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Home My WebLink AboutItem 13c - Voting Delegates for 2021 League of California Cities Annual Conference DATE: September 21, 2021 TO: Honorable Mayor and City Council FROM: Dominic Lazzaretto, City Manager By: Michael Bruckner, Deputy City Manager Hazel Aguilar, Administrative Intern SUBJECT: DESIGNATE MAYOR TAY AS THE VOTING DELEGATE AND MAYOR PRO TEM CHENG AS THE ALTERNATE VOTING DELEGATE FOR THE 2021 LEAGUE OF CALIFORNIA CITIES ANNUAL CONFERENCE AND EXPO AND PROVIDE DIRECTION ON RESOLUTION NO.1 AND RESOLUTION NO.2 Recommendation: Approve and Provide Direction SUMMARY The League of California Cities (“League”) Annual Conference is scheduled for September 22-24, 2021, in Sacramento. An essential part of the Conference is the Annual General Assembly Meeting that will take place at 1:00 p.m. on Friday, September 24, 2021. Consistent with League bylaws, the City Council must designate a Voting Delegate and up to two Alternates to consider and take action on any resolutions that establish League policy. At this time, Mayor Tay, Mayor Pro Tem Cheng and City Manager Lazzaretto are registered to attend the conference and it is recommended that the City Council designate Mayor Tay and Mayor Pro Tem Cheng as voting delegates. This year’s policy agenda includes two resolutions along with a proposal for adoption. Resolution No.1 is sponsored by the City of Rancho Cucamonga and calls on the Legislature to pass legislation for fair and equitable distribution of the Bradley Burns 1% local Sales Tax. The policy objectives are to provide a more equitable distribution of Sales Tax collected from in-state online purchases, based on the shipping location instead of the current method of distribution, which allocates a disproportionate share of Sales Tax to cities with fulfillment centers within their jurisdiction. It is recommended that the voting delegate vote to Approve Resolution No.1. Resolution No.2 was sponsored by the City of South Gate and calls upon the Governor and the Legislature to provide funding for the California Public Utilities Commission (“CPUC”) to inspect railroad lines to ensure that operators are removing illegal dumping, Appoint Voting Delegates for the 2021 League of California Cities Annual Conference September 21, 2021 Page 2 of 5 graffiti, and homeless encampments along the rail line rights-of-way. The objective of the resolution is to ensure the maintenance and cleanliness of local railroads. It is recommended that the voting delegate vote to approve Resolution No. 2. DISCUSSION In order to vote on behalf of the City of Arcadia at the Annual General Assembly Meeting, the City Council must select, by official action, a Voting Delegate and up to two Alternate Voting Delegates and provide evidence of such action to the League by Wednesday, September 15, 2021. Due to the cancellation of the September 7, 2021 City Council meeting, this action was deferred to the September 21, 2021 agenda. Once the Voting Delegate and Alternate Voting Delegate have been approved, staff will forward the Voting Delegate/Alternate form to the League (see Attachment No. 1). While it will be left to the Voting Delegate to consider the actual Resolutions at the General Assembly Meeting, the Arcadia City Council has chosen in years past to provide some initial thoughts and general direction to the Voting Delegate before the meeting to help guide their deliberations. This year, two resolutions have been introduced for consideration by the Annual Conference and referred to the League policy committees (Attachment No. 2). Resolution No.1: Online Sales Tax Equity Sponsored by the City of Rancho Cucamonga, this Resolution intends to address the collection and distribution of the Bradley Burns 1% Sales Tax for online retail sales. Sales Tax is a significant revenue source for most cities in California. Since the 1950’s cities have received a one cent per dollar of sales at stores, restaurants, car dealers, and other businesses within a jurisdiction’s boundaries. This is commonly known as the 1% Bradley Burns Sales Tax. The California Department of Tax and Fee Administration (“CDTFA”) collects the tax proceeds and distributes the Bradley Burns Sales Tax revenue based on where the sale occurred. For online and out-of-state sale purchases, the revenue is allocated into a County-wide pool and cities receive a pro-rated share of the County pool based on their percentage of the County Sales Tax base. Over the last two decades, shifts in consumer behavior have transitioned away from brick and mortar retail to online shopping. This trend accelerated dramatically as a result of the COVID-19 pandemic and cities are now seeing a larger share of their Sales Tax revenue coming from the County pool. Additionally, the State passed AB 147, which followed the Supreme Court ruling in favor of the State of South Dakota in the case of South Dakota v. Wayfair, which replaced the previously held physical nexus arguments with a “virtual” presence standard. The change in the law following AB 147 resulted in the revenue Appoint Voting Delegates for the 2021 League of California Cities Annual Conference September 21, 2021 Page 3 of 5 collected from online purchases previously distributed to the County-wide pool to be allocated to cities that host fulfillment centers for online retailers. The City of Eastvale has proposed an amendment to Resolution No. 1 stating that the League’s City Manager Department should reconvene its Sales Tax Working Group to further study alternatives before calling directly on the Legislature to address this issue (Attachment No. 3). Eastvale has a fulfillment center and would likely be impacted if there is a reapportionment of Sales Tax based on the current methodology, and their argument that allowing the Legislature to take the lead could result in a bad outcome; however, whatever recommendation the League makes would ultimately require the Legislature to act in order to make changes to the law. It is unclear from the letter what alternatives Eastvale and other fulfillment center cities would like to see changed. Cities like Arcadia that do not have a fulfillment center no longer receive revenue from a retailer’s online in-state sales transactions, even though the packages are delivered to locations within Arcadia and are purchased by Arcadia residents and businesses. The current tax model has created equity issues and creates a competitive disadvantage for cities without fulfillment centers. Resolution No. 1 calls on the Legislature to pass legislation to provide a fair and equitable distribution of the 1% Bradley Burns Sales Tax based on where the products are shipped to. Resolution No.2: Securing Railroad Property Maintenance Sponsored by the City of South Gate, this Resolution intends to increase oversight of land maintenance and security of railroad lines by rail line operators. The California Public Utilities Commission (“CPUC”) is the enforcing agency for railroad safety. Currently, the agency has 41 inspectors covering 6,000 miles of railroad lines in California. Their primary task is to oversee the operation of rail lines, bridges, and equipment. Railroad operators are responsible for the maintenance and upkeep of rail lines, including the corridors along the right-of-way. Many communities are experiencing an increase of illegal dumping, graffiti, and large homeless encampments along the rail line right-of-way. The impact of these activities undermines the quality of life for communities. Increases in sanitation and security issues negatively impact residents who reside near rail lines. Additionally, communities are affected by the delay of services from rail lines caused by debris strikes, near misses, and trespasser injuries/fatalities. Railway operators state that they have insufficient funds to set aside for cleanup and policing along the railways despite having a net income of over $13 billion in 2020. Additionally, the CPUC budget does not provide funding for the oversight or the management of the rights-of-way. Cities are often burdened with the task of cleanup, Appoint Voting Delegates for the 2021 League of California Cities Annual Conference September 21, 2021 Page 4 of 5 which requires the expense of local funds for issues caused by regional transportation. Cities across the state are expanding resources reacting to the disruptions located on the railway’s property which they are legally required to maintain. Resolution No. 2 calls for the Governor and the Legislature to work with the League and city stakeholders to provide funding and regulatory authority for the CPUC to assist operators and cities in their efforts to maintain and secure railroad right-of-way areas. The increase of investment and services to manage and maintain the right-of-way passages will reduce disruptions and enhance public safety, environmental quality, and reduce the negative impacts on local communities. The Metro Gold Line passes through the heart of Downtown Arcadia. Metro is a private organization, and the Metro stop is private property, therefore Arcadia does not finance clean-up activities around the Gold Line, with the exception of the Transit Plaza which is City property. Arcadia, like many cities, has secured a contract with Metro ensuring Metro’s responsibility for the maintenance of the Downtown Arcadia stop and parking structure. Arcadia has also had a longstanding contract with Urban Graffiti Enterprises to create a Hotline that focuses on the removal of graffiti. The hotline has been instrumental managing graffiti in Arcadia. ENVIRONMENTAL ANALYSIS The proposed actions do not constitute a project under the California Environmental Quality Act (“CEQA”) based on Section 15061(b)(3) of the CEQA Guidelines. It can be seen with certainty that it will have no impact on the environment. Thus, this matter is exempt under CEQA. FISCAL IMPACT Regarding Resolution No. 1, based on recent data going back to 2019, the County Pool Sales Tax averages 19.83% of Arcadia’s total Sales Tax. With the Fiscal Year 2021-22 Sales Tax budgeted at $11,155,200, if all County Pool Sales Tax is lost (19.83%), this could represent a loss of up to $2,212,432. While it is not likely that all County Pool Tax would be lost, this provides a framework to understand the potential impacts. Additionally, it is unclear what the exact fiscal impact will be if the Resolution is passed, but the likely scenario would be positive in that additional Sales Tax revenue would be coming to the City from the Pool. Regarding Resolution No. 2, there are no direct fiscal impacts to the General Fund. It would, however, be beneficial locally if Metro receives the necessary funding to continue their efforts in maintaining their property. Appoint Voting Delegates for the 2021 League of California Cities Annual Conference September 21, 2021 Page 5 of 5 RECOMMENDATION It is recommended that the City Council take the following actions: 1. Designate Mayor Tay as the Voting Delegate and Pro Tem Mayor Cheng as the Alternate; and 2. Recommend the Voting Member or the Alternate vote in support of Resolution No.1 and Resolution No.2. Attachments: Attachment No. 1 – 2021 Annual Conference Voting Delegate/ Alternate Form Attachment No. 2 – 2021 Annual Conference Resolutions Packet Attachment No. 3 – City of Eastvale Alternative Sales Tax Resolution 1400 K Street, Suite 400, Sacramento, CA 95814-3916 | www.cacities.org | (916) 658-8200 June 16, 2021 TO: City Managers and City Clerks RE: DESIGNATION OF VOTING DELEGATES AND ALTERNATES League of California Cities Annual Conference & Expo – September 22-24, 2021 Cal Cities 2021 Annual Conference & Expo is scheduled for September 22-24, 2021 in Sacramento. An important part of the Annual Conference is the Annual Business Meeting (during General Assembly) on Friday, September 24. At this meeting, Cal Cities membership considers and acts on resolutions that establish Cal Cities policy. In order to vote at the Annual Business Meeting, your city council must designate a voting delegate. Your city may also appoint up to two alternate voting delegates, one of whom may vote if the designated voting delegate is unable to serve in that capacity. Please complete the attached Voting Delegate form and return it to Cal Cities office no later than Wednesday, September 15. This will allow us time to establish voting delegate/alternate records prior to the conference. Please note: Our number one priority will continue to be the health and safety of participants. We are working closely with the Sacramento Convention Center to ensure that important protocols and cleaning procedures continue, and if necessary, are strengthened. Attendees can anticipate updates as the conference approaches. •Action by Council Required. Consistent with Cal Cities bylaws, a city’s voting delegate and up to two alternates must be designated by the city council. When completing the attached Voting Delegate form, please attach either a copy of the council resolution that reflects the council action taken, or have your city clerk or mayor sign the form affirming that the names provided are those selected by the city council. Please note that designating the voting delegate and alternates must be done by city council action and cannot be accomplished by individual action of the mayor or city manager alone. •Conference Registration Required. The voting delegate and alternates must be registered to attend the conference. They need not register for the entire conference; they may register for Friday only. Conference registration will open mid-June at www.cacities.org. In order to cast a vote, at least one voter must be present at the Business Meeting and in possession of the voting delegate card. Voting delegates and alternates need to pick up their conference badges before signing in and picking up the voting delegate card at the Voting Delegate Desk. This will enable them to receive the special sticker on their name badges that will admit them into the voting area during the Business Meeting. •Transferring Voting Card to Non-Designated Individuals Not Allowed. The voting delegate card may be transferred freely between the voting delegate and alternates, but Council Action Advised by August 31, 2021 Attachment No. 1 1400 K Street, Suite 400, Sacramento, CA 95814-3916 | www.cacities.org | (916) 658-8200 only between the voting delegate and alternates. If the voting delegate and alternates find themselves unable to attend the Business Meeting, they may not transfer the voting card to another city official. •Seating Protocol during General Assembly. At the Business Meeting, individuals with the voting card will sit in a separate area. Admission to this area will be limited to those individuals with a special sticker on their name badge identifying them as a voting delegate or alternate. If the voting delegate and alternates wish to sit together, they must sign in at the Voting Delegate Desk and obtain the special sticker on their badges. The Voting Delegate Desk, located in the conference registration area of the Sacramento Convention Center, will be open at the following times: Wednesday, September 22, 8:00 a.m. – 6:00 p.m.; Thursday, September 23, 7:00 a.m. – 4:00 p.m.; and Friday, September 24, 7:30 a.m.