REPORT TO COUNCIL
SUBJECT
Title
Discussion and Possible Action Regarding Placing a Revenue Measure on the November 2024 Ballot: Real Property Transfer Tax Measure and/or Civic Center Phase 2: Main Library Bond Measure
Report
BACKGROUND
Real Property Transfer Tax
In 2021, the City Council sponsored a study issue to explore a 2022 General Election ballot measure to modify the City’s Real Property Transfer Tax (RPTT) (FIN 21-01). Council held a study session on April 26, 2022, where staff presented a variety of potential tax structures and estimated impacts to RPTT revenue to Council. The City retained the services of polling consultants to conduct voter opinion polling on potential revenue ballot measures to increase the City’s RPTT rate and structure. On July 12, 2022, Council reviewed the polling results and directed staff to return with potential draft ballot measure language and actions needed to place a ballot measure on the November 2022 ballot (RTC 22-0732). Direction was given to proceed with the flat (non-tiered) $7.50/$1,000 of sales price tax structure with an exemption threshold of $4 million and provide options for regular adjustments of the threshold based on a real property-based index or rating. On July 26, 2022, the Council considered but failed to pass a motion to move forward with the ballot measure (RTC 22-0773).
On November 28, 2023, the City Council directed staff to present information and options for consideration to place an RPTT measure on the November 2024 ballot (RTC 23-1089).
On January 23, 2024, the City Council appropriated funding for polling consultant costs provided direction to proceed with public polling (RTC 24-0184).
On April 23, 2024, Council received polling results from Fairbank, Maslin, Maullin, Metz & Associates (FM3) (RTC 24-0529). The polling showed improved public support compared to 2022, with a 67% initial approval rating. Council took no further action pending polling results for a potential library bond parcel tax measure.
Civic Center Modernization Project - Phase II
In 2017, City Council adopted the Civic Center Modernization Master Plan (RTC No. 17-0835). The Master Plan contains a long-term, multi-phased vision of the entire campus: relocating some of the on-grade parking to underground spaces; increasing open space and native landscape; constructing three new facilities - a City Hall, Department of Public Safety Headquarters, and Library; razing older structures on site, and modernizing the entire campus.
The adopted Master Plan was comprised of three phases. Phase 1 included a new City Hall, a Public Safety building renovation and addition that includes a new Emergency Operation Center (EOC), and site improvements. Phase 2 includes a new Main Library, playground, and site improvements. Phase 3 is a new Public Safety Headquarters building.
On September 12, 2023, Council awarded a contract to Group 4 Architecture, Research + Planning, Inc. for the Civic Center Phase 2 - Main Library. After design and outreach, the consultant and staff presented Council with options during the April 9, 2024, Study Session. At this time, Council narrowed the options under consideration to two: a 2-story new 95,000 square foot library estimated to cost $240 million and a 3-story new 120,000 square foot library estimated to cost $290 million. Both options were to be rated as LEED Platinum, achieve Net-Zero energy, and not include underground parking.
The current funding for this project is a voter approved parcel tax measure in the November 2024 election to pay the debt service related to a bond issuance. Council directed staff to proceed with polling to gauge the likelihood that voters would be receptive to such a measure and received the results of the polling during the May 21, 2024, Study Session.
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
Real Property Transfer Tax
The proposed increase of the City’s Real Property Transfer Tax would be a general tax as it is being imposed for general governmental purposes and would require approval by a simple majority of voters. A draft ballot question was created to test voter opinion on levying a tax in the amount of $7.50 per one thousand dollars in value transferred, exempting all transfers less than $4 million.
Only charter cities may modify their RPTT rate. If the City begins to levy its own RPTT, Santa Clara County will continue to collect $1.10/$1,000 of the sales price on all property transfers, but the $0.55/$1,000 that the City currently receives will be retained by the County, even for transfers that are exempt from the City’s tax.
Based on historical data, this tax would generate an average of an estimated $6.2 million annually in additional General Fund revenue.
As presented during the April 23, 2024 Public Hearing, the polling results showed a 67% initial approval rating for an RPTT measure. After respondents heard arguments supporting the measure, the approval rating rose to 72%, and then dropped to 63% after hearing opposition arguments.
