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RPVCCA_CC_SR_2015_04_21_05_Consider_Revenue_MeasureCITY OF MEMORANDUM RANCHO PALOS VERDES TO: HONORABLE MAYOR & CITY COUNCIL MEMBERS FROM: CAROL LYNCH, CITY ATTORNEY KATHRYN DOWNS, ACTING DIRECTOR OF FINANCE DATE: APRIL 21, 2015 SUBJECT: CONSIDERATION OF REVENUE MEASURES THAT REQUIRE APPROVAL BY CITY VOTERS OR PROPERTY OWNERS REVIEWED: DOUG WILLMORE, CIN MANAGER RECOMMENDATION Staff recommends the following actions be taken by the City Council: 1. Decline to place a telecommunications Utility User Tax (UUT) measure on the November 2015 general election ballot due to the need to obtain approval by the City's property owners of continuing the Storm Drain User Fee past its scheduled termination in June 2016. 2. Direct Staff to return with an ordinance rescinding the 3% UUT on telecommunications services because it will clarify that the City has no intention of reinstating the collection of UUT on telecommunications services until an ordinance is presented to and approved by the City's voters. EXECUTIVE SUMMARY The City Council is being asked to consider actions regarding two separate provisions of the Municipal Code that provide revenue to the City. Utilitv User Tax on Telecommunications Service In response to legal issues regarding the City's 3% UUT imposed on telecommunications services, in August 2014, the City Council took action to suspend collection of the UUT 1 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 2 of 18 from telecommunication service providers. The City Council also implemented a process by which residents and businesses in the City can submit claims for refunds of the telecommunications UUT for the period from August 1, 2013 through December 31, 2014. The administration of that process is continuing. Staff does not recommend that the City collect UUT on telecommunications services, unless an ordinance that updates the current provisions of the Municipal Code is placed on a ballot and receives approval by a majority of the City's voters. The City Council now has three principal options from which to choose regarding the City's telecommunications UUT: 1. Adopt an ordinance to rescind the UUT on telecommunications services until it is re-established by a new modernized ordinance that is approved by the voters at a future election (this option could be combined with options 2 or 3; 2. Adopt a resolution to place a telecommunications UUT measure and revised ordinance on the November 2015 general election ballot; or 3. Determine not to place a measure and ordinance on the November 2015 ballot, so that a future City Council would determine whether to place a telecommunications UUT measure on a future general election ballot (e.g. November 2017). The Notice and Call of the General Municipal Election is currently scheduled for the June 16, 2015 City Council agenda. If the City Council desires to place a telecommunications UUT measure on the November 2015 general election ballot, a resolution would need to be adopted at that time. Prior to City Council action in August 2014, the City's General Fund collected about $0.7 million of telecommunications UUT annually. Although the revenue source can provide for valuable City services such as public safety and infrastructure rehabilitation, the City's FY14-15 budget was balanced without benefit of telecommunications UUT. The City's General Fund has a history of significant favorable expenditure variances. Staff is currently developing the draft FY15-16 budget and expects that by tightening cost estimates, the General Fund budget will continue to be balanced going forward. Because of the upcoming sunset of the Storm Drain User Fee, which is discussed below, Staff recommends options 1 and 3. Storm Drain User Fee Pursuant to the ordinance that was adopted by the City's voters, the City's storm drain user fee ends in FY15-16. The ten-year program has been highly successful, providing about $1.3 million of annual dedicated funding for storm drain projects, storm drain lining, and maintenance. The Oversight Committee for the Water Quality Flood Protection Program has reviewed the status of the City's storm drain projects and short to mid-term 2 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 3 of 18 planning each year and has regularly supported collection of the maximum fee. A summary of program results follows: • Completion of San Ramon Canyon stabilization and McCarrell Canyon drainage improvements. • Completion of many other drainage projects, such as those at Sunnyside Ridge, San Pedro Canyon, Via Colinita, Palos Verdes Bay Club, and Mossbank. • Lining 15,000 linear feet of pipe. • Cleaning and videoing of 100% of the City's storm drain system, including making many minor repairs. • A total of $41.9 million of projects and maintenance have been funded with: o Fee revenue of $11.6 million; o Grant revenue of $9.5 million; and o General Fund contributions totaling more than $20 million. However, there are still many improvements to be made. The City has investigated and resolved 34 of the 38 priority projects identified in the 2004 Master Plan of Drainage. The City has taken on additional projects (because of their urgent nature or proximity to other related projects) that were not identified in that master plan. Two of the 38 priority projects were significantly greater in scope and cost than originally estimated: McCarrell Canyon (final total cost of $7.5 million) and San Ramon Canyon (final total cost of $19.3 million). The lesson learned is that while the planning is helpful and necessary, working with our buried assets is often unpredictable due to natural conditions that must be considered when projecting future needs. Four projects were identified in the unfunded section of the 2014 Capital Improvement Plan with cost estimates totaling as much as $14.4 million. • Altamira Canyon with cost estimates ranging from $1.6 million to $5.3 million, which does not include the cost to acquire easements on private properties. The FY14-15 budget includes $500,000 for a project study report for this project. • Paintbrush Canyon with a cost estimate of $2.6 million. Staff is currently recommending a project