– 11:30 a.m. The Voting Delegate Desk will also be open at the Business Meeting on Friday, but will be closed during roll calls and voting. The voting procedures that will be used at the conference are attached to this memo. Please share these procedures and this memo with your council and especially with the individuals that your council designates as your city’s voting delegate and alternates. Once again, thank you for completing the voting delegate and alternate form and returning it to the League’s office by Wednesday, September 15. If you have questions, please call Darla Yacub at (916) 658-8254. Attachments: •Annual Conference Voting Procedures •Voting Delegate/Alternate Form 1400 K Street, Suite 400, Sacramento, CA 95814-3916 | www.cacities.org | (916) 658-8200 CITY__________ 2021 ANNUAL CONFERENCE VOTING DELEGATE/ALTERNATE FORM Please complete this form and return it to Cal Cities office by Wednesday, September 15, 2021. Forms not sent by this deadline may be submitted to the Voting Delegate Desk located in the Annual Conference Registration Area. Your city council may designate one voting delegate and up to two alternates. To vote at the Annual Business Meeting (General Assembly), voting delegates and alternates must be designated by your city council. Please attach the council resolution as proof of designation. As an alternative, the Mayor or City Clerk may sign this form, affirming that the designation reflects the action taken by the council. Please note: Voting delegates and alternates will be seated in a separate area at the Annual Business Meeting. Admission to this designated area will be limited to individuals (voting delegates and alternates) who are identified with a special sticker on their conference badge. This sticker can be obtained only at the Voting Delegate Desk. 1. VOTING DELEGATE Name: Title: 2. VOTING DELEGATE - ALTERNATE 3. VOTING DELEGATE - ALTERNATE Name: Name: Title: Title: PLEASE ATTACH COUNCIL RESOLUTION DESIGNATING VOTING DELEGATE AND ALTERNATES OR ATTEST: I affirm that the information provided reflects action by the city council to designate the voting delegate and alternate(s). Name: ____________________________________ Email _________________________________ Mayor or City Clerk___________________________ Date____________ Phone________________ (circle one)(signature) Please complete and return by Wednesday, September 15, 2021 to: Darla Yacub, Assistant to the Administrative Services Director E-mail: dyacub@cacities.org Phone: (916) 658-8254 1400 K Street, Suite 400, Sacramento, CA 95814-3916 | www.cacities.org | (916) 658-8200 Annual Conference Voting Procedures 1. One City One Vote. Each member city has a right to cast one vote on matters pertaining to Cal Cities policy. 2. Designating a City Voting Representative. Prior to the Annual Conference, each city council may designate a voting delegate and up to two alternates; these individuals are identified on the Voting Delegate Form provided to the Cal Cities Credentials Committee. 3. Registering with the Credentials Committee. The voting delegate, or alternates, may pick up the city's voting card at the Voting Delegate Desk in the conference registration area. Voting delegates and alternates must sign in at the Voting Delegate Desk. Here they will receive a special sticker on their name badge and thus be admitted to the voting area at the Business Meeting. 4. Signing Initiated Resolution Petitions. Only those individuals who are voting delegates (or alternates), and who have picked up their city’s voting card by providing a signature to the Credentials Committee at the Voting Delegate Desk, may sign petitions to initiate a resolution. 5. Voting. To cast the city's vote, a city official must have in their possession the city's voting card and be registered with the Credentials Committee. The voting card may be transferred freely between the voting delegate and alternates, but may not be transferred to another city official who is neither a voting delegate or alternate. 6. Voting Area at Business Meeting. At the Business Meeting, individuals with a voting card will sit in a designated area. Admission will be limited to those individuals with a special sticker on their name badge identifying them as a voting delegate or alternate. 7. Resolving Disputes. In case of dispute, the Credentials Committee will determine the validity of signatures on petitioned resolutions and the right of a city official to vote at the Business Meeting. Annual Conference Resolutions Packet 2021 Annual Conference Resolutions September 22 - 24, 2021 Attachment No. 2 INFORMATION AND PROCEDURES RESOLUTIONS CONTAINED IN THIS PACKET: The League of California Cities (Cal Cities) bylaws provide that resolutions shall be referred by the president to an appropriate policy committee for review and recommendation. Resolutions with committee recommendations shall then be considered by the General Resolutions Committee at the Annual Conference. This year, two resolutions have been introduced for consideration at the Annual Conference and referred to Cal Cities policy committees. POLICY COMMITTEES: Three policy committees will meet virtually one week prior to the Annual Conference to consider and take action on the resolutions. The sponsors of the resolutions have been notified of the time and location of the meetings. GENERAL RESOLUTIONS COMMITTEE: This committee will meet at 1:00 p.m. on Thursday, September 23, to consider the reports of the policy committees regarding the resolutions. This committee includes one representative from each of Cal Cities regional divisions, functional departments, and standing policy committees, as well as other individuals appointed by the Cal Cities president. Please check in at the registration desk for room location. CLOSING LUNCHEON AND GENERAL ASSEMBLY: This meeting will be held at 12:30 p.m. on Friday, September 24, at the SAFE Credit Union Convention Center. PETITIONED RESOLUTIONS: For those issues that develop after the normal 60-day deadline, a petition resolution may be introduced at the Annual Conference with a petition signed by designated voting delegates of 10 percent of all member cities (48 valid signatures required) and presented to the Voting Delegates Desk at least 24 hours prior to the time set for convening the Closing Luncheon & General Assembly. This year, that deadline is 12:30 p.m., Thursday, September 23. Resolutions can be viewed on Cal Cities Web site: www.cacities.org/resolutions. Any questions concerning the resolutions procedures may be directed to Meg Desmond mdesmond@calcities.org. 1 GUIDELINES FOR ANNUAL CONFERENCE RESOLUTIONS Policy development is a vital and ongoing process within Cal Cities. The principal means for deciding policy on the important issues facing cities is through Cal Cities seven standing policy committees and the board of directors. The process allows for timely consideration of issues in a changing environment and assures city officials the opportunity to both initiate and influence policy decisions. Annual conference resolutions constitute an additional way to develop Cal Cities policy. Resolutions should adhere to the following criteria. Guidelines for Annual Conference Resolutions 1. Only issues that have a direct bearing on municipal affairs should be considered or adopted at the Annual Conference. 2. The issue is not of a purely local or regional concern. 3. The recommended policy should not simply restate existing Cal Cities policy. 4. The resolution should be directed at achieving one of the following objectives: (a) Focus public or media attention on an issue of major importance to cities. (b) Establish a new direction for Cal Cities policy by establishing general principals around which more detailed policies may be developed by policy committees and the board of directors. (c) Consider important issues not adequately addressed by the policy committees and board of directors. 2 KEY TO ACTIONS TAKEN ON RESOLUTIONS Resolutions have been grouped by policy committees to which they have been assigned. Number Key Word Index Reviewing Body Action 1 2 3 1 - Policy Committee Recommendation to General Resolutions Committee 2 - General Resolutions Committee 3 - General Assembly HOUSING, COMMUNITY & ECONOMIC DEVELOPMENT POLICY COMMITTEE 1 2 3 2 Securing Railroad Property Maintenance REVENUE & TAXATION POLICY COMMITTEE 1 2 3 1 Online Sales Tax Equity TRANSPORTATION, COMMUNICATION & PUBLIC WORKS POLICY COMMITTEE 1 2 3 2 Securing Railroad Property Maintenance 3 KEY TO ACTIONS TAKEN ON RESOLUTIONS (Continued) Resolutions have been grouped by policy committees to which they have been assigned. KEY TO REVIEWING BODIES KEY TO ACTIONS TAKEN 1. Policy Committee A Approve 2. General Resolutions Committee D Disapprove 3. General Assembly N No Action R Refer to appropriate policy committee for study ACTION FOOTNOTES a Amend+ * Subject matter covered in another resolution Aa Approve as amended+ ** Existing League policy Aaa Approve with additional amendment(s)+ *** Local authority presently exists Ra Refer as amended to appropriate policy committee for study+ Raa Additional amendments and refer+ Da Amend (for clarity or brevity) and Disapprove+ Na Amend (for clarity or brevity) and take No Action+ W Withdrawn by Sponsor Procedural Note: The League of California Cities resolution process at the Annual Conference is guided by the Cal Cities Bylaws. 4 1. RESOLUTION OF THE LEAGUE OF CALIFORNIA CITIES (“CAL CITIES”) CALLING ON THE STATE LEGISLATURE TO PASS LEGISLATION THAT PROVIDES FOR A FAIR AND EQUITABLE DISTRIBUTION OF THE BRADLEY BURNS 1% LOCAL SALES TAX FROM IN-STATE ONLINE PURCHASES, BASED ON DATA WHERE PRODUCTS ARE SHIPPED TO, AND THAT RIGHTFULLY TAKES INTO CONSIDERATION THE IMPACTS THAT FULFILLMENT CENTERS HAVE ON HOST CITIES BUT ALSO PROVIDES A FAIR SHARE TO CALIFORNIA CITIES THAT DO NOT AND/OR CANNOT HAVE A FULFILLMENT CENTER WITHIN THEIR JURISDICTION Source: City of Rancho Cucamonga Concurrence of five or more cities/city officials Cities: 7RZQ of Apple Valley; City of El Cerrito; City of La Canada Flintridge; City of La Verne; City of Lakewood; City of Moorpark; City of Placentia; City of Sacramento Referred to: Revenue and Taxation Policy Committee WHEREAS, the 2018 U.S. Supreme Court decision in Wayfair v. South Dakota clarified that states could charge and collect tax on purchases even if the seller does not have a physical presence in the state; and WHEREAS, California cities and counties collect 1% in Bradley Burns sales and use tax from the purchase of tangible personal property and rely on this revenue to provide critical public services such as police and fire protection; and WHEREAS, in terms of “siting” the place of sale and determining which jurisdiction receives the 1% Bradley Burns local taxes for online sales, the California Department of Tax and Fee Administration (CDTFA) determines “out-of-state” online retailers as those with no presence in California that ship property from outside the state and are therefore subject to use tax, not sales tax, which is collected in a countywide pool of the jurisdiction where the property is shipped from; and WHEREAS, for online retailers that have a presence in California and have a stock of goods in the state from which it fulfills orders, CDTFA considers the place of sale (“situs”) as the location from which the goods were shipped such as a fulfillment center; and WHEREAS, in early 2021, one of the state’s largest online retailers shifted its ownership structure so that it is now considered both an in-state and out-of-state retailer, resulting in the sales tax this retailer generates from in-state sales now being entirely allocated to the specific city where the warehouse fulfillment center is located as opposed to going into a countywide pool that is shared with all jurisdictions in that County, as was done previously; and WHEREAS, this all-or-nothing change for the allocation of in-state sales tax has created winners and losers amongst cities as the online sales tax revenue from the retailer that was once spread amongst all cities in countywide pools is now concentrated in select cities that host a fulfillment center; and WHEREAS, this has created a tremendous inequity amongst cities, in particular for cities that are built out, do not have space for siting a 1 million square foot fulfillment center, are not located along a major travel corridor, or otherwise not ideally suited to host a fulfillment center; and 5 WHEREAS, this inequity affects cities statewide, but in particular those with specific circumstances such as no/low property tax cities that are extremely reliant on sales tax revenue as well as cities struggling to meet their RHNA obligations that are being compelled by the State to rezone precious commercial parcels to residential; and WHEREAS, the inequity produced by allocating in-state online sales tax revenue exclusively to cities with fulfillment centers is exasperated even more by, in addition to already reducing the amount of revenue going into the countywide pools, the cities with fulfillment centers are also receiving a larger share of the dwindling countywide pool as it is allocated based on cities’ proportional share of sales tax collected; and WHEREAS, while it is important to acknowledge that those cities that have fulfillment centers experience impacts from these activities and deserve equitable supplementary compensation, it should also be recognized that the neighboring cities whose residents are ordering product from that center now receive no revenue from the center’s sales activity despite also experiencing the impacts created by the center, such as increased traffic and air pollution; and WHEREAS, the COVID-19 pandemic greatly accelerated the public’s shift towards online purchases, a trend that is unlikely to be reversed to pre-pandemic levels; and NOW, THEREFORE, BE IT RESOLVED that Cal Cities calls on the State Legislature to pass legislation that provides for a fair and equitable distribution of the Bradley Burns 1% local sales tax from in-state online purchases, based on data where products are shipped to, and that rightfully takes into consideration the impacts that fulfillment centers have on host cities but also provides a fair share to California cities that do not and/or cannot have a fulfillment center within their jurisdiction. 