Analysis: What Should the Council Do on Revenue Measure?

The specter of organized opposition figures to make what might have already been a tough task even more difficult.  A two-thirds hurdle was a high barrier to climb, and in fact that was a good reason why the council, back in 2014, decided not to put a second revenue measure on the November ballot.

In June of 2014, the city was able to pass a half-cent sales tax with 58 percent.  That was a comfortable victory in an election that required a mere 50 percent plus one to win.  But it contained some signs of warning.  First, it had no organized opposition.  Second, while the threshold of majority vote allowed this to be a comfortable victory, it fell well short of what would be needed in a two-thirds vote.

That information was coupled with polling – something that the council did not do this time – which showed the various levels of a parcel tax failing to receive a two-thirds vote and one ($150) failing to reach a majority.

As a result the council at the time opted against a second revenue measure.  The sales tax achieved one purpose – it closed the immediate $5 million structural deficit, but the reality is that the city is facing between an $8 and $16 million shortfall in revenue.  That shortfall is manifested through deferred maintenance on infrastructure including roads, bike paths, and parks – and also on unfunded liabilities for retirement pensions and medical coverage.

Even with opposition, the Vanguard believes there is a solid case for the city to make for the taxpayers to pony up.  The city has managed to cut – largely through attrition – its number of employees by
over 100.  They have passed two rounds of MOUs with systemic reforms – although in the last round of MOUs the Vanguard believes the council made a mistake in granting cost-of -living increases – and for the most part the city is on better footing.

Second, the Vanguard believes that the council should deliver a strong message for cost containment for the foreseeable future.  Some in the past, like Rich Rifkin, have suggested capping the rate of total compensation growth perhaps to two percent, which would do no worse than hold compensation in line with inflation.  And it would automatically trigger cuts when revenue decreased or unexpected costs arise.

Without cost containment, we face the real danger that any revenue stream will be swamped by increased costs down the line.  Cost containment also avoids a repeat of what happened in 2005 and to a lesser extent in 2015, when tax increases were followed by salary increases.  In 2005, it was particularly egregious as the council passed a sales tax measure under the guise that it was needed to fund emergency services and parks, and then turned around and passed huge salary increases (36 percent for fire and 15-20 percent across the board).

Third, the shortfall represents between 15 and 25 percent of the city’s general fund budget.  Given the level of deferred maintenance, the cuts that have already occurred, and the fact that a lot of the cost increases are out of our hands, it is unlikely we will make substantial progress by cuts alone.

The Vanguard still believes that the best strategy is a mixed one, where the city continues to look at ways to contain costs and looks toward economic development as a long term way to bridge the fund gap, but still looks at tax revenue as the immediate source to close that gap.

Without passing this tax measure, the city will have to continue to defer maintenance.  That’s part of what makes this situation more tricky.  The city doesn’t have an immediate budget gap.  Some of the impacts of deferred maintenance may not be immediately evident.  But down the line the costs for deferring maintenance could be substantial and measured in the millions.

The city is currently funding road maintenance at a rate of about $4 million a year – this was achieved through a lot of work on the part of the current council.  But the actual amount we need is closer to $8 to $10 million, which means that, while we are fixing some roads, we are actually falling further behind with each passing year.

The council has other options at this point as well.  Our preference is for a two-thirds required parcel tax.  The advantage there is that the city would have to lay out exactly how the money would be spent, and, like the school district, they would appoint an oversight board to ensure that they are spending the revenue as required by law.

However, there is no reason that the council has to go that route.  They could, during a council election year, put a majority ballot measure on, which would make it much more difficult for the opposition to defeat but it would also make it much more difficult for the voters and public to hold the council accountable.

Unlike a two-thirds special tax, a majority tax has to be general.  It cannot have funds specifically devoted to a specific purpose.

So, ironically, a group of citizens opposing taxes for accountability reasons would make the tax less accountable.

The most likely outcome if the tax fails is that they would come back not in November for another parcel tax of two-thirds requirement, but rather a general tax (sales or Utility User Tax for example) that has only a majority requirement.

The downside then would be obvious – the costs of deferring maintenance would again go up over the next two years.  We will continue to have the fund gap.  And the next vote would almost assuredly be a majority vote, as the council will not want to risk losing another two-thirds vote.

In the meantime, the city’s infrastructure will continue to decline and services and infrastructure are likely to face cuts in the coming years.

It will be interesting to see how the council wishes to approach this.  Our preference is still to go the two-thirds tax route, but in the face of organized opposition that would be a roll of the dice.

—David M. Greenwald reporting