Title
RESOLUTION NO. 2014-033 OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA (A) AUTHORIZING THE TRANSFER OF $8,017,453 IN WIRELESS TELEPHONE USERS TAX (T.U.T.) REVENUES FROM THE GENERAL FUND TO THE T.U.T. COMMON FUND AND APPROPRIATING FUNDS THEREFORE (B) APPROPRIATING $3,789,234 IN THE T.U.T. COMMON FUND FOR EXPENSES RELATED TO THE SETTLEMENT AGREEMENT IN THE MATTER OF CARLA VILLA, ET. AL., V. CITY OF CHULA VISTA (4/5THS VOTE REQUIRED)
Recommended Action
RECOMMENDED ACTION: Council adopt the resolution.
Body
SUMMARY
On April 12, 2013, the City approved a settlement agreement that resolved a class action lawsuit challenging the City’s collection of Telephone Users’ Taxes from wireless customers. The settlement received final approval of the court and became fully effective as of February 11, 2014. This action appropriates and transfers funds in order to implement the terms of the Settlement Agreement.
ENVIRONMENTAL REVIEW
The Development Services Director has reviewed the proposed activity, appropriating funds per settlement terms, for compliance with the California Environmental Quality Act (CEQA) and has determined that this activity is not a “Project” as defined under Section 15378 of the State CEQA Guidelines because it will not result in a physical change to the environment; therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the actions proposed are not subject to CEQA.
BOARD/COMMISSION RECOMMENDATION
Not Applicable
DISCUSSION
As you know, on April 12, 2013, the City entered into an agreement for the settlement of a class action lawsuit known as Carla Villa, et. al. v. City of Chula Vista. The lawsuit was filed by two Chula Vista residents on behalf of payers of the City’s Telephone Users’ Tax for wireless devices. The City disagrees with the lawsuit’s claim that certain aspects of the tax are unlawful, but, because the issues were highly complex, and continued litigation would have been expensive, the City determined that it was in the best interest of the City’s citizens to settle the case.
The Settlement Agreement made cash rebates available to Chula Vista wireless telephone users who paid taxes on their wireless telephone bills from April 2010 through April 2013. Pursuant to the terms of the Settlement Agreement, the City will bring forward a separate action reducing the Telephone Users’ Tax rate from 5% to 4.75% and an ordinance clarifying how the Telephone Users’ Tax applies to wireless phone services.
The Settlement Agreement established a Common Fund in the amount of $8 million in wireless Telephone Users’ Taxes, along with any interest accrued to the fund between the date of preliminary approval of the settlement (April 12, 2013) and the effective date of the settlement (February 11, 2014). The Settlement Agreement included the establishment of a Common Fund to account for settlement funds and the City has created the TUT Common Fund in accordance with the terms of the Settlement Agreement. Any monies remaining in the TUT Common Fund after payment of all refunds to wireless customers and court approved expenses (“Unclaimed Common Fund”) may be used by the City for the purposes identified in the Settlement Agreement.
The Settlement Agreement lays out the administration and uses of these funds as follows:
“Any unclaimed portion of the Common Fund, in which City retains a reversionary interest, shall be earmarked as separate from City’s General Fund and shall be used for the benefit of Chula Vista citizens to address communications, police services, fire services, libraries, parks and recreation services. City shall maintain accounting documentation, available for audit by Class Members, that ensures the monies are spent at dictated in this Agreement.”
Of the total $8 million Common Fund, $1,579,299 has been allocated to refunds to settlement class members and $2,209,935 has been allocated to court approved expenses, leaving $4,228,219 in unclaimed funds in the TUT Common Fund. A total of $17,453 in interest has accrued to the Common Fund since the date of the preliminary settlement and is included in the unclaimed amount.
In accordance with the settlement agreement, staff is requesting an appropriation of $3,789,234 from the TUT Common Fund. The remaining $4,228,219, which represents the Unclaimed Common Fund monies, is not being appropriated at this time. Appropriation for this portion of the funds will be considered in conjunction with development of the fiscal year 2014-15 budget.