6 Background Information to Resolution Source: City of Rancho Cucamonga Background: Sales tax is a major revenue source for most California cities. Commonly known as the local 1% Bradley-Burns tax, since the 1950’s, cities have traditionally received 1 cent on every dollar of a sale made at the store, restaurant, car dealer, or other location within a jurisdiction’s boundaries. Over the years, however, this simple tax structure has evolved into a much more complex set of laws and allocation rules. Many of these rules relate to whether or not a given transaction is subject to sales tax, or to use tax – both have the same 1% value, but each applies in separate circumstances. The California Department of Tax and Fee Administration (CDTFA) is responsible for administering this system and issuing rules regarding how it is applied in our state. The following chart created by HdL Companies, the leading provider of California sales tax consulting, illustrates the complex structure of how sales and use tax allocation is done in California, depending on where the transaction starts, where the goods are located, and how the customer receives the goods: With the exponential growth of online sales and the corresponding lack of growth, and even decline, of shopping at brick and mortar locations, cities are seeing much of their sales tax 7 growth coming from the countywide sales tax pools, since much of the sales tax is now funneled to the pools. Recently, one of the world’s largest online retailers changed the legal ownership of its fulfillment centers. Instead of having its fulfillment centers owned and operated by a third-party vendor, they are now directly owned by the company. This subtle change has major impacts to how the 1% local tax is allocated. Following the chart above, previously much of the sales tax would have followed the green boxes on the chart and been allocated to the countywide pool based on point of delivery. Now, much of the tax is following the blue path through the chart and is allocated to the jurisdiction in which the fulfillment center is located. (It should be noted that some of the tax is still flowing to the pools, in those situations where the fulfillment center is shipping goods for another seller that is out of state.) This change has created a situation where most cities in California – more than 90%, in fact – are experiencing a sales tax revenue loss that began in the fourth quarter of calendar year 2021. Many cities may not be aware of this impact, as the fluctuations in sales tax following the pandemic shutdowns have masked the issue. But this change will have long-term impacts on revenues for all California cities as all these revenues benefiting all cities have shifted to just a handful of cities and counties that are home to this retailer’s fulfillment centers. This has brought to light again the need to address the issues in how sales and use taxes are distributed in the 21st century. Many, if not most cities will never have the opportunity have a warehouse fulfillment center due to lack of space or not being situated along a major travel corridor. These policies especially favor retailers who may leverage current policy in order to negotiate favorable sales tax sharing agreements, providing more money back to the retailer at the expense of funding critical public services. With that stated, it is important to note the many impacts to the jurisdictions home to the fulfillment centers. These centers do support the ecommerce most of us as individuals have come to rely on, including heavy wear and tear on streets – one truck is equal to about 8,000 cars when it comes to impact on pavement – and increased air pollution due to the truck traffic and idling diesel engines dropping off large loads. However, it is equally important that State policies acknowledge that entities without fulfillment centers also experience impacts from ecommerce and increased deliveries. Cities whose residents are ordering products that are delivered to their doorstep also experience impacts from traffic, air quality and compromised safety, as well as the negative impact on brick-and-mortar businesses struggling to compete with the sharp increase in online shopping. These cities are rightfully entitled to compensation in an equitable share of sales and use tax. We do not believe that online sales tax distribution between fulfillment center cities and other cities should be an all or nothing endeavor, and not necessarily a fifty-fifty split, either. But we need to find an equitable split that balances the impacts to each jurisdiction involved in the distribution of products purchased online. Over the years, Cal Cities has had numerous discussions about the issues surrounding sales tax in the modern era, and how state law and policy should be revisited to address these issues. It is a heavy lift, as all of our cities are impacted a bit differently, making consensus difficult. We believe that by once again starting the conversation and moving toward the development of laws and policies that can result in seeing all cities benefit from the growth taxes generated through online sales, our state will be stronger. It is for these reasons, that we should all aspire to develop an equitable sales tax distribution for online sales. 8 LETTERS OF CONCURRENCE Resolution No. 1 9 July 19, 2021 Cheryl Viegas Walker, President League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 Dear President Walker: The Town of Apple Valley strongly supports the City of Rancho Cucamonga’s effort to submit a resolution for consideration by the General Assembly at Cal Cities 2021 Annual Conference in Sacramento. Current policies by the California Department of Tax and Fees (CDTFA) require that the one percent Bradley Burns local tax revenue from in-state online retailers be allocated to the jurisdiction from which the package was shipped from, as opposed to going into a countywide pool as is the practice with out-of-state online retailers. Earlier this year, one of the largest online retailers shifted its ownership structure and now operates as an in-state online retailer as well as out-of-state online retailer. Whereas, all sales tax revenue generated by this retailer’s sales previously went into a countywide pool and was distributed amongst the jurisdictions in the pool. Now the revenue from in-state sales goes entirely to the city where the fulfillment center is located, and the packages shipped from. Cities that do not have a fulfillment center now receive no revenue from this retailer’s online in-state sales transactions, even when the packages are delivered to locations within the cities’ borders and paid for by residents in those locations. Cities that border jurisdictions with fulfillment centers also experience its impacts such as increased truck traffic, air pollution and declining road conditions. This all-or-nothing practice has created clear winners and losers amongst cities as the online sales tax revenue from large online retailers that was once spread amongst all cities in countywide pools is now concentrated in select cities fortunate enough to host a fulfillment center. This has created a growing inequity amongst California cities, which only benefits some and is particularly unfair to cities who have no chance of ever obtaining a fulfillment center, such as those that are built out or are not situated along major travel corridors. No/low property tax cities that rely on sales tax revenue are especially impacted as well as cities struggling to meet their RHNA allocations that are being pressured by Sacramento to rezone precious commercial parcels to residential. The current online sales tax distribution policies are inherently unfair and exasperate the divide between the winners and losers. Ultimately, the real winners may be the retailers, who leverage these policies to negotiate favorable sales tax sharing agreements from a small group of select cities understandably wanting to host fulfillment centers. The current online sales tax distribution policies unfairly divide local agencies, exacerbate already difficult municipal finances, and in the end result in a net loss of local government sales tax proceeds that simply serve to make private sector businesses even more profitable at the expense of everyone’s residents. 10 We can do better than this. And we should all aspire to develop an equitable sales tax distribution of online sales that addresses the concerns noted above. For these reasons, the Town of Apple Valley concurs that the resolution should go before the General Assembly. If you have any questions regarding the Town’s position in this matter, please do not hesitate to contact the Town Manager at 760-240-7000 x 7051. Sincerely, Curt Emick Mayor 11 July 21, 2021 Cheryl Viegas Walker, President League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 RE: Letter of Support for the City of Rancho Cucamonga’s Resolution for Fair and Equitable Distribution of the Bradley Burns 1% Local Sales Tax Dear President Walker: The City of El Cerrito supports the City of Rancho Cucamonga’s effort to submit a resolution for consideration by the General Assembly at the Cal Cities 2021 Annual Conference in Sacramento. Current policies by the California Department of Tax and Fees (CDTFA) require that the 1 percent Bradley Burns local tax revenue from in-state online retailers be allocated to the jurisdiction from which the package was shipped from, as opposed to going into a countywide pool as is the practice with out-of-state online retailers. Earlier this year, one of the largest online retailers shifted its ownership structure and now operates as an in- state online retailer as well as out-of-state online retailer. Previously, all sales tax revenue generated by this retailer’s sales went into a countywide pool and was distributed amongst the jurisdictions in the pool; now the revenue from in-state sales goes entirely to the city where the fulfillment center is located and the packages are shipped from. Cities that do not have a fulfillment center now receive no revenue from this retailer’s online in- state sales transactions, even when the packages are delivered to locations within the cities’ borders and paid for by residents in those locations. Cities that border jurisdictions with fulfillment centers also experience its impacts such as increased truck traffic, air pollution, and declining road conditions. This all-or-nothing practice has created clear winners and losers amongst cities as the online sales tax revenue from large online retailers that was once spread amongst all cities in countywide pools is now concentrated in select cities fortunate enough to host a fulfillment center. This has created a growing inequity amongst California cities, which only benefits some and is particularly unfair to cities such as El Cerrito who have no chance of ever obtaining a fulfillment center as we are a built out, four square mile, small city. Additionally, cities not situated along major travel corridors and no/low property tax cities that rely on sales tax revenue are especially impacted, as well as cities struggling to build much needed affordable housing that may require rezoning commercial parcels in order to meet their RHNA allocations. 12 The current online sales tax distribution policies are inherently unfair and exasperate the divide between the winners and losers. Ultimately, the real winners may be the retailers, who leverage these policies to negotiate favorable sales tax sharing agreements from a small group of select cities understandably wanting to host fulfillment centers. The current online sales tax distribution policies serve to divide local agencies, exacerbate already difficult municipal finances, and in the end results in a net loss of local government sales tax proceeds that simply serve to make private sector businesses even more profitable at the expense of everyone’s residents. We can do better, and we should all aspire to develop an equitable sales tax distribution of online sales that addresses the concerns noted above. For these reasons, the City of El Cerrito concurs that the resolution should go before the General Assembly. Sincerely, Paul Fadelli, Mayor City of El Cerrito cc: El Cerrito City Council City of Rancho Cucamonga 13 14 15 16 17 18 CITY OF MOORPARK JANICE S. PARVIN Mayor DR. ANTONIO CASTRO Councilmember CHRIS ENEGREN Councilmember DANIEL GROFF Councilmember DAVID POLLOCK Councilmember 799 Moorpark Avenue, Moorpark, California 93021 Main City Phone Number (805) 517-6200 | Fax (805) 532-2205 | moorpark@moorparkca.gov July 14, 2021 TRANSMITTED ELECTRONICALLY Cheryl Viegas-Walker, President League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 Dear President Walker: The City of Moorpark strongly supports the City of Rancho Cucamonga’s effort to submit a resolution for consideration by the General Assembly at the League’s 2021 Annual Conference in Sacramento. Current policies of the California Department of Tax and Fees (CDTFA) require that the one percent Bradley Burns local tax revenue from in-state online retailers be allocated to the jurisdiction from which the package was shipped, as opposed to going into a countywide pool as is the practice with out-of-state online retailers. Earlier this year, one of the largest online retailers shifted its ownership structure and now operates both as an in-state online retailer and as an out-of-state online retailer. Whereas all sales tax revenues generated by this retailer’s sales previously went into countywide pools and were distributed amongst the jurisdictions in the pool, sales tax revenues from in-state sales now go entirely to the city where the fulfillment center is located and the package is shipped from. Cities that do not have a fulfillment center now receive no sales tax revenue from this retailer’s online in-state sales transactions, even when the packages are delivered to locations within the cities’ borders and paid for by residents in those locations. Cities that border jurisdictions with fulfillment centers also experience its impacts such as increased truck traffic, air pollution, and deteriorating road conditions. This all-or-nothing practice has created clear winners and losers amongst cities as the online sales tax revenues from large online retailers that were once spread amongst all cities in countywide pools are now concentrated in select cities fortunate enough to host a fulfillment center. This has created a growing inequity amongst California cities, which only benefits some and is particularly unfair to cities who have no chance of ever obtaining a fulfillment center, such as those that are built out or are not situated along major travel corridors. No/low property tax cities that rely on sales tax revenue are especially impacted, as well as 19 Letter of Support Page 2 cities struggling to meet their RHNA allocations that are being pressured by Sacramento to rezone limited commercial properties