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2014 CMRTA A NNUAL C ONFERENCE October 16, 2014 – 10 am Pleasanton, California

Presented by

Fran Mancia, Vice President of Government Relations

with special guest

Steve Shea, Senior Policy Consultant Office of the President Pro Tempore, Senator Darrel Steinberg, and former 4 th District BOE Member (2009) 1

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Welcome & What’s Happened Since Meeting Last October Introduction of Special Guest - Steve Shea (Office of President Pro Tempore) and former BOE Member 2014 California Legislative Review Congressional Review: Internet Tax Freedom Act; Marketplace Fairness Act; Preserving Proposition 218 Implementing AB 1717: UUT From Prepaid Wireless State Board of Equalization Tax Reform/ SB 983 (2014) Revenue and Facts “Balloting” Local Revenues and the EASE Principle 30 th Year for the FTB CBT/ 2019 Sunset Takeaways 2

2014 Legislative Review

Local Governance

Prohibits imposing a business license for certain care facilities. SB 1382 prohibits locals from imposing a business license, fee, or tax for the privilege of operating a facility licensed under the bill that serves six or fewer persons. (chaptered) Single-use carry out bags. SB 270 prohibits stores from providing single-use carryout bags beginning July 2015 (larger stores) and July 2016 (for convenience stores). Requires that stores make available recycled bags at a minimum of $0.10, with all funds used by the stores for compliance. (chaptered) California film and TV tax credit. AB 1893 extends the California Film Commission incentive program by five years, lifts the per-film budget tax credit limitation so that larger films may qualify, and offers new incentives to specific film and television production activities. (chaptered) Recycling: used mattresses. SB 1274 is a clean up bill to ensure that local governments recover cost associated with illegally disposed mattresses. (chaptered) Solar energy: permits. AB 2188 requires cities and counties to adopt an ordinance to create a permitting and inspection process for residential solar installations of less than 10 kilowatts. (chaptered) 3

2014 Legislative Review

Local Governance

License plate recognition systems. SB 893 stood to have unintended consequences for local governments and public parking authorities by placing restrictions and criteria on the use of Automated License Plate Recognition (ALPR) technologies.

The bill would have effected revenues collected through parking tickets and using the data for law enforcement purposes. A new bill, likely more palatable, focusing on what the usage of and a privacy policy will contain is expected in 2015.

MuniServices lead opposition and clarification to workable bill. (died) Regulating medical marijuana. SB 1262 was an effort by the League and police chiefs to make regulating medical marijuana subject to local jurisdictions with a specific focus on public safety. (died) Public outsourcing. HR 29 is non-binding yet included a likely end result limiting options for government agencies to determine the best solution for providing services to the public. MuniServices joined local governments, the California Chamber of Commerce, and others to oppose. (adopted) 4

2014 Legislative Review

Property Tax and Parcel Taxes

Parcel tax reports (transparency). AB 2109 requires the Controller to publish detail on local parcel taxes. (chaptered) Database on property tax revenues (transparency). AB 2211 would have required counties to make public the allocation of general ad valorem property tax revenues. (vetoed) Property tax/ VLF for territory annexed to cities. AB 1521 and SB 69 would have changed formulas for VLF adjustments to account for territory annexed into cities after 2004. MuniServices supported. (vetoed)

Prohibiting future PILOT’s (Payment In Lieu of Taxes). AB 1760

prohibits staring January, 2015 locals from entering into a PILOT agreement (payment of property taxes in exchange for developers’ low income housing exemption) with a property owner of a related project. (chaptered) Property tax postponement. AB 2231 reinstates the Senior Citizens and Disabled Citizens Property Tax Postponement program (chaptered) 5

2014 Legislative Review

Sales and Use Taxes

Extending the 2% transactions and use tax/ district tax. AB 1324 allows the City of El Cerrito to adopt an ordinance proposing a district tax that exceeds the 2% limitation. This legislation has spurred discussion of extending the current 2% limitation statewide. MuniServices supported. (chaptered) Local taxes: transactions and use taxes. AB 2119 authorizes a county board of supervisors to levy, increase, or extend a transactions and use tax (TUT) with voter approval for use in the county unincorporated area. MuniServices supported.

