REPORT TO COUNCIL
SUBJECT
Title
Receive Transient Occupancy Tax and Real Property Transfer Tax Polling Results and Provide Direction to Staff on Next Steps
Report
BACKGROUND
City Council sponsored a study issue to identify and evaluate the potential of new revenue strategies for the City (FIN 17-01). Staff presented a variety of revenue sources to Council in October 2017. In consideration of the upcoming 2018 General Election, Council focused on revenue sources requiring voter approval.
On November 28, 2017, Council approved a Budget Modification (No. 24) for Advisory Services, including public opinion polling and education outreach. Council directed staff to explore moving forward with a general tax ballot measure focusing on Real Property Transfer Tax, Transient Occupancy Tax or Business License Tax.
EXISTING POLICY
Council Policy, Chapter 7, Planning and Management, Policy B.1.1 - The City will maintain a diversified and stable revenue base, not overly dependent on any land use or external funding source.
Council Policy, Chapter 7, Planning and Management, Policy B.1.4 - When considering a new tax or revenue source or an increase in an existing tax or revenue source, the following criteria should be considered:
• Community/Voter Acceptance
• Competitiveness with surrounding communities
• Efficiency of revenue collection and enforcement
• Effectiveness in generating sufficient revenues in the short and long-term to justify its establishment
• Enhancement of revenue diversity to promote stability and provide protection from downturns in business cycles
• Equity/Fairness in distribution of the revenue burden on various segments of the community
ENVIRONMENTAL REVIEW
This action is exempt from review under the California Environmental Act (CEQA) in that it involves fiscal and administrative activities that will not result in direct or indirect changes to the environment, and which do not commit the City to any specific project that may result in a potentially significant impact on the environment. (CEQA Guidelines, Section 15378(b)(4) and (b)(5).)
DISCUSSION
The City retained the services of Fairbank, Maslin, Maullin, Metz & Associates (FM3) to conduct voter opinion polling on potential revenue ballot measures. FM3 conducted polling on two measures: an increase to the City’s Transient Occupancy Tax (TOT) rate and an increase to the Real Property Transfer Tax (RPTT) rate.
The Transient Occupancy Tax is charged on hotel, corporate rental and short-term rental guests with stays less than 30 days in length. The Real Property Transfer Tax is charged when a property is sold and is usually shared between the buyer and seller.
Likely November 2018 Sunnyvale voters were polled via online and telephone survey methods. A total sample of 552 respondents were surveyed, 60% online and 40% via phone. All respondents were asked about both potential ballot measures, but the sample was split so that half were asked about TOT first and the other half were asked about RPTT first. The sample was selected and weighted to be consistent with the demographic profile of registered Sunnyvale voters for gender, age, household income and ethnicity. Based on the sample size the poll had a margin of error of approximately 4.9% for the overall sample.
Transient Occupancy Tax
Increasing the City’s Transient Occupancy Tax would require voter approval by a simple majority of voters. A draft ballot question was created to test voter opinion on increasing the TOT tax rate from 10.5% to 12.5%. The results showed a 71% initial approval rating, rising to 74% by the end of the survey. Respondents hearing about the TOT measure after the RPTT measure had the highest approval rating, 77%, by the end of the survey.
The increase in the TOT rate would bring Sunnyvale to a similar level as some neighboring communities. Below is a chart of current rates for cities in Santa Clara County.
* San Jose has an additional 4.0% Convention Center Facilities District tax on hotel properties within the district.
** Santa Clara has an additional 2.0% Community Facilities District tax on properties (including hotels) in the vicinity of Levi’s stadium.
The poll also looked for understanding the reasons respondents may support a TOT measure. Reasons included attaining tax parity with other communities (76%), keeping crime rates low / 9-1-1 response times (74%) and maintaining community parks (73%). Reasons respondents may oppose the measure included preferring to raise developer fees (76%) instead of taxes, or respondents felt there were already too many fees and taxes (66%).
Next steps for a TOT ballot measure would be to finalize a ballot question based on survey findings. This can be brought back to Council for final approval, along with the needed resolutions to place the measure on the November ballot.
Real Property Transfer Tax
Increasing the City’s Real Property Transfer Tax would require voter approval by a simple majority of voters. A draft ballot question was created to test voter opinion on increasing the rate from $0.55 to $3.30 per one thousand dollars in assessed value.
This increase would be in line with charter cities such as Mountain View, Palo Alto and San Jose. Only charter cities may modify their RPTT rate. Any change to the City rate would trigger a corresponding increase by Santa Clara County. Currently the City of Sunnyvale rate is $0.55 and the County rate is $0.55, for a total combined rate of $1.10. Any modification to the City’s rate would increase the County rate to $1.10.
The polling results showed a 33% initial approval rating for the proposed RPTT measure. Respondents asked about this measure before the TOT measure had a 41% rating, but when hearing about this measure after TOT, approval fell to 24%. By the end of the survey, overall support remained at 33%. Respondents were particularly concerned with the high costs of housing (79%).
Based on the polling results, a Real Property Transfer Tax measure is not likely to be successful. Neither FM3 nor staff recommend moving forward with a ballot measure. Also, placing multiple tax measures on the same ballot would likely diminish the chances of passing any of the measures.
Election Timing
To place any measure on the November 2018 ballot, action must be taken by Council on or before the July 31, 2018 Council meeting (but would preferably be taken sooner). Once action is taken to place a measure on the ballot, it would be followed by a 14-day period to provide written arguments for or against the measure. This is followed by a 10-day period for rebuttal arguments. Election day is November 6, 2018 and results would likely be ratified and approved by Council on December 18, 2018.
FISCAL IMPACT
Polling services were funded from the Evaluation of New Revenue Strategies Project Budget (833620) and Budget Modification No. 24 approved by Council in November 2017. The preparation and distribution of public education materials for a ballot measure, as needed, would be funded from this same project budget. Election costs will also increase for any measure Sunnyvale places on the ballot. The FY 2018/19 Recommended Budget includes the cost for up to three potential ballot measures.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City's official-notice bulletin board outside City Hall, at the Sunnyvale Senior Center, Community Center and Department of Public Safety; and by making the agenda and report available at the Sunnyvale Public Library, the Office of the City Clerk and on the City's website.
ALTERNATIVES
1. Direct staff to return to Council with actions necessary to place a ballot measure on the November 2018 ballot to increase the Transient Occupancy Tax rate from 10.5% to 12.5%
2. Do not direct staff to return to Council with actions necessary to place a ballot measure on the November 2018 ballot to increase the Transient Occupancy Tax rate from 10.5% to 12.5%
3. Provide alternative direction to staff on placing a ballot measure to increase the Transient Occupancy Tax rate from 10.5% to 12.5% on the November 2018 ballot
STAFF RECOMMENDATION
Recommendation
Alternative 1: Direct staff to return to Council with actions necessary to place a ballot measure on the November 2018 ballot to increase the Transient Occupancy Tax rate from 10.5% to 12.5%.
Staff
Prepared by: Beth Goodsell, Senior Management Analyst
Reviewed by: Timothy J. Kirby, Director, Finance
Reviewed by: Teri Silva, Assistant City Manager
Approved by: Kent Steffens, City Manager
ATTACHMENTS
1. FM3 Summary of Polling Results