Minutes 1987/10/15
Roll Call
Sales Tax
Refund
5559
Special Meeting of
October 15, 1987
Gilroy, California
The Mayor led the Pledge of Allegiance to the Flag.
Present: Councilmembers: Sharon Albert, Donald F. Gage,
Larry Mussallem, Daniel D. Palmerlee and Roberta H. Hughan.
Absent: Councilmembers: Paul V. Kloecker and Pete Valdez, Jr.
The Mayor noted the purpose of this Special Meeting was to
discuss the impacts of the sales tax refund imposed by the State
Board of Equalization, select areas where budget reductions could
take place, and seek legal assistance in the matter.
City Administrator Baksa presented a Staff Report and
explained that on September 23, 1987, the City received notifica-
tion from the State Board of Equalization that the City of Gilroy
would have to pay back $659,044.21 in sales tax revenues as a
result of a refund to Scientific Games. On May 6, 1986,
Scientific Games filed a claim with the Board of Equalization
contending that no state taxes may be imposed on the sale of
lottery tickets. At a hearing on March 18, 1987, the Board
concluded that these ticket sales were not subject to state taxes
and a refund to Scientific Games was processed covering the
period July 1, 1985, through March 31, 1986. This decision has
resulted in an overpayment to the City in the amount of
$659,044.21 in sales tax revenues and interest.
(Councilman Pete Valdez entered the room at 5:41 p.m. and
took his seat at the Council table.)
The State has requested a payback of $500,000 to be paid
immediately and the balance to be paid over a two-year period
starting in March 1988. In addition to the payback, sales tax
revenues due the City will be withheld until the amount is paid
back. Finance Director Reinsch has been in contact with the
Board in an effort to pay back the refund over the next five
years.
City Administrator Baksa further noted that the annual
sales tax base used for the five-year budget projection, has been
overstated in the amount of $300,000-$400,000 per year. Mr.
Baksa asked Council to authorize Staff to submit a formal written
request to the Board of Equalization for a five-year interest
free payment schedule.
(Councilman Paul Kloecker entered the room at 5:45 p.m. and
took his seat at the Council table.)
City Administrator presented options on how to pay back the
$659,000 and resolve the overstatement of sales tax revenues in
the Five Year Financial Plan. He further noted he is having
Staff review their departmental budgets. He presented the
following options:
Parks & Recreation:
Reorganization.
-----
Recreation Program Fee Analysis.
TI~
5560
Public Works:
Time Management Study of Administrative
Staff to see if they are appropriately
funded.
Administration:
Review Distributions and Transfers
Review 5% General Overhead costs.
Golf Course Fund becomes an enterprise
fund.
Establish Uvas/DeBell Maintenance Fund
from interest on Uvas/DeBell Trust.
Finance:
Time Management Study similar to Public
Works Department.
]
Capital Imp. Program:
Start 1988-1993 Plan now and reprioritize
capital purchases.
Employees:
Analyze terminations for possibility of
not rehiring for position.
Research early retirements.
Possible speedup of layoff schedule in
1987-92 Budget.
The Mayor noted the appearance of Assemblyman Rusty Areias
and welcomed him to the meeting. Mr. Areias addressed the
Council and noted he has made contacts in Sacramento regarding
our situation and will be recommending that the City be allowed
to pay back the refund in eight quarters. He will be meeting
with members of the Board of Equalization in an effort to get
further clarification of the matter and to see what we can do
legislatively to ease the impact of the payback. He commended
the City for taking early action on budget priorities.
......
Mr. Areias suggested that Mr. Baksa and a Council delega-
tion meet with him, Senator Henry Mello and members of the Board
in Sacramento. He said he will try to set the meeting for next
Monday, October 19, and will call to confirm.
......,
City Administrator Baksa continued with the Staff Report
and noted the following recommendations to solve the immediate
problem:
. 1. Have the General Depreciation Fund payoff the $659,000
and balance the yearly sales tax revenue deficit. Over ten
years the General Fund will pay back.
2. Reduce capital purchases in General Depreciation Fund
by reducing State Subventions Fund transfers (new capital).
3. Freeze capital purchases and projects not in process
until 1988-93 Capital Improvements Plan is reprioritized
(that come out of General Depreciation Fund or related
fund) .
City Administrator Baksa noted the following legal issues
to consider:
-
1. Due Process. We were never involved in the process.
2. The State Board of Equalization Staff had recommended
denial of the claim of Scientific Games. Was the decision
of the Board a valid interpretation of the law? If not,
should the City challenge it?
..........
3. Consider seeking an injunction to keep the payments.
City Administrator Baksa stated the Council action he is
seeking is should we get legal assistance to pursue the matter.
He noted he has been in contact with Alan Pinner of Berliner,
Cohen & Biagini who has expertise in tax litigation.
Adjournment
'"
5561
Councilman Gage suggested the City attempt to get an
ihjunction to force the State to pay the sales tax monies until
the issue is settled by the Courts.
Councilman Palmerlee suggested we retain the best person to
represent the City and pursue the matter of litigation.
Motion was made by Councilman Gage and seconded by Council-
man Kloecker that the City retain the services of Berliner, Cohen
& Biagini, for the possibility of seeking an injunction and to
look into the legality of the matter.
Councilman Mussallem suggested getting more than one
opinion before selecting legal counsel. Mayor Hughan suggested
getting resumes from different legal firms. Discussion was had
by Council and it was decided that the matter should be pursued
as quickly as possible, as the City Attorney had recommended the
City seek legal counsel with more expertise in tax litigation.
Councilman Mussallem stated he would change his position and
agreed with the recommendation to seek the services of Berliner,
Cohen & Biagini.
Councilman Gage modified his previous motion, seconded by
Councilman Kloecker and carried to include sending a letter to
the State Board of Equalization requesting the City of Gilroy be
allowed to pay back the refund over a five-year interest free
payment schedule.
Motion was made by Councilman Gage seconded by Councilman
Kloecker that the Council agrees in concept with the recommenda-
tions and options as outlined by the City Administrator.
City Administrator noted several unexpected financial
crises the City has faced since 1985: 1) County Communications
billing - $400,000/yr.; 2) Increase in liability insurance -
$200,000/yr.; 3) Revenue Sharing reduction - $415,000/yr.; 4) Gas
Leak Project at the Police Station - $400,000+ ($50,000/yr.); 5)
Maintenance District - $550,000/yr.; and 6) Sales Tax Refund -
$659,000 ($300,000-$400,000/yr.).
City Administrator Baksa suggested that he, Mayor Hughan
and Finance Director Reinsch plan on attending the meeting in
Sacramento on Monday, October 19, pending confirmation from
Assemblyman Areias, and asked if any other members of the Council
would be interested in attending. Councilman Mussallem expressed
an interest in going.
At 6:39 p.m., the Mayor adjourned the meeting.
Respectfully submitted,
/f;~ /,~.~ {2,
Deputy City Clerk
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