Threshold Adjustment Options
Council has expressed additional clarification on exemption adjustment options. While CPI is a commonly used index, the Council previously requested alternatives more directly related to the housing market. Staff provides the following additional options for consideration as the basis for adjustment:
(a) The S&P/Case-Schiller Index - San Francisco Home Price Index
The S&P CoreLogic Case-Shiller Index measures the value of single-family housing within the United States. Percentage changes in the indices measure percentage changes in housing market prices given a constant level of quality. Changes in the types and sizes of houses or changes in the physical characteristics of houses are specifically excluded from the calculations to avoid incorrectly affecting the index value. The index does not sample sale prices associated with new construction, condominiums, co-ops/apartments, multi-family dwellings, or other properties that cannot be identified as single-family.
This index, which is produced by a private entity, is widely considered to be one of the best indices for changes in home prices over time. Between the period of February 2023 and February 2024, this index shows an increase in home values of 5.2% for the region.
(b) The Federal Housing Finance Agency (FHFA) House Price Indexâ (HPI) - Purchase Only for the San Jose-Sunnyvale-Santa Clara Area
The FHFA House Price Index is a broad economic measure of the movement of single-family house prices in the United States. The production of the FHFA HPI is statutorily mandated (12 U.S.C. 4542) but it began in 1995 with one of FHFA's predecessor agencies, the Office of the Federal Housing Enterprise Oversight (OFHEO). The initial reports contained information about regional and national house price movements. Sample coverage has expanded with better access to new data sources and technological improvements for processing such information. Today, indexes cover all 50 states and over 400 American cities while extending back to the mid-1970s.
This index is produced by a regulatory agency of the Federal government and has been in place for many decades. For the most recent one-year (four quarter) period, this index shows an 5.8% increase in home values for the region.
(c) Average Sales Price for Single Family Detached Homes for Sunnyvale
Staff currently contracts with a consultant to assist with monitoring and projection of property taxes in Sunnyvale, who produces a quarterly report summarizing publicly available home sales data obtained from Santa Clara County Assessor records. This could be used for the purposes of calculating the change in the tax threshold. The most recent year over year change in average sales prices reflects an increase of 4.8%.
Staff would recommend the use of the FHFA House Price Index Purchase Only for the San Jose-Sunnyvale-Santa Clara Area (Option b) as a longstanding, official source.
Library Bond Measure Polling
The City retained the services of FM3 to conduct a separate voter opinion survey on a potential revenue ballot measure to levy a parcel tax to fund the construction of a new Main Library.
Sunnyvale voters who are likely to vote in November 2024 were polled via online and telephone survey methods. A total sample of 612 respondents were surveyed, 54% online and 46% via phone. The sample was split and asked about a parcel tax to fund a $240 million library ($23/$100k of assessed valuation (AV) and a $290 million library ($27/$100k AV). 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 4.0% for the overall sample (95% confidence level).
The polling results showed a combined 65% initial approval rating for a Library Bond parcel tax measure. After respondents heard arguments supporting the measure, their approval rating rose to 66% combined, and then dropped to 56% after hearing opposition arguments.
When looking specifically at the split of respondents who were asked about the larger, $290 million option, the support was higher, with an initial approval of 67%, rising to 68% after hearing supportive arguments and dropping to 57% after hearing opposition arguments.
As the revenue generated by the tax would be for a specified purpose, the Library Bond measure would currently require a two-thirds majority vote in order to pass.
Election Timing
To place one or both measures on the November 2024 ballot, Council must take action on or before the July 30, 2024, Council meeting. While this is a latest possible date, it is highly advantageous to make a final decision as soon as possible to leave time for the City to educate voters about the measure(s). Once the measure(s) is placed on the ballot, there would be a 14-day period to provide written arguments for or against the measure, followed by a 10-day period for rebuttal arguments. Election day is November 5, 2024, and if approved by the voters, results would likely be ratified and approved by Council on December 10, 2024.
FISCAL IMPACT
If passed, a transfer tax in the amount of $7.50 per one thousand dollars in value transferred, exempting all transfers less than $4 million is estimated to generate an average of $6.2 million in additional annual General Fund revenue. Actual revenue will fluctuate based on the volume of high value real property sales each year.
If passed, a $27/$100,000 AV or a $23/$100,000 AV parcel tax would generate an estimated $18.6 million or $15.4 million in annual revenue, respectively. This revenue would fund the debt service payments for bonds issued to build the new Main Library building over twenty-five years.
