TO:
Honorable Mayor and Members of the City Council
THROUGH:
Bruce Moe, City Manager
FROM:
Steve S. Charelian, Finance Director
George Gabriel, Assistant to the City Manager
Julie Bondarchuk, Financial Controller
Libby Bretthauer, Financial Services Manager
SUBJECT:Title
Discussion of Whether to Consider Scheduling for the August 6, 2024, City Council Meeting Resolutions to Present to the Voters a Ballot Measure Establishing a One-Half Cent Sales Tax to Fund General City Services in Manhattan Beach, such as: Repairing/Upgrading Aging Community Facilities; Keeping Local Streets, Sidewalks, Infrastructure, and Parks Safe, Clean, and Well-Maintained; and Improving Parking Availability and Traffic Safety (City Manager Moe).
(Estimated Time: 1 Hr.)
A) PROVIDE DIRECTION
B) ESTABLISH SUBCOMMITTEE
Body
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RECOMMENDATION:
Staff recommends that the City Council:
1. Direct staff to return at the August 6, 2024, meeting with the required resolutions to place a ballot measure establishing a one-half cent sales tax at the November 5, 2024, General Municipal Election;
2. Establish a Subcommittee and assign members to assist with developing a community-led public outreach campaign.
FISCAL IMPLICATIONS:
There are no fiscal implications associated with the recommended actions.
Should the City Council direct staff to return at the next meeting with the required resolutions to place a ballot measure establishing a one-half cent sales tax, sufficient funds are currently budgeted in the Fiscal Year 2024-2025 City Clerk budget to conduct the election and include a ballot measure. Based on approximate costs provided by the Los Angeles County Registrar-Recorder/County Clerk, including the ballot measure adds approximately $14,000 to our total election cost.
BACKGROUND:
At the May 21, 2024, meeting, City Council discussed and approved the proposed 5-Year Capital Improvement Program (CIP) for Fiscal Year 2024-2025 through Fiscal Year 2028-2029. During the discussion, the issue was raised as to the necessity of generating more revenue to address capital infrastructure and other needs, by potentially raising the City’s sales tax rate.
Following the meeting, staff sought the professional services of True North Research Inc., to design and conduct a statistically reliable survey of voters to assess the feasibility of a potential sales tax measure.
Currently, Sales tax is the City’s second-largest revenue source in the General Fund and accounts for approximately 12% ($11.4 million) of the FY 2024-2025 operating budget. The City’s current sales tax rate is 9.5%, which is the same as the Los Angeles County tax rate. Of the 9.5%, 7.25 % is the total statewide base sales and use tax and 2.25% are district voter-approved measures. The City only receives 1.0% (known as the Bradley-Burns local sales tax) of the statewide base. Attached to the report is a chart of how the 9.5% sales tax is currently allocated.
Based on an analysis provided by the City’s sales tax consultant, HdL Companies, 61.3% of the City’s 2023 actual sales tax revenue (driven by Bradley Burns) is generated by non-residents. HdL specializes in public agency revenue analysis and has completed similiar analysis for 67 other cities. In looking at the Bradley Burns Local Sales Tax numbers, only four cities (Malibu, Pacific Grove, Monterey & El Monte) have a larger non-resident percentage of revenue than Manhattan Beach’s 61.3%.
To address funding needs and provide greater services, many cities in LA County have passed additional district voter-approved measures referred to as transaction and use tax (TUT). TUT may be approved locally and added to the combined state and use tax rate.
For many years, state law capped the maximum sales tax rate across LA County at 10.25%, with the exception of the City of Santa Fe Springs at 10.5%. Given the current 9.5% sales tax rate within the City, the City had a permissible increase up to 0.75% available to the City, LA County, or to certain regional agencies on a first-come, first-serve basis. However, in 2023, the State of California passed Assembly Bill (AB) 1679 which authorized L.A. County to impose a TUT of up to 0.5% that in combination with other transactions and use taxes, could exceed the combined rate limit to address homelessness. Therefore, this special statute for the County of Los Angeles was established to not infringe upon the10.25% cap.
DISCUSSION:
Polling Results Findings
As indicated in the background section of the report, True North Research, Inc.’s services were solicited to design and conduct a sales tax feasibility survey. The survey was administered between June 19 and June 25, 2024, to a random sample of 409 voters in the City of Manhattan Beach who are likely to participate in the November 2024 election. The survey followed a mixed-method design that employed multiple recruiting methods (email, text, and telephone) and multiple data collection methods (telephone and online).
Staff has attached the sales tax feasibility survey summary report provided by True North Research, Inc, which details the findings. In summary, the report posed the following pertinent question to likely voters:
“To provide funding for general city services in Manhattan Beach, such as keeping local streets, sidewalks, infrastructure, and parks safe, clean, and well-maintained; repairing/upgrading aging community facilities; fixing potholes; and improving parking availability and traffic safety; shall City of Manhattan Beach's
ordinance establishing a one-half cent sales tax be adopted, providing 5 million dollars annually until ended by voters for general government use that can't be taken away by the State, with citizen oversight, independent audits, and all money locally controlled? If the election were held today, would you vote yes or no on this measure?”
