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6.A. - Page 19 of 191 Redwood City, like all cities in California, experiences volatility of sales tax revenues as economic cycles ebb and flow. Residents are spending more of their disposable income on non-taxable items than before, like housing, medical care, and education. The Consumer Price Index reveals that in recent years, the prices of these items have increased rapidly, while the cost of many taxable items has dropped. Additionally, burgeoning trends toward online purchasing impact the City's sales tax revenue, since the method of distributing the tax varies. For purchases made at physical establishments located in Redwood City, sales tax is distributed based on "point of sale." For online purchases, the tax is treated as a "use" tax. A use tax is charged on goods sold to California customers from out-of-state retailers. Use taxes are allocated to countywide pools where the goods are used. The taxes are distributed proportionately countywide based on the City's pro rata share of sales tax. Ultimately, increasing online sales will reduce local sales tax revenues. In June 2018, the U.S. Supreme Court issued its ruling in South Dakota vs. Wayfair, Inc., a case in which South Dakota sought to have a statue imposing economic nexus standards on remote sellers upheld by the Court. The Court held that states may charge taxes on purchases made by out-of-state sellers, even if the sellers do not have a physical presence in the taxing state. This decision opened the door for the State of California to require remote sellers to collect and remit sales and use taxes to local taxing agencies. As a result of this decision, it is estimated that the City will collect an additional $500,000 in FY 2019-20. Property Tax Property tax accounts for 42.3 percent of total General Fund revenues and is a key indicator of the City's economic outlook. In FY 2018-19, secured property tax revenues increased by 5.6 percent over the previous fiscal year. Budget projections for secured property taxes in Redwood City in FY 2019-20 call for a 3.3 percent increase over FY 2018-19 actuals, with indications that growth in assessed value will continue in FY 2019-20 due to strong real estate sales, property improvements, and development. Utility Users' Tax This City collects a voter -approved Utilities User Tax (UUT) on gas, electricity, cable, and telecommunications services. UUT revenue decreased 3.4 percent in FY 2018-19 compared to FY 2017-18, driven by a decrease in demand for wireless and cable services. As more consumers move away from cable services and toward video streaming services, UUT revenue is expected to continue to decline. Following the passage of Assembly Bill 1717 in 2014, the City entered into an agreement with the State Board of Equalization for the collection of our UUT on prepaid wireless services. The City began collecting revenue on prepaid wireless in January 2016 and will continue until AB 1717 sunsets in 2021. This revenue source amounted to $87,256 for FY 2018-19, which is 32.8 percent less than FY 2017-18. While traditional UUT revenue has been dedicated on an annual basis to support the City's capital improvement program, the City has committed this particular new source of UUT revenue to 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 County Controller places the funds that shifted from local government agencies into the Educational Revenue Augmentation Fund (ERAF). 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. 26