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R-87-1016 - 7/9/1987 RESOLUTION NO. 1016& WHEREAS, sales tax receipts for the State of Texas and for cities across the state have been steadily decreasing; and WHEREAS, sales tax receipts for the City of Round Rock are down; and WHEREAS, the City faces ever-increasing service demands for public safety, water, wastewater, solid waste disposal, and other services; and WHEREAS, the Texas economy is undergoing fundamental changes, shifting from reliance on oil, gas, and other natural resources to an economy based heavily on information, services, and trade; and WHEREAS, the current sales tax system relies too heavily on the old economy, leaving most of the new economy untaxed; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ROUND ROCK, TEXAS That the City Council endorses and will actively support efforts to broaden the sales tax base to include taxation of services, but to retain exemptions for food, drugs, medicine, medical services, and medical supplies; and BE IT FURTHER RESOLVED That the City Council urges the State Legislature to enact the legislation necessary to expand the sales tax base and to grant Texas cities the authority to impose a one-cent optional city sales tax on the expanded base. RESOLVED this 9th day of July, 1987. MIKE ROBIN90N, Mayor City of Round Rock, Texas ATTEST: Q22,22� hmat - VANNE LAND, City Secretary RECEIVED JUN 2 0 TML T E X A S MUNICIPAL LEAGUE June 18, 1987 MEMORANDUM TO: Selected Mayors FROM: TML Staff SUBJECT: June 24th Press Conference As you may know, TML President Bob Bolen, Mayor of Fort Worth, has called a press conference for Wednesday, June 24th, in the Speaker's Committee Room in the State Capitol Building.. The purpose of the press conference will be to announce TML support for expansion of the state sales tax base. By now, you have probably received an invitation to attend that press conference. Attached for your information is a "white paper" describing the Board-adopted, TML position on expansion of the sales tax base. Also included is a model resolution which your council/commission may wish to adopt after it has been rewritten to include information specific to your city. If you have any questions or if we can help you in any way, feel free to call at, any time. C C" ,b 211 East Seventh,Suite 1020 • Austin,Texas 78701-3283 • (512)478-6601 04 z1 3-D�'76 c,� Ad BROADENING THE STATE SALES TAX: THE MUNICIPAL PERSPECTIVE The Texas Municipal League supports legislative efforts to broaden the state sales tax base. The League has adopted this position because: (1) Texas cities face the same fiscal crisis which is faced by the state, and (2) the League's members believe that a broadened sales tax will accurately reflect the state's tax base, now and in the future. Any extension of the sales tax to services currently exempt would produce desperately needed municipal revenue at a time when the fiscal crisis faced by cities mirrors that of the state. In fact, the similarities between the state's budget squeeze and that faced by Texas cities Is striking: • Sales tax revenues - just as the state faced a mid-year revenue downturn, cities across the state are facing shortfalls which require immediate attention. • The oil and gas sectors - just as state revenues from the oil and gas sectors have fallen, cities across the state are facing declining property tax revenue from oil and gas-producing property and related service industries. • Increasing service demands - just as the state faces increased costs for prison and MH/MR facilities, cities are facing increasing demands for police and fire protection, water and wastewater services, street and road construction and other services for an ever-increasing population. • Federal assistance - just as the state has experienced a drop in federal assistance, so have cities been hit with the elimination of key federal programs, including the $240 million dollar General Revenue Sharing program. • Cost-cutting and revenue enhancement - just as the state has been forced to impose additional taxes and to cut costs, so have cities turned to increased property taxes and fees, hiring freezes, employee lay-offs, and postponement of capital spending to address the budget crisis. • Temporary solutions - just as these measures have not permanently solved the state's fiscal squeeze, neither have cities permanently solved their budget problems. • Need for an expanded sales tax base - just as the state is considering an expanded base, so do cities wish to expand the base such that it accurately reflects the state's economic strength. The League believes that large sectors of the Texas economy--particularly the service sectors--are under-represented in the sales tax base, because the sales tax system was put in place before these sectors became significant parts of the Texas economy. To include them in the base would be more equitable and more reflective of current economic realities. - 1 - The most recent sales tax statistics show that for FY 1987, city sales tax collections are down 6.7 percent from the comparable period In the previous year. It is interesting to note what those decreases have meant for the state's largest cities. • Houston - sales tax receipts are down 9.2 percent from last year. Houston faced a budget shortfall of $44 million. The city has turned to a hiring freeze, reduced services, and a variety of additional measures in the current budget year. • Dallas - sales tax receipts are down 5.5 percent. The total budget shortfall was found to be $15 million, forcing Dallas to immediately reduce or freeze salaries, cut services, and impose a hiring freeze. • San Antonio - sales tax collections have fallen by over 6 percent. Faced with a shortfall of $22.7 million, the city imposed a