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Home My WebLink About0423.093" September 16. 1993 THE HONORABLE CITY COUNCIL Palo Alto, california Attention: Finan~e comaittee maala Of CTILl" psps TAl TO XnpSTA'1'I Nm IIITeRBM'IOpl DLIPJIOIII eNcLQ Members of the Council: Mpart; J.a Iri.( Tbe current city of Pelo Alto utility user tex (UUT) of 5 pe~cent is applied to intrastate telephone calls only. Since the tax vas adopted in November 1987# interpretation of the law has changed to allow this tax to apply to interstate and international telephone calls. staff e.stiJlates that the extension of this tax could produce between $400,000 and $600,000 per year in additional \JUT revenues. Staff recommends that Council consider the extensio~ of the. 'OUT during the 1994-96 bud.get process, &6 a way to aid in implementing the C~bberley Master Plan. Iagqr0'U14 On Noveaber ., 1987, the voters ot Palo Alto passed the UUT (Measure S). The tax becaBe effective on November 2,7, 1.987, and currently raises approximately $5.7 million, of Which $1.5 million COID85 fro. telsphone usaqe. Of that S.LS million, less than $250 1 000 is attributable to lonq-distance calls within Calitornia~ At the time the UUT was i~posed, the City Attorney's Office advised that the tax could be applied only to intrastate telephone callS. Municipal Code section 2.35.090 currently i.poses a 5 percent tax upon avery person in the City using intrastate telephone communica tions services. CMR:423:93 .. :. ... ~ ...... LIqIl clarifiCAtion Sino. the city o.f Palo Alto adopted the UUT., the O. S. Supreme Court has rulad, in Goldberq V. Sweet (1989)~ that the law allows the tax to be applied to interstate and international telephone calls~ The case. ruling affirmed the constitutionality of the Illinois TelecollUDunications ~cise Tax Act. which levies a 5 percent tax on interstate and intrastate telecommunications oriqinatinq or terminatinq in Illinois and charyed to an Illinois service address, reqardless of where the telephone call was billed or paid. Based on this U. S. Supreme Court ruling, ~ther cities are now extendin~ their tax. citt •• 'axing xAter.tat. ag4 tAt'm,tio na ! ftles0.aunic,tions AttacbBent A shows that 38 California cities imposed a OUT on interstate and international telecommunications service as of August 24, 1992. In santa Clara County, only CUpertino applied its OUT to interstate and international telephone calls, beqinninq in the sprinq of 1993. CUpertino staff have not been able to confirm the additional revenue from e~en4inq the tmT; but based on the first wonth of actual revenue, estimates are that CUpertino will qain $200.000 additional revenue per year. IabJ.l pbon •• several cities are con~iderinq changing their tax to include mobil or cellular phone calls~ Staff believes that the administrative costs of trying to tax these phone calls would be very high and the revenue would be low. Therefore, staff is not recommendinq a tax on these calls at this ti.e. 1o!:9Iltial Revenue. frow. lrtep,iOP The City of Palo Alto currently receives approximately $1.5 million annually from telephone companies; approximately 60 percent is paid by Pacific Bell, whicb will not be impacted by the chanqe, since the co.pany handles only calls within california~ staff has worked with AT'T t MCr and Sprint to estimate the impact of imposinq the City's 5 percent UUT on interstate and international telephone calls. The telephone companies could provide estimates based only on past experience. The three companies provided the followinq infor.ation reqarding the telephone hills for calendar year 1992: CMR:423:93 2 . · , ~ Interstate. Includinq Only Extension Type CUrrent of cmp.pany of Call AP!.9JJnt Billed CUT Tax TaX' BaRe AT'T Intrastete $2,936,212 $146,811 Interstate 2,297,038 $114,852 Internationa.l 1. 1546.343 82,)17 Total 6,880,193 146 1 811 1-97,199 sprint Int:-astate 932,4.93 4.1,625 Interstate 2 .. 170,180 108,509 J:nternational .