Westminster City Council
SUBJECT
Title
Strategic Plan Goal #1 - Achieve Financial Stability.
Strategic Plan Objective: Explore opportunities to generate revenue for the City.
End
From: Christine Cordon, City Manager
Requested by: Administration
Prepared by: Erin Backs, Finance Director
____________________________________________________________
RECOMMENDED ACTION
Recommendation
Receive and file report.
end
BACKGROUND
On April 28, 2025, the City Council held a strategic planning workshop to develop the City’s second three-year strategic plan and identify priorities for the City. These include:
• Goal #1: Achieve Financial Stability
• Goal #2: Implement and Support Effective Land-Use Policies that Encourage Quality Development
• Goal #3: Attract, Develop, and Retain Well-Qualified Staff Members
• Goal #4: Improve Customer Service to the Community
• Goal #5: Enhance Quality of Life and Beautification Throughout the City
The new goals stem from the first set of goals adopted in 2022, which included:
• Goal #1: Achieve Financial Stability
• Goal #2: Develop and Implement Specific Plans for Little Saigon, the Downton District, and the Westside
• Goal #3: Attract, Develop, and Retain Well-Qualified Staff Members
• Goal #4: Improve Customer Service Delivery to the Community
The recent workshop was an opportunity for the City Council to discuss the previous three-year strategic plan goals and objectives, reflect on lessons learned, and consider new priorities, concerns, and needs in establishing a new set of goals and objectives. The new three-year strategic plan includes previous goals that are being continued due to ongoing implementation of objectives, as well as new opportunities that have presented themselves since the previous planning period.
One of the objectives under Strategic Plan Goal #1 - Achieve Financial Stability is to explore other opportunities to generate revenue for the City, including:
o Transient Occupancy Tax
o Cannabis taxes
o Expanded utility user’s tax.
Enacting a Tax
Any new or increased tax requires voter approval to become effective. The procedures for enacting any of these taxes are essentially the same. There are three possible routes to voter approval for any of these taxes:
1. Council-Initiated General Tax
A general tax is a tax imposed for “general government purposes” (i.e., a tax where proceeds of the tax are deposited into the City’s general fund and are not legally earmarked for a specific purpose) (Cal. Const. Art. XIII C, Sec. 1(a)). Such a tax requires the approval of a majority (50% + 1) of the votes cast on the measure at the election (Cal. Const. Art. XIII C, Sec. 2(b)).
The tax is proposed by Council adoption of a resolution submitting a tax ordinance to the voters. Unless the City Council declares by a unanimous vote that there is an emergency (usually a “fiscal emergency”), the election on the tax measure must be an election where a City Council seat is also on the ballot. (Ibid.). If the Council does declare an emergency, then the tax measure may appear on any ballot.
In either event, the resolution placing the matter on the ballot must be approved by a two-thirds vote of all members of City Council (i.e. four “yes” votes) (GC 53724(b)). The Council does not need to itself adopt the tax ordinance.
The resolution placing the measure on the ballot must be adopted no less than 88 days prior to the election date (EC 9222).
2. Council-Initiated Special Tax
A special tax is a tax imposed for “specific purposes, including a tax imposed for specific purposes, which is placed into a general fund” (Cal. Const. Art. XIII C, Sec. 1(d)). Such a tax requires the approval of two-thirds of the votes cast on the measure at the election (Cal. Const. Art. XIII C, Sec. 2(d)). Because of the higher voting threshold, it is relatively rare for a UUT or a cannabis tax to be proposed as a special tax.
The tax is proposed by Council adoption of a resolution submitting a tax ordinance to the voters. The tax measure can appear on any ballot and the resolution placing the measure on the ballot requires only a majority Council vote (i.e., three votes). The resolution placing the measure on the ballot must be adopted no less than 88 days prior to the election date (EC 9222).
3. Petition-Initiated Tax
Either of these taxes can be the subject of an initiative petition. To qualify by petition, the petition must be signed by no less than 10 percent of the voters of the city.
If a tax ordinance qualifies for the ballot via petition, the ordinance can (but is not required to) earmark the funds for specific purposes. Whether or not funds are earmarked, the tax measure will be adopted if a majority (50% +1) of the votes cast on the measure are in support of the measure (City & County of San Francisco v. All Persons Interested in Matter of Measure C (2020) 51 Cal.App.5th 703).
If a valid petition is submitted and certified by elections officials, the Council has a ministerial duty to adopt a resolution placing the measure on the ballot (EC 9215(b)). The measure can be placed by the Council on the ballot of any general or special election (EC 1405; California Cannabis Coalition v. City of Upland (2017) 3 Cal.5th 924). However, the election can be no later than the City’s next general election occurring not more than 88 days after the call of the election and can be no sooner than 88 days after the call of the election (EC 1405).
