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HomeMy WebLinkAbout09/21/1992 Meeting e M I NUT E S Eugene City Council Work Session McNutt Room--City Hall September 21, 1992 5:30 p.m. COUNCILORS PRESENT: Shawn Boles, Ruth Bascom, Roger Rutan, Debra Ehrman, Bobby Green, Randy MacDonald, Paul Nicholson, Kaye Robi nette. The work session of the Eugene City Council was called to order by His Honor Mayor Jeff Miller. I. WORK SESSION: EUGENE DECISIONS Mr. Rutan introduced Ron Chastain of Chastain Economic Consultants, who had assisted the Committee on Revenue in its work. He briefly reviewed the council's charge to the committee and described the committee's review of available revenue sources. Mr. Rutan recommended that the council review and discuss each revenue source. e The council reviewed a memorandum entitled "Revenue Report" from the Council Committee on Revenue, and an attached matrix entitled "Comparison of Attrib- utes of Five Proposed Taxes." Restaurant Tax Mr. Boles asked how catered meals would be affected by the tax. Mr. Rutan responded that catered meals would be included under the broader definition of "prepared meals." He said that the estimated yield of $1.51 million on a tax of one percent was based on the Standard Industrial Code (SIC) definition of a restaurant. An expanded definition of prepared foods tax that included catered meals would yield an additional three to five percent on the estimated base of $1.51 million. Mr. Rutan added that he believed the additional yield estimate to be too low. Mr. Chastain indicated that no national data was available to test Mr. Rutan's belief. Ms. Bascom asked if banquet meals were included in the revenues estimated for the restaurant tax. Mr. Rutan said no. The council briefly discussed what types of restaurants were included in the standard definition that had been used to reach the revenue projections. e MINUTES--City Council Work Session September 21, 1992 Page 1 5:30 p.m. e Ms. Ehrman asked if the one-time start-up costs for administration applied to the City or to the industry. Mr. Rutan said that there were start-up costs included for both the City and industry. The committee estimated a $55,000 start-up cost for the City. Discussions with the industry indicated a range of start-up costs. Responding to a question from Mr. Boles, Mr. Rutan clarified that the estimat- ed industry administrative costs of from two to five percent of gross tax revenues were similar to the percentages paid the hospitality industry for administration of the Transient Room Tax. Mr. Boles asked if the committee had considered backing costs associated with administration out of the yield. Mr. Rutan said that the yield was projected on gross revenues; administrative costs would be taken from the gross revenues. Mr. Boles said it would be helpful to know the yield that remained after both two and five percent were deleted, as well as the start-up costs. Mr. Rutan said that those figures could be secured, but he cautioned that to do so would require some prelimi- nary decisions by the council regarding the percentage and whether start-up costs would be paid by the City. Mr. Boles asked if the estimated two- to five-percent administration costs were predicted on the costs of individual sales transactions. Mr. Mounts said no. He added that the City currently allows five percent of gross revenues to hotels and motels to collect the room tax. Those businesses report gross sales. Mr. Robinette asked why the restaurant tax was considered in the analysis to e be moderately stable while the business income tax was termed unstable. Mr. Nicholson said that one tax was based on income, while the other was based on receipts, and receipts fluctuate less as a percentage than income. Mr. Robinette asked why, in that case, the personal income tax was not considered more unstable. Mr. Rutan said statistics indicate that expenditures for out- of-home meals is a static number as a percentage of income over time. There is a direct correlation between the two. Mr. Mounts agreed, adding that the levels of expenditures on restaurant meals is tied directly to personal income levels. A relatively small shift in gross receipts can have a major impact on the net income of business; Mr. Mounts pointed out that the State corporate income tax demonstrates significant shifts, whereas personal income fluctua- tions are much milder over time, and restaurant sales are directly related to personal income. Responding to a question from Ms. Ehrman, Mr. Mounts said there are cities in Colorado, Kentucky, and New Hampshire that levy restaurant taxes, as well as from Virginia, the state about which staff has the most information. e MINUTES--City Council Work Session September 21, 1992 Page 2 5:30 p.m. e Personal Income Tax Mr. Rutan and Mr. Nicholson reviewed the matrix details regarding the tax. Mr. Chastain cautioned that the administration costs provided by the State could be higher than actual costs due to uncertainty on the part of the State regarding the scope of the tax. Business Income Tax Mr. Rutan discussed the differences between a business net income tax and corporate income tax