Staff is seeking direction from the City Council as to whether staff and the consultant, TBWBH Props and Measures, should proceed with public informational efforts for the proposed ballot measure to extend the one-half cent sales tax.  Additionally, staff requests further direction including whether to proceed on preparation of a ballot measure for the November 2022 election.

Goal A. Financial Stability and Sustainability Foster fiscal health through disciplined long-term planning, cost control, heightened efficiency, increased revenue and cost recovery

Strategy 1. Study and prepare for placement of a revenue measure for the November 2022 election that addresses the expiration of the half-cent sales tax; or, prepare for $6 million in service cuts

At the April 26, 2022, City Council meeting, the City Council received the survey results from the Ad Hoc Subcommittee that worked with Godbe Research and TBWBH Props and Measures to conduct a community survey on voters’ attitudes to extend the existing local one-half cent sales tax.  A link to the staff report can be found here: April 26, 2022 Staff Report on Community Survey.   The March 2022 survey concluded that there was strong support (64.1%) to extend the one-half cent sales tax to fund public safety, street repairs, senior and youth programs, parks, and general government services.  The survey results also concluded that there was greater support for extension of the existing local sales tax ‘until ended by voters’ then the alterative time limited, twelve-year extension,, though both had strong support.   The Council also considered the next steps that would include a public information effort and Council action to place the a measure for voter consideration on the November 2022 ballot.

The Council discussed each of their perspectives at the April 26 meeting regarding the community survey results and whether to proceed with placing a measure on the ballot for voter consideration of the local sales tax extension, which will otherwise expire on April 1, 2025.  After Council discussion, it was clear that there was not support from four Councilmembers, at that time, to proceed placing an extension of the existing local sales tax on the ballot for voter consideration.  A supermajority (four votes) is required to place an general tax measure on the ballot for voter consideration. 

To help inform the discussion, staff prepared an exhibit, Projections of Known Revenues and Expiration of Revenues, to identify swings in the City’s budget that can be anticipated in the long-term.  Staff prepared this exhibit to help inform the City Council about election cycles (as general sales tax measures can only be considered at a general election), the termination of voter approved measures, as well as the retirement of bonds (pension obligation bond and the redevelopment agency bonds). See Attachment A.

In the next six years, Attachment A identifies an expected loss of up to $7.5 million with the expiration of the one-half cent sales tax in April 2025.  The Utility Users Tax (UUT), which is expected to contribute $5.5 million to the general fund, will expire in December 2028. There will be a positive impact when the pension obligation bond is retired in 2026, adding $3 million to the general fund in 2027.  However, the $3 million will not cover the gap of the $13 million generated by the voter-approved measures of the sales tax and the UUT. The long-range budget forecast, prepared by Management Partners, illustrates the fiscal uncertainty without the revenue from the voter-approved measures. In FY 2024-25 when the sales tax expires, the City will see a downturn in revenues and require significant cuts to maintain reserves absent an alternative revenue source. This information has been previously shared with the City Council and the Ad Hoc Subcommittee.

To address these losses in revenue and to maintain fiscal stability, the Council should consider placing for voter consideration an extension of the one-half cent sales tax now and the UUT in 2026.  To wait until 2024 for the one-half cent tax and 2028 for the UUT, will create a fiscal cliff with tremendous uncertainty.    Lack of certainty in revenue sources could slow the implementation of the Strategic Plan because of ongoing low staffing levels and the lack of financial resources. Unpredictability in the City’s revenue stream impacts long-range planning for the City and creates staff uncertainty.

Staff’s recommendation is to place for voter consideration the decision to extend the sales tax until ended by voters.  This received the most support in the community survey and would provide more long-term fiscal stability for the City.  The survey also tested 12 years because it extended beyond the ten-year planning horizon that the City has been using for financial modeling.  It is also far enough in the future to allow the Council to consider the UUT in the 2026 timeframe prior to its expiration in 2028.  The City Council could place a measure on the ballot for a shorter extension period, though if the time frame is too short it will hamper long-range financial planning and possibly interfere with other potential ballot measures.

In 2034 and 2039, the City will see an uptick in property taxes because the redevelopment agency bonds will be retired.  In 2022 dollars, the additional property taxes would be valued at about $3 million.

At the April 26 City Council meeting, it was also suggested to extend the sales tax at a lower rate. Staff does not recommend this approach because it reduces revenues without a known source of replacement funds and would create financial instability.

The Council has expressed concern about burdening local resident with the additional one-half cent sales tax.  However, when looking at the data, much of the sales tax is paid by patrons outside of Union City.  The attached  trade area map for Union Landing (Attachment 2) illustrates this point.  As a subregional shopping destination, Union Landing is one of the City’s largest sales tax generators.   The trade area map shows that 80 percent of Union Landing shoppers are pulled from Oakland to South Fremont.  Forty percent of the shoppers come from Union City and South Hayward combined.  The proportion of solely Union City residents would be less than forty percent.  This map illustrates how the half-cent sales tax is collected from shoppers from the surrounding region, outside of Union City. Additionally, the sales tax does not apply to groceries and prescriptions.

As a result of the divergent views expressed by the City Council, there was no consensus on a path forward for the November 2022 election.

Any public outreach effort should begin immediately with the confidence that a corresponding ballot measure will move forward. Without clear consensus and direction, it will be difficult to create an informational program.  Staff is now seeking direction on whether to move forward with the informational efforts regarding the one-half cent sales tax extension and to begin preparing the resolution and ordinance that is necessary to place the measure on the ballot.   

Staff is seeking direction from the City Council as to whether staff and the consultant, TBWBH Props and Measures, should proceed with public informational efforts for the proposed ballot measure to extend the one-half cent sales tax.  Additionally, staff requests further direction including whether to proceed on preparation of a ballot measure for the November 2022 election.