study report to be done in FY19-20 for a cost of $120,000. • Palos Verdes Drive East/Miraleste Canyon with cost estimates ranging from $2.5 million to $3.2 million. • San Pedro & Averill Canyons with cost estimates ranging from $2.7 million to $3.3 million. The storm drain program includes lining corroded or structurally deficient corrugated metal pipes (CMP). The lining can extend the operational life of the pipe up to 30 years according to industry reports. This program provides a mid-term solution while plans can be made and funds are identified to replace the vulnerable CMP with more durable and inert reinforced concrete (RCP) or plastic pipe products. These newer and more common Q CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 4 of 18 materials for modern projects can achieve a service life up to 100 years and perhaps longer. To date, about 15,000 linear feet of CMP has been lined at a cost of about $4.8 million. The table below outlines what Staff has learned from its recently completed video inspection program of City -owned pipes. That program included video inspection of about 99% of the known City -owned pipes. Pipes belonging to LA County were generally not inspected. The severity of the physical deficiencies in a pipe are given a rating, "5" being the worst and most urgent, and "0" being a pipe in good condition. The rating does not include risk factors, that is, the severity of the consequences of a pipe failure, which must be factored into any prioritization scheme. There remains about 33,761 linear feet of unlined CMP in the City in various states of corrosion and consequently, remaining service life. In addition, the investigation identified about 8,450 linear feet of RCP which has a rating of 3 or worse. All of the CMP should be lined and/or eventually replaced. The RCP with average to severe deficiencies should also be targeted for further investigation and possible capital expenditures. Condition Assessment Summary for Pipe Investigated in 2014-15 Rating Pipe Insp. % of CMP (LF) RCP/Other (LF) Total (LF) 5 — Severe Defect 12,475 11% 11,228 1,248 4 — Heavy Defect 6,966 6% 4,180 2,786 3 — Average Defect 7,360 6% 2,944 4,416 2 — Moderate Defect 4,059 3% 1,421 2,638 1 — Minor Defect 7,631 7% 2,289 5,342 0 — Good Condition 77,997 67% 11,700 66,297 Total 116,488 100% 33,761 82,727 Based on this information, 18,000+ linear feet of CMP is still in need of "urgent" lining (ratings of 3 through 5). If $4.8 million has been spent to date to line about 15,000 linear feet, then perhaps a likely estimate to line the remaining CMP in "urgent" need may be about $6 million. The storm drain user fee program also included the installation of catch basin filters to reduce pollution from the City's storm drains. There are about 1,300 catch basins in the City. The City is required to install screens on all of them. About 200 have been completed; and 1,100 still need to be addressed at a cost of about $500 each, for a total cost estimate of about $550,000. The projects identified above may total about $20 million, which remains unfunded. The City has contracted with a consultant to prepare a new Master Plan of Drainage that will provide a more comprehensive assessment of needs for the City-wide storm drain 2 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 5 of 18 system. The initial draft indicated the cost of upgrades required in the system to correct hydrologic and hydraulic (capacity) deficiencies is in the $15 million range. However, Staff has forwarded to the consultant results of our condition assessment and asked for repairs to these items to be estimated and included in the list of projects. A final version of the new master plan is expected during 2015. Without the storm drain user fee, these projects will compete with street, park and sewer rehabilitation other capital improvements for General Fund money transferred to the CIP reserve. Staff recommends asking property -owners to extend the existing storm drain user fee for another ten years. On May 29, 2014, the City's Storm Drain Oversight Committee prepared its 2014 Annual Report that included the following statement: "Taking note of the historic importance of the User Fee collections in funding critical WQFP projects, the Committee again recommends that planning begin now for reliable funding of the City's storm drain and water quality systems beyond June 30, 2016, when the Storm Drain User Fee sunsets. The last fee collections will occur during FY15-16, just one fiscal year away. The Committee recommends that such funding be strategically developed now while there is still time to plan rather than waiting for another crisis. " A mail -ballot election of property owners can be conducted in spring 2016, before the fee sunsets; when voter mail -ballot response is traditionally higher, as the timing does not conflict with holidays and summer vacations. As described in this report, Staff would recommend a process that begins during summer 2015, and ends with a February -March 2016 ballot period, with election results being adopted in April 2016. BACKGROUND REGARDING THE STORM DRAIN USER FEE After a series of damaging storms during the winter of 1995-96, the Public Works Department recommended that the City develop a Storm Drain Master Plan, and the Council authorized funding for the City's first Master Plan of Storm Drains in 1997. As a result of the study, nearly $8 million of recommended projects for replacing undersized storm drain lines were identified. During the next budget cycle, the Council approved funding for the highest priority project identified in the study. Over the next four years the Council approved approximately $4 million in drainage improvements throughout the City, As a result of a catastrophic failure of a storm drain facility in upper San Ramon Canyon in the winter of 2000, Public Works staff realized that the problem of drainage facilities included more than just undersized storm drains. In April 2001, the Council approved a study of drainage facilities along Palos Verdes Drive East that included physical inspection of the accessible pipelines. The results of the PVDE study indicated drainage system deficiencies far more extensive than the original 1997 study identified. 