An additional appropriation will be necessary in the future to fund outside counsel costs incurred by the City Attorney’s Office in responding to this lawsuit. These expenses may not be funded by the TUT Common Fund. Sufficient wireless Telephone Users’ Tax funds outside the TUT Common Fund have been set aside and are available for this purpose. This appropriation will be included in the next Quarterly Financial Report to the City Council (report for the quarter ending December 30, 2013).
DECISION-MAKER CONFLICT
Staff has determined that the action contemplated by this item is ministerial, secretarial, manual, or clerical in nature and, as such, does not require the City council members to make or participate in making a governmental decision, pursuant to California Code of Regulations Title 2, section 18702.4(a). Consequently, this item does not present a conflict under the Political Reform Act (Cal. Gov't Code 87100, et seq.). Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision maker conflict of interest in this matter.
LINK TO STRATEGIC GOALS
The City’s Strategic Plan has five major goals: Operational Excellence, Economic Vitality, Healthy Community, Strong and Secure Neighborhoods and a Connected Community. This action supports the Operational Excellence goal by establishing the TUT Common Fund, creating a transparent accounting structure for the implementation of the Settlement Agreement. This transparency supports City Initiative 1.3.1. - “Foster public trust through an open and ethical government.”
CURRENT YEAR FISCAL IMPACT
Approval of the resolution authorizes the transfer of $8,017,453 from the General Fund to the TUT Common Fund in wireless Telephone Users’ Taxes pursuant to the settlement terms. There is no impact to the General Fund operating reserves as these funds were set aside in previous years to address the pending litigation and settlement.
Approval of the resolution further authorizes the appropriation of $3.8 million in the TUT Common Fund for the expenditures outlined in the table below.
SOURCES OF FUNDS
|
Description |
Amount |
|
Wireless TUT Settlement |
8,000,000 |
|
Interest Earnings |
17,453 |
|
Final Common Fund Balance |
8,017,453 |
|
|
|
|
USES OF FUNDS |
|
|
Description |
Amount |
|
Claims Administrator |
199,879 |
|
Attorney Fees to Class |
1,837,500 |
|
Attorney Cost Reimbursement to Class |
162,556 |
|
Class Representative Payment |
10,000 |
|
Class Member Refund Payment |
1,579,299 |
|
Subtotal |
3,789,234 |
|
|
|
|
Unclaimed Portion of Common Fund |
4,228,219 |
|
Total Settlement |
8,017,453 |
The unclaimed portion of the settlement TUT Common Fund can be used to fund expenses to address communications, police services, fire services, libraries, parks and recreation services. In accordance with the City’s Fiscal Policies and past practices, these one-time revenues are recommended for capital or other non-recurring expenses. Application of one-time revenues to ongoing expenditures creates a structural deficit in future years. No appropriation of the unclaimed Common Fund monies is proposed at this time but will be considered in the fiscal year 2014-15 budget development process.
This action does not include appropriations to fund outside counsel costs incurred by the City Attorney’s Office in responding to this lawsuit. Necessary appropriations will be included in the next Quarterly Financial Report to the City Council. Sufficient wireless Telephone Users’ Taxes have been set aside to fully offset this expense without impacting the General Fund reserves.
ONGOING FISCAL IMPACT
There is no ongoing fiscal impact as a result of this action to fund the settlement terms.
The reduction of the Telephone Users’ Tax rate from 5% to 4.75%, which will be effective March 1, 2014, is projected to reduce General Fund revenues by approximately $235,000 annually. Actual impacts of the rate reduction will vary based on future service charges subject to the TUT. These charges have decreased an average of 4% annually since 2011. As the charges continue to decline, the fiscal impact of the rate reduction will also decrease.
Ongoing availability and use of wireless Telephone Users’ Tax funds will be considered in conjunction with future budget processes.
ATTACHMENTS
1. Final Order and Judgment Granting Final Approval of Class Action Settlement (Villa v. Chula Vista)