This is an informational report to provide additional information regarding the City Council’s direction to staff at the October 22, 2019 City Council meeting. Since the October 22, 2019 City Council meeting, many questions have been presented to staff regarding the tax rate and the tax term. This informational report aims to provide an analysis on a $175 per parcel rate for the most common residential parcel annually for eight years with annual inflation adjustments. Staff is not requesting any action as a result of this report. The components of this report will include:

• The impact of inflation on the Public Safety Parcel Tax;
•  Fiscal impact of $175 per parcel tax rate on police services;
•  The benefits an eight year term can provide to the City’s fiscal stability;
•  The impact the City Council’s direction has on the City’s ability to achieve the City Council’s Priorities identified in the Strategic Plan.

Alignment with the Strategic Plan

City Council action to extend the Public Safety Parcel Tax implements Strategic Plan Goal A: Foster fiscal health through disciplined long-term planning, cost control, heightened efficiency, increased revenue and cost recovery; and Strategy 2: Determine the level of reauthorization of the public safety parcel tax and develop an informational plan.

The City Council provided direction to the City Attorney on October 22, 2019 to prepare an ordinance for placement on the March 3, 2020 Primary Election ballot to extend the Public Safety Parcel Tax for eight years, indexed to the Consumer Price Index (CPI) and not less than three percent annual escalation, with a new base rate of $175 for a 5,000 to 9,999 square foot residential parcel.  The 5,000 to 9,999 square foot residential parcel is the most common sized parcel in Union City and is used throughout this report as the base tax rate for ease of understanding. The tax rate for all other residential and commercial parcels is attached as Attachment 1.   The projected tax rates for eight years assume an annual three percent escalation.

Since the October 22, 2019 City Council meeting, staff has provided additional information to the City Council regarding the impact of inflation to the Public Safety Parcel Tax, the benefit an eight year tax term has on the City’s fiscal stability and the potential for the City to further achieve the City Council’s Priorities identified in the Strategic Plan.  Attachment 2 was provided to the Council and illustrates the impact of inflation on the Public Safety Parcel Tax.  Additionally, a request was made by a City Council Member since the October 22, 2019 meeting to provide information on what tax increase amount is needed to fund one additional police officer (Attachment 3).

The next step is for the City Council to consider the adoption of a resolution to place a ballot measure on the March 3, 2020 Primary ballot. The resolution will accompany an ordinance for the voters to consider providing for a $175 per parcel rate for the most common residential parcel annually for eight years with annual inflation adjustments. In order to meet the legal requirement for a March 3 ballot measure placement, the City Council must make this decision at their November 26, 2019 City Council meeting. It should be noted that City Council’s vote on November 26 will not impose a tax on residents, but rather will provide an option for voters to consider a new tax rate. If approved by two-thirds of the voters, the new tax rate will be reflected on the 2021/2022 property tax bills.

Impact of Inflation on the Public Safety Parcel Tax

In 2004, voters adopted the original Measure K Public Safety Parcel Tax that was indexed to CPI.  A renewal of the Public Safety Parcel Tax (also known as Measure K) was rejected June 2008, which would have increased the Public Safety Parcel Tax rate by 64 percent, extend the term of the tax 20 years, and indexed the tax to CPI. 

The City Council placed a modified measure on the November 2008 ballot known as Measure UU. The revised measure extended the Public Safety Parcel Tax eight years, increased the tax rate from $106.30 to $125.64 per 5,000 square foot residential parcel, an increase of 16 percent specifically to provide $500,000 a year to fund Youth and Family Services, and limited the increase in the tax rate to no more than 2 percent annually. Measure UU passed with 73.25 percent support.

The City Council placed and voters approved Measure QQ in November 2016, which continued the tax rate set under Measure UU for an additional four years and continued the two percent limit on the annual escalation in the parcel tax rate. 

In the several years since 2008, CPI has been higher than two percent annually.  Had the Public Safety Parcel Tax been indexed to full CPI, rather than a limit to a maximum of two percent annually, the tax rate for a 5,000 square foot residential parcel would be $169.65 in tax year 20/21 and $174.74 in tax year 21/22.

Fiscal Impact of a $175 Per Parcel Tax Rate on Police Services

Funding from the Public Safety Parcel tax is dedicated to funding police, fire, and youth and family services. Through the budgeting process, the Council has the authority to determine how to direct these funds. Currently, the YFS program receives approximately $600,000 a year and the remainder is generally split between police and fire services. Historically, the Union City Police Department had funding for 81 sworn police officers in FY 08/09.  In FY 19/20 there is funding for 77 police officers.  The reduction in police staff can be partially attributed to the Public Safety Parcel Tax not being indexed to full CPI.

A base tax rate of $175 per 5,000 square foot residential parcel is equivalent to an increase of $1.42 a month and would fund two additional police officer positions, which is the equivalent of adding 26 extra police shifts a month.  The $175 tax rate would allow the Police Department to further achieve public safety priorities identified in the Strategic Plan, including homelessness and community engagement with residents and businesses. Without the two additional police officers, it will be challenging to make progress on public safety priorities identified in the Strategic Plan.

Benefits of an Eight-Year Term

The eight-year term provides stability to the long-term financial planning for the City, and is consistent with the 10-year financial planning horizon of the City Council. During the eight-year term of the parcel tax, the City will pay off pension obligation bonds in 2026 and eliminate debt.  This will free up more revenue to pay for City services. It is one of the City’s strategic goals that the pay-off of debt combined with the continued implementation of other fiscal stability measures over eight years will improve the City’s financial health and reduce the City’s long-term structural deficit.

Strategic Plan Implementation

The City Council adopted its five-year Strategic Plan in early October 2019. Out of the 59 strategies identified in the plan, the following strategies align with the City Council’s decision to renew local public safety funding through placement of a Public Safety Parcel Tax on the March 3 Primary ballot:

•  Goal A, Strategy 2: Determine the level of reauthorization of the public safety parcel tax and develop an informational plan. 
•  Goal C, Strategy 13: Align public safety services with community needs based on data driven decision-making approaches

If the voters approve a $175 per parcel tax rate, the additional funding will allow the City to pursue the following Strategic Plan strategies:

•  Goal C, Strategy 3: Develop a multi-departmental approach to address homelessness through coordination with staff, community organizations and Alameda County.
•  Goal E: Build strong connections with community partners, residents and employees.

Conclusion

In summary, staff has determined that the City Council direction with a new base parcel tax rate of $175 for  the most common residential parcel is the rate where the parcel tax would have been in tax year 21/22 had the Public Safety Parcel Tax measure been indexed to CPI.  A per parcel rate of $175 can provide two additional police officers, which will allow the City to achieve the City Council’s priorities, namely addressing homelessness and enhancing community outreach. An eight-year term will take us to the finish line of paying off a significant City debt in 2026.

The ordinance that is being prepared by the City Attorney reflecting the direction of the City Council at the October 22, 2019 meeting will generate $5 million in FY 21/22 and $6.2 million in FY 28/29 for police, fire, and the YFS programs.

There is no recommendation to consider as this was an informational report to provide further analysis of the Public Safety Parcel Tax rate and term.