5 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 6 of 18 In 2002, the Council directed the Finance Advisory Committee ("FAC") to develop financing alternatives for storm drain facilities repair and maintenance. In March 2003, the FAC and the City's Infrastructure Financing Team, which was made up of City staff and financing, legal, and engineering consultants, presented a matrix of financing alternatives to the Council. In August 2003, the Council approved an update of the Storm Drain Master Plan that included video inspection of many of the old corrugated metal pipe drains installed by the County over 50 years ago. In January 2004, the Council identified the rehabilitation and repair of the City's storm drain system as one of their four tactical goals for the following two years. The City's Infrastructure Financing Team and FAC met regularly over 3 1/2 half years to develop and present various storm drain financing alternatives, models and analysis at noticed public meetings. The Team also provided financial and engineering information about a long-term financing plan to rehabilitate the City's storm drain system at joint workshops of the Council and FAC in 2004 and 2005. The Team recommended that the City needed to spend about $25 million (in 2005 dollars) over approximately 30 years to repair its deteriorating storm drain system. The Team and the FAC also opined that the City did not have sufficient Reserves or net revenue to fund the cost of the program, and that if Reserves were used to fund the annual cost of the program, the Reserves would be nearly depleted in about five years. After another series of devastating storms in the winter of 2005, the Council approved the establishment of a Storm Drain Enterprise Fund for the City's storm drain system. The Council also approved the transfer of $2 million of General Fund Reserves to the Storm Drain Enterprise Fund to initiate design of the most urgently needed drainage projects. Establishment of the Existing Storm Drain User Fee The City's Infrastructure Financing Team recommended establishing a storm drain user fee for the purpose of funding construction and maintenance of the City's storm drain system pursuant to the City's Water Quality and Flood Protection Program (the "Program"). The Program's initial goals included approximately 38 storm drain construction and replacement projects, 150 storm drain lining projects, and the installation of filtration devices in catch basins around the City in compliance with federal pollution reduction requirements. In 1996, Proposition 218 added Article XIII D to the California Constitution, which imposes substantive and procedural requirements on the levy of storm drain user fees and requires voter or property owner approval of such fees. In 2005, the Council undertook the proceedings required by Proposition 218 and established an annual storm drain user fee with a 30 -year duration. The City proceeded under the authority granted in Health and Safety Code Section 5471, which authorizes cities to establish charges for their storm drainage services, and obtained property owner approval of the fee pursuant to Proposition 218. X CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 7 of 18 The Council conducted a property owner mailed -ballot election, and the annual storm drain user fee was approved by a majority vote of the property owners subject to the fee by a very narrow margin. The Council adopted Ordinance No. 418 establishing the annual storm drain user fee (the "Fee") and adding Chapter 3.44 to the City's Municipal Code. The Fee was collected for the first time in Fiscal Year 2006-07. Following the approval of the Fee by the property owners, an initiative petition to repeal the Fee was circulated. In September 2005, a majority of the members of the City Council voted to receive and file the City Clerk's certification that the petition to repeal the Fee had qualified for placement on the November 6, 2007 General Municipal Election. In response to comments from residents, then Mayor Long and Councilmember Gardiner proposed that an ordinance be prepared that would amend Chapter 3.44 of the Municipal Code to shorten the duration of the Fee from thirty years to ten years and to modify the provisions pertaining to a resident Oversight Committee. The Council had already established a resident Oversight Committee to annually review the Fee, but the proposed ordinance provided that the Oversight Committee could not be discontinued by a future City Council and would only terminate when the Fee expired in ten years or by a vote of the City's electorate. In March 2007, Mayor Long's and Councilmember Gardiner's joint recommendation was presented to the Council, and the members of the Council unanimously voted to direct the City Attorney to prepare such an ordinance and ballot measure to be presented to the voters at the November 6, 2007 election. The proposed ordinance made it clear that the measure to repeal the Fee and the measure to modify the existing Fee were completely incompatible measures that could not be reconciled. Accordingly, the proposed ordinance stated that if both measures were approved by a majority vote, then pursuant to the California Constitution and the State Elections Code, the measure with the greater number of votes would prevail over the other. At the November 6, 2007 General Municipal Election, the measure proposed by the City Council to amend Chapter 3.44 of the Municipal Code passed with 3,881 votes cast in favor, and 3,108 cast against. The measure to repeal the Fee failed with 3,046 votes cast in favor, and 3,887 votes cast against. As amended, Chapter 3.44 provides that the Fee will expire on June 30, 2016. In addition, Chapter 3.44 provides that the Oversight Committee is required to hold at least one public hearing and issue a report on at least an annual basis to inform the City's residents and the Council regarding how Fee revenues are being spent and to make recommendations to the Council regarding future expenditures. In addition, the Oversight Committee is to make a recommendation regarding whether to collect the Fee for the upcoming