PURPOSE:

The purpose of this report is to present information related to increasing the City�s Transient Parking Tax (�TPT�) from 10% up to 12%.

BACKGROUND:

On December 12, 1995, the City Council approved an ordinance that authorized the collection of a TPT.  This tax, set at 10%, has been collected by the City since February 1, 1995.  The Council then decided to place the Tax on the ballot for voters to approve due to Proposition 218 (which requires that any general tax imposed after January 1, 1995, be approved by a majority of the voters) in late 1996.  The voters approved the TPT by a majority vote of 61% in the April 8, 1997 election.

On October 15, 2002, staff presented a report requesting the Council to consider increasing the TPT from 10%.  Council directed that staff return with additional information to determine the appropriate tax increase to be placed on the April 2003 ballot.  This information was provided to Council by staff on December 17, 2002 wherein Council approved that the measure to increase the tax from 10% to 12% be placed on the April 8, 2003 ballot (see Exhibit A).  It was subsequently approved by the voters, but still required Council approval.

The City held its first Public Hearing on June 10, 2003 to receive public input on its Fiscal Year (FY) 2003-04 Proposed Budget and Citywide Fee Schedule, which included a proposal to increase the TPT to 12%.  The Council voted 4-1 against raising the TPT at that time and directed staff to use the BWP Set-Aside Fund to cover the budget shortfall and to bring the matter back for discussion at the budget mid-year review (see Exhibit B).

On December 16, 2003, by majority vote, the Council agreed to consider holding another Public Hearing to receive input and to then vote on the issue of raising the TPT from 10% to 12%.

ANALYSIS:

Even before the Airport parking rates decreased, staff was looking for creative ways to increase the City�s revenues to address the projected budget deficit.  Increasing the TPT was one way that was suggested by staff.  As presented in the First Quarter Financial Status Report for Fiscal Year 2003-04 on November 18, 2003, the City�s Five Year Forecast showed an increasing budget gap between recurring revenue and expenditures, from a gap of $3 million in FY 2004-05 culminating in a deficit of approximately $8.5 million in FY 2007-08.  After considering information subsequent to the first quarter such as the Governor�s budget proposal to take $1.1 million in property tax revenues from the City, we expect a General Fund recurring budget deficit of $4.5 million in FY 2004-05 to $9.8 million in FY 2007-08.  Staff is in the process of updating the Five Year Financial Forecast for the mid-year financial update.

At the November meeting, Council Member Golonski requested this TPT issue be brought back for discussion.  The December 16^th report served as the first step in a one-step, two-step process to consider whether or not to proceed with another public hearing to increase the tax.  This report serves as the second step in this process wherein interested parties have the opportunity to present their concerns to Council.

Until recently, the TPT has been stable source of General Fund revenue, representing approximately 1.6 to 2.0 percent of total General Fund recurring revenues.  It is a flat tax (i.e., not regressive), is easy to collect and is remitted quarterly by the parking owners/operators.  On average, the City receives approximately $1.78 million annually in TPT revenues.  The only significant drop in this revenue has occurred in the past couple of years.  This decline in revenue is in large part attributable to the September 11, 2001 tragedy as well as the recent airport parking �price wars.�  Based on our FY 2003-04 TPT revenue estimate of $1,650,000, if the tax rate is increased to 12%, we anticipate receiving $330,000 in additional revenues to the City.

The following chart shows actual TPT revenues from FY 1996-97 through FY 2002-03 as well as the mid-year projection for FY 2003-04:

At the first public hearing on this issue, it was Council�s overall concern as to how this increase would affect the parking lot owner/operators in Burbank.  It should be noted that the TPT is levied on users who generally are not Burbank residents.  Each parking lot owner makes the decision as to whether or not to absorb the increased tax based on their desire for profitability or market share concerns.  The following chart illustrates the average annual increase to owner/operators based on their annual revenue:

For example, those operators whose annual revenue is between $20,000 and $30,000, the average annual increase is $460 (or approximately $38 per month).  For operators generating revenues between $150,000 and $300,000, the average incremental increase is $3859 per year (or $322 per month).  The operators falling in the top revenue category of over $1 million annually include the airport parking lots whose combined gross revenue for FY 2002-03 was over $16 million (see Exhibit C for additional detail).  It should also be noted that Burbank airline passenger levels are up 9% for First Quarter 2003-04 versus First Quarter 2002-03.

Additionally, due to the fact that this is a tax on parking, the owner/operators would not be forced to absorb the increase of the TPT.  They have the option of passing along all or part of the 2% tax increase to the customer.  For example, if the operator rate is $4.55 per day (wherein the customer actually pays $5.00 including the current 10% tax), the amount a customer would pay increases $.10, to $5.10 per day.  At the rate of $7.00 per day (with the customer paying $7.70 including the 10% tax), the increase to the customer would only be $.14 per day.  Staff is aware of the �parking price wars� at the airport, but the owner/operators, not the City, need to decide as to how to handle that situation whether the tax is increased or not. It is important to note that all of the owner/operators of parking lots subject to the TPT have been notified of this public hearing and copies of this report were mailed to them.

CONCLUSION:

The voters approved the ability of the City Council to increase the TPT.  The first Public Hearing was held in June 2003, and Council requested to revisit the issue at mid-year FY 2003-2004.  This action to look at the issue again was held at a regularly scheduled Council meeting on December 16, 2003, at which time Council agreed to hold a second Public Hearing.  The benefit to the City of the 2% increase would boost its annual recurring revenues in the amount of approximately $330,000 and assist in balancing its budget shortfalls for the upcoming years.

RECOMMENDATION:

In light of the City�s current financial condition and the potential impact to the City of the State�s budget deficit, and the fact that there are very few opportunities for the City to effectuate a positive change in a revenue source, it is staff�s recommendation that the Council hold a public hearing on this matter and consider increasing the Transient Parking Tax from 10% to 12%.

EXHIBITS

A         Staff Report dated December 17, 2002 � Approval to Place a Measure on the April 2003 General Election Ballot to Request Voter Approval to Allow the City Council to Increase the City�s Transient Parking Tax

B          City Council Minutes related to the Transient Parking Tax Agenda Item - June 10, 2003

C         Transient Parking Tax Analysis (based on FY 2002-03 Receipts) Spreadsheet

go to the top