(chaptered)

Transportation sales tax revenues from toll facilities. AB 2250 requires that revenue generated from a managed lane administered by a local agency on a state highway be used in the corridor where it was generated. (chaptered) 6

2014 Legislative Review

Transitioning Redevelopment to Successor Agencies

Redevelopment successor agency plans. AB 1963 extends the date for the Department of Finance to January 1, 2016 to approve the successor agency’s long-range property management plan. MuniServices supported. (chaptered) Redevelopment bond proceeds issued prior to 2011. AB 2493 would have allowed successor agencies to use the bonds for affordable housing; SB 1129 would have allowed the proceeds to be used for projects with high paying jobs and expedite approval process. MuniServices supported. (vetoed) 7

2014 Legislative Review

Post RDA/ Economic Development

(JPA) Joint Powers Agency (IFD) Infrastructure Financing Districts (EIFD) Enhanced Infrastructure Financing District (IFRD) Infrastructure & Refinancing Financing Districts (BID) Business Improvement District

Military base reuse. AB 229 allows a military base reuse authority to form an IRFD for projects and facilities to clean up and develop former military bases.

(chaptered)

Raising revenues for JPA purposes. AB 2170 clarifies that JPA’s can raise revenues with voter approval for projects consistent with the purposes of the JPA. MuniServices supported. (chaptered) BID clarification. AB 2618 clarifies the law with respect to the Constitution and provides clarity to local governments using BID’s for economic development.

(chaptered)

Financing broadband. AB 2292 allows an IFD to finance public capital facilities or projects that include broadband. (chaptered) Financing public capital facilities. SB 628 allows locals to create an EIFD to finance public facilities/ projects of community-wide significance. (chaptered) Vehicle surcharge for bicycle infrastructure. SB 1183 allows a local agency to impose a voter approved surcharge up to $5 on vehicles to improve trails and bikeways. (chaptered) 8

2014 Legislative Review

Environmental Initiatives

AB 69 was a major piece of legislation at the end of the 2014 session that would have delayed cap-and-trade on fuels until 2018. Several oil and gas companies supported this legislation.

The State’s cap and trade regulations (AB 32) in January, 2015 will begin to apply to transportation fuels. Transportation fuels account for roughly 40 percent of California’s GHG emissions.

Zero and near-zero emission vehicles and car sharing in low income neighborhoods.

SB 1275 sets a goal of placing at least 1 million of these vehicles the road by 2023. Includes requirements for charging stations in the apartment buildings in lower income neighborhoods. (chaptered) Green stickers and use of carpool lanes. AB 2013 raises the cap on the Green Sticker program to allow electric vehicles in carpool lanes regardless of occupancy from 55,000 to 70,000 cars. (chaptered) Funding technology. SB 1204 establishes a program to fund technology for zero- and near-zero-emission trucks, buses and off-road vehicles. (chaptered) Permitting process for cities. AB 2188 requires cities and counties to establish an expedited permitting process for small residential rooftop solar panels. (chaptered) Regional plans for rises in sea level. AB 2516 create a state database of city, county and regional plans to deal with rises in sea level. (chaptered) 9

Congressional Review

ITFA (Internet Tax Freedom Act) MFA (Marketplace Fairness Act) MITFA (Marketplace Internet Tax Freedom Act)

What is the Internet Tax Freedom Act?

First passed in 1998 to ensure that access to the internet is not inhibited by taxation during the infancy of the internet. Has been reauthorized three times since 1998, most recently in 2007 and expires on 11/1/14.

What is the Marketplace Fairness Act?

Proposed legislation that would allow state and local governments to compel retailers to collect and remit sales taxes on online sales.

MFA is needed because consumers’ failure to pay online sales and use taxes results in the loss of approximately $23 billion in taxes to state and local governments every year. 1992 Supreme Court Case Quill Corp. v. North Dakota called on Congress to resolve this issue.

What is the Marketplace Internet Tax Freedom Act?

Proposed legislation that includes the MFA and a 10 year extension of the ITFA.

Source: Dustin McDonald, Vice President, Government Relations, GFOA

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Congressional Review

Local governments’ should advocate for exceptions for ‘voter approved local taxes’ in legislation approved by Congress.