After analysis, True North Research, Inc. concluded the following:
“Manhattan Beach voters have a high opinion of the quality of life in the City and value the services they receive from the City of Manhattan Beach. Together, these sentiments translate into solid natural support (64%) for establishing a one-half cent sales tax to provide funding for city services in Manhattan Beach, such as keeping local streets, sidewalks, infrastructure, and parks safe, clean, and well-maintained; repairing/upgrading aging community facilities; fixing potholes; and improving parking availability and traffic safety. The results of this survey indicate that a local sales tax measure is feasible for the November 2024 ballot provided that it focuses on the projects and services that voters identify as their priorities and is accompanied by robust community/opinion leader engagement, education, and communication.”
Sales Tax Feasibility
When considering a sales tax increase, the City has two options on the type of TUT sales tax measures: general tax and special tax. As a general tax measure, a sales tax increase would require a majority vote of ballots cast to pass. Comparatively, special tax measures that are dedicated to fund specific projects or activities require a two-thirds vote to pass. A general tax measure for sales tax is preferable not only because it requires a majority vote, but it provides elected officials with the flexibility to fund future priorities which may be different than today. A special tax measure would dedicate the revenue stream to the specific purpose or project.
A sales tax increase must first be approved through at least a two-thirds vote of all members of the City Council (4 out of 5 Councilmembers) and then a majority vote in the next municipal election in November 2024. The chart below lists the potential TUT increase along with the estimated additional revenue to the City:
Percent Increase Estimated TUT Revenue
0.25% $2.58 Million
0.50% $5.23 Million
0.75% $7.87 Million
An approved local TUT measure would ensure that any potential sales tax revenue would be used for the direct benefit of Manhattan Beach residents and not diluted across the County should another sales tax measure be presented on the ballot by another taxing authority.
Generally speaking, a majority of voters throughout various cities in California have approved sales tax measures since 2020. Passing rate percentages from 2020-2024 have averaged 76% passage rate.
General Sales Tax Elections in California (Source: Ballotpedia)
Year Pass Fail Total Passing Rate
2024 14 3 17 82%
2023 1 0 1 100%
2022 36 15 51 70.6%
2020 81 23 104 77.9%
TOTAL 132 41 173 76.3% (Average)
Sales Tax in the Region
One of the potential concerns about the upcoming November 2024 general election is that it will be a crowded ballot, in which voters will be asked to consider several state and local tax measures prior to having the opportunity to vote on the sales tax being considered by the City.
Countywide, the Affordable Housing, Homelessness Solutions and Prevention Now citizen initiative ballot measure, known as “Measure H 2.0,” has officially qualified and will appear on the November 2024 ballot. If passed by voters, Measure H 2.0 would fund housing and support services for the County’s homeless population by increasing the ¼ cent sales tax to ½ cent and removing the 2027 sunset clause to ensure the tax is only removed until repealed by voters. As mentioned in the background of the report, AB 1679 authorizes L.A. County to impose a new sales tax of up to 0.5% that “in combination with other transactions and use taxes, can exceed the combined state limit of 2% under certain conditions. This is shown in the table below which shows regional sales tax rates along with TUT’s and the impact of Measure H 2.0 passage.
Regional Sales Tax Rates
City Current Tax Sales Tax w/ TUT Sales Tax w/ TUT & Measure H 2.0
Manhattan 9.5% 10% 10.25 %
Hermosa 9.5% 10.25% 10.5 %
Redondo 9.5% N/A 9.75 %
El Segundo 9.5% 10.25% 10.5 %
Hawthorne 10.25% N/A 10.5 %
Torrance 10.0% N/A 10.25 %
Lawndale 10.25% N/A 10.5 %
Gardena 10.25% N/A 10.5 %
City of LA 9.5% N/A 9.75 %
Local Ballot Measures for Manhattan Beach Voters
In addition to a potential sales tax measure, Manhattan Beach voters will also consider two other fiscal ballot measures that will likely appear on the November 2024 ballot. This includes:
1. A proposal authorizing Manhattan Beach Unified School District to issue $200,000,000 in bonds for the repair and upgrade of local school facilities and;
2. A proposal authorizing Beach Cities Health District to issue $30,000,000 in bonds to build a youth mental health center.
In anticipation of these measures and the impact it may have on likely voters, True North Research, Inc. provided this information to survey respondents, prior to asking their opinion on a sales tax measure and received support ranging from 58%-67%.
Subcommittee Establishment
Staff recommends the City Council establish an ad hoc subcommittee of two Councilmembers to facilitate public information dissemination regarding the recommended measure.
CONCLUSION:
Staff recommends that the City Council:
1. Direct staff to return at the August 6, 2024, meeting with the required resolutions to place a ballot measure establishing a one-half cent sales tax at the November 5, 2024, General Municipal Election;
2. Establish a Subcommittee and assign members to assist with developing a community-led public outreach campaign.
ENVIRONMENTAL REVIEW:
The City Council's consideration of a sales tax ballot measure is not a “project” as defined under Section 15378 of the State California Environmental Quality Act (CEQA) Guidelines because it does not have a potential for resulting in either a direct physical change in the environment, or a reasonably foreseeable indirect physical change in the environment. Therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines, the activity is not subject to CEQA, and no environmental review is necessary.
LEGAL REVIEW:
The City Attorney has reviewed this report and determined that no additional legal analysis is necessary.
ATTACHMENTS:
1. Sales Tax Feasibility Survey Summary Report Provided by True North Research,
Inc.
2. PowerPoint Presentation