fiscal year and the rate for that fiscal year. In making its determinations, the Committee must take into account the current and projected revenues of the City for the subject fiscal year, including but not limited to, property taxes, sales taxes and transient occupancy taxes; the current and projected expenditures of the City for the subject fiscal year, including, but not limited to, 7 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 8 of 18 proposed expenditures in connection with the City's storm drain system; the balance, if any, in the Water Quality and Flood Protection Program Enterprise Fund; and the current and projected General Fund reserves. The Oversight Committee consists of five residents of the City who are appointed by the Council. The current members are Elizabeth Sala (Chair), Krista Johnson, Yi Hwa Kim, Frank Lyon, and Mickey Rodich. Other Features of the Existing Storm Drain User Fee • Properties Subiect to the Fee Areas within the City that flow out of the City without going through any City -maintained drainage infrastructure are not subject to the Fee. There are also a number of County - maintained drain facilities within the City. If properties drain exclusively to either County - owned drains or drains owned by other cities, those properties are not subject to the Fee. There are approximately 3,000 parcels in the City that are excluded from the Fee. • Fee Methodology; Maximum Rate The Fee is structured so that property owners who use the storm drain system the most pay the most. The amount that each parcel uses the system is measured by the amount of storm runoff contributed by the parcel, which is directly proportional to the amount of impervious area on a parcel such as buildings, patios and sidewalks. The more impervious area on a property, the more storm runoff the property generates. Vacant, unimproved properties do not contribute any runoff and therefore are not charged. The City developed a custom Impervious Percentage Table for Single -Family Residential parcels, showing the estimated percent of impervious cover for these parcels. Based on property owner input and further analysis, the City determined to individually calculate the annual Fee for all residential parcels that are 3/4 of an acre or larger. In addition, the City individually calculates the annual Fee for non -Single -Family Residential parcels by determining the actual impervious cover for each parcel. The amount of the Fee for each developed parcel is based on the parcel's Equivalent Residential Units ("ERU") times the rate per ERU. A parcel's ERUs are computed by a formula that takes into account the size of the parcel and the amount of the impervious area. The maximum annual Fee rate per ERU was established at $86 for Fiscal Year 2006-07. The maximum annual rate per ERU has been increased annually by the City Council, commencing with Fiscal Year 2007-08, by an amount equal to the change in the Consumer Price Index, but not to exceed a maximum increase of 2% per year. In one year (2009-10), the maximum fee was not eligible for an increase, as the CPI did not increase. Each year, the City Council may set the fee at any amount from $0 to the maximum rate per ERU. Ro CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 9 of 18 The maximum Fee rate and actual Fee rate per ERU for each fiscal year is as follows: • Appeals Process For Property Owners If a property owner disagrees with the calculation of his or her annual Fee, based on the parcel area and/or the estimated impervious percentage assigned to the property, the property owner may appeal the calculation. Property owners have filed a total of 75 appeals, of which 62 resulted in reductions of the parcel's ERU. In addition, 88 parcels were removed from the Fee when an engineering determination was made that the parcels were not using the City's storm drain system. • User Fee Assistance Program The Council approved the establishment of a User Fee Assistance Program in 2005. Under the program, the City will reimburse 50% of the Fee to eligible property owners with a gross income under $35,000. A total of about 15 property owners take advantage of the program each year, which results in total reimbursements of less than $1,000. • Annual Proceedings Each year of collection of the Fee, the Council must hold a public hearing to conduct an annual review of the Fee and to consider a written Engineer's report prepared in connection with the Fee. At each annual public hearing, the Council must consider all protests or objections to the Engineer's report by interested persons and all testimony regarding the proposed levy of the Fee for that fiscal year. In addition, the Council must consider whether to collect the Fee for that fiscal year, and, if so, the rate per ERU for the fiscal year, not to exceed the maximum rate. In addition, the Council must consider any report and recommendation submitted by the Oversight Committee. At the conclusion of each annual public hearing, the Council must determine if a majority protest exists. A majority protest exists if protests are made by the owners of a majority E' Maximum Actual Rate per ERU Rate per ERU FY06-07 $ 86.00 $ 86.00 FY07-08 $ 87.72 $ 87.72 FY08-09 $ 89.47 $ 89.47 FY09-10 $ 89.47 $ 89.47 FUG -11 $ 90.72 $ 90.72 FY11-12 $ 92.53 $ 92.53 FY12-13 $ 94.38 $ 92.53 FY13-14 $ 96.27 $ 96.27 FY14-15 $ 96.75 $ 96.75 • Appeals Process For Property Owners If a property owner disagrees with the calculation of his or her annual Fee, based on the parcel area and/or the estimated impervious percentage assigned to the property, the property owner may appeal the calculation. Property owners have filed a total of 75 appeals, of which 62 resulted in reductions of the parcel's ERU. In addition, 88 parcels were removed from the Fee when an engineering determination was made that the parcels were not using the City's storm drain system. • User Fee Assistance Program The Council approved the establishment of a User Fee Assistance Program in 2005. Under the program, the City will reimburse 50% of the Fee to eligible property owners with a gross income under $35,000. A total of about 15 property owners take advantage of the program each year, which