and offered examples of how the business income tax would work. Responding to a question from Ms. Ehrman, Mr. Rutan said that the information in the matrix was based on the Multnomah County model. Responding to a comment from Mr. Chastain about the stability of the tax, Mr. MacDonald asked if the stability level could be attributed to the manner in which the tax structure was designed. Mr. Chastain attributed the fluctuation in the tax to both income levels and the treatment of business losses under the structure. Ms. Bascom asked if the tax would serve as a disincentive for businesses to locate to Eugene. Mr. Nicholson pointed out that businesses inside the city would have to earn income inside the city in order to be liable for the tax. e Businesses outside the city would be liable for the tax if they earned income inside Eugene. Mr. Rutan said that the tax might effect some business decisions just because it was a tax and the reaction of the business community could be negative. Additionally, there are large corporations who operate through branch offices; a tax on a branch in Eugene could affect that company's decision to run business through the branch. Mr. Nicholson agreed that sales office location decisions could be affected, with the result that such facilities could be located in Springfield. Mr. Boles asked to what degree the tax had reduced business growth in Multnomah County. Mr. Rutan said it had not, but maintained that Multnomah County had achieved a critical mass of activity that was stronger and more diversified than that of Eugene. Responding to a question from Ms. Ehrman, Mr. Mounts said that the costs of collection were based on the State's administration charges to Multnomah County. The estimate of $150,000 also included a component for City costs. Responding to a question from Mr. Miller, Mr. Nicholson said that the owners of C corporations are paid a salary, and that salary is exempted from the business net income tax. Similar consideration is given to businesses that are not C corporations. Mr. Rutan referred the council to the examples on page 43 of the packet. e MINUTES--City Council Work Session September 21, 1992 Page 3 5:30 p.m. e Utility Tax Mr. Rutan noted that the packet contained a letter dated September 18, 1992, from Susan Smith of the Eugene Water & Electric Board (EWEB). Mr. Rutan reviewed the attributes for the utility tax in the matrix. Responding to a question from Mr. Boles regarding the availability of informa- tion about the low-income exemption program, Mr. Mounts said staff had initial information about the number of households in the community that would qualify, but had not estimated the monthly utility costs for those households or the potential revenue loss. A preliminary estimate for the electric utility tax indicated an approximate $40,000 loss if all eligible households took advantage of the exemption. Mr. Rutan noted that the estimates in the matrix were based on projected post- Trojan figures. Ms. Ehrman asked if the committee had considered conservation efforts in its projections. Mr. Rutan said no. In response to a request from Mr. MacDonald for more information regarding the effect of the Trojan closing on in-lieu-of-tax revenue, Mr. Gleason said that the current compensation received by the General Fund for the municipal electrical utility is not an in-lieu of tax, but rather a payment of earned surplus mandated by State statute. Mr. Gleason said that the result of e decommissioning Trojan will be governed by that statute. Ms. Bascom asked for more information about potential legal issues. Mr. Rutan referred Ms. Bascom to the letter from Susan Smith and said that the City Attorney is researching the issues raised by EWEB. Ms. Bascom indicated she had heard public concerns about the need for EWEB as a public utility to downsize operations and cut wages and benefits in a manner similar to the City and County and suggested that the City enter into discus- sions with EWEB about those issues in order to offset the effect of the proposed utility tax. Mr. Miller pointed out that EWEB was governed by an independent board and suggested that the dialogue suggested by Ms. Bascom should more appropriately take place between the utility and the ratepayers. Mr. Gleason anticipated that the board would respond by saying that tax policy for general purpose government was the responsibility of the City rather than the utility. Ms. Bascom said councilors had been approached by board members regarding issues of shared concern and suggested those approaches were efforts to have a dialogue about how the two bodies can work together for the communi- ty welfare. e MINUTES--City Council Work Session September 21, 1992 Page 4 5:30 p.m. e Gas Tax Responding to a question from Ms. Bascom, Mr. Mounts said that the City had not worked on the gas tax issue with Lane County. Mr. Robinette asked for information about the experience of the City of Woodburn in implementing a local gas tax. Mr. Mounts said that the tax was levied against distributors who served gas stations within the city whether they were located inside or outside the city. There was no data suggesting