Transient Occupancy Tax (TOT)
Transient Occupancy Tax also known as the “hotel tax” is a tax imposed for the privilege of occupying a room(s) in a hotel, inn, motel, tourist homes, non-membership campground or other lodging facility, unless such occupancy is for a period of 30 days or more. Cities may also levy a tax on the privilege of renting a mobile home located outside a mobile home park, unless such occupancy is for more than 30 days or unless the tenant is an employee of the owner.
More than 400 cities and 55 counties impose a TOT. The most common rate is 10%, but rates range from 4% to 15.5%. Anaheim at 15% and Palo Alto at 15.5% are some of the highest rates imposed. The City of Westminster's rate is 8%.
The following table shows the TOT rates of Orange County Cities.
|
City |
Tax Rate (%) |
|
Anaheim |
15.00 |
|
Garden Grove |
14.50 |
|
Laguna Beach |
14.00 |
|
Tustin |
13.00 |
|
Buena Park |
12.00 |
|
La Palma |
12.00 |
|
Seal Beach |
12.00 |
|
Stanton |
12.00 |
|
Santa Ana |
11.00 |
|
Aliso Viejo |
10.00 |
|
Brea |
10.00 |
|
Cypress |
10.00 |
|
Dana Point |
10.00 |
|
Fullerton |
10.00 |
|
Huntington Beach |
10.00 |
|
Laguna Hills |
10.00 |
|
Laguna Woods |
10.00 |
|
Lake Forest |
10.00 |
|
Newport Beach |
10.00 |
|
Orange |
10.00 |
|
Placentia |
10.00 |
|
San Clemente |
10.00 |
|
San Juan Capistrano |
10.00 |
|
Yorba Linda |
10.00 |
|
Fountain Valley |
9.00 |
|
Costa Mesa |
8.00 |
|
Irvine |
8.00 |
|
Laguna Niguel |
8.00 |
|
Los Alamitos |
8.00 |
|
Mission Viejo |
8.00 |
|
Westminster |
8.00 |
As of April 12, 2021, the city contracted with the HdL Companies for collection of the TOT. TOT revenue is collected by the hotel operator and remitted to the City each month.
Westminster received $897,000 in TOT revenue during Fiscal Year (FY) 2023-24 and is projected to receive $902,000 in FY 2024-25. A 1% increase would generate approximately $113,000 in additional TOT revenue annually. If the City were to enact a 10% rate, the average in California, an additional $226,000 could be generated.
Cannabis Taxes
Cannabis sales in California have a 15% state excise tax (increasing to 19% on July 1, 2025) and are subject to sales tax. Local governments may also impose a cannabis business tax. If a retailer adds a separate charge for a local tax, both the state cannabis excise tax and sales tax apply to that amount.
The cities cited below have adopted tax rates by voters.
The City of Santa Ana allows 30 retail cannabis dispensaries and charges the following rates:
• Retail Sales (7% of gross receipts)
• Qualified Social Equity Adult-use Cannabis Retail Business including Delivery and Consumption Lounge (5% of gross receipts)
• Medical Cannabis (10% of gross receipts)
The City of Santa Ana budget includes the following revenue information:
|
|
2020/21 Actual |
2021/22 Actual |
2022/23 Actual |
2023/24 Budget |
2024/25 Budget |
|
Commercial - Cultivation |
416,558 |
$1,273,815 |
$978,401 |
$229,000 |
$675,000 |
|
Commercial - Distribution |
961,988 |
864,130 |
765,766 |
124,000 |
725,000 |
|
Commercial - Manufacturing |
167,908 |
222,652 |
375,701 |
58,000 |
250,000 |
|
Commercial - Testing Facility |
91,271 |
34,120 |
5,708 |
5,000 |
5,000 |
|
Adult-Use Retail |
18,264,957 |
20,590,145 |
14,790,695 |
15,116,130 |
12,500,000 |
|
Total |
$19,902,692 |
$22,984,862 |
$16,916,271 |
$15,532,130 |
$14,155,000 |
The City of Costa Mesa imposes a 7% tax on the retail sale of cannabis approved by the voters in 2020. They also have a 1% gross receipts tax on non-retail cannabis uses. There are approximately 10 dispensaries currently operating in Costa Mesa.