ITFA, MFA and ITFA: 2013 to 2014

05/06/13 Senate Passed S 743, MFA 09/18/13 House Judiciary Committee Chairman Released Principles for House Legislation 02/05/14 Developing a new House MFA bill begins 03/12/14 House Judiciary Committee Hearing on MFA Issues

07/15/14

House passes (HR 3086), ITFA 07/15/14 Senate introduces MITFA (S 2609) MuniServices supported. 09/18/14 ITFA moratorium is added to ‘short-term’ spending bill

11/2014

Anticipate post-election Congressional activity 12/11/14 Expiration of Congressional ‘short-term’ spending bill (with ITFA)

Source: Dustin McDonald, Vice President, Government Relations, GFOA

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Utility Users Tax

Implementing AB 1717

Over 50% of new wireless services are prepaid. Consumers across all income levels are purchasing prepaid phones. In some cases the loss to cities is as high as 25% in the last three years.

Mechanism for collecting UUT revenue for prepaid wireless

AB 1717 is stakeholder crafted to ensure state and local surcharges & fees on prepaid wireless are properly captured and remitted appropriately while guaranteeing public safety. MuniServices was the lead local government stakeholder and supported. (chaptered) Potential revenue: The BOE estimates nearly $73 million of local revenue will be collected as a result of the bill. The actual collection and remittance on prepaid

wireless begins January 1, 2016.

Evaluation: The 2020 sunset provision, together with a reporting requirement of the BOE, will allow stakeholders to assess the cost effectiveness of the program and recommend any needed adjustments. Locals must enter into an agreement with

the BOE by September 15, 2015.

Reduced costs: The responsibilities of the BOE have been significantly reduced by requiring the wireless carriers to directly remit the state and local taxes to those taxing jurisdictions. Implementation webinars are being scheduled. Contact Fran Mancia for detail. 12

State Board of Equalization

Why cities should look at the BOE as a partner

    The BOE is more than a local sales tax administrator BOE decisions on rules and regulations, allocation cases, and more affect a city’s finances and revenues Policy decisions include and go beyond enforcement, the underground economy, and collection tools BOE determines costs for programs and revenue forecasts

Opportunities and resources

   Access to Board-prepared forecasting tools Attend local and regional meetings Local government and consumer friendly website ( www.boe.ca.gov

)

Who’s on deck for the BOE and State Controller’s race

  Current The November 2014 Election 13

Tax Reform

SB 983 led to a broader discussion on revenue sharing & the current tax structure .

“Any changes to the current system should be carefully weighed both for potential benefits as well as negative impacts on those agencies that have made decisions and rely on revenue based upon existing rules.” - League of Cities Revenue and Tax Committee

Proposed SB 983 (2014) shifts the point of sale for a card local system from the place where the sale was negotiated to the ‘point of delivery of fuel to the vehicle.’ If SB 983 becomes law this may open the door to other bills being introduced in the future that redistribute Bradley- Burns sales tax, further destabilizing a jurisdiction’s revenue base. MuniServices led educational effort

for cities’ on the bill’s implication.

League’s Internal Sales Tax Working Group

    Sales tax agreements, SB 27 from 2009 (proposed amendments to prohibit future agreements that shift money away from local agencies (Doesn’t affect existing agreements going forward) Leakage from internet sales. (Federal Marketplace Fairness Act) Allocate more $ from county pools based on destination. ($500 thousand to $10,000?) Sales tax distribution from changing market--remote sales in California (CA based internet sales) (possibly split 75/25) 14

Tax Reform

“We have an outdated tax system. ” “I am interested in trying to bring more fairness into the system and more stability.”

-Betty Yee

Symptom of a bigger problem

California has an outdated local tax system. Cities are faced with a shrinking Economic base to fund basic services. SB 983 is the pursuit of a legislative remedy over what amounts to the revenue generated by a gas station (without a convenience store).

Bradley-Burns and the current tax structure

Bradley-Burns was put in place in 1955 that worked when shopping took place mostly in storefronts. The current sales tax structure only taxes 30% of the true tax base, which creates a challenge for true economic development and the maintenance of local control.

Proposition 1A and State Constitution

Proposition 1A (March 2004) restricts the ability of the state to reduce local sales tax rates or alter the method of allocation; and restricts the state’s ability to shift local property taxes between schools and non-school local governments. Any significant changes to the allocation methods for Bradley-Burns sales taxes or shifts in local sales and property taxes would require changes to the Constitution.

