AgdaPkt 2016-01-11 Closed and Joint SA PFA

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6.1.E. - Page 20 Sales Tax Sales tax is an important source of general fund revenue as it accounts for almost 20% of total general fund revenues. Sales tax revenue has increased 8% and 7.7% on a year over year basis in FY 2013-14 and FY 2014-15 respectively. This is a more moderate increase compared to the prior year's double digit increase in sales tax revenue. Sales from new and used vehicle dealers have been a significant driver of recent sales tax revenue increases. Given the cyclical nature of the local economy, it is not anticipated that this rate of increase for sales tax revenue in general and vehicle sales in particular will be sustained. Another important source of sales tax comes from businesses engaged in selling software. A threat to this revenue stream is the progressive migration of businesses delivering software to their customers electronically (via internet download or over dedicated phone lines). Products delivered in this way are not subject to sales tax under regulations adopted by the State of California Board of Equalization Mitigating this downward trend are continued steady growth in the general retail category, the building materials segment, and the restaurant segment. Although retail sales in Redwood City have been increasing, it is important to note the growing trend toward online retail sales and the risk that this poses to local sales tax revenue. Property Taxes Property tax accounts for 39% of City revenue and is a key indicator of the City's economic outlook. Projections for secured taxes in Redwood City in FY 2015-16 anticipate an 8% increase over FY 2014-15 with indications that growth in assessed value will continue in FY 2016-17 due to strong real estate sales and property improvements. Utilities User's Taxes This City collects a voter-approved Utilities User Tax on gas, electricity, cable and telecommunications services. UUT revenue decreased 2.7% in 2014-15 compared to 2013-14, driven in part by the growth in the prepaid wireless service market, which historically has not been subject to the UUT. Following the passage of Assembly Bill 1717 in 2014, the City has entered into an agreement with the State Board of Equalization for the collection of our UUT on prepaid wireless services. We will begin collecting revenue on prepaid wireless in January 2016 and will continue until AB 1717 sunsets in 2020. It is anticipated that the City could potentially receive an increase of 15 - 20% in wireless telecommunications UUT revenue. While traditional UUT revenue has been dedicated on an annual basis to support the City's capital improvement program, the City has identified this new source of UUT revenue as a possible funding source for affordable housing. Educational Revenue Augmentation Fund Refunds In FY 1992-93 and FY 1993-94, the State shifted property taxes from cities, counties, and special districts to school districts to supplant funding that the State was providing to school districts. The funds shifted from these local governments are placed into the Educational Revenue Augmentation Fund (ERAF) by the County Controller. The Controller then disburses these funds to school districts based upon the formula prescribed by State law. Any funds remaining in ERAF (after the distribution to the school districts) are returned to the cities, county, and special districts in proportion to the amount they contributed to ERAF. This return of property tax revenue is difficult to anticipate due to complicated State school funding formulas and is at risk of reduction or elimination by State action. In FYs 2013-14 and 2014-15, the City received $4.7 million and $5.1 million annually respectively. This level of funding was higher than can be expected in the future due to various one-time factors and recent and potential changes in school financing, which the County Controller has indicated could significantly reduce this revenue source in FY 2015-16 and future years. In Lieu Sales Tax Triple Flip The "Triple Flip" was part of the State's 2004 budget in which sales and use taxes that previously went to cities and counties were diverted to the State to be used to repay the State's Economic Recovery Bonds. In turn, funds from the Educational Revenue Augmentation Fund (ERAF)were used to repay the cities and counties their lost sales and use taxes. There is no current statutory mechanism to fully reimburse cities and counties for these v