The City of Costa Mesa budget includes the following revenue information:
|
|
2020/21 Actual |
2021/22 Actual |
2022/23 Actual |
2023/24 Budget |
2024/25 Budget |
|
Non-retail |
$326,241 |
$548,710 |
$509,858 |
$559,684 |
$559,684 |
|
Retail |
0 |
0 |
397,342 |
2,500,000 |
2,860,000 |
|
Total |
$326,241 |
$548,710 |
$907,200 |
$3,059,684 |
$3,419,684 |
The City of Stanton allows 5 retail establishments. Stanton’s rate varies based on the type of cannabis business as follows:
• Retail Sales (6.0% of gross receipts)
• Testing (2.5% of gross receipts)
• Distribution (3.0% of gross receipts)
• Manufacturing (4.0% of gross receipts)
• Cultivation ($13.46 per square foot, subject to annual adjustment based on the Consumer Price Index)
The City of Stanton budget includes the following revenue information:
|
|
2022/23 Actual |
2023/24 Budget |
2024/25 Budget |
|
Cannabis Tax |
$15,586 |
$620,000 |
$1,232,570 |
The City of Bellflower allows 4 dispensaries and charges the following tax rates:
• Dispensary/Retail Sales (8.5% of gross receipts)
• Testing Laboratory (1% of gross receipts)
• Distribution (3% of gross receipts)
• Manufacturing or Processing (3% of gross receipts)
• Other Cannabis Business (4% of gross receipts)
• Transportation (A fixed annual tax of $1,500
• Cultivation (increasing by CPI starting July 1, 2024):
o Artificial Lighting Only ($7 per square foot of Canopy Space Annually)
o Natural & Artificial Lighting ($4 per square foot of Canopy Space Annually)
o No Artificial Lighting ($4 per square foot of Canopy Space Annually)
o Nursery ($2 per square foot of Canopy Space Annually)
The City of Bellflower budget includes the following revenue information:
|
|
2020/21 Actual |
2021/22 Actual |
2022/23 Budget |
2023/24 Budget |
2024/25 Budget |
|
Cannabis Tax |
$2,770,368 |
$3,126,216 |
$3,000,000 |
$3,500,000 |
$3,500,000 |
Expanded Utility User’s Tax
Utility User’s Tax (UUT) revenue is approximately 7% of Westminster’s total General Fund revenue. The Utility User Tax, adopted by the Council in 1986, is derived Section 37100.5 of the Government Code for general law cities. The tax is collected by the utility as part of its regular billing procedure and remitted to the City. The tax may be imposed on residential and commercial consumers of any combination of electric, gas, cable television, water, sewer, and telephone services.
City UUT rates range from 1% to 11%. The City of Westminster’s rate is 4% which was lowered from 5% by the City Council in FY 1999-00.
The following table shows the UUT rates of Orange County Cities.
|
City |
Tax Rate (%) |
|
Seal Beach |
10.0% |
|
Santa Ana |
5.5% |
|
Huntington Beach |
5.0% |
|
La Palma |
5.0% |
|
Stanton |
5.0% |
|
Westminster |
4.0% |
|
Yorba Linda |
4.0% |
|
Placentia |
3.5% |
|
Buena Park |
3.0% |
|
Irvine |
1.5% |
Westminster received $5.3 million in UUT revenue during FY 2023-24 and is projected to receive $5.8 million in FY 2024-25. A 1% increase would generate approximately $1.5 million in additional UUT revenue annually.
Business Improvement Area Assessments
A Business Improvement Area (BIA) is a geographically defined area where businesses pay an additional fee or assessment to fund specific projects and services aimed at enhancing the commercial environment. These projects and services are designed to benefit the businesses within the area and, in turn, boost economic activity and the overall quality of life. BIA’s can fund infrastructure improvements, security and safety, cleaning and maintenance, and special events. The Parking and Business Improvement Area Law of 1989 authorizes assessments against businesses to finance improvements and activities to improve specific business areas including promoting tourism and promoting public events within a business improvement district. Two-thirds voter approval is required for a BIA.
If the City Council is interested in pursuing the revenue option, a consultant who specializes in BIA formations would be needed to explore the feasibility, identify proposed areas and provide insight to navigate the legal requirements and voting process.
FISCAL IMPACT
There is no fiscal impact associated with this item; however, each of the revenue items discussed in this report have the potential to generate additional revenue for the City.
LEGAL REVIEW
The City Attorney’s Office has reviewed as to form.
CONCLUSION
Strategic Plan Goal #1 - Achieve Financial Stability, with one objective to explore other opportunities to generate revenue for the City would take several months to implement and would require a vote of the measure at an election where a City Council seat is also on the ballot.
ATTACHMENTS
1. None
REVIEWED BY
Erin Backs, Finance Director
City Attorney’s Office
Christine Cordon, City Manager