for residential land uses. The current online sales tax distribution policies are inherently unfair and exasperate the divide between the winners and losers. Ultimately, the real winners may be the retailers, who leverage these policies to negotiate favorable sales tax sharing agreements from a small group of select cities understandably wanting to host fulfillment centers. The current online sales tax distribution policies unfairly divide local agencies, exacerbate already difficult municipal finances, and ultimately result in a net loss of local government sales tax proceeds that simply serve to make private sector businesses more profitable at the expense of everyone’s residents. We can do better than this, and we should all aspire to develop an equitable sales tax distribution of online sales that addresses the concerns noted above. For these reasons, the City of Moorpark concurs that the resolution should go before the General Assembly at the 2021 Annual Conference in Sacramento. Sincerely, Janice S. Parvin Mayor cc: City Council City Manager 20 21 22 23 24 League of California Cities Staff Analysis on Resolution No. 1 Staff: Nicholas Romo, Legislative $IIDLUV/REE\LVW Committee: Revenue and Taxation Summary: This Resolution calls on the League of California Cities (Cal Cities) to request the Legislature to pass legislation that provides for a fair and equitable distribution of the Bradley Burns 1% local sales tax from in-state online purchases, based on data where products are shipped to, and that rightfully takes into consideration the impacts that fulfillment centers have on host cities but also provides a fair share to California cities that do not and/or cannot have a fulfillment center within their jurisdiction. Background: The City of Rancho Cucamonga is sponsoring this resolution to “address the issues in how sales and use taxes are distributed in the 21st century.” The City notes that “sales tax is a major revenue source for most California cities. Commonly known as the local 1% Bradley-Burns tax, since the 1950’s, cities have traditionally received 1 cent on every dollar of a sale made at the store, restaurant, car dealer, or other location within a jurisdiction’s boundaries. Over the years, however, this simple tax structure has evolved into a much more complex set of laws and allocation rules. Many of these rules relate to whether or not a given transaction is subject to sales tax, or to use tax – both have the same 1% value, but each applies in separate circumstances. Recently, one of the world’s largest online retailers changed the legal ownership of its fulfillment centers. Instead of having its fulfillment centers owned and operated by a third-party vendor, they are now directly owned by the company. This subtle change has major impacts to how the 1% local tax is allocated. This change has created a situation where most cities in California – more than 90%, in fact – are experiencing a sales tax revenue loss that began in the fourth quarter of calendar year 2021. Many cities may not be aware of this impact, as the fluctuations in sales tax following the pandemic shutdowns have masked the issue. But this change will have long-term impacts on revenues for all California cities as all these revenues benefiting all cities have shifted to just a handful of cities and counties that are home to this retailer’s fulfillment centers.” The City’s resolution calls for action on an unspecified solution that “rightfully takes into consideration the impacts that fulfillment centers have on host cities but also provides a fair share to California cities that do not and/or cannot have a fulfillment center within their jurisdiction,” which aims to acknowledge the actions taken by cities to alleviate poverty, catalyze economic development, and improve financial stability within their communities through existing tax sharing and zoning powers. 25 Ultimately, sponsoring cities believe “that by once again starting the conversation and moving toward the development of laws and policies that can result in seeing all cities benefit from the growth taxes generated through online sales, our state will be stronger.” Sales and Use Tax in California The Bradley-Burns Uniform Sales Tax Act allows all local agencies to apply its own sales and use tax on the same base of tangible personal property (taxable goods). This tax rate currently is fixed at 1.25% of the sales price of taxable goods sold at retail locations in a local jurisdiction, or purchased outside the jurisdiction for use within the jurisdiction. Cities and counties use this 1% of the tax to support general operations, while the remaining 0.25% is used for county transportation purposes. In California, all cities and counties impose Bradley-Burns sales taxes. California imposes the sales tax on every retailer engaged in business in this state that sells taxable goods. The law requires businesses to collect the appropriate tax from the purchaser and remit the amount to the California Department of Tax and Fee Administration (CDTFA). Sales tax applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business. Unless the person pays the sales tax to the retailer, they are liable for the use tax, which is imposed on any person consuming taxable goods in the state. The use tax rate is the same rate as the sales tax rate. Generally, CDTFA distributes Bradley-Burns tax revenue based on where a sale took place, known as a situs-based system. A retailer’s physical place of business—such as a retail store or restaurant—is generally the place of sale. “Sourcing” is the term used by tax practitioners to describe the rules used to determine the place of sale, and therefore, which tax rates are applied to a given purchase and which jurisdictions are entitled to the local and district taxes generated from a particular transaction. California is primarily an origin-based sourcing state – meaning tax revenues go to the jurisdiction in which a transaction physically occurs if that can be determined. However, California also uses a form of destination sourcing for the local use tax and for district taxes (also known as “transactions and use taxes” or “add-on sale and use taxes”). That is, for cities with local add-on taxes, they receive their add-on rate amount from remote and online transactions. Generally, allocations are based on the following rules: x The sale is sourced to the place of business of the seller - whether the product is received by the purchaser at the seller’s business location or not. x If the retailer maintains inventory in California and has no other in state location, the source is the jurisdiction where the warehouse is situated. This resolution is concerned with the growing amount of online retail activity being sourced to cities with warehouse/fulfillment center locations. x If the business’ sales office is located in California but the merchandise is shipped from out of state, the tax from transactions under $500,000 is allocated 26 via the county pools. The tax from transactions over $500,000 is allocated to the jurisdiction where the merchandise is delivered. x When a sale cannot be identified with a permanent place of business in the state, the sale is sourced to the allocation pool of the county where the merchandise was delivered and then distributed among all jurisdictions in that county in proportion to ratio of sales. For many large online retailers, this has been the traditional path. Online Sales and Countywide Pools While the growth of e-commerce has been occurring for more than two decades, led by some of the largest and most popular retailers in the world, the dramatic increase in online shopping during the COVID-19 pandemic has provided significant revenue to California cities as well as a clearer picture on which governments enjoy even greater benefits. In the backdrop of booming internet sales has been the steady decline of brick-and- mortar retail and shopping malls. For cities with heavy reliance on in-person retail shopping, the value of the current allocation system has been diminished as their residents prefer to shop online or are incentivized to do so by retailers (during the COVID-19 pandemic, consumers have had no other option but to shop online for certain goods). All the while, the demands and costs of city services continue to grow for cities across the state. As noted above, the allocation of sales tax revenue to local governments depends on the location of the transaction (or where the location is ultimately determined). For in- person retail, the sales tax goes to the city in which the product and store are located - a customer purchasing at a register. For online sales, the Bradley Burns sales tax generally goes to a location other than the one where the customer lives – either to the city or county where an in-state warehouse or fulfillment center is located, the location of in-state sales office (ex. headquarters) or shared as use tax proceeds amongst all local governments within a county based on their proportionate share of taxable sales. Under current CDTFA regulations, a substantial portion of local use tax collections are allocated through a countywide pool to the local jurisdictions in the county where the property is put to its first functional use. The state and county pools constitute over 15% of local sales and use tax revenues. Under the pool system, the tax is reported by the taxpayer to the countywide pool of use and then distributed to each jurisdiction in that county on a pro-rata share of taxable sales. If the county of use cannot be identified, the revenues are distributed to the state pool for pro-rata distribution on a statewide basis. Concentration of Online Sales Tax Revenue and Modernization Sales tax modernization has been a policy goal of federal, state, and local government leaders for decades to meet the rapidly changing landscape of commercial activity and ensure that all communities can sustainably provide critical services. 27 For as long as remote and internet shopping has existed, policy makers have been concerned about their potential to disrupt sales and use tax allocation procedures that underpin the funding of local government services. The system was designed in the early twentieth century to ensure that customers were paying sales taxes to support local government services within the community where the transactions occurred whether they resided there or not. This structure provides benefit to and recoupment for the public resources necessary to ensure the health and safety of the community broadly. City leaders have for as long been concerned about the loosening of the nexus between what their residents purchase and the revenues they receive. Growing online shopping, under existing sourcing rules, has led to a growing concentration of sales tax revenue being distributed to a smaller number of cities and counties. As more medium and large online retailers take title to fulfillment centers or determine specific sales locations in California as a result of tax sharing agreements in specific cities, online sales tax revenue will be ever more concentrated in a few cities at the control of these companies. Furthermore, local governments are already experiencing the declining power of the sales tax to support services as more money is being spent on non-taxable goods and services. For more on sales and use tax sourcing please see Attachment A. State Auditor Recommendations In 2017, the California State Auditor issued a report titled, “The Bradley-Burns Tax and Local Transportation Funds, noting that: “Retailers generally allocate Bradley Burns tax revenue based on the place of sale, which they identify according to their business structure. However, retailers that make sales over the Internet may allocate sales to various locations, including their warehouses, distribution center, or sales offices. This approach tends to concentrate Bradley Burns tax revenue into the warehouses’ or sales offices’ respective jurisdictions. Consequently, counties with a relatively large amount of industrial space may receive disproportionately larger amounts of Bradley Burns tax, and therefore Local Transportation Fund, revenue. The State could make its distribution of Bradley Burns tax revenue derived from online sales more equitable if it based allocations of the tax on the destinations to which goods are shipped rather than on place of sale.” The Auditor’s report makes the following recommendation: “To ensure that Bradley-Burns tax revenue is more evenly distributed, the Legislature should amend the Bradley-Burns tax law to allocate revenues from Internet sales based on the destination of sold goods rather than their place of sale.” 28 In acknowledgement of the growing attention from outside groups on this issue, Cal Cities has been engaged in its own study and convening of city officials to ensure pursued solutions account for the circumstances of all cities and local control is best protected. These efforts are explored in subsequent sections. Cal Cities Revenue and Taxation Committee and City Manager Working Group In 2015 and 2016, Cal Cities’ Revenue and Taxation Policy Committee held extensive discussions on potential modernization of tax policy affecting cities, with a special emphasis on the sales tax. The issues had been identified by Cal Cities leadership as a strategic priority given concerns in the membership about the eroding sales tax base and the desire for Cal Cities to take a leadership role in addressing the associated issues. The policy committee ultimately adopted a series of policies that were approved by the Cal Cities board of directors. Among its changes were a recommended change to existing sales tax sourcing (determining where a sale occurs) rules, so that the point of sale (situs) is where the customer receives the product. The policy also clarifies that specific proposals in this area should be carefully reviewed so that the impacts of any changes are fully understood. See “Existing Cal Cities Policy” section below. Cal Cities City Manager Sales Tax Working Group Recommendations In the Fall of 2017, the Cal Cities City Managers Department convened a working group (Group) of city managers representing a diverse array of cities to review and consider options for addressing issues affecting the local sales tax. The working group of city managers helped Cal Cities identify internal common ground on rapidly evolving e-commerce trends and their effects on the allocation of local sales and use tax revenue. After meeting extensively throughout 2018, the Group made several recommendations that were endorsed unanimously by Cal Cities’ Revenue and Taxation Committee at its January, 2019 meeting and by the board of directors at its subsequent meeting. The Group recommended the following actions in response to the evolving issues associated with