results in total reimbursements of less than $1,000. • Annual Proceedings Each year of collection of the Fee, the Council must hold a public hearing to conduct an annual review of the Fee and to consider a written Engineer's report prepared in connection with the Fee. At each annual public hearing, the Council must consider all protests or objections to the Engineer's report by interested persons and all testimony regarding the proposed levy of the Fee for that fiscal year. In addition, the Council must consider whether to collect the Fee for that fiscal year, and, if so, the rate per ERU for the fiscal year, not to exceed the maximum rate. In addition, the Council must consider any report and recommendation submitted by the Oversight Committee. At the conclusion of each annual public hearing, the Council must determine if a majority protest exists. A majority protest exists if protests are made by the owners of a majority E' CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 10 of 18 of the parcels subject to the Fee. If there is no majority protest, the Council may adopt a resolution approving the Engineer's report as filed or modifying the Engineer's report, and directing that the Fee be collected on the County tax roll. On or before August 101h each year, the City Clerk must file the Engineer's report with the County Auditor -Controller. In the event of a majority protest, the Fee may still be collected, but not on the County tax roll. There has never been a majority protest filed in connection with the annual review of the Fee. In any year, the City Council may reduce the rate per ERU below the maximum rate, even to zero, or increase the rate per ERU up to or below the maximum rate if it has previously been set below such rate. In no event may the City Council increase the rate per ERU in excess of the maximum rate without obtaining voter or property owner approval in compliance with Article XIII D. The Council also may also elect to terminate the Fee. With the exception of one year, the fee has been increased by the maximum allowable (lesser of CPI or 2%). In 2012-13, the maximum fee was $94.38 per ERU, but the actual fee was set at the prior year rate of $92.53 per ERU. In the following year (2013-14), the fee was increased to its maximum rate. Actual Collections FY06-07 $ 1,188,439 FY07-08 $ 1,221,825 FY08-09 $ 1,251,733 FY09-10 $ 1,263,572 FY10-11 $ 1,312,230 FY11-12 $ 1,319,109 FY12-13 $ 1,312,989 FY13-14 $ 1,360,907 Significant storm drain projects completed by the City include: San Ramon Canyon stabilization, McCarrell Canyon, and more than $4 million of pipe lining. Other projects have been completed at Sunnyside Ridge, San Pedro Canyon, Via Colinita, Mossbank, Via Canada, and Palos Verdes Bay Club. In addition, more than $0.4 million has been spent to install catch -basin filtration devices. At least four projects originally identified in 2005, with current cost estimates totaling as much as $14.4 million, have not yet been funded. Staff expects that additional projects will be identified with completion of the Storm Drain Master Plan update in 2015. 10 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 11 of 18 DISCUSSION REGARDING THE STORM DRAIN USER FEE Proposed Extension of the Fee As discussed above, the Fee will expire on June 30, 2016. Staff recommends that the Council undertake proceedings to extend the Fee for an additional ten years. Staff recommends that the City use the same methodology and rate structure as for the existing Fee, and that the maximum rate not be increased. Staff also recommends that the Oversight Committee be retained. The required proceedings for the extension of the Fee are very similar to the proceedings undertaken by the City in 2005 to establish the Fee. An election is required, and the Council has the option of holding a registered voter election or conducting a mailed ballot election of the property owners. The extension of the Fee must be approved by a two- thirds vote if the election is by the registered voters, and by a majority vote if the election is by the property owners. Staff recommends that the City conduct a property owner mailed ballot election as was done in connection with the approval of the existing Fee, because the property owners pay the Fee. The extension of the Fee is governed by the requirements of Health and Safety Code Section 5470, et seq., and Article XIII D of the California Constitution. In addition, the Proposition 218 Omnibus Implementation Act (Government Code Section 53750, et seg.) is also applicable. Substantive Requirements of the Proposed Extended Storm Drain Fee The following five substantive requirements are applicable to the proposed extended Fee as well as to the existing Fee. A. Revenues derived from the Fee must not exceed the funds required to provide storm drainage service. Revenues may be used to pay for the acquisition, construction, reconstruction, maintenance, and operation of storm drainage facilities; to repay principal and interest on bonds issued for the construction or reconstruction of storm drainage facilities; and to repay federal or state loans or advances made to the City for the construction or reconstruction of storm drainage facilities. B. Revenues derived from the Fee must not be used for any purpose other than to provide storm drainage service. C. The amount of the Fee imposed upon any parcel must not exceed the proportional cost of the storm drainage service attributable to the parcel. D. No Fee shall be imposed for storm drainage service unless the service is actually used by, or immediately available to, the owner of the property in question. E. No fee shall be imposed for general governmental services which are available to the public at large in substantially the same manner as property owners. 