Since 1964, the City Council has annually levied an assessment for the debt service requirements associated with the acquisition of land for parking facilities and an assessment to cover maintenance, operation, and construction of improvements for the City’s Downtown Parking District parking facilities. Both of these assessments have been ad valorem based on the value of each property within the District boundaries. Proposition 218, passed by California voters in 1996, requires assessments to be based on specific benefit to the property and requires a change to the City’s methodology. This law applies to any assessments made for the Parking District after FY 1997/98.

In response to the requirements of Proposition 218, staff has developed a new assessment methodology for the operation and maintenance component for Council’s consideration. Staff believes the new Assessment District fulfills Proposition 218 requirements and represents the fairest and most equitable alternative to financing the Parking District for the property owners.

By adopting the new Assessment District, Council will give the City the necessary authority to levy and collect the non ad valorem assessments for public parking facilities from property owners within the Assessment District.

At its Study Session on March 24, 1998, staff informed the City Council that amending the City’s Improvement Procedure Code to include the procedures for levying non ad valorem assessments for public parking facilities would be necessary to proceed with the plan to modify the City’s current Parking District assessment methodology as required by Proposition 218.

Upon discussing this option with the City Council during the March 24, 1998 Study Session, staff received Council’s approval to proceed with the amendment of the City’s Improvement Procedure Code.

On April 21, 1998, Council adopted Ordinance No. 2576-98 amending the City’s Improvement Procedure Code (Sunnyvale Municipal Code Title 14) which incorporates procedures for levying non ad valorem assessments for public parking facilities. Ordinance No. 2576-98 became effective on May 21, 1998.

On June 9, 1998, the City Council approved the Preliminary Engineer’s Report and authorized the mailing of Notice of Proposed Assessment and ballots to all Downtown Parking Assessment District property owners. Property owners had 45 days to submit their ballots, with City Council final action at the public hearing scheduled July 28, 1998. An informational public meeting was held on June 25, 1998, to allow property owners the opportunity to have any of their questions answered regarding the ballots and the proposed assessment.

Council Resolution 6643, dated September 1, 1964 authorized the City to levy an annual assessment on all lands and improvements within the Parking District to pay debt service, and maintenance, operations, and improvement costs. Since that time, this assessment has been levied by means of an ad valorem assessment placed on the annual property tax bills.

The Downtown Parking District consists of over 100 parcels in Sunnyvale’s downtown area. Over 95% of the Parking District consists of commercial businesses, of which Sunnyvale Town Center is the largest.

In response to the 1996 passage of Proposition 218 ("The Right to Vote on Taxes Act"), staff began development of a plan to bring the Downtown Parking District assessment into compliance with the new legal provisions. Proposition 218 requires all assessments to be based on specific benefit to each property and to be supported by an engineer’s report prepared by a registered professional engineer certified by the State of California. The City’s current ad valorem assessment methodology does not conform with the requirements of Proposition 218, insofar as it applies to the assessment of operation and maintenance costs. Proposition 218, however, allows the City to continue to assess property owners for the debt service portion of the Parking District’s cost on an ad valorem basis. The debt service represents approximately one-third of the Parking District’s cost, or $70,000.

After receiving qualifications and interviewing several firms, staff retained the firm of Berryman & Henigar (B&H) to assist in conducting the Parking District assessment methodology study. After considerable study, staff and B&H agreed that the most appropriate methodology would be based pro-rata on each parcel’s parking deficit. This would be calculated on the parking demand the property generates, based on the City’s Municipal Code zoning requirements less the existing number of off-street parking spaces that each parcel contains. The result of this calculation is based upon each parcel’s pro rata share of "parking deficit." This methodology appeared to be the fairest and most equitable way to assess property owners for operation and maintenance of the parking facilities.

