PURPOSE:

The purpose of this report is to present information related to increasing the City�s Transient Parking Tax (�TPT�) from 11% 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.  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.

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%.  This Public Hearing was held on January 27, 2004 and Council again voted 4-1 against raising the TPT.

Another Public Hearing was held on June 8, 2004, in conjunction with the City�s 2004-05 Proposed Budget, and the Citywide Fee Schedule.  At the June 22, 2004 regular City Council Meeting, a resolution approving an increase to the City�s Transient Parking Tax was postponed by the Council due to the absence of Council Member Golonski.  On June 29, 2004, the Council approved (3-2) raising the TPT not from 10% to 12%, but instead, from 10% to 11%.  This increase became effective August 2004.

At the initial study session for next year�s budget (FY 2005-06) on April 19, 2005, Council Member Golonski requested looking at raising the TPT an additional 1% to become effective July 1, 2005.  This item was then considered at the Council meeting of April 26, 2005, whereby the decision was made to conduct another public hearing.

ANALYSIS:

The TPT has returned to being a stable source of General Fund revenue[1], representing approximately 2.0 percent of total General Fund recurring revenue.  It is a flat tax (i.e., not regressive), that is relatively easy to collect and is remitted quarterly by the parking owners/operators.  For FY 2003-04, the City received $1.7 million in TPT revenues, and it is expected to receive $2.5 million for FY 2004-05.  The large increase of 41.6% for FY 2004-05 over FY 2003-04 is due to (1) airport area parking operators raising their parking rates last summer, and (2) the TPT increase from 10% to 11%.  If the TPT were further increased from 11% to 12%, we anticipate receiving roughly $230,000 in additional revenue to the City, assuming the parking owner/operators absorb the tax increase.  However, if they pass on some or all of the increase to their customers, the amount remitted to the City probably would be more than $230,000.

The following five year forecast shows that Burbank has a budget gap ranging from $578,000 in FY 2005-06 up to $5 million in FY 2009-10.  The increase in the TPT would wipe out nearly half of the budget gap for FY 2005-06, and would significantly improve the City�s fiscal position for the outgoing years.

The following chart shows actual TPT remittances to the City from FY 1996-97 through FY 2005-06 (projected):

At previous public hearings on this issue, it was Council�s overall concern as to how any increase would affect the parking lot owner/operators in Burbank, particularly the small parking lot owner/operator.

In the worst case scenario for owner/operators (i.e., they absorbed the cost of the increased TPT), the annual incremental cost to them would range from an estimated $62 (Warner Bros.) per year to an estimated $155,914 (USA Parking at Bob Hope Airport) per year:

Based on our analysis, half of the operators would be negatively impacted by less than $1,000 per year (or $83 per month).  One owner/operator, which generates in excess of $15 million per year, would be paying more than $50,000 per year in incremental taxes.

As alluded to above, due to the fact that this is a tax on parking customers, the owner/operators have the option not to absorb the increase of the TPT.  Following the increase from 10% to 11%, the airport area operators increased their parking rates last summer and ended the parking �price wars.�  Although the rates have increased, there has been no significant decline in volume.

CONCLUSION:

The voters approved the ability of the City Council to increase the TPT to a maximum of 12%.  There have been three Public Hearings (June 10, 2003, January 27, 2004, and June 8, 2004) since the voters approved the increase in April, 2003. In June, 2004, the Council approved an interim increase to 11%, but still retains the authority to raise it to 12%.  The benefit to the City of the additional 1% would boost its annual recurring revenues in the amount of approximately $230,000 and would greatly assist in balancing its budget shortfalls for the upcoming years.

RECOMMENDATION:

In light of the City�s continued budget challenges, 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 11% to 12%.

EXHIBITS

A         Transient Parking Tax Analysis (based on FY 2004-05 Receipts Through March 2005) Spreadsheet

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