11 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 12 of 18 Procedural Requirements for Extending the Fee beyond June 30, 2016 As discussed more fully below, the City must first cause an Engineer's report to be prepared on the proposed extension of the Fee and hold a public hearing on that report. The City must mail notice of the hearing to the record owners of the properties subject to the proposed extended Fee and also provide published notice. At the conclusion of the public hearing, the Council must determine if a majority protest exists. If so, the Council must take no further action to extend the Fee. If not, the City must conduct a mailed ballot election of the property owners (assuming the Council follows Staff's recommendation to hold a property owner balloting rather than an election of the registered voters). If the extension of the Fee is approved by a majority vote, the Council may extend the Fee by an ordinance adopted by two-thirds vote of the Council. The Fee may then be continued to be submitted to the County Auditor -Controller for collection on the annual property tax bills beyond the current June 2016 sunset, up to the new sunset that is established (2026, if the Council agrees with the Staff recommendation). In subsequent years, so long as the extended Fee is not increased beyond the authorized amounts approved by the property owners (which Staff recommends be the rates currently in effect, including the CPI adjustment) the Council must annually cause an Engineer's report to be prepared and hold a public hearing on that report, but only published notice of the hearing is required. Also, if a majority protest is filed, the City may still collect the fee, but would have to bill the property owners instead of using the County property tax bills. 1. Engineer's Report A written Engineer's report must be prepared and filed with the City Clerk at least 45 days prior to the public hearing on the proposed extension of the Fee. The report must describe each parcel of real property to be charged, the proposed amount of the Fee for each parcel, an estimate of the cost required to maintain and operate the storm drain system, and the sources of revenue, including General Fund revenues, anticipated to provide the service. 2. Public Hearing After the Engineer's report is filed with the City Clerk, the Council must hold a public hearing on the report at a regularly scheduled Council meeting. Notice of the hearing must be mailed at least 45 days prior to the date of the public hearing and published once a week for two consecutive weeks, with the first publication occurring at least 14 days prior to the public hearing. The mailed notice must contain a statement that the Engineer's report has been filed with the City Clerk, a description of each parcel of real property to be charged, the proposed amount of the Fee for each parcel, the basis of the calculation of the Fee, the reason for 12 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 13 of 18 the Fee, a statement that the Fee will be collected on the County property tax bills, and the date, time and place of the public hearing. The notice may also describe the effect of a majority protest, and indicate that an election of the property owners must be held following the public hearing and in the absence of a majority protest. Article XIII D of the Constitution provides that notice must be mailed to the record owner of each parcel subject to the Fee.' Article XIII D does not define who is a "record owner," but the Proposition 218 Implementation Act defines a "record owner" as the owner of a parcel whose name and address appears on the last equalized secured property tax assessment roll. The Proposition 218 Implementation Act provides that mailed notice can be given by including it in the regular billing statement for another property -related service provided by the City, at the address to which the City customarily mails the billing statement. The notice can also be included in a billing statement provided by another agency that bills, collects, and remits a fee or charge on behalf of the City. If the City chooses one of these alternatives, it would also mail notice to any record owners, as shown on the property tax roll, who do not receive billing statements. (In connection with the proceedings to authorize the existing Fee, the City provided a separate mailed notice to the record owners.) 3. Determination of Majority Protest At the public hearing, the Council must hear and consider all protests against the proposed fee and determine whether a majority protest exists. Article XIII D provides that a majority protest will exist if written protests against the extended Fee are presented by a majority of owners of the parcels subject to the Fee. If a majority protest is filed, the Council may not take any further action with respect to the extension of the Fee. In the absence of a majority protest, the City must conduct a mailed ballot election of the property owners. 4. Mailed Ballot Election Article XI II D provides that the election shall be conducted not less than 45 days after the public hearing and that the extension of the Fee must be approved by a majority vote of the owners of the property subject to the fee. Such an election is not an "election" within the meaning of the Elections Code, meaning that typical election procedures, such as ballot pamphlets and ballot arguments, are not required. The City must also mail notice of the public hearing at least 14 days prior to the date of the hearing to any interested party who has filed a written request with the City for mailed notice of public meetings in connection with new or increased fees or service charges. 