~~ 29.01.3 Total 1,582,935 41,625 137,522 HCI Intrastate 81:3:,440 40 t 672 Interstate 725,0.00 36,250 International 670,000 33,500 Total 2,208,440 40,672 69,750 'lotal 'Revenue $12,671,568 $229,108 $404,411 Phone company esti~tes show that approximately $400,000 of additional revenue could be raised annually from exte.nding the City's UUT to interstate and international phone calls (not countinq any add~tional income from the other, smaller long distance carriers). Given the experience of other cities, the estimate from the three telephone companies appears low. The City of Alameda, 'Which recantly expanded its 1J"t1T to interstate and international calls I has raised almost $1 million aore revenue annually. Along with the $200,000 in additional revenue fro~ the smaller city of Cupertino, this suqqests that there may ...... 811 be Rare than $400,000 in new revenue for Palo Alto. Therefore, staff estimates that this change would increase the UUT revenue by at least $400,000 and perhaps as much as $600,000 per year. When the utility users tax was approved by the voters in November 19&1, the revenues were to be used for a var iety of purpos.es, includinq repair of sidewalks, street improvements, and lease CI!R:423:93 3 payments t~ the Palo Alto unifiQd SChool District (PAUSD) for City usa of surplus school $ites~ In 1990, the City and PAUSD entered into a Lease and covenant Not to Develop# whioh provided for the lease or the former CUb~rley School site, oS covenant not to develop f'ive Bct'~ool sites, and payment for on-site chilc!care facilities at eleven additional Palo Alto school sites~ currently the utility users tax revenue# plus the revenues from long-term and hourly leases at CUbberley, are used for: street and sid~walJc programs; the. PAUSD lease and childcare leases; and Cubberley operations. Tbe CUbber~ey Master Plan was created with the long-range objective of developinq an attractive and functional coamunity center at the ~ley site. Approved by cou~cil in May 1~91, the Plan included ever $18 million in capital improvements. The current ten-year projections estimate that there will be an annual operatinq ·surplus-averaqinq approximately $700.000 per year that can be used toward implement~tion of the Maste~ Plan (Attach~ent B)~ There has also been a great deal of discussion at the council level recently, related to the Economic Futura study and the last few hudget.s,. about wether the City capital improvement program has kept up with infrastructure needs. There is a separate informa tional report in this Finance C01lUllittee packet on historical capital project program spendinq. The concept of an extension of the UUT was raised at a recent Ecor.omic O".JtlooK. Committee meet:inq, and business leaders r.,.ised the possibility of dedicating the proceeds, Which can be reasonably expected to come primarily fro. business entities~ to inrrastructure replacement. If the council were to approve the extension of the telephone OUT, the additional revenues could be used for any General Fund purpose, since the ~~ is a general as opposed to a speCial tax. If the council were to determine that the additional revenues should be used in the same way as the original OUT was allocated, the amended 10 year UU'l' forecast (Attachment C) shows an additional $11.2 million over 10 years that would be made a\~ailable. Beco_e.nd,ltieD: Staff recommends that the COUncil direr:t staff to prepare the necessary changes to the OUT to include interstate and intern~tion al calls, review the tax change with the Economic outlook Committee in october, and return to the Finance Committee as part of the 1994-96 budget, CI!R:42J:93 " • Respectfully submitted, /~ ;-;.~f Gordon B ~ Ford .