City Finances Overview
What local services do my general/unrestricted tax dollars fund?
General tax dollars and other unrestricted revenue sources are the primary funding sources for the most important and fundamental public services provided by the City. The costs associated with these services, and their unrestricted revenue sources, are reported in the City’s General Fund. These fundamental services include: public safety, planning, engineering, maintenance of the Clayton Community park and other neighborhood parks, maintenance of the library and city hall facilities, legislative function, as well as city-wide (including non-General Fund operations) administration, financial, and legal support.
The City prides itself in maintaining its own in-house police force, despite operating on a relatively limited budget. Due to the complexities and costs associated with maintaining an in-house police department, many small cities in California, often notably larger than Clayton, contract with the local County Sheriff’s department for these services. Despite the challenges, the benefits of maintaining an in-house police department include: local control, increased officer ties to the community, city-specific policing style, faster local emergency response time.
How does the City pay for these services?
With the General Fund being the primary funding source for basic city services demanded by the public and mandated by law, it is important to have an understanding of the nature of local revenues and how they generated to ensure sustainability when making decisions today that impact the future of our residents tomorrow. Over half of City of Clayton General Fund revenues originate from four primary sources. In order of significance these primary sources include: (1) property tax in-lieu of vehicle license fees (VLF), (2) local secured and unsecured property taxes, (3) sales and use taxes, and (4) public utility franchise fees. These key General Fund revenue sources are all locally generated with very little support being received from the State or Federal governments or other outside entities. The following is a summary of these four key General Fund financing sources:
Property Tax in Lieu of Vehicle License Fees
The largest General Fund revenue source is property tax in lieu of vehicle license fees (VLF). The VLF is an annual value tax on the ownership of registered vehicles collected by the California Department of Motor Vehicles and then distributed to cities and counties. In 2004, the California State Legislature permanently reduced the tax rate from 2.0% to 0.65% of a vehicle’s current market value. The reduction in VLF revenue to cities and counties was offset by an increased transfer of property tax from the State to cities and counties. This transfer is referred to as “Property tax in lieu of VLF.” Annually, the City of Clayton’s property tax in lieu of VLF increases in proportion to the growth in gross assessed taxable property valuations as administered by the Contra Costa County Assessor’s Office.
The second largest General Fund revenue source is the City of Clayton’s share of the local property taxes. Property taxes are an ad valorem tax imposed on real property (land and permanently attached improvements) and tangible personal property (movable property). Proposition 13 (1978) limits the real property tax rate to 1% of a property’s assessed value for ad valorem tax purposes. The amount of the tax is based on an annually determined assessed valuation calculated by the county assessor’s office and is paid to the county tax collector. The Contra Costa County Auditor-Controller’s Office then allocates this to local taxing agencies pursuant to a statutory allocation formula applicable to the tax rate area (TRA) the underlying parcel is located within. How much of this 1% base rate the City of Clayton actually receives is one of the most common misconceptions. The City of Clayton has ten (10) TRAs, with the largest TRA by current assessed value returning only 6.63% of the full one percent tax back to the City’s General Fund. The following illustration summarizes the statutory allocation of the 1% general ad valorem property tax to each taxing entity:
Sales & Use Taxes
The third largest General Fund revenue source is the local portion from sales & use taxes. This is a tax imposed on the total retail price of any tangible personal property (unless specifically exempt by the State Board of Equalization) and the use or storage of such property when sales tax is not paid. Although the unadjusted general state-wide sales tax rate applied to transactions is 7.25%, the basic local Bradley-Burns rate returned to local agencies (i.e. City of Clayton) is only 1%. In the City of Clayton, the applicable sales tax rate is currently 8.25% resulting from additional local and regional voter approved measures. Sales and use tax is often the highest revenue generator for California Cities, Clayton’s location as well as it being a largely residential community pose real challenges to growing this revenue. Nonetheless, sales and `use tax is still an important revenue driver for the City, which contributes to allowing the City to adopt a balanced budget annually. Below is a chart depicting the current allocation of the 8.25% sales tax rate applied to all taxable transactions in the City of Clayton:
The fourth largest General Fund revenue source is franchise fees from public utilities. Franchise fees are rent paid by utilities or other businesses for the privilege of using the City’s right of way (i.e. streets, sidewalks, etc.) to locate utility lines, operate vehicles, and/or conduct business for profit. The City collects a 1% franchise fee from Pacific Gas & Electric and a 5% franchise fee from cable operators (i.e. Comcast and AT&T/Pacific Bell). In addition, the City collects a 10% franchise fee from Republic Services for its collection, transportation, disposal and diversion of solid waste and recyclable materials.