e-commerce and sales and use tax: Further Limiting Rebate Agreements: The consensus of the Group was that: x Sales tax rebate agreements involving online retailers should be prohibited going forward. They are inappropriate because they have the effect of encouraging revenue to be shifted away from numerous communities and concentrated to the benefit of one. x Any type of agreement that seeks to lure a retailer from one community to another within a market area should also be prohibited going forward. Existing law already prohibits such agreements for auto dealers and big box stores. Shift Use Tax from Online Sales, including from the South Dakota v. Wayfair Decision Out of County Pools: The Group’s recommendation is based first on the principle of “situs” and that revenue should be allocated to the jurisdiction where the use occurs. Each city and county in California imposed a Bradley Burns sales and use tax rate 29 under state law in the 1950s. The use tax on a transaction is the rate imposed where the purchaser resides (the destination). These use tax dollars, including new revenue from the South Dakota v. Wayfair decision, should be allocated to the destination jurisdiction whose Bradley Burns tax applies and not throughout the entire county. x Shift of these revenues, from purchases from out of state retailers including transactions captured by the South Dakota v. Wayfair decision, out of county pools to full destination allocation on and after January 1, 2020. x Allow more direct reporting of use taxes related to construction projects to jurisdiction where the construction activity is located by reducing existing regulatory threshold from $5 million to $100,000. Request/Require CDTFA Analysis on Impacts of Sales Tax Destination Shifts: After discussion of numerous phase-in options for destination sourcing and allocation for sales taxes, the Group ultimately decided that a more complete analysis was needed to sufficiently determine impacts. Since the two companies most cities rely on for sales tax analysis, HdL and MuniServices, were constrained to modeling with transaction and use tax (district tax) data, concerns centered on the problem of making decisions without adequate information. Since the CDTFA administers the allocation of local sales and use taxes, it is in the best position to produce an analysis that examines: x The impacts on individual agencies of a change in sourcing rules. This would likely be accomplished by developing a model to examine 100% destination sourcing with a report to the Legislature in early 2020. x The model should also attempt to distinguish between business-to-consumer transactions versus business-to-business transactions. x The model should analyze the current number and financial effects of city and county sales tax rebate agreements with online retailers and how destination sourcing might affect revenues under these agreements. Conditions for considering a Constitutional Amendment that moves toward destination allocation: Absent better data on the impacts on individual agencies associated with a shift to destination allocation of sales taxes from CDTFA, the Group declined to prescribe if/how a transition to destination would be accomplished; the sentiment was that the issue was better revisited once better data was available. In anticipation that the data would reveal significant negative impacts on some agencies, the Group desired that any such shift should be accompanied by legislation broadening of the base of sales taxes, including as supported by existing Cal Cities policy including: x Broadening the tax base on goods, which includes reviewing existing exemptions on certain goods and expanding to digital forms of goods that are otherwise taxed; and x Expanding the sales tax base to services, such as those commonly taxed in other states. This Resolution builds upon previous work that accounts for the impacts that distribution networks have on host cities and further calls on the organization to advocate for changes to sales tax distribution rules. 30 The Resolution places further demands on data collected by CDTFA to establish a “fair and equitable distribution of the Bradley Burns 1% local sales tax from in-state online purchases.” Such data is proposed to be collected by SB 792 (Glazer, 2021). More discussion on this topic can be found in the “Staff Comments” section. Staff Comments: Proposed Resolution Affixes Equity Based, Data Driven Approach to Existing Cal Cities Policy on Sales Tax Sourcing The actions resulting from this resolution, if approved, would align with existing policy and efforts to-date to modernize sales tax rules. While not formalized in existing Cal Cities policy or recommendations, city managers and tax practitioners generally have favored proposals that establish a sharing of online sales tax revenues rather than a full destination shift. City leaders and practitioners across the state have acknowledged during Cal Cities Revenue and Taxation and City Manager’s working group meetings that the hosting of fulfillment centers and ancillary infrastructure pose major burdens on local communities including detrimental health and safety impacts. This acknowledgement has moved mainstream proposals such as this one away from full revenue shifts towards an equity-based, data driven approach that favors revenue sharing. This Resolution would concretely affix this approach as Cal Cities policy. More Data is Needed to Achieve Equity Based Approach A major challenge is the lack of adequate data to model the results of shifting in-state online sale tax revenues. Local government tax consultants and state departments have limited data to model the effects of changes to sales tax distribution because their information is derived only from cities that have a local transactions and use tax (TUT). Tax experts are able to model proposed tax shifts using TUTs since they are allocated on a destination basis (where a purchaser receives the product; usually a home or business). However, more than half of all cities, including some larger cities, do not have a local TUT therefore modeling is constrained and incomplete. Efforts to collect relevant sales tax information on the destination of products purchased online are ongoing. The most recent effort is encapsulated in SB 792 (Glazer, 2021), which would require retailers with online sales exceeding $50 million a year to report to CDTFA the gross receipts from online sales that resulted in a product being shipped or delivered in each city. The availability of this data would allow for a much more complete understanding of online consumer behavior and the impacts of future proposed changes to distribution. SB 792 (Glazer) is supported by Cal Cities following approval by the Revenue and Taxation Committee and board of directors. Impact of Goods Movement Must Be Considered As noted above, city leaders and practitioners across the state acknowledge that the hosting of fulfillment centers and goods movement infrastructure pose major burdens on local communities including detrimental health, safety, and infrastructure impacts. Not least of which is the issue of air pollution from diesel exhaust. According to California Environmental Protection Agency (Cal EPA): 31 “Children and those with existing respiratory disease, particularly asthma, appear to be especially susceptible to the harmful effects of exposure to airborne PM from diesel exhaust, resulting in increased asthma symptoms and attacks along with decreases in lung function (McCreanor et al., 2007; Wargo, 2002). People that live or work near heavily-traveled roadways, ports, railyards, bus yards, or trucking distribution centers may experience a high level of exposure (US EPA, 2002; Krivoshto et al., 2008). People that spend a significant amount of time near heavily-traveled roadways may also experience a high level of exposure. Studies of both men and women demonstrate cardiovascular effects of diesel PM exposure, including coronary vasoconstriction and premature death from cardiovascular disease (Krivoshto et al., 2008). A recent study of diesel exhaust inhalation by healthy non-smoking adults found an increase in blood pressure and other potential triggers of heart attack and stroke (Krishnan et al., 2013) Exposure to diesel PM, especially following periods of severe air pollution, can lead to increased hospital visits and admissions due to worsening asthma and emphysema- related symptoms (Krivoshto et al., 2008). Diesel exposure may also lead to reduced lung function in children living in close proximity to roadways (Brunekreef et al., 1997).” The founded health impacts of the ubiquitous presence of medium and heavy-duty diesel trucks used to transport goods to and from fulfillment centers and warehouses require host cities to meet increased needs of their residents including the building and maintenance of buffer zones, parks, and open space. While pollution impacts may decline with the introduction of zero-emission vehicles, wide scale adoption by large distribution fleets is still in its infancy. Furthermore, the impacts of heavy road use necessitate increased spending on local streets and roads upgrades and maintenance. In addition, many cities have utilized the siting of warehouses, fulfillment centers, and other heavy industrial uses for goods movements as key components of local revenue generation and economic development strategies. These communities have also foregone other land uses in favor of siting sales offices and fulfillment networks. All said, however, it is important to acknowledge that disadvantaged communities (DACs) whether measured along poverty, health, environmental or education indices exist in cities across the state. For one example, see: California Office of Environmental Health Hazard Assessment (OEHHA) CalEnviroScreen. City officials may consider how cities without fulfillment and warehouse center revenues are to fund efforts to combat social and economic issues, particularly in areas with low property tax and tourism- based revenues. The Resolution aims to acknowledge these impacts broadly (this analysis does not provide an exhaustive review of related impacts) and requests Cal Cities to account for them in a revised distribution formula of the Bradley Burns 1% local sales tax from in- state online purchases. The Resolution does not prescribe the proportions. Clarifying Amendments Upon review of the Resolution, Cal Cities staff recommends technical amendments to provide greater clarity. To review the proposed changes, please see Attachment B. 32 Fiscal Impact: Significant but unknown. The Resolution on its own does not shift sales tax revenues. In anticipation and mitigation of impacts, the Resolution requests Cal Cities to utilize online sales tax data to identify a fair and equitable distribution formula that accounts for the broad impacts fulfillment centers involved in online retail have on the cities that host them. The Resolution does not prescribe the revenue distribution split nor does it prescribe the impacts, positive and negative, of distribution networks. Existing Cal Cities Policy: x Tax proceeds collected from internet sales should be allocated to the location where the product is received by the purchaser. x Support as Cal Cities policy that point of sale (situs) is where the customer receives the product. Specific proposals in this area should be carefully reviewed so that the impacts of any changes are fully understood. x Revenue from new regional or state taxes or from increased sales tax rates should be distributed in a way that reduces competition for situs-based revenue. (Revenue from the existing sales tax rate and base, including future growth from increased sales or the opening of new retail centers, should continue to be returned to the point of sale.) x The existing situs-based sales tax under the Bradley Burns 1% baseline should be preserved and protected. x Restrictions should be implemented and enforced to prohibit the enactment of agreements designed to circumvent the principle of situs-based sales and redirect or divert sales tax revenues from other communities, when the physical location of the affected businesses does not change. Sales tax rebate agreements involving online retailers are inappropriate because they have the effect of encouraging revenue to be shifted away from numerous communities and concentrated to the benefit of one. Any type of agreement that seeks to lure a retailer from one community to another within a market area should also be prohibited going forward. x Support Cal Cities working with the state California Department of Tax and Fee Administration (CDTFA) to update the county pool allocation process to ensure that more revenues are allocated to the jurisdiction where the purchase or first use of a product occurs (usually where the product is delivered). Use Tax collections from online sales, including from the South Dakota v Wayfair Decision, should be shifted out of county pools and allocated to the destination jurisdiction whose Bradley Burns tax applies and not throughout the entire county. Support: The following letters of concurrence were received: Town of Apple Valley City of El Cerrito City of La Canada Flintridge City of La Verne City of Lakewood 33 City of Moorpark City of Placentia City of Sacramento 34 6DOHV7D[6RXUFLQJ ± ± )HEUXDU\ CaliforniaCityFinance.com 35 Attachment A 6DOHV7D[6RXUFLQJ±±)HEUXDU\ CaliforniaCityFinance.com 36 6DOHV7D[6RXUFLQJ ± ± )HEUXDU\ CaliforniaCityFinance.com ŽƵƌƚĞƐǇŽĨ,Ě>ŽŵƉĂŶŝĞƐ 37 6DOHV7D[6RXUFLQJ±±)HEUXDU\ CaliforniaCityFinance.com dĂǆ/ŶĐĞŶƚŝǀĞWƌŽŐƌĂŵƐ͕^ĂůĞƐdĂǆ^ŚĂƌŝŶŐŐƌĞĞŵĞŶƚƐ /ŶƌĞĐĞŶƚǇĞĂƌƐ͕ĞƐƉĞĐŝĂůůǇƐŝŶĐĞWƌŽƉŽƐŝƚŝŽŶϭϯŝŶϭϵϳϴ͕ůŽĐĂůĚŝƐĐƌĞƚŝŽŶĂƌǇ;ŐĞŶĞƌĂůƉƵƌƉŽƐĞƌĞǀĞŶƵĞƐͿŚĂǀĞ ďĞĐŽŵĞŵŽƌĞƐĐĂƌĐĞ͘ƚƚŚĞƐĂŵĞƚŝŵĞ͕ŽƉƚŝŽŶƐĂŶĚƉƌŽĐĞĚƵƌĞƐĨŽƌŝŶĐƌĞĂƐŝŶŐƌĞǀĞŶƵĞƐŚĂǀĞďĞĐŽŵĞŵŽƌĞ ůŝŵŝƚĞĚ͘KŶĞŽƵƚĐŽŵĞŽĨƚŚŝƐŝŶŵĂŶǇĂƌĞĂƐŚĂƐďĞĞŶĂŐƌĞĂƚĞƌĐŽŵƉĞƚŝƚŝŽŶĨŽƌƐĂůĞƐĂŶĚƵƐĞƚĂǆƌĞǀĞŶƵĞƐ͘ dŚŝƐŚĂƐďƌŽƵŐŚƚĂƌŝƐĞŝŶĂƌƌĂŶŐĞŵĞŶƚƐƚŽĞŶĐŽƵƌĂŐĞĐĞƌƚĂŝŶůĂŶĚ ƵƐĞ ĚĞǀĞůŽƉŵĞŶƚ ǁŝƚŚ ƌĞďĂƚĞƐ ĂŶĚ ŝŶĐĞŶƚŝǀĞƐǁŚŝĐŚĞǆƉůŽŝƚĂůŝĨŽƌŶŝĂ͛ƐŽĚĚŽƌŝŐŝŶƐĂůĞƐƚĂǆƐŽƵƌĐŝŶŐƌƵůĞƐ͘ dŚĞƚǇƉŝĐĂůĂƌƌĂŶŐĞŵĞŶƚŝƐĂƐĂůĞƐƚĂǆƐŚĂƌŝŶŐĂŐƌĞĞŵĞŶƚŝŶ ǁŚŝĐŚĂĐŝƚǇƉƌŽǀŝĚĞƐƚĂǆƌĞďĂƚĞƐƚŽĂĐŽŵƉĂŶǇƚŚĂƚĂŐƌĞĞƐƚŽ ĞǆƉĂŶĚƚŚĞŝƌŽƉĞƌĂƚŝŽŶƐŝŶƚŚĞũƵƌŝƐĚŝĐƚŝŽŶŽĨƚŚĞĐŝƚǇ͘hŶĚĞƌ ƐƵĐŚĂŶĂƌƌĂŶŐĞŵĞŶƚ͕ƚŚĞĐŽŵƉĂŶǇŐĞŶĞƌĂůůǇĂŐƌĞĞƐƚŽŵĂŬĞ ĂƐƉĞĐŝĨŝĞĚĂŵŽƵŶƚŽĨĐĂƉŝƚĂůŝŶǀĞƐƚŵĞŶƚĂŶĚĐƌĞĂƚĞĂƐƉĞĐŝĨŝĐ ŶƵŵďĞƌ ŽĨ ũŽďƐ ŽǀĞƌ Ă ƉĞƌŝŽĚ ŽĨ ǇĞĂƌƐ ŝŶ ĞǆĐŚĂŶŐĞ ĨŽƌ ƐƉĞĐŝĨŝĞĚƚĂǆďƌĞĂŬƐ͕ŽĨƚĞŶƉƌŽƉĞƌƚǇƚĂǆĂďĂƚĞŵĞŶƚŽƌƐŽŵĞ ƐŽƌƚŽĨƚĂǆĐƌĞĚŝƚ͘/ŶƐŽŵĞĐĂƐĞƐ͕ƚŚŝƐŚĂƐƐŝŵƉůǇƚĂŬĞŶƚŚĞ ĨŽƌŵŽĨĂƐĂůĞƐŽĨĨŝĐĞ͕ǁŚŝůĞĐƵƐƚŽŵĞƌƐĂŶĚǁĂƌĞŚŽƵƐĞƐĂŶĚ ƚŚĞƌĞůĂƚĞĚĞĐŽŶŽŵŝĐĂĐƚŝǀŝƚǇĂƌĞĚŝƐďƵƌƐĞĚĞůƐĞǁŚĞƌĞŝŶƚŚĞ ƐƚĂƚĞ͘/ŶƐŽŵĞĐĂƐĞƐƚŚĞĚĞǀĞůŽƉŵĞŶƚƚĂŬĞƐƚŚĞĨŽƌŵŽĨ ǁĂƌĞŚŽƵƐĞƐ͕ŝŶǁŚŝĐŚƚŚĞƐĂůĞƐŝŶǀĞŶƚŽƌǇ͕ŽǁŶĞĚďǇƚŚĞ ĐŽŵƉĂŶǇ͕ŝƐŚŽƵƐĞĚ͘ϲ ƵƌƌĞŶƚ ƐĂůĞƐ ƚĂǆ ŝŶĐĞŶƚŝǀĞ ĂŐƌĞĞŵĞŶƚƐ ŝŶĂůŝĨŽƌŶŝĂ ƌĞďĂƚĞ ĂŵŽƵŶƚƐƌĂŶŐŝŶŐĨƌŽŵϱϬйƚŽϴϱйŽĨƐĂůĞƐƚĂǆƌĞǀĞŶƵĞƐďĂĐŬ ƚŽƚŚĞĐŽƌƉŽƌĂƚŝŽŶƐ͘ dŽĚĂǇ͕ ĞǆƉĞƌƚƐ ĨĂŵŝůŝĂƌ ǁŝƚŚ ƚŚĞ ŝŶĚƵƐƚƌǇ ďĞůŝĞǀĞ ƚŚĂƚ ďĞƚǁĞĞŶϮϬйƚŽϯϬйŽĨůŽĐĂůƌĂĚůĞǇͲƵƌŶƐƐĂůĞƐƚĂǆĞƐƉĂŝĚ ďǇĂůŝĨŽƌŶŝĂĐŽŶƐƵŵĞƌƐŝƐĚŝǀĞƌƚĞĚĨƌŽŵůŽĐĂůŐĞŶĞƌĂůĨƵŶĚƐ ďĂĐŬƚŽĐŽƌƉŽƌĂƚŝŽŶƐ͖ŽǀĞƌΨϭďŝůůŝŽŶƉĞƌǇĞĂƌ͘ DŽǀŝŶŐƚŽĞƐƚŝŶĂƚŝŽŶ^ŽƵƌĐŝŶŐ͗dŚĞŽŶĐĞƉƚϳ ĐŚĂŶŐĞĨƌŽŵŽƌŝŐŝŶƐŽƵƌĐŝŶŐƌƵůĞƐƚŽĚĞƐƚŝŶĂƚŝŽŶƐŽƵƌĐŝŶŐƌƵůĞƐĨŽƌƚŚĞůŽĐĂůƚĂǆĐŽŵƉŽŶĞŶƚŽĨĂůŝĨŽƌŶŝĂ͛Ɛ ƐĂůĞƐƚĂǆǁŽƵůĚŝŵƉƌŽǀĞŽǀĞƌĂůůƌĞǀĞŶƵĞĐŽůůĞĐƚŝŽŶƐĂŶĚĚŝƐƚƌŝďƵƚĞƚŚĞƐĞƌĞǀĞŶƵĞƐŵŽƌĞĞƋƵŝƚĂďůǇĂŵŽŶŐĂůů ŽĨƚŚĞĂƌĞĂƐŝŶǀŽůǀĞĚŝŶƚŚĞƐĞƚƌĂŶƐĂĐƚŝŽŶƐ͘ ĐŚĂŶŐĞĨƌŽŵŽƌŝŐŝŶďĂƐĞĚƐŽƵƌĐŝŶŐƚŽĚĞƐƚŝŶĂƚŝŽŶďĂƐĞĚƐŽƵƌĐŝŶŐǁŽƵůĚŚĂǀĞŶŽĞĨĨĞĐƚŽŶƐƚĂƚĞƚĂǆ ĐŽůůĞĐƚŝŽŶƐ͘,ŽǁĞǀĞƌ͕ŝƚǁŽƵůĚĂůƚĞƌƚŚĞĂůůŽĐĂƚŝŽŶƐŽĨůŽĐĂůƐĂůĞƐĂŶĚƵƐĞƚĂǆƌĞǀĞŶƵĞƐĂŵŽŶŐůŽĐĂůĂŐĞŶĐŝĞƐ͘ DŽƐƚ ƌĞƚĂŝů ƚƌĂŶƐĂĐƚŝŽŶƐ ŝŶĐůƵĚŝŶŐ ĚŝŶŝŶŐ͕ ŵŽƚŽƌ ĨƵĞů ƉƵƌĐŚĂƐĞƐ͕ĂŶĚŝŶͲƐƚŽƌĞƉƵƌĐŚĂƐĞƐǁŽƵůĚŶŽƚďĞ ĂĨĨĞĐƚĞĚ͘ƵƚŝŶĐĂƐĞƐǁŚĞƌĞƚŚĞƉƌŽƉĞƌƚǇŝƐƌĞĐĞŝǀĞĚďǇƚŚĞƉƵƌĐŚĂƐĞƌŝŶĂĚŝĨĨĞƌĞŶƚũƵƌŝƐĚŝĐƚŝŽŶƚŚĂŶǁŚĞƌĞ ƚŚĞƐĂůĞƐĂŐƌĞĞŵĞŶƚǁĂƐŶĞŐŽƚŝĂƚĞĚ͕ƚŚĞƌĞǁŽƵůĚďĞĂĚŝĨĨĞƌĞŶƚĂůůŽĐĂƚŝŽŶƚŚĂŶƵŶĚĞƌƚŚĞĐƵƌƌĞŶƚƌƵůĞƐ͘ 6 See Jennifer Carr, “Origin Sourcing and Tax Incentive Programs: An Unholy Alliance” Sales Tax Notes; May 27, 2013. 