13 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 14 of 18 Article XIII D does not provide clear guidance with respect to the contents of the ballot, or how to conduct the election and tabulate ballots. Instead, Article XIII D provides that the City may adopt procedures for the completion, return and tabulation of the ballots which are similar to Article XIII D's procedures for a mailed ballot assessment election. This is how the City proceeded in connection with the proceedings to establish the existing Fee. Subsequent to those proceedings, the Proposition 218 Implementation Act was amended to set forth procedures for a mailed ballot fee election which are similar to the procedures for a mailed ballot assessment election. The Proposition 218 Implementation Act now provides that in addition to any other procedures adopted by the City, the following procedures will also apply to a mailed ballot fee election: The face of the envelope containing the notice of the election and ballot must contain substantially the following statement in at least 18 -point type: "OFFICIAL BALLOT ENCLOSED." This phrase may be repeated in a language or languages other than English. The ballot must include the City's address for return of the ballot, the date and location where the ballots will be tabulated, and a place where the person returning the ballot may indicate his or her name, a reasonable identification of the parcel, and his or her support or opposition to the extension of the Fee. An impartial person designated by the City, who does not have a vested interest in the outcome of the proposed Fee extension, must tabulate the ballots. An impartial person includes, but is not limited to, the City Clerk. Ballots may be tabulated using technological methods including, but not limited to, punch card or optically readable (bar-coded) ballots. If the City uses City personnel for the tabulation, or if the City contracts with a vendor for the tabulation and the vendor or its affiliates participated in the research, design, engineering, public education, or promotion of the extension of the Fee, the ballots must be unsealed and tabulated in public view to permit all interested persons to meaningfully monitor the accuracy of the tabulation. The tabulation may be continued to a different time or location accessible to the public, provided that the time and location are announced at the location at which the tabulation commenced and posted by the City in a location accessible to the public. The ballot must be in a form that conceals its contents once it is sealed by the person submitting it. The ballots must remain sealed until the tabulation of ballots commences. During and after the tabulation, the ballots must be treated as public records, subject to public disclosure and made available for inspection by any interested person. The ballots must be preserved for a minimum of two years, after which they may be destroyed. The City Attorney's office will assist the City in preparing detailed procedures for the mailed ballot election to address a variety of issues, such as how a property owner can obtain a duplicate ballot to replace a lost ballot. IM, CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 15 of 18 5. Ordinance Extending the Fee The Fee must be extended by ordinance, and the ordinance must be approved by a two- thirds vote of the City Council. 6. Submission of Fee to County Tax Collector The Fee must be submitted to the County Auditor -Controller for collection on the tax bills prior to the County's deadline, which is typically on or before August 1St each year. 7. Collection of Fee in Subsequent Years The mailed ballot proceeding described above will not be applicable in subsequent years unless the City proposes to increase the Fee above the maximum amounts provided for in the ordinance extending the Fee. Each year, the City Council must cause an Engineer's report to be filed and hold a public hearing on the report, but only published notice of the hearing is required. At the public hearing, the City Council must hear and consider any protests to the Engineer's report. If the owners of a majority of the parcels subject to the fee protest, the City may not collect the fee on the County property tax roll, but the City may collect the fee by invoicing the property owners (by including the Fee on another utility bill or on a separate bill). The annual proceedings would be conducted in the same manner as for the existing Fee, as described previously. The process to extend the Fee via a mail -ballot election in spring 2016 can be summarized as follows. • Preparation of Engineer's Report — September 2015. • Mail Notices of Public Hearing — December 2015. • Conduct Public Hearing — February 2016. • Ballot Period — February -March 2016. • City Council adopts results of election; and, if the results are favorable, considers ordinance to extend the fee — April 2016. Although the City Can Educate Voters About the Fee or the UUT, the City_ Cannot Spend Funds to Advocate for Their Passage. In the limited number of cases on the issue, courts in California have very strictly limited the ability of public agencies to communicate directly with the voters for the purpose of influencing legislative action at the ballot box or "direct democracy." This current restrictive view of public agencies' authority to advocate in connection with an election arises out of the California Supreme Court's decision in Stanson v. Mott) In that case, the court was presented with the question whether the California Director of Beaches and Parks was authorized to spend public funds to urge the voters to support bond measures that would have enhanced state and local recreational facilities. The court found that such expenditures were not authorized by statute, and that public expenditures on one side or another of a partisan political campaign were improper. 15 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 16 of 18 Subsequently, in Schroeder v. City Council of Irvine, a taxpayer challenged the Irvine City Council's authorization of expenditures of public funds to register voters in the city and inform them of the importance of a countywide ballot measure." Although the City had taken a public position in favor of the proposed ballot measure, the materials it distributed did not advocate any particular vote on the measure and rarely mentioned the measure at all. A taxpayer challenged the expenditures as illegal "partisan campaigning" under Stanson. The court held that the City's expenditures would have been unlawful under Stanson only if the communications expressly advocated, or taken as a whole unambiguously urged, the passage or defeat of the measure. The court also upheld the City's expenditures on non-partisan voter registration. More recently, however, the California Supreme Court decided that "express advocacy" is an insufficient standard. In Vargas v. City of Salinas,"' proponents of a local ballot initiative to repeal the City's utility user's tax ("Measure O") sued the City alleging improper government expenditures in opposition