a shift in consumption. The council took a brief break at 7:02 p.m.; the meeting resumed at 7:12 p.m. The council cast a series of straw votes indicating support for addressing the $3.8 million shortfall through the tax sources under consideration. Ms. Bascom said for the record that she did not believe the council should consider any of the tax choices unless it agreed to refer the choice to the voters. First Choice: Restaurant Tax: Ms. Ehrman Personal Income Tax: Mr. Nicholson Business Income Tax: Mr. MacDonald, Ms. Bascom Util ity Tax: Mr. Green, Mr. Rutan, Mr. Boles Property Tax: Mr. Robinette, Mr. Miller e Second Choice: Restaurant Tax: Mr. Nicholson, Mr. Robinette, Mr. Boles, Mr. Rutan, Ms. Bascom Personal Income: Mr. MacDonald Business Income: Mr. Miller, Mr. Ehrman Third Choice: Business Income Tax: Mr. Boles, Mr. Nicholson Util ity Tax: Mr. Robinette Fourth Choice: Personal Income Tax: Mr. Boles Util ity Tax: Mr. Nicholson Fifth Choice: Property Tax: Mr. Nicholson, Mr. Boles The council cast a series of straw votes indicating funding preferences for the fire station construction and a new library. Councilors indicated their e MINUTES--City Council Work Session September 21, 1992 Page 5 5:30 p.m. e unanimous first choice preference for funding fire station construction to be the property tax with nine votes; the Business Income Tax was the second choice for Ms. Ehrman, and the Utility Tax was the second choice for Mr. Green, Mr. Boles, and Mr. Miller. There were no other funding preferences identified for fire station construction. The council ranked the funding sources to support the new library. Mr. Boles, Mr. MacDonald, and Mr. Nicholson ranked the Restaurant Tax as their first choice for library funding; Ms. Ehrman and Ms. Bascom selected the Utility Tax as their first choice; and Mr. Robinette and Mr. Rutan selected the Property Tax as their first choice for funding a new library. Ms. Ehrman, Ms. Bascom, and Mr. Robinette indicated that their second choice for funding was the Restaurant Tax; Mr. Rutan selected the Utility Tax as his second funding choice; and Mr. Boles, Mr. MacDonald, and Mr. Nicholson selected the property tax as their second choice for library funding. Ms. Ehrman ranked the Restaurant Tax as her third choice for library funding. The council discussed the advantages and disadvantages of whether to refer a funding source to the voters. Ms. Bascom spoke in favor of referring any selected funding source. She maintained that a referral would show the council to be "up-front" with the voters and in keeping with local tradition. Mr. Boles spoke in opposition to referral. He said the council had made a considerable investment in the Eugene Decisions process with the understanding e that the council was responsible for the final decision. Mr. Boles said if people were unhappy with the choice, the public could refer the issue. He said the issue then would be, "did the council make a wise choice," not, "do you like this tax?" Mr. Nicholson agreed with Mr. Boles but suggested that his decision regarding referral would be affected by unanimity on the council regarding the final choice. Mr. Green said he appreciated Ms. Bascom's point but did not favor referring the issue if the council decision was unanimous. Ms. Ehrman said she had appreciated the council's recent discussion with the legislators and their advice to go ahead without a vote. She said she distinguished between the core and the enhancements, and indicated she would be more likely to support referral of funding enhancements or selection of an unpopular revenue choice to the voters. Mr. Robinette said he agreed with previous remarks made by Mr. Rutan: any selected funding source will be referred to the voters with or without the council's assent. He said due to that inevitability and the negative votes that the funding source will receive if the council fails to refer the revenue, he supported referral. Mr. MacDonald said he agreed with Mr. Robinette. He said the council needed to control the date of referral to avoid conflict with State revenue measures. e MINUTES--City Council Work Session September 21, 1992 Page 6 5:30 p.m. ~ Further, he believed that the public had the expectation that it would have the opportunity to vote on all major decisions, particularly those related to taxes. Mr. MacDonald said that referring a revenue measure would maintain the council's credibility with the public. Mr. Boles reminded the council that it had been clear with the public about the council's responsibility in making a final decision. Mr. Miller said that the council would negate its leadership role by referring its decision to the voters. He suggested that the referral was a final public "check-off." Mr. Nicholson said he agreed with Mr. Boles' basic premise that referring any revenue to the voters was sending the wrong message after undertaking such an extensive information-gathering promise. The council had not promised that its decision would command 51 percent of voter support. Mr. Nicholson said he also had difficulty referring issues to the voters when only one result is acceptable. The council would be spending