7 The same issues that are of concern regarding the local sales tax do not apply to California’s Transactions and Use Taxes (“Add-on sales taxes”) as these transactions, when not over the counter, are generally allocated to the location of use or, as in the case of vehicles, product registration. There is no need to alter the sourcing rules for transactions and use taxes. dŚĞ^ŽƵƌĐĞŽĨKƌŝŐŝŶĂƐĞĚ^ŽƵƌĐŝŶŐ WƌŽďůĞŵƐ tŚĞƌĞ ŽƚŚĞƌ ƚŚĂŶ ŽǀĞƌͲƚŚĞͲĐŽƵŶƚĞƌ ƐĂůĞƐ ĂƌĞ ĐŽŶĐĞƌŶĞĚ ŽƌŝŐŝŶ ƐŽƵƌĐŝŶŐ ŽĨƚĞŶ ĐĂƵƐĞƐ Ă ĐŽŶĐĞŶƚƌĂƚŝŽŶŽĨůĂƌŐĞĂŵŽƵŶƚƐŽĨƚĂǆƌĞǀĞŶƵĞŝŶ ŽŶĞůŽĐĂƚŝŽŶ͕ĚĞƐƉŝƚĞƚŚĞĨĂĐƚƚŚĂƚƚŚĞĞĐŽŶŽŵŝĐ ĂĐƚŝǀŝƚǇĂŶĚƐĞƌǀŝĐĞŝŵƉĂĐƚƐĂƌĞĂůƐŽŽĐĐƵƌƌŝŶŐŝŶ ŽƚŚĞƌůŽĐĂƚŝŽŶƐ͘ dŚĞůĂƌŐĞĂŵŽƵŶƚƐŽĨƌĞǀĞŶƵĞĐŽŶĐĞŶƚƌĂƚĞĚŝŶĂ ĨĞǁ ůŽĐĂƚŝŽŶƐ ďǇ ĂůŝĨŽƌŶŝĂ͛Ɛ ͞ǁĂƌĞŚŽƵƐĞ ƌƵůĞ͟ ŽƌŝŐŝŶ ƐŽƵƌĐŝŶŐ ĐĂƵƐĞƐ Ă ĐŽŶĐĞŶƚƌĂƚŝŽŶ ŽĨ ƌĞǀĞŶƵĞ ĨĂƌ ŝŶ ĞǆĐĞƐƐ ŽĨ ƚŚĞ ƐĞƌǀŝĐĞ ĐŽƐƚƐ ĂƐƐŽĐŝĂƚĞĚǁŝƚŚƚŚĞĚĞǀĞůŽƉŵĞŶƚ͘ /ŶŽƌĚĞƌƚŽůƵƌĞũŽďƐĂŶĚƚĂǆƌĞǀĞŶƵĞƐƚŽƚŚĞŝƌ ĐŽŵŵƵŶŝƚŝĞƐ͕ ƐŽŵĞ ĐŝƚŝĞƐ ŚĂǀĞ ĞŶƚĞƌĞĚ ŝŶƚŽ ƌĞďĂƚĞĂŐƌĞĞŵĞŶƚƐǁŝƚŚĐŽƌƉŽƌĂƚŝŽŶƐ͘dŚŝƐŚĂƐ ŐƌŽǁŶƚŽƐƵĐŚĂƉƌŽďůĞŵ͕ƚŚĂƚϮϬйƚŽϯϬйŽĨ ƚŽƚĂůůŽĐĂůƚĂǆĞƐƉĂŝĚƐƚĂƚĞǁŝĚĞĂƌĞďĞŝŶŐƌĞďĂƚĞĚ ďĂĐŬƚŽĐŽƌƉŽƌĂƚŝŽŶƐƌĂƚŚĞƌƚŚĂŶĨƵŶĚŝŶŐƉƵďůŝĐ ƐĞƌǀŝĐĞƐ͘ 38 6DOHV7D[6RXUFLQJ ± ± )HEUXDU\ CaliforniaCityFinance.com ĞƐƚŝŶĂƚŝŽŶ^ŽƵƌĐŝŶŐ^ĐĞŶĂƌŝŽϭ͗&ƵůůͲKŶ 39 6DOHV7D[6RXUFLQJ±±)HEUXDU\ CaliforniaCityFinance.com ĞƐƚŝŶĂƚŝŽŶ^ŽƵƌĐŝŶŐ^ĐĞŶĂƌŝŽϮ͗^Ɖůŝƚ^ŽƵƌĐĞ ŵũŐĐ 40 RESOLUTION OF THE LEAGUE OF CALIFORNIA CITIES (“CAL CITIES”) CALLING ON THE STATE LEGISLATURE TO PASS LEGISLATION THAT PROVIDES FOR A FAIR AND EQUITABLE DISTRIBUTION OF THE BRADLEY BURNS 1% LOCAL SALES TAX FROM IN-STATE ONLINE PURCHASES, BASED ON DATA WHERE PRODUCTS ARE SHIPPED TO, AND THAT RIGHTFULLY TAKES INTO CONSIDERATION THE IMPACTS THAT FULFILLMENT CENTERS HAVE ON HOST CITIES BUT ALSO PROVIDES A FAIR SHARE TO CALIFORNIA CITIES THAT DO NOT AND/OR CANNOT HAVE A FULFILLMENT CENTER WITHIN THEIR JURISDICTION WHEREAS, the 2018 U.S. Supreme Court decision in Wayfair v. South Dakota clarified that states could charge and collect tax on purchases even if the seller does not have a physical presence in the state; and WHEREAS, California cities and counties collect 1% in Bradley Burns sales and use tax from the purchase of tangible personal property and rely on this revenue to provide critical public services such as police and fire protection; and WHEREAS, in terms of “siting” the place of sale and determining which jurisdiction receives the 1% Bradley Burns local taxes for online sales, the California Department of Tax and Fee Administration (CDTFA) determines “out-of-state” online retailers as those with no presence in California that ship property from outside the state and are therefore subject to use tax, not sales tax, which is collected in a countywide pool of the jurisdiction where the property is shipped from; and WHEREAS, for online retailers that have a presence in California and have a stock of goods in the state from which it fulfills orders, CDTFA considers the place of sale (“situs”) as the location from which the goods were shipped such as a fulfillment center; and WHEREAS, in early 2021, one of the state’s largest online retailers shifted its ownership structure so that it is now considered both an in-state and out-of-state retailer, resulting in the sales tax this retailer generates from in-state sales now being entirely allocated to the specific city cities where the warehouse fulfillment centers is are located as opposed to going into a countywide pools that is are shared with all jurisdictions in those counties that County, as was done previously; and WHEREAS, this all-or-nothing change for the allocation of in-state sales tax has created winners and losers amongst cities as the online sales tax revenue from the retailer that was once spread amongst all cities in countywide pools is now concentrated in select cities that host a fulfillment centers; and WHEREAS, this has created a tremendous inequity amongst cities, in particular for cities that are built out, do not have space for siting a 1 million square foot fulfillment centers, are not located along a major travel corridor, or otherwise not ideally suited to host a fulfillment center; and WHEREAS, this inequity affects cities statewide, but in particular those with specific circumstances such as no/low property tax cities that are extremely reliant on sales tax revenue as well as cities struggling to meet their Regional Housing Needs Allocation (RHNA) obligations that are being compelled by the State to rezone precious commercial parcels to residential; and 41 WHEREAS, the inequity produced by allocating in-state online sales tax revenue exclusively to cities with fulfillment centers is exasperated even more by, in addition to already reducing the amount of revenue going into the countywide pools, the cities with fulfillment centers are also receiving a larger share of the dwindling countywide pool as it is allocated based on cities’ proportional share of sales tax collected; and WHEREAS, while it is important to acknowledge that those cities that have fulfillment centers experience impacts from these activities and deserve equitable supplementary compensation, it should also be recognized that the neighboring cities whose residents are ordering products from those that centers now receive no Bradley Burns revenue from the center’s sales activity despite also experiencing the impacts created by them center, such as increased traffic and air pollution; and WHEREAS, the COVID-19 pandemic greatly accelerated the public’s shift towards online purchases, a trend that is unlikely to be reversed to pre-pandemic levels; and NOW, THEREFORE, BE IT RESOLVED that Cal Cities calls on the State Legislature to pass legislation that provides for a fair and equitable distribution of the Bradley Burns 1% local sales tax from in-state online purchases, based on data where products are shipped to, and that rightfully takes into consideration the impacts that fulfillment centers have on host cities but also provides a fair share to California cities that do not and/or cannot have a fulfillment center within their jurisdiction. 42 2. A RESOLUTION CALLING UPON THE GOVERNOR AND THE LEGISLATURE TO PROVIDE NECCESARY FUNDING FOR CUPC TO FUFILL ITS OBLIGATION TO INSPECT RAILROAD LINES TO ENSURE THAT OPERATORS ARE REMOVING ILLEGAL DUMPING, GRAFFITI AND HOMELESS ENCAMPMENTS THAT DEGRADE THE QAULITY OF LIFE AND RESULTS IN INCREASED PUBLIC SAFETLY CONCERNS FOR COMMUNITIES AND NEIGHBORHOODS THAT ABUTT THE RAILROAD RIGHT- OF-WAY. Source: City of South Gate Concurrence of five or more cities/city officials Cities: City of Bell Gardens; City of Bell; City of Commerce; City of Cudahy; City of El Segundo; City of Glendora; City of Huntington Park; City of La Mirada; City of Long Beach; City of Lynwood; City of Montebello; City of Paramount; City of Pico Rivera Referred to: Housing, Community and Economic Development; and Transportation, Communications and Public Works WHEREAS, ensuring the quality of life for communities falls upon every local government including that blight and other health impacting activities are addressed in a timely manner by private property owners within its jurisdictional boundaries for their citizens, businesses and institutions; and WHEREAS, Railroad Operators own nearly 6,000 miles of rail right-of-way throughout the State of California which is regulated by the Federal Railroad Administration and/or the California Public Utilities Commission for operational safety and maintenance; and WHEREAS, the California Public Utilities Commission (CPUC) is the enforcing agency for railroad safety in the State of California and has 41 inspectors assigned throughout the entire State to inspect and enforce regulatory compliance over thousands of miles of rail line; and WHEREAS, areas with rail line right-of-way within cities and unincorporated areas are generally located in economically disadvantaged zones and/or disadvantaged communities of color where the impact of blight further lowers property values and increases the likelihood of unsound sanitary conditions and environmental impacts upon them; and WHEREAS, many communities are seeing an increase in illegal dumping, graffiti upon infrastructure and homeless encampments due to the lax and inadequate oversight by regulatory agencies; and WHEREAS, local governments have no oversight or regulatory authority to require operators to better maintain and clean their properties as it would with any other private property owner within its jurisdictional boundaries. Thus such local communities often resort to spending their local tax dollars on cleanup activities or are forced to accept the delayed and untimely response by operators to cleaning up specific sites, and; WHEREAS, that railroad operators should be able to provide local communities with a fixed schedule in which their property will be inspected and cleaned up on a reasonable and regular schedule or provide for a mechanism where they partner with and reimburse local governments for an agreed upon work program where the local government is enabled to remove items like illegal dumping, graffiti and encampments; and 43 WHEREAS, the State has made it a priority to deal with homeless individuals and the impacts illegal encampments have upon those communities and has a budgetary surplus that can help fund the CPUC in better dealing with this situation in both a humane manner as well a betterment to rail safety. RESOLVED, at the League of California Cities, General Assembly, assembled at the League Annual Conference on September 24, 2021, in Sacramento, that the League calls for the Governor and the Legislature to work with the League and other stakeholders to provide adequate regulatory authority and necessary funding to assist cities with these railroad right-of- way areas so as to adequately deal with illegal dumping, graffiti and homeless encampments that proliferate along the rail lines and result in public safety issues. The League will work with its member cities to educate federal and state officials to the quality of life and health impacts this challenge has upon local communities, especially those of color and/or environmental and economic hardships. 44 Background Information to Resolution Source: City of South Gate Background: The State of California has over 6,000 miles of rail lines, with significant amount running through communities that are either economically disadvantaged and/or disadvantaged communities of color. While the Federal Railroad Administration (FRA) has primary oversight of rail operations, they delegate that obligation to the State of California for lines within our State. The administration of that oversight falls under the California Public Utilities Commission (CPUC). The CPUC has only 41 inspectors covering those 6,000 miles of railroad lines in the State of California. Their primary task is ensuring equipment, bridges and rail lines are operationally safe. The right-of-way areas along the rail lines are becoming increasingly used for illegal dumping, graffiti and homeless encampments. Rail operators have admitted that they have insufficient funds set aside to clean up or sufficiently police these right-of-way areas, despite reporting a net income of over $13 billion in 2020. CPUC budget does not provide the resources to oversee whether rail operators are properly managing the right-of-way itself. The City of South Gate has three rail lines traversing through its city limits covering about 4 miles. These lines are open and inviting to individuals to conduct illegal dumping, graffiti buildings and structures along with inviting dozens of homeless encampments. As private property, Cities like ourselves cannot just go upon them to remove bulky items, trash, clean graffiti or remove encampments. We must call and arrange for either our staff to access the site or have the rail operator schedule a cleanup. This can take weeks to accomplish, in the meantime residents or businesses that are within a few hundred feet of the line must endure the blight and smell. Trash is often blown from the right-of-way into residential homes or into the streets. Encampments can be seen from the front doors of homes and businesses. South Gate is a proud city of hard working-class residents, yet with a median household income of just $50,246 or 65% of AMI for Los Angeles County, it does not have the financial resources to direct towards property maintenance of any commercial private property. The quality of life of communities like ours should not be degraded by the inactions or lack of funding by others. Cities such as South Gate receive no direct revenue from the rail operators, yet we deal with environmental impacts on a daily basis, whether by emissions, illegal dumping, graffiti or homeless encampments. The State of California has record revenues to provide CPUC with funding nor only for safety oversight but ensuring right-of-way maintenance by operators is being managed properly. Rail Operators should be required to set aside sufficient annual funds to provide a regular cleanup of their right-of-way through the cities of California. 