to the measure. The court held that even if a communication does not expressly advocate for either side of an issue, a Stanson analysis must nonetheless be conducted to determine whether the activity was for informational or campaigning purposes based on its style, tenor, and timing.'v Although the court did not specifically refer to the Schroeder analysis in its opinion, and did not overrule Schroeder, the court clearly stated that the "express advocacy" standard does not meaningfully address potential constitutional problems arising from the use of public funds for campaign activities that were identified in Stanson. Thus, local governments must look to Vargas for the proper standard to evaluate whether an expenditure is permissible and disregard the less detailed standard of Schroeder. A variety of factors led to the Vargas court's ultimate conclusion that the City's communications were informational, including the fact that the publications avoided argumentative or inflammatory rhetoric and did not urge citizens to vote in a particular manner. The expenditures in question were made pursuant to general appropriations in Salinas' regular annual budget pertaining to the maintenance of the City's website, the publication of the City's regular quarterly newsletter, and the ordinary provision of information to the public regarding the City's operations, The court found that in posting on the City's website the minutes of City Council meetings relating to the Council's action along with reports prepared by various municipal departments and presented by officials at City Council meetings, the City engaged in informational rather than campaign activity." Similarly, the court found the City did not engage in campaign activity in producing a one- page document listing the program reductions that the City Council voted to implement should Measure O be approved, or in making copies of the document available to the public at the City Clerk's office and public libraries.' The court reasoned that, viewed from the perspective of an objective observer, the document constituted an informational statement that merely advised the public of specific plans that the City Council voted to implement should Measure O be approved. 16 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 17 of 18 Finally, the court found that the City engaged in permissible informational activity by mailing to City residents the fall 2002 "City Round -Up" newsletter containing articles describing proposed reductions in city services. Although under some circumstances the mailing of material relating to a ballot measure to a large number of voters shortly before an upcoming election would constitute campaign activity, a number of factors led to the Court's conclusion that the mailing of the newsletter constituted informational rather than campaign activity: it was a regular edition of the newsletter that was mailed to all city residents as a general practice, the style and tenor of the publication was entirely consistent with an ordinary municipal newsletter and readily distinguishable from traditional campaign material, and the article provided residents with important information about the tax in an objective and nonpartisan manner." Stanson and Vargas show that local agencies must exercise significant restraint when communicating to voters about local measures. An FPPC Regulation provides a list of safe harbors for communications that a local agency is permitted to make.""' These communications include: an agency report providing the agency's internal evaluations of a measure made available to a member of the public upon the individual's request; the announcement of an agency's position at a public meeting or within the agenda or hearing minutes prepared for the meeting; a written argument filed by the agency for publishing in the voter information pamphlet; a departmental view presented by an agency employee upon request by a public or private organization, at a meeting of the organization; and a communication required by law. In conclusion, it is important to note that the constraints that affect the City as an entity do not prevent Council Members or members of City Commissions and Committees from advocating for the extension of the Fee or in support of the UUT on telecommunications services, should they choose to do so. However, they cannot spend City funds in connection with these efforts. CONCLUSION Because of the ongoing and pressing need to continue the repair of the City's storm drains, Staff recommends that the City focus its efforts on the extension of the Storm Drain User Fee past June 2016, and that the City Council authorize Staff to preparations for a spring 2016 mail -ballot election regarding the Fee. Correspondingly, Staff recommends that the City Council not place a measure on the November 2015 ballot to update and continue the UUT on telecommunications services and to adopt an ordinance that repeals the existing UUT on telecommunications services so that it is clear that the City will not collect UUT on telecommunications services until such time that an ordinance is presented to and approved by the City's voters. Stanson v. Moll, (1976) 17 CaUd 206. 17 CONSIDERATION OF REVENUE MEASURES TO BE PRESENTED TO CITY VOTERS OR PROPERTY OWNERS April 21, 2015 Page 18 of 18 "Schroeder v. City Council oflrvine, (2002) 97 Cal.AppAth 174. Vargas v, City of Salinas, (2009) 46 CalAth 1. IV Id Id. at 37. °' Id. (stating, "not only [did] the document not advocate or recommend how the electorate should vote on the ballot measure, but its style and tenor [was] not at all comparable to traditional campaign material"). The fact that the city only made the document available at the city clerk's office and in public libraries to people who sought it out reinforced the document's informational nature. Id. °" Id. at 38-39 (noting that none of the materials in question constituted the kind of typical campaign materials or activities identified in Stanson, such as bumper stickers, posters, advertising floats, or TV and radio spots, although these items do not exhaust the category of potential campaign materials or activities). °"' 2 Cal. Code Regs. § 18420.1.