~11:::q .. Je" • r . ~ 1'_ nee~- J ft1J~ i~y lfanaqer U CMR:423:93 5 1 2 3 4 S fi 7 8 9 II) 11 12 13 14 15 16 "17 U 19 20 21 22 23 2C 25 26 27 28 29 30 31 32 33 34 35 36 31 38 CALIFORNIA CITIES IMPOSING A UUT ON INTERSTATE AND INTERNATIONAL TELECCMMUNICATION SERVICES AS OF 8/24/92: percentage Rate Alhambra Anahei. Arcadia BaIc2win Park ~kel.y Burbank calabassas CUdahy CUlver city Paly City DinUba 11 Cerrito Xl llo.n.te Hidden Hills Huntington Beach lnqle",ood Long Beach Loa A11lJli tos Los Anqeles Malibu Modesta Montclair Monterey Park (res J\) Oakland Pasadena ParaJllount Pomona Richmond Sa.craJllel'lto San Bernaaino san Francisco (sunsets 6/)0/93) San Leandro Santa Ana santa Monica Seal Beach She~art oaks Stockton Torrance Average Mean 5.00 2.00 5.00 3.00 7.50 7.00 5.00 4.00 11.00 5.0t) 7.00 8.00 3.00 10.00 5.00 10.00 10.00 6.00 10.00 5.00 6.00 5.00 5.50 6.80 7.85 1.00 10.00 6.00 7.50 8.50 6.50 6.00 5.00 9.50 5.00 10.00 7.80 6.50 6.55 6.50 source: AT&T2 CMR:42J:93 < AnACIIIiEIfT 8 . LONG RANGE UTILITY USERS TAX PROJECTION 11182·83 1993·94 1994-95 18es.ge 1_87 1997..gt 1~911-118 19l18-2000 2D00-2oo1l!OO1.2OO2 TOTAl. BUDGET BA~eE FOl\WAAO 485 523 567 729 1,107 1,705 2,551 3,429 4,803 5,733 48S REVENUES CIlyUHIIlet 4,112 4,2oa 4,443 4,714 4,957. 5,308 5,577 6,050 8,1ae 8.836 52,311 T./ephane 1,485 1,530 1,545 1,580 1,576 1,592 1,608 1,62A 1,640 1,856 15,81e Cubberl.V Rental Income 1,240 1,351 1,366 1,431 1,469 1,516 1,558 1,608 1,049 1,657 14,661 FUr'jdr.lllng 70 35 70 70 70 70 70 70 70 595 Total Rwvenue 6,907 7,069 7,40. 7,835 8,072 6,546 6,811 9,350 9,555 10,019 63,593 • EXPENDI11JRES P"""'"""toPAUSO: Cubberley lease 3,029 3,140 3,241 3.345 3,451 3,5'12 3,676 3,79" 3,915 4,040 35,192 Covenant not to Oevelop 1,088 1,117 1.152 1.H'~ 1.226 1,266 1,307 1,3"8 1,3.1 1,4~ 12,519 Child Care Slte1l 341 351 362 373 385 397 4'0 424 437 451 3,931 Subtotal PAUSO 4,458 4,608 4,755 4,906 5,063 5,225 5,393 5,566 5,742 5,926 51,043 Depertmenfal expenditures: LUIISf!I Management 78 54 56 58 61 64 67 70 73 78 656 .>,,, .... ",,,,..,..-'_''' .. M':;<:t<:-,c·,,-..... ;·,·· • .1 CubbtJrley Maintenance 627 1,183 1,236 1,282 1,350 , ,0410 1,'74 1,540 1,6'0 1,662 13,404 Cubbertey PRlOfa .... S9S 585 ~ Chlk1 Care Coordination 110 ,,0 '. Subtotal 1,411 1,237 1,202 1,350 1,4" 1,47' 1,5'" 1,610 1,683 1,758 14,767 street& & Sidewalk Malnt 1,000 1,000 1.000 I,Q(I() 1,000 1,000 1,000 1.000 1,000 1,000 10,000 Othor CIP (Cubborlov) 200 200 200 600 Totlll Expendltutel 6,668 7,045 1,247 7,456 7,474 7,700 7,934 8,176 8,42S 8,685 77,010 REVENUE-'!XPENDITURES 36 •• 182 378 5~5 646 878 1,174 1,130 1,335 6,583 BALANCE 523 567 729 1,101 1,705 2,551 3,429 ',603 5.733 7,068 7,008 I.1TACIIIEJIT C LONG RANGE UTILITY USERS TAX PROJECTION 1992·93 lP93·94 II)94·gS 1995.1le 1990-97 1907-8$ 1888-91 \99$-2000 2000-2Otl, ~OOI.2002 TOTAL BLlI)(l.ET IlAUNCE ~ORW4F1D 48~ 523 567 1,229 2,112 3,220 4,581 5,979 7,&78 9,338 485 REVENUES CIIy UIIIIlle. 4,112 4,208 4,443 4,774 4,957 5,368 5,577 6,050 a,llle 6,636 52,321 Tele.phone 1,485 1,530 2,045 2,005 2,086 2,107 2,128 2,149 2,170 2,192 19.957 Cubb"dey Rentallnaome 1,240 ',351 1,388 1,431 1,489 1,518 1,556 1,806 1,649 1,657 14,861 Fun<tf1liolnu 70 35 70 70 70 70 70 70 70 595 • ToteJ Revonue a,SOl 7,089 7,909 8,340 8,582 9,061 9,331 9,875 In,oS5 10,555 87,734 EXPENDITURES Paymonts to PAUSD: Cllbbe~.y""" 3,028 l,UO 3,~41 3,345 3,451 3,562 3,878 3,794 3,915 4,040 35,192 Covtthant l10t to Dl!lvslop 1,088 1,117 1,152 1,189 1,22~ 1,266 1,307 1,348 1,391 1,438 12,519 Child Cara Sftes 341 351 362 373 385 397 410 424 437 451 3,931 Subtotal PAUSD 4,458 4,608 4,755 4,908 5,063 5,225 5,393 5,565 5,742 5,926 51,643 Olftpartmunlal Ewpendllures: Le"" Management 79 54 56 59 61 6~ 67 70 73 76 658 Cubberley Maintenance 627 1,183 1,236 1,292 1,350 1,,'0 1,474 1,540 1,610 1,682 13.404 Cubberley Progr.ms 595 595 {~ Child Care Coordination 110 110 Subto1a1 1,411 1,237 1,"92 1,350 1,411 1.414 1,541 1,610 t,683 1,758 14,767 " '1~'~,&-i:.r;.;J"M1f;,.1P\1:';t:.~.,,::,",;_~~ Streets & Sldewal~ Memt 1,\JOO 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 10,000 'tf'''' ""'~~,.' -, "if~" ,,' .. ,~ Other CIP (Cubbe~oy) 200 200 200 600 I· ' ,:,~,-C),\>~UiJrMl';; ',l ~1'";J!J , ',~ t' ,)\;,,,':'.11''''.,_'''_',,, Tolal Expendltur .. B,8eg 7,045 7,247 7,456 " 7,47' 7,700 7,934 8,176 8,0425 .,685 n,010 REVENUE~PENorrURES 38 44 662 883 1,108 1,:361 1,398 1,699 1,680 1,871 10,724 BALANCE 523 567 1.129 2,112 3,220 4,581 5,979 7,818 9,338 11,209 11,209 . .