45 46 LETTERS OF CONCURRENCE Resolution No. 2 47 48 49 50 July 20, 2021 Cheryl Viegas Walker President League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 RE: Railroad Oversight Annual Conference Resolution President Walker: The City of Commerce supports the City of South Gate’s effort to submit a resolution for consideration by the General Assembly at the League of California Cities’ (“League”) 2021 Annual Conference in Sacramento. The City’s resolution seeks to address a critical issue within communities, especially disadvantaged communities of color that are home to the State’s freight rail lines. While I am supportive of the economic base the railroad industry serves to the State, their rail lines have often become places where illegal dumping is a constant problem and our growing homeless population call home. The impact of these activities further erode the quality of life for our communities, increase blight, increase unhealthy sanitation issues and negatively impact our ability to meet State water quality standards under the MS4 permits. As members of the League, our City values the policy development process provided to the General Assembly. We appreciate your time on this issue. Please feel free to contact Edgar Cisneros, City Manager, via email at ecisneros@ci.commerce.ca.us or at 323-722-4805, should you have any questions. Sincerely, Mayor Leonard Mendoza CC: Blanca Pacheco, President, Los Angeles County Division c/o Jennifer Quan, Executive Director, Los Angeles County Division, jquan@cacities.org CITY OF COMMERCE 2535 Commerce Way • Commerce, California 90040 • (323) 722-4805 • FAX (323) 726-6231 Mayor Leonard Mendddozozoa 51 52 53 54 55 56 July 22, 2021 Cheryl Viegas Walker President League of California Cities 1400 K Street, Suite 400 Sacramento, CA 95814 RE: Support for City of South Gate Resolution—Cleanup Activities on Rail Operator Properties Dear President Walker, On behalf of the City of Long Beach, I write to support the City of South Gate’s proposed resolution for the League of California Cities’ (League) 2021 Annual Conference. This resolution seeks to direct the League to adopt a policy urging State and federal governments to increase oversight of rail operators’ land maintenance. The City is a proponent of increased maintenance along railways and believes a League advocacy strategy would help expedite regional responses. The COVID-19 pandemic has exacerbated the public health and safety concerns on rail rights-of-way, as trash, debris, and encampments have increased exponentially. These challenges erode the quality of life for our communities, increase blight, and contribute to public health and sanitation issues. To address these concerns, the City has engaged directly with regional partners to prioritize ongoing maintenance and cleanups, and has invested $4 million in the Clean Long Beach Initiative as part of the City’s Long Beach Recovery Act to advance economic recovery and public health in response to the COVID-19 pandemic. The City of South Gate’s proposed resolution would further advance these efforts for interjurisdictional coordination. The increased oversight proposed by the resolution will help support better coordination and additional resources to address illegal dumping and encampments along private rail operator property. This is a critical measure to advance public health and uplift our most vulnerable communities. For these reasons, the City supports the proposed League resolution. Sincerely, THOMAS B. MODICA City Manager cc: Blanca Pacheco, President, Los Angeles County Division c/o Jennifer Quan, Executive Director, Los Angeles County Division, jquan@cacities.org 57 58 59 60 61 League of California Cities Staff Analysis on Resolution No. 2 Staff: Damon Conklin, Legislative Affairs, Lobbyist Jason Rhine, Assistant Director, Legislative Affairs Caroline Cirrincione, Policy Analyst Committees: Transportation, Communications, and Public Works Housing, Community, and Economic Development Summary: The City of South Gate submits this resolution, which states the League of California Cities should urge the Governor and the Legislature to provide adequate regulatory authority and necessary funding to assist cities with railroad right-of-way areas to address illegal dumping, graffiti, and homeless encampments that proliferate along the rail lines and result in public safety issues. Background: California Public Utilities Commission (CPUC) Railroad Oversight The CPUC’s statewide railroad safety responsibilities are carried out through its Rail Safety Division (RSD). The Railroad Operations and Safety Branch (ROSB), a unit of RSD, enforces state and federal railroad safety laws and regulations governing freight and passenger rail in California. The ROSB protects California communities and railroad employees from unsafe practices on freight and passenger railroads by enforcing rail safety laws, rules, and regulations. The ROSB also performs inspections to identify and mitigate risks and potential safety hazards before they create dangerous conditions. ROSB rail safety inspectors investigate rail accidents and safety- related complaints and recommend safety improvements to the CPUC, railroads, and the federal government as appropriate. Within the ROSB, the CPUC employs 41 inspectors who are federally certified in the five Federal Railroad Administration (FRA) railroad disciplines, including hazardous materials, motive power and equipment, operations, signal and train control, and track. These inspectors perform regular inspections, focused inspections, accident investigations, security inspections, and complaint investigations. In addition, the inspectors address safety risks that, while not violations of regulatory requirements, pose potential risks to public or railroad employee safety. CPUC’s Ability to Address Homelessness on Railroads Homeless individuals and encampments have occupied many locations in California near railroad tracks. This poses an increased safety risk to these homeless individuals of being struck by trains. Also, homeless encampments often create unsafe work environments for railroad and agency personnel. While CPUC cannot compel homeless individuals to vacate railroad rights-of-way or create shelter for homeless individuals, it has the regulatory authority to enforce measures that can reduce some safety issues created by homeless encampments. The disposal of waste materials or other disturbances of walkways by homeless individuals can create tripping hazards in the vicinity of railroad rights-of-way. This would cause violations of Commission GO 118-A, which sets standards for walkway surfaces alongside railroad tracks. Similarly, tents, wooden structures, and miscellaneous debris in homeless encampments can create violations of 62 Commission GO 26-D, which sets clearance standards between railroad tracks, and structures and obstructions adjacent to tracks. Homelessness in California According to the 2020 Annual Homeless Assessment Report (AHAR) to Congress, there has been an increase in unsheltered individuals since 2019. More than half (51 percent or 113,660 people) of all unsheltered homeless people in the United States are found in California, about four times as high as their share of the overall United States population. Many metro areas in California lack an adequate supply of affordable housing. This housing shortage has contributed to an increase in homelessness that has spread to railroad rights-of- way. Homeless encampments along railroad right-of-way increase the incidents of illegal dumping and unauthorized access and trespassing activities. Other impacts include train service reliability with debris strikes, near-misses, and trespasser injuries/fatalities. As of April 2021, there have been 136 deaths and 117 injuries reported by the Federal Railroad Administration over the past year. These casualties are directly associated with individuals who trespassed on the railroad. Cities across the state are expending resources reacting to service disruptions located on the railroad’s private property. It can be argued that an increase in investments and services to manage and maintain the railroad’s right-of-way will reduce incidents, thus enhancing public safety, environmental quality, and impacts on the local community. State Budget Allocations – Homelessness The approved State Budget includes a homelessness package of $12 billion. This consists of a commitment of $1 billion per year for direct and flexible funding to cities and counties to address homelessness. While some details related to funding allocations and reporting requirements remain unclear, Governor Newsom signed AB 140 in July, which details key budget allocations, such as: x $2 billion in aid to counties, large cities, and Continuums of Care through the Homeless Housing, Assistance and Prevention grant program (HHAP); x $50 million for Encampment Resolution Grants, which will help local governments resolve critical encampments and transitioning individuals into permanent housing; and x $2.7 million in onetime funding for Caltrans Encampment Coordinators to mitigate safety risks at encampments on state property and to coordinate with local partners to connect these individuals to services and housing. The Legislature additionally provided $2.2 billion specifically for Homekey with $1 billion available immediately. This funding will help local governments transition individuals from Project Roomkey sites into permanent housing to minimize the number of occupants who exit into unsheltered homelessness. With regards to this resolution, the State Budget also included $1.1 billion to clean trash and graffiti from highways, roads, and other public spaces by partnering with local governments to pick up trash and beautify downtowns, freeways, and neighborhoods across California. The program is expected to generate up to 11,000 jobs over three years. Cities Railroad Authority A city must receive authorization from the railroad operator before addressing the impacts made by homeless encampments because of the location on the private property. Additionally, the city 63 must coordinate with the railroad company to get a flagman to oversee the safety of the work crews, social workers, and police while on the railroad tracks. A city may elect to declare the encampment as a public nuisance area, which would allow the city to clean up the areas at the railroad company’s expense for failing to maintain the tracks and right-of-way. Some cities are looking to increase pressure on railroad operators for not addressing the various homeless encampments, which are presenting public safety and health concerns. Courts have looked to compel railroad companies to increase their efforts to address homeless encampments on their railroads or grant a local authority’s application for an Inspection and Abatement Warrant, which would allow city staff to legally enter private property and abate a public nuisance or dangerous conditions. In limited circumstances, some cities have negotiated Memoranda of Understandings (MOU) with railroad companies to provide graffiti abatement, trash, and debris removal located in the right-of-way, and clean-ups of homeless encampments. These MOUs also include local law enforcement agencies to enforce illegally parked vehicles and trespassing in the railroad’s right- of-way. MOUs also detailed shared responsibility and costs of providing security and trash clean-up. In cases where trespassing or encampments are observed, the local public works agency and law enforcement agency are notified and take the appropriate measures to remove the trespassers or provide clean-up with the railroad covering expenses outlined in the MOU. Absent an MOU detailing shared maintenance, enforcement, and expenses, cities do not have the authority to unilaterally abate graffiti or clean-up trash on a railroad’s right-of-way. Fiscal Impact: If the League of California Cities were to secure funding from the state for railroad clean-up activities, cities could potentially save money in addressing these issues themselves or through an MOU, as detailed above. This funding could also save railroad operators money in addressing concerns raised by municipalities about illegal dumping, graffiti, and homeless encampments along railroads. Conversely, if the League of California Cities is unable to secure this funding through the Legislature or the Governor, cities may need to consider alternative methods, as detailed above, which may include significant costs. Existing League Policy: Public Safety: Graffiti The League supports increased authority and resources devoted to cities for abatement of graffiti and other acts of public vandalism. Transportation, Communications, and Public Works Transportation The League supports efforts to improve the California Public Utilities Commission’s ability to respond to and investigate significant transportation accidents in a public and timely manner to improve rail shipment, railroad, aviation, marine, highway, and pipeline safety 64 Housing, Community, and Economic Development Housing for Homeless Homelessness is a statewide problem that disproportionately impacts specific communities. The state should make funding and other resources, including enriched services, and outreach and case managers, available to help assure that local governments have the capacity to address the needs of the homeless in their communities, including resources for regional collaborations. Homeless housing is an issue that eludes a statewide, one-size-fits-all solution, and collaboration between local jurisdictions should be encouraged. Staff Comments: Clarifying Amendments Upon review of the Resolution, Cal Cities staff recommends technical amendments to provide greater clarity. To review the proposed changes, please see Attachment A. The committee may also wish to consider clarifying language around regulatory authority and funding to assist cities with these efforts. The resolution asks that new investments from the state be sent to the CPUC to increase their role in managing and maintaining railroad rights-of- ways and potentially to cities to expand their new responsibility. The committee may wish to specify MOUs as an existing mechanism for cities to collaborate and agree with railroad operators and the CPUC on shared responsibilities and costs. Support: The following letters of concurrence were received: City of Bell Gardens City of Bell City of Commerce City of Cudahy City of El Segundo City of Glendora City of La Mirada City of Paramount City of Pico Rivera City of Huntington Park City of Long Beach City of Lynwood City of Montebello 65 2. A RESOLUTION CALLING UPON THE GOVERNOR AND THE LEGISLATURE TO PROVIDE NECCESARY NECESSARY FUNDING FOR CUPC THE CALIFORNIA PUBLIC UTILITIES COMMISSION (CPUC) TO FUFILL ITS OBLIGATION TO INSPECT RAILROAD LINES TO ENSURE THAT OPERATORS ARE REMOVING ILLEGAL DUMPING, GRAFFITI AND HOMELESS ENCAMPMENTS THAT DEGRADE THE QAULITY QUALITY OF LIFE AND RESULTS IN INCREASED PUBLIC SAFETLY SAFETY CONCERNS FOR COMMUNITIES AND NEIGHBORHOODS THAT ABUTT THE RAILROAD RIGHT-OF-WAY. Source: City of South Gate Concurrence of five or more cities/city officials Cities: City of Bell Gardens; City of Bell; City of Commerce; City of Cudahy; City of El Segundo; City of Glendora; City of Huntington Park; City of La Mirada; City of Long Beach; City of Lynwood; City of Montebello; City of Paramount; City of Pico Rivera Referred to: Housing, Community and Economic Development; and Transportation, Communications and Public Works WHEREAS, ensuring the quality of life for communities falls upon every local government including that blight and other health impacting activities are addressed in a timely