hiring freeze and such reduced services as street maintenance and drainage improvements. • Austin - with sales tax receipts down by 8.33 percent and facing a total shortfall of $20 million, Austin has frozen hiring, reduced services, and imposed mandatory employee furloughs. , In addition, Fort Worth's sales tax receipts are down by 9.51 percent, Corpus Christi's by 9.91 percent, Arlington's by 4.36 percent, Midland's by 14.55 per- cent, and Odessa's by 21.29 percent. Smaller cities have been hard-hit, as well. For example, in Ellis County, south of Dallas, the twelve small or medium-sized cities have seen sales tax collections drop by an aggregate 26.6 percent. Cities across the state are dealing with revenue shortfalls by turning to a combination of expenditure cuts and revenue enhancements to balance their budgets. A recent Texas Municipal League survey of almost 400 Texas cities revealed that nearly 57 percent of the state's municipalities are experiencing revenue shortfalls in their current budget years and are being forced to take quick budgetary action. (See Exhibit 1.) Exhibit 1 Percentage of Cities Which Are Facing Revenue Shortfalls This Budget Year Population Percentage Less than 2,000 46.7 2,001 - 5,000 57.7 5,001 - 10,000 65.3 10,001 - 25,000 54.7 More than 25,000 62.2 All Cities 56.8 - 2 - Many cities expect revenues to decline even further (see Exhibit 2); this is particularly true of mid-sized cities. Moreover, nearly one-third of all Texas cities will experience revenue shortfalls this year and expect even less revenue next year. Exhibit 2 Percentage of Cities Which Expect Lower Revenues Next Budget Year Population Percentage Less than 2,000 37.3 2,001 - 5,000 47.1 5,001 - 10,000 51.0 10,001 - 25,000 34.0 More than 25,000 35.1 All Cities 42.7 Texas cities have been forced to respond to this fiscal crisis by reducing expenditures and, to the extent possible, raising revenues. They are most likely (58.1 percent of cities) to turn to increased user fees. Beyond that, cities have postponed or deferred capital spending (46.7 percent) or have raised property taxes (45.1 percent).. Smaller'percentages of cities have imposed wage freezes (28.4 percent), imposed hiring freezes (21.8 percent), laid off employees (15.1 percent), or reduced services (10.3 percent). The three most common reactions each present cause for concern: 1. Raising user fees--there is clearly a limit to this revenue- raising strategy. Most cities which have raised user fees increased either water rates (34.2 percent), wastewater rates (29.2 percent), or garbage collection fees (25.5 percent). This strategy is, at best, one that can be employed only periodically. 2. Raising property taxes--here again, there are practical and legal limits. Cities which raised property taxes, raised them by an average of 4.4 percent. As a result, a large number of Texas cities have little or no "fiscal elbow room" with regard to property taxation, without facing taxpayer unrest or a rollback petition. 3. Deferring or postponing capital spending--this strategy is perhaps most concerning. Cities which opt for this strategy are most likely to defer street improvements (29.2 percent), water distribution facilities (18.6 percent), or wastewater system improvements (14.1 percent). This is happening at a time when that capital spending is so desperately needed for economic development. Most troubling of all is the fact that nearly 40 percent 'GF Texas cities will turn first to further delays in capital spending if revenues remain stagnant. - 3 - s In short, the League's survey reveals that the current fiscal squeeze is just as real for Texas cities as it is for the state government, and that city councils and commissions throughout the state continue to face the same tough decisions faced by the State of Texas. As a result, the Texas Municipal League strongly endorses the extension of sales tax to currently exempt services (excluding food and medical/dental care) complete with authority for cities to impose the local option, one-cent sales tax on the expanded base. The League estimates that if the sales tax is broadened in this way, the cities which impose the local option sales tax would collect approximately $228 million in additional sales tax over the FY 88-89 biennium. Depending on a wide variety of economic variables, municipal sales tax collections would increase by approximately 12 to 16 percent. - 4 - Resolution � WHEREAS, sales tax receipts for the State of Texas and for cities across the state have been steadily decreasing; and WHEREAS, sales tax receipts for the City of are down—bv-- and WHEREAS, the city faces ever-increasing service demands for public safety, water, wastewater, solid waste disposal, and other services; and WHEREAS, the Texas economy is undergoing fundamental changes, shifting from reliance on oil, gas, and other natural resources to an economy based heavily on information, services, and trade; and WHEREAS., the current sales tax system relies too heavily on the old economy, leaving most of the new economy untaxed; NOW, „THEREFORE, BE IT RESOLVED by the Council[,-�",; G �Cf'at the City Council irk endorses and will actively support efforts to broaden the sales tax base to include taxation of services, but to retain exemptions for food, drugs, medicine, medical services, and medical supplies; and BE IT FURTHER RESOLVED that the City Council,foWzr9rr- urges the State Legislature to enact the legislation necessary to expand the sales tax base and to grant Texas cities the authority to impose a one-cent, optional city sales tax on the expanded base. DATE: July 7, 1987 SUBJECT: Council Agenda, July 9, 1987 ITEM: 12B - Consider a resolution supporting sales tax on certain services. Mayor Robinson asked that this item be placed on the agenda.