The cost to place a measure on the ballot is estimated by the Registrar of Voters to be $117,887. The FY 2024/25 Recommended Budget includes the cost for up to two potential ballot measures in Project 835020 - Sunnyvale Biennial Elections.
If Council direction is to conduct a third poll to determine the viability of placing both measures on the November 2024 ballot, Budget Modification No. 24 has been prepared to appropriate funds from the General Fund Budget Stabilization fund in the amount of $40,000 for Public Polling costs to Project 836750 - 2024 Real Property Transfer Tax Measure.
Budget Modification No. 24
FY 2023/24
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Current |
Increase/ (Decrease) |
Revised |
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General Fund |
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Funding Source Category |
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Budget Stabilization Fund |
$77,931,580 |
($40,000) |
$77,891,580 |
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Funding Use Category |
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Project 836750 - 2024 Real Property Transfer Tax Measure |
$40,000 |
$40,000 |
$80,000 |
Preparing and distributing public education materials for either ballot measure would be funded from its project budget; however, staff has not yet assessed what would be appropriate for education or the estimated cost. Should Council direct staff to move forward with placing one or both measures on the ballot, staff will more fully assess this issue and return to Council with a budget modification to cover the costs of public education materials related to a measure.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the NOVA Workforce Services reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
ALTERNATIVES
1. Direct staff to return to Council with actions necessary to place a RPTT ballot measure on the November 2024 ballot to levy a City Real Property Transfer Tax of $7.50/$1,000 for sales over $4 million.
2. Direct staff to return to Council with actions necessary to place a RPTT ballot measure on the November 2024 ballot with an alternative tax rate or structure.
3. Direct staff to return to Council with actions necessary to place a general obligation bond measure to support the issuance of $290 million in bonds for the construction of a new library on the November 2024 ballot.
4. Direct staff to return to Council with actions necessary to place both measures on the November 2024 ballot.
5. Approve Budget Modification No. 24 in the amount of $40,000 and direct staff to conduct a third poll to determine the viability of placing both RPTT and Library Bond measures on the November 2024 ballot.
6. Do not direct staff to move forward with either ballot measure.
RECOMMENDATION
Recommendation
Alternative 3: Direct staff to return to Council with actions necessary to place a general obligation bond measure to support the issuance of $290 million in bonds for the construction of a new library on the November 2024 ballot.
After consideration of the polling results, community feedback, the City’s current stable fiscal position, and the unfunded status of Phase II of the Civic Center - Main Library, staff recommends that the Council move forward with the Library measure. The City has recently received considerable opposition to the potential Real Property Transfer Tax from the business community. While this potential measure polled very favorably, significant uncertainty would exist if a campaign against the measure were conducted.
The FY 2024/25 Recommended Budget provides $3.5M in ongoing funding for new or increased services as part of the Service Level Set Aside. As such, the need for new revenue to fund services has been largely mitigated as revenues are recovering post pandemic and exceeding previous projections. This sentiment was also reflected in the results of the polling. When asked, “In your personal opinion, do you think there is a great need, some need, a little need, or no real need for additional funds to provide the level of city services that residents of the City of Sunnyvale need and want” 51% of respondents said there was great or some need, 35% said a little or no real need, with 14% undecided. When asked, “First, do you think Sunnyvale’s library is in need of a great deal of additional funding, some need of additional funding, a little need of additional funding, or no need for additional funding” 56% of respondents said there was great or some need, 26% said there was little or no need, with 18% undecided. Furthermore, the library itself received an overwhelming 75% approval from respondents with only 5% disapproval.
Based on the recommended budget, the City will be able to add some new services. However, the budget cannot support the capital costs of a new library without an additional funding source. Therefore, staff is recommending moving forward with the Library measure and potentially reconsidering the Real Property Transfer Tax measure in a future election cycle. Staff does not recommend placing both measures on the ballot, nor spending the time to conduct another poll to see if this is feasible.
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $250 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html.
A check or “Y” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract
___ Labor or personal employment contract
_Y_ General policy and legislative actions
Staff
Prepared by: Dennis Jaw, Assistant Director of Finance
Reviewed by: Tim Kirby, Director, Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Kent Steffens, City Manager