manner by private property owners within its jurisdictional boundaries for their citizens, businesses and institutions; and WHEREAS, Railroad Operators own nearly 6,000 miles of rail right-of-way throughout the State of California which is regulated by the Federal Railroad Administration and/or the California Public Utilities Commission CPUC for operational safety and maintenance; and WHEREAS, the California Public Utilities Commission (CPUC) is the enforcing agency for railroad safety in the State of California and has 41 inspectors assigned throughout the entire State to inspect and enforce regulatory compliance over thousands of miles of rail line; and WHEREAS, areas with rail line right-of-way within cities and unincorporated areas are generally located in economically disadvantaged zones and/or disadvantaged communities of color where the impact of blight further lowers property values and increases the likelihood of unsound sanitary conditions and environmental impacts upon them; and WHEREAS, many communities are seeing an increase in illegal dumping, graffiti upon infrastructure and homeless encampments due to the lax and inadequate oversight by regulatory agencies; and WHEREAS, local governments have no oversight or regulatory authority to require operators to better maintain and clean their properties as it would with any other private property owner within its jurisdictional boundaries. Thus such local communities often resort to spending their local tax dollars on cleanup activities or are forced to accept the delayed and untimely response by operators to cleaning up specific sites, and; WHEREAS, that railroad operators should be able to provide local communities with a fixed schedule in which their property will be inspected and cleaned up on a reasonable and regular schedule or provide for a mechanism where they partner with and reimburse local governments for an agreed upon work program where the local government is enabled to remove items like illegal dumping, graffiti and encampments; and $77$&+0(17$ 66 WHEREAS, the State has made it a priority to deal with homeless individuals and the impacts illegal encampments have upon those communities and has a budgetary surplus that can help fund the CPUC in better dealing with this situation in both a humane manner as well as a betterment to rail safety. RESOLVED, at the League of California Cities, General Assembly, assembled at the League Cal Cities Annual Conference on September 24, 2021, in Sacramento, that the Cal Cities League calls for the Governor and the Legislature to work with the Cal Cities League and other stakeholders to provide adequate regulatory authority and necessary funding to assist cities with these railroad right-of-way areas so as to adequately deal with illegal dumping, graffiti and homeless encampments that proliferate along the rail lines and result in public safety issues. The Cal Cities League will work with its member cities to educate federal and state officials to the quality of life and health impacts this challenge has upon local communities, especially those of color and/or environmental and economic hardships. 66 September 3, 2021 Subject: Don't Punt Local Sales Tax Allocation to Legislature Dear City Manager: We need your help to protect cities’ local control over sales tax distribution – and possibly all types of tax distribution. A flawed resolution has been proposed at the Cal Cities Annual Conference in September that is billed as an attempt to bring equity to sales tax distribution, but it opens the door to Legislative meddling on this sensitive issue without the League first having an actual plan that has been vetted with its membership. Please join our effort to oppose the resolution unless it is amended to include the adoption of critical amendments to the Cal Cities’ Online Sales Tax Equity Resolution to ensure the League and its City Manager Department leads on this issue by first developing and vetting actual proposals within the membership. The proposed resolution aims at cities that host Amazon fulfillment centers and asks the Legislature to devise a “fair and equitable reallocation plan.” In theory, this may sound appealing to some, but after dealing with ERAF, Redevelopment elimination, VLF elimination, the Triple-Flip, and piles of unreasonable housing mandates, all cities should be concerned with the League asking the Legislature to engage in reallocating local revenues without having an actual plan based on data to allow an informed decision. My city, and 16 others, have these large Amazon facilities that serve as regional distribution hubs. Many of these communities are located in inland areas, close to freeway networks, and lack economic advantages and opportunities that other cities have to generate revenue for police, fire, and other city services. We also bear major infrastructure and environmental burdens that other cities don’t have to worry about. Still, Amazon is continuing to expand its network and has plans to build many smaller delivery hubs at the local level, which will allow more communities to also benefit. In addition, most of the sales tax revenue from Amazon is still going to County pools and only a percentage is going to the host cities. This past year the success of the County pools went up significantly and benefitted many cities. The structural corporation change of Amazon is aligning them with other online fulfillment centers like eBay, Wayfair, Walmart, Target, and Costco to name a few. Dozens of cities have these online fulfillment centers as sales tax revenue generators. Concerns about expanded internet purchases and sales tax allocation are not unique to Amazon facilities. The League has been discussing this evolving issue for nearly a decade and has adopted policies that include sales tax allocation that says: “Specific proposals in this area should be carefully reviewed so that the impacts of any changes are fully understood.” The League’s City Manager’s Department also had a working group on sales tax allocation that last met in 2018. That group made numerous recommendations, but after considering various phase-in options for Attachment No. 3 destination sourcing and allocation of sales taxes from online purchases, the group decided that a more complete analysis was needed to sufficiently determine impacts, and should be revisited when better data was available. It is time for the League to reconvene this group. We are certainly not opposed to a discussion on sales tax allocation; however, this massively complex issue needs to be looked at holistically – not just Amazon fulfillment warehouses. Our cities are all unique. Some cities are close to beaches, mountains or lakes, or parks that generate tourism sales tax revenue and transient occupancy tax. Other cities have major brick-and-mortar destination retail-like Bass Pro Shop or auto malls that generate sales tax revenue for which other cities can’t benefit from because not every city was in existence during the era of the regional auto mall land use development concept. And equally as important, this critical policy area affecting city revenue needs to be driven first by an effort to secure internal consensus within the League instead of being turned over to the state to decide our fate. The Legislature always looks out for their interests and has a track record of treating cities unfairly. If cities are not on the same page with a plan or are not at the table, then our budgets and revenues will be on a chopping block for special interests. If the Legislature is given free rein, likely, even the proponents of this resolution won’t be satisfied with what develops. Let’s work together to retain local control and come together to develop a comprehensive solution to this issue instead of asking the state to intervene when we are internally disorganized with no plan to address this complex issue. There is a saying, ‘What is popular and easy, is not always right. And what is right, is not always popular and easy." The difference requires leadership. As City Manager’s we provide leadership and expertise at the local level and this resolution as it is currently written is ‘punting’ local expertise and experience to the state legislature. We encourage all of us to roll up our sleeves and utilize data to inform our decisions. Thank you for your time and support. Please contact me directly if you would like to be part of our coalition. Sincerely, Bryan Jones City Manager City of Eastvale (510) 789-5823 bjones@eastvaleca.gov Attachment: Proposed Amended Resolution Proposed Amendment to Resolution #1 All Proposed Amends are highlighted in Yellow. Note: This document is taken directly from the League’s resolution packet. The changes in the text below in red and blue are technical clarifications recommended in the Packet by League staff. 1. RESOLUTION OF THE LEAGUE OF CALIFORNIA CITIES (“CAL CITIES”) CALLING ON THE STATE LEGISLATURE TO PASS LEGISLATION THAT PROVIDES FOR A FAIR AND EQUITABLE DISTRIBUTION OF THE BRADLEY BURNS 1% LOCAL SALES TAX FROM IN -STATE ONLINE PURCHASES, BASED ON DATA WHERE PRODUCTS ARE SHIPPED TO, AND THAT RIGHTFULLY TAKES INTO CONSIDERATION THE IMPACTS THAT FULFILLMENT CENTERS HAVE ON HOST CITIES BUT ALSO PROVIDES A FAIR SHARE TO CALIFORNIA CITIES THAT DO NOT AND/OR CANNOT HAVE A FULFILLMENT CENTER WITHIN THEIR JURISDICTI ON Source: City of Eastvale Referred to: Revenue and Taxation Policy Committee WHEREAS, the 2018 U.S. Supreme Court decision in Wayfair v. South Dakota clarified that states could charge and collect tax on purchases even if the seller does not have a physical presence in the state; and WHEREAS, California cities and counties collect 1% in Bradley Burns sales and use tax from the purchase of tangible pers onal property and rely on this revenue to provide critical public services such as police and fire protection; and WHEREAS, in terms of “siting” the place of sale and determining which jurisdiction receives the 1% Bradley Burns local taxes for online sale s, the California Department of Tax and Fee Administration (CDTFA) determines “out-of-state” online retailers as those with no presence in California that ship property from outside the state and are therefore subject to use tax, not sales tax, which is collected in a countywide pool of the jurisdiction where the property is shipped from; and WHEREAS, for online retailers that have a presence in California and have a stock of goods in the state from which it fulfills orders, CDTFA considers the place of sale (“situs”) as the location from which the goods were shipped such as a fulfillment center; and WHEREAS, in early 2021, one of the state’s largest online retailers shifted its ownership structure so that it is now considered both an in-state and out-of-state retailer, resulting in the sales tax this retailer generates from in-state sales now being entirely allocated to the specific city cities where the warehouse fulfillment centers is are located as opposed to going into a countywide pools that is are shared with all jurisdictions in those counties that County, as was done previously; and WHEREAS, this all-or-nothing change for the allocation of in-state sales tax has created winners and losers amongst cities as the online sales tax revenue from the retailer that was once spread amongst all cities in countywide pools is now concentrated in select cities that host a fulfillment centers; and WHEREAS, this has created a tremendous inequity amongst cities, in particular for cities that are built out, do not have space for siting a 1 million square foot fulfillment centers, are not located along a major travel corridor, or otherwise not ideally suited to host a fulfillment center; and WHEREAS, this inequity affects cities statewide, but in particular those with specific circumstances such as no/low property tax cities that are extremely reliant on sales tax revenue as well as cities struggling to meet their Regional Housing Needs Allocation (RHNA) obligations that are being compelled by the State to rezone precious commercial parcels to residential; and WHEREAS, the inequity produced by allocating in-state online sales tax revenue exclusively to cities with fulfillment centers is exasperated even more by, in addition to already reducing the amount of revenue going into the countywide pools, the cities with fulfillment centers are also receiving a larger share of the dwindling countywide pool as it is allocated based on cities’ proportional share of sales tax collected; and WHEREAS, while it is important to acknowledge that those cities that have fulfillment centers experience impacts from these activities and deserve equitable supplementary compensation, it should also be recognized that the neighboring cities whose residents are ordering product s from those that centers now receive no Bradley Burns revenue from the center’s sales activity despite also experiencing the impacts created by them center, such as increased traffic and air pollution; and WHEREAS, the COVID-19 pandemic greatly accelerated the public’s shift towards online purchases, a trend that is unlikely to be reversed to pre-pandemic levels; and WHEREAS, the League of California Cities existing policy requires that specific proposals t hat would involve a change to sales tax allocation to destination allocation be carefully reviewed within the League’s policy process so that the impacts of any changes are fully understood; and WHERAS, the League’s City Manager Sales Tax Working Group, which met in 2017-18, made numerous recommendations, but after considering various phase-in options for destination sourcing and allocation of sales taxes from online purchases ultimately decided that a more complete analysis was needed to sufficiently determine impacts, and should be revisited when better data was available. NOW, THEREFORE, BE IT RESOLVED that Cal Cities believes that to avoid potential unworkable outcomes it is incumbent upon the organization to develop its own internal consensus solutions to this emerging issue of importance to all cities before seeking Legislative involvement; and therefore, calls upon the State Legislature to pass legislation League’s City Manager’s Department to reconvene its Sales Tax Working Group, with balanced and equitable representation from affected communities , to develop one or more proposals for consideration by the League’s Revenue and Taxation Policy Committee and Board of Directors that provides for a fair and equitable distribution of the Bradley Burns 1% local sales tax from in-state online purchases, based on data where products are shipped to, and that rightfully takes into consideration the impacts that warehouse and fulfillment centers have on host cities but also provides a fair share to California cities that do not and/or cannot have a fulfillment center such facilities within their jurisdiction.