Attached for Council consideration is a proposed resolution (Attachment A) to call a Special Election to be held in conjunction with the General Municipal Election scheduled for November 4, 2003, for the purpose of voting on increases to the Business License Tax and the Transient Occupancy Tax. Council action is required to call the Special Election, to accept or modify the wording of the ballot questions and proposed amendments to the Sunnyvale Municipal Code, and to decide on the preparation of the ballot argument for each measure.

The Fiscal Management Sub-Element of Sunnyvale’s General Plan contains several goals, policies and action statements that address the City’s revenue base, including, but not limited to the following:

Goal 7.1A – Maintain and enhance the City’s revenue base

Policy 7.1A.1 – Maintain a diversified and stable revenue base for the City

The attached resolution calls a Special Election to be held in conjunction with the General Municipal Election on November 4, 2003, to vote on ballot measures which would amend the Sunnyvale Municipal Code to increase the City’s Business License Tax and/or Transient Occupancy Tax. A series of actions must be taken prior to the Special Election. First, the City Council must approve the ballot questions that will be presented to Sunnyvale voters. Second, Council must consider amendments to the Municipal Code to incorporate the proposed tax structure changes. Third, Council must decide who will draft the ballot argument for each measure.

The proposed ballot questions and summaries of Municipal Code amendments are outlined for each tax in their respective subsections below. The last subsection discusses the Council options for preparing the ballot arguments.

Working in conjunction with City staff, the City Attorney has prepared the following ballot question relating to the Transient Occupancy Tax. The ballot question may not exceed 75 words, and should be presented in clear and concise fashion so that it is clearly understandable to the electorate:

The proposed increase from 8.5% to 10% to the Transient Occupancy Tax (effective January 1, 2004) would require modifications to the Sunnyvale Municipal Code. In addition, other minor changes to the code are being included to clarify how the tax is applied, even though these do not require voter approval. The code changes are detailed in Attachment C.

During a recent meeting with City staff, a major hotelier in the City indicated that there may be a competitive business advantage if the Council were to propose to the voters a 1% increase instead of a 1.5% increase (increasing the tax from 8.5% to 9.5%). It is unknown whether this is a compelling argument. Staff has calculated for Council consideration that every 0.5% increase in the tax rate equates to approximately $300,000 in additional revenue.

Working in conjunction with City staff, the City Attorney has prepared the following ballot question relating to the Business License Tax. The ballot question may not exceed 75 words, and should be presented to the voters in clear and concise fashion so that it is clearly understandable:

The proposed increase to the Business License Tax (effective January 1, 2004) would require modifications to the Sunnyvale Municipal Code as summarized below and further detailed in Attachment D:

• Eliminate the cost distinction between businesses located in Sunnyvale and those located outside of Sunnyvale – Currently there are two rate schedules for the business license tax. A base charge of $10 is assessed on businesses located in Sunnyvale with 0-5 employees or rental units. In the case of a business having both employees and rental units, the tax is assessed on the higher of the two. For those companies that transact business in Sunnyvale but are physically located outside of the City, a base charge of $35 applies. The tax for both categories of businesses increases in $10 increments for every 5 employees or rental units and caps at $300 for businesses located inside the City and $325 for businesses located outside of the City. The proposed tax structure would eliminate the cost distinction between businesses located inside and outside of Sunnyvale.
• Increase the base and cap amounts – The proposed tax structure increases the base tax amount from $10 to $30 for businesses with 1 employee, from $10 to $50 for businesses with 2-5 employees or rental units (or portion thereof), then increasing in $50 increments for every 5 employees or rental units (or portion thereof), to a cap amount of $9,500. The amount of tax and cap is proposed to be adjusted annually for inflation by the San Jose-San Francisco-Oakland MSA Consumer Price Index.
• Clarify that business cannot have zero employees – The current ordinance categorizes the lowest chargeable category as 0-5 (zero to five) employees. The definition of employee in the ordinance, however, states that the business owner counts as an employee. This proposed change clarifies that the lowest chargeable category would be 1 employee, as opposed to 0 (zero).

In addition to the changes summarized above, there are a number of administrative and procedural changes that staff will address in the near future to clarify and/or streamline administration/collection of the tax. These modifications are being pursued in an effort to reduce the costs associated with business license processing and potentially include staggered renewals, web-based applications and clarification of enforcement procedures. Any recommendations in this regard, including the potential savings that could be incurred, will be brought back to Council before the next Business License Tax renewal cycle in December 2003.

It is further recommended that the newly enacted processing fee remain in place so that we can recover the administrative cost of collecting the tax. The processing fee can be amended at any time.

Ballot Arguments For and Against

The State elections code provides for the filing of arguments for or against each ballot measure. If submitted, one argument "For" and one argument "Against" the measure will be printed with the sample ballot.

Ballot arguments may be filed with the City Clerk by the City Council, by any member or members authorized by the City Council, or any combination of voters or associations. Rebuttal arguments are allowed only if expressly authorized by the City Council. In previous elections the City Council has not authorized rebuttal arguments and, consistent with that policy, the attached resolution does not authorize the filing of rebuttal arguments.

Arguments for or against may not exceed 300 words in length. The form of ballot arguments and certain restrictions on the content are set forth in State Elections Code Section 9282. No more than five signatures appear on the argument. If any argument is signed by more than five persons, the signatures of the first five are used.

Elections Code Section 9286 requires the City Clerk fix a date for the submittal of ballot arguments for or against, based on the time reasonably necessary to prepare and print the arguments and sample ballots and to permit the required public examination period. According to the election calendar produced by the County of Santa Clara, the date for submittal of ballot arguments is August 13, 2003, no later than 5:00 PM. Arguments already filed may be changed or withdrawn by their proponents up until the filing deadline.

If more than one argument for or against any measure is submitted, the City Clerk is required to select one of the arguments for printing. Preference is given to arguments submitted in the following order:

1. Argument submitted by the City Council or members of the City Council authorized by the Council;
2. The individual voter or bona fide association of citizens who are the bona fide sponsors or proponents of the measure;
3. Bona fide associations of citizens;
4. Individual voters.

If the City Council desires to submit an argument on the proposed measure, it may so indicate or provide authorization to one or more of its members to prepare the argument either for or against the measure. The City Council may wish to do that at this time or simply to give notice of its intent to do so to avoid unwarranted effort on the part of other persons who may wish to prepare such an argument.

Prepared by:
Pete Gonda
Senior Management Analyst, Finance

Reviewed by:
Mary J. Bradley
Director, Department of Finance