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Local “Balloting” In November of 2014 there are over 200 local ballot measures. In November 2013 there was about 35.

Is this a trend or case for tax reform?

November 2014 vs. November 2013

Bonds ( 5) / School Bonds (113) (10 in November 2013) Business License (6) (2 in November 2013) Hotel Tax (12) (2 in November 2013) Marijuana Tax (9) Mining Tax (1) Sales Taxes (52) (6 in November 2013) Soda Taxes (2) Utility Users Taxes (15) (2 in November 2013) Card Room Tax (1) Parcel Tax (40) (9 in November 2013) Pension/ Property Tax from former RDA (1) Property Transfer Tax (2) Vehicle Tax (1) Miscellaneous (22) (1 in November 2013) Oil (1 in November 2013) 16

Revenue Facts and Trends

In about a decade, a cohort born between the early 1980s and just past the millennium will make up 75 percent of the workforce. - Brookings Institution

Challenges and Conditions

    Retail will change more in the next five years than it has in the last 50 (Chris Donnelly, Accenture) E-commerce is doubling in size every five years. Expect that rate to increase California’s recovery continues at a slow pace Financial and economic impact from drought conditions

Statewide Annualized Sales Tax Growth by Sector

Department Stores Apparel Stores Restaurants Food Markets Service Stations 0.1% 4.0% 6.1% 1.7% -1.2% New Auto Sales Leasing Business to Business Construction

Total

9.7% 9.9% 3.3% 5.2%

3.7%

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EASE: Evaluating the local revenue source

The EASE principles

Equity: The tax burden falls equally across all businesses and / or individuals. Administrative: Minimizing the cost of compliance on taxpayers, minimizing the cost to the City to enforce the tax policy and maximize taxpayer compliance. Stability: Focuses on how the tax in question would affect the volatility of the revenue.

Economic Benefits: The tax promotes the City’s economic objectives with minimum disruption to the taxpayer 18

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CBT 30

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Anniversary in 2014!

Currently about 107 cities are participating

“The program has helped the City Increase business license fee compliance” -Letter of Support

19          1984 (state mandate) FTB sponsored legislation mandating cities to annually report information obtained from businesses they licensed 1999 (mandate repealed) FTB contacted cities directly in 2000-01 to purchase business tax data. About 350 cities sold data to the FTB while others could not because there was no longer a state law; confidentiality restrictions in their own municipal code prohibited providing the State the data 2000 (AB 63 and SB 1146 legislation re-establishes CBT) Authorized the FTB to disclose to city tax officials who execute an agreement with the FTB certain information regarding local business taxpayers. CMRTA sponsored AB 63 to create the first opportunity for cities to obtain data from the FTB. AB 63 obligated cities to pay the FTB’s costs in providing their data; many cities desirous of the FTB’s data could not afford to pay the FTB fees 2008 (SB 1146 extended sunset) Extended CBT sunset to January 1, 2014 2010 (proposed SB 1036 would have expanded CBT to more city participation) SB 1036 would have allowed cities to contract with third parties 2012 (SB 211 extends CBT sunset to 2019) Despite support of the Legislature and several cities, the bill was stripped of language allowing local governments the option to contract with third parties 2014 CBT 30 year Anniversary with approximately 109 participating cities 2014 to 2018 Threats of eliminating funding exist; work on expanding CBT to allow increased city participation 2019 CBT sunset unless extended

Takeaways

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 CBT – Beyond 2019  Consider the EASE principles when evaluating options for revenues  Don’t need to reinvent – look at what other cities are doing (for example www.transformgov.org)  Leverage outside help – other ways to generate revenue; public-private partnerships work  Consider the future State BOE and Controller  Consider the opportunity through AB 1717 20

Government Relations Team

Fran Mancia, VP of Government Relations

P: 800.800.8181 (5013) E: [email protected]

Brenda Narayan, Director of Government Relations/ In-House Lobbyist

P: 800.800.8181 (5014) E: [email protected]

Glen Everroad, Special Projects

P: 949.874.4786

E: [email protected]

League of California Cities Building 1400 K Street, Suite 301 Sacramento, CA 95814

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