public money to persuade the public to vote for the prudent choice. Mr. Green said that the council needed to be prepared to direct the manager to re-evaluate Strategy C. Councilors reviewed their funding selections and briefly discussed the rationale behind their preferences for funding. e Mr. MacDonald said his support for a combination of business income and personal income taxes was based on equitability, progressivity, and the broad- based nature of the taxes, while he acknowledged the public antipathy toward the personal income tax. He said he was also disturbed to learn about the volatility of the business income tax. Regarding his support for a property tax, Mr. MacDonald pointed out that the City's Capital Improvement Program could be supported with a voter-approved serial levy outside the $10 cap. Mr. Boles noted the strong support shown for the restaurant tax by the City Council and the public. He said that a five percent tax would cover both the core shortfall and provide sufficient revenue to pay for the library in four to five years. Mr. Boles said a disadvantage to consider was the narrowness of a tax that would be supporting core services. Mr. Rutan said the community has not yet felt the impact of the council's proposed cuts, and it was hard to make a case for a tax increase at the present time. He said that the council's funding selection for supporting the core should be broad-based, as he agreed with Mr. Boles about the narrowness of the restaurant tax. Mr. Rutan said that the only tax on the list in which he had any interest was the utility tax as he considered it to be broad-based. Mr. Green indicated his agreement with Mr. Rutan regarding the utility tax. e MINUTES--City Council Work Session September 21, 1992 Page 7 5:30 p.m. . Ms. Ehrman reiterated her support for the restaurant tax, saying that the tax contained an element of choice, captured dollars from nonresidents, and was strongly favored by the voters. Ms. Ehrman did not support a business income tax or personal income tax due to her fear that it would harm the community's reputation as a good place to do business. She said that she could not support any property tax increase for funding the core due to strong voter antipathy toward the tax. Ms. Ehrman said her support of the utility tax was tied to the low-income exemption and its broad-based nature. Mr. Nicholson noted that the personal income tax would capture more revenue from nonresidents that any other revenue option considered. Further, it was progressive, broad-based, direct, and a stable source of revenue. Mr. Nicholson said his support for the restaurant tax was based on its popularity among voters. Mr. Robinette said his support for the property tax was based on his belief that some tax relief would result from Ballot Measure 5, the tax was broad- based, and easy to administer. He acknowledged that the tax was not popular, and suggested it would be necessary for people to feel the results of service reductions before the council could gain voter approval for any increase. Mr. Robinette said that his support for the restaurant tax was tied to the survey results. Ms. Bascom said she supported the restaurant tax because of its ranking among survey respondents. She said she found arguments against the business income tax to be persuasive, and she was disturbed by its instability. Ms. Bascom e said she supported the utility tax, although she did not believe the tax would be accepted by the public. Mr. Miller said that funding the capital program with voter-approved property tax increases could buy the City time until the State Legislature works on revenue issues and the future becomes more clear. He said the council's reductions and shifts could take effect and the public would have a better idea of the impact of those changes. Mr. Miller said that by May, the City could have a revenue measure tied to a capital project on the ballot and would have more information about the legislature's progress on revenue issues. In addition, there may be more impetus for intergovernmental cooperation by that time. Mr. Boles responded to several comments made by the councilors. He said that the voters had clearly indicated their opposition to increases in the property tax as a revenue source. Mr. Boles suggested that reliance on the property tax in support of capital projects would result in elimination of the capital program. Further, he pointed out that any City-sought increase in the property tax would affect a revenue source that partners of the City rely upon. Mr. Boles said that the City needed to solve its problems without waiting for other jurisdictions to experience the pain that will force them to seek a solution to budget problems. e MINUTES--City Council Work Session September 21, 1992 Page 8 5:30 p.m. . Mr. MacDonald asked staff to provide information to the council by the following evening regarding the loss of revenue from EWES to the City were a utility tax to be implemented. The meeting adjourned at 8:20 p.m. Respectfully submitted, (Recorded by Kimberly Young) mncc5321.092 e e MINUTES--City Council Work Session September 21, 1992 Page 9 5:30 p.m.