Upon meeting with the property owners, it appeared that most of the property owners accept the equity of the proposed methodology, but have expressed concerns regarding the sharp increase in their proposed assessments. Under the proposed methodology, most property owner’s assessments would experience a substantial increase as compared to previous assessments. The increase is largely a result of the Town Center being removed from the proposed assessment as the Town Center has sufficient parking for its property, and therefore will be excluded from the new assessment in accordance with Proposition 218. Under the ad valorem assessment methodology, the Town Center represented the largest payer into the Parking District.

Based on the feedback staff received from property owners in attendance, an alternative assessment methodology was developed. The assessment methodology proposed for the Assessment District is as follows:

• Continue to assess debt service ( approximately $70,000) per year on an ad valorem basis and assess operations and maintenance ($175,000) per year on each parcel’s pro rata share of parking demand deficit. This methodology results in a yearly ad valorem tax of $0.06186 per $100 dollars of assessed valuation and a current cost per space of parking deficit of $55.

After carefully examining the potential impact of all methodologies that were considered, staff concluded that this methodology results in a lower cost increase for the majority of property owners. Additionally, staff has assured property owners that the operations and maintenance costs will continued to be maintained at competitive levels.

Under Proposition 218, property owners have the opportunity to accept or reject the proposed Assessment District by vote. A simple majority vote weighted by assessment obligation of over 50% is required to either pass or reject the proposed Assessment District.

During the open public hearing on July 28, 1998, any protests which have been filed with the City Clerk will be heard and considered. At the conclusion of the hearing, the following items should be considered:

1. Report of ballot tabulation.
2. Council vote on Resolution Ordering Improvement and Formation of the Assessment District for FY 1998/99.

If the vote as tabulated on July 28, 1998, is in support of the formation of the Downtown Assessment District, the City Council may either approve or reject the recommended Assessment District. If approved by Council, staff will forward the assessment for operation and maintenance to Santa Clara County for collection on the property tax rolls. If the vote is not in favor of the formation of the Downtown Assessment District, the City will not have the authority to establish the Downtown Assessment District for FY 1998/99.

One obvious concern under the new assessment process is the question of what happens if the assessment for operation and maintenance is not approved by the district voters. There is no simple answer about how to handle the costs for the continuing operation and maintenance of the district should the assessment vote fail. It is important to remember that it is clearly the obligation of the downtown business owners to provide parking for their businesses, and that the parking assessment district was established as an inexpensive and cost-effective mechanism for those businesses who do not have adequate parking on their property to meet parking requirements. If the assessment is not successful, the property owners will have to identify alternative methods of providing and maintaining parking for the benefit of their businesses. It is unlikely the individual property owners could do this as cheaply as the Parking District. For these reasons, if the assessment methodology is not approved staff would recommend that the City investigate contracting with a parking operator for a paid parking program for all City owned lots within the Parking Assessment District.

Approval of the operation and maintenance component of the recommended assessment methodology will generate approximately $175,000 per year. Should property owners reject the formation of the Downtown Parking Assessment District, the City has approximately $90,000 remaining in the Parking District Fund that may be used until an alternative for operating the parking facilities can be put in place.

1. If the vote as tabulated on July 28, 1998, is in support of the formation of the Downtown Assessment District, Council may adopt the resolution to form new a Downtown Parking Assessment District and authorize the levy of assessment for FY 1998/99.
2. If the vote as tabulated on July 28, 1998 is not in support of the formation of the Downtown Assessment District, Council may not levy the assessment for FY 1998/99 and must identify an alternative method for operating the parking lots.

Beginning in February of 1997, staff has held 5 public property owner meetings. Recorded meeting minutes were mailed to each registered property owner. The most recent public meeting occurred on June 25, 1998.

Required public notice was also given through the publication of the City Council Agenda.

Based upon the final tabulation of the property owners ballots, it is recommended that Council approve Alternative 1 which would establish the formation and authorize the levy of assessment for the Downtown Parking Assessment District for FY 1998/99.

Approved by:

Robert S. LaSala
City Manager