANY Chartered $ 11.50 $ 1.10 $ 12.60
BERKELEY Chartered $ 15.00 $ 1.10 $ 16.10
EMERYVILLE Chartered $ 12.00 $ 1.10 $ 13.10
HAYWARD Chartered $ 4.50 $ 1.10 $ 5.60
OAKLAND Chartered $ 15.00 $ 1.10 $ 16.10
PIEDMONT Chartered $ 13.00 $ 1.10 $ 14.10
SAN LEANDRO Chartered $ 6.00 $ 1.10 $ 7.10
County City Telecommunications Utilities
Alameda Berkeley 7.5% 7.5%
Alameda Emeryville 5.5% 5.5%
Alameda Hayward 5.5% 5.5%
Contra Costa El Cerrito 8.0% 8.0%
Contra Costa Hercules 8.0% 8.0%
Contra Costa Richmond 9.5% 10.0%
Los Angeles Huntington Park 9.25% 9.5%
Los Angeles Inglewood 8.0% 8.0%
Los Angeles Irwindale 7.5% 7.5%
Los Angeles Los Angeles 9.0% 10.0%
Sacramento Sacramento 7.0% 7.0%
San Mateo Daly City 5.0% 5.0%
San Mateo East Palo Alto 5.0% 5.0%
San Mateo Menlo Park 2.5% 3.5%
San Mateo Redwood City 4.0% 5.0%
Santa Clara Cupertino 2.4% 2.4%
Santa Clara Los Altos 3.2% 3.2%
Santa Clara Mountain View 3.0% 3.0%
Santa Clara Palo Alto 4.75% 5.0%
Santa Clara San Jose 4.5% 5.0%
Santa Clara Sunnyvale 2.0% 2.0%
Santa Cruz Santa Cruz 8.5% 8.5%
Utility User Tax Rates ‐ Calif Cities ‐ updated January 2017
SOURCE: CaliforniaCityFinance.com
Almaden Valley 9.00% Santa Clara
Alviso (San Jose) 9.25% Santa Clara
Blossom Hill 9.00% Santa Clara
Blossom Valley 9.00% Santa Clara
Cambrian Park 9.00% Santa Clara
Campbell 9.25% Santa Clara
Coyote 9.00% Santa Clara
Cupertino 9.00% Santa Clara
Gilroy 9.00% Santa Clara
Holy City 9.00% Santa Clara
Lorre Estates 9.00% Santa Clara
Los Altos Hills 9.00% Santa Clara
Los Altos 9.00% Santa Clara
Los Gatos 9.00% Santa Clara
Milpitas 9.00% Santa Clara
Moffett Field 9.00% Santa Clara
Monta Vista 9.00% Santa Clara
Monte Sereno 9.00% Santa Clara
Morgan Hill 9.00% Santa Clara
Mount Hamilton 9.00% Santa Clara
Mountain View 9.00% Santa Clara
New Almaden 9.00% Santa Clara
Palo Alto 9.00% Santa Clara
Permanente 9.00% Santa Clara
Redwood Estates 9.00% Santa Clara
San Jose 9.25% Santa Clara
San Martin 9.00% Santa Clara
San Tomas 9.00% Santa Clara
Santa Clara 9.00% Santa Clara
Saratoga 9.00% Santa Clara
Stanford 9.00% Santa Clara
Sunnyvale 9.00% Santa Clara
Valley Fair 9.00% Santa Clara
Atherton 8.75% San Mateo
Belmont 9.25% San Mateo
Brisbane 8.75% San Mateo
Burlingame 8.75% San Mateo
Colma 8.75% San Mateo
San Mateo County
Santa Clara County
California City & County Sales & Use Tax Rates (effective October 1, 2017)
SOURCE: CaliforniaCityFinance.com
Daly City 8.75% San Mateo
East Palo Alto 9.25% San Mateo
El Granada 8.75% San Mateo
Emerald Hills (Redwood City) 8.75% San Mateo
Foster City 8.75% San Mateo
Half Moon Bay 8.75% San Mateo
Hillsborough 8.75% San Mateo
Hillsdale (San Mateo) 9.00% San Mateo
La Honda 8.75% San Mateo
Ladera 8.75% San Mateo
Loma Mar 8.75% San Mateo
Marsh Manor 8.75% San Mateo
Menlo Park 8.75% San Mateo
Millbrae 8.75% San Mateo
Montara 8.75% San Mateo
Moss Beach 8.75% San Mateo
Pacifica 8.75% San Mateo
Pescadero 8.75% San Mateo
Portola Valley 8.75% San Mateo
Redwood City 8.75% San Mateo
San Bruno 8.75% San Mateo
San Carlos 8.75% San Mateo
San Gregorio 8.75% San Mateo
San Mateo 9.00% San Mateo
South San Francisco 9.25% San Mateo
Woodside 8.75% San Mateo
SOURCE: CaliforniaCityFinance.com