by John Munn
(Editor’s Note The following is a letter from John Munn to the Vanguard)
I appreciate your efforts to raise awareness about the urgency, severity, and huge cost of repairing our local streets, bike paths, and sidewalks. Putting it off will only make these problems worse. What follows is too long to be a comment, and is probably better described as commentary. I don’t intend to get more involved in the decision making on this, but I would like to think that my concerns are available when decisions are being made. My future participation, if any, would probably come through the Yolo County Taxpayers Association in response to an eventual tax proposal. Please use this for your own information or any other way that you think appropriate. As I have mentioned elsewhere, my post-election plans are to work on family projects at the house, the ranch, and in the mountains.
So far, discussion in the Vanguard about paying for street, bike path, and sidewalk repairs seems to have missed a basic question about “how much” would be paid by different taxpayers under different types of taxes. This prompted me to look into the parcel taxes, general obligation bonds, and utility user taxes that have been mentioned as possible funding sources.
Parcel taxes and general obligation bonds have different use and repayment characteristics. Both, however, are “special taxes” under Proposition 13, where parcel taxes were discovered in the original proposition language, and general obligation bonds (which were initially prohibited because of their reliance on property value) are now allowed by an amendment to Proposition 13. For most uses, special taxes require a 2/3 vote for approval. In contrast, a utility user tax is permitted under the “general tax” provisions of Proposition 13 and requires only a majority vote for approval.
Parcel taxes are levied as a fixed amount per parcel. The resulting revenue can be put to any use, including bond payments, depending on what is included in the authorizing ballot language. If used to repay incremental borrowing, parcel tax funds may be collected in addition to repayment needs. And parcel tax revenue can also be used for salary and other, non-capital expenditures. In addition, local experience shows that parcel tax revenue gets built into agency budgets, where it is assumed to be part of on-going spending.
General obligation bonds can be issued by government agencies based on the assessed value of property in the agency’s jurisdiction, such as the City of Davis. Unlike a parcel tax, a property owner’s general obligation bond tax payment varies based on the parcel’s assessed value. General obligation bond borrowing is limited to the amount approved by voters and these funds can only be spent for capital improvements (including the maintenance, repair, and construction of streets, bike paths, and sidewalks) as described in the enabling ballot language. These funds cannot be spent for salary or other program expenses, and taxes are used to repay the amount that has been borrowed. Because use of general obligation bonds is limited to capital improvements and the bonds go away when paid off, general obligation bond funds are not likely to become part of an on-going agency budget.
I found less information about utility user taxes, but it seems that they can be levied against both private and public utility services, which could include PG&E bills for gas and electricity and city services, such as water, sewer, drainage, and waste removal. I don’t know whether the tax could, or must, be a fixed amount or could be proportionate to payments for a particular service. Because these are “general” taxes, the City Council has the discretion to use the resulting revenue for any general fund purpose, including salary, benefits, other program, and project spending. This flexibility makes it likely that a utility user tax would be relied on as part of an agency budget.
With a parcel tax, under current law, each parcel pays the same amount, without regard to whether it is vacant or contains a single family home, a multi-family residence, a multi-unit apartment complex, or a commercial building. It is harder to know how much a general obligation bond would cost owners of different types of parcels, since it is based on the amount to be borrowed, financing costs, and the assessed value of the property being taxed. For most property owners, a general obligation bond may cost less than a parcel tax for the same amount of agency borrowing because repayment is spread across the local property tax base. This allows part of the cost to be passed on to residents of apartment buildings and other multi-family parcels, who also use local streets, bike paths, and sidewalks, and to business customers. It is also hard to project how the cost of a utility user’s tax would be distributed because of the different ways of charging it and the variety of services it might be levied against. But no matter how it is charged, a utility user’s tax would increase overall ratepayer costs and could be spent for any general fund activity, which invites budgetary shell games.
When talking about fairness, we should remember that part of the projected repair costs are for work on bike paths and sidewalks, so biking and walking improvements are included. For residents with more than one car, we can also remember that only one car can be driven at a time, so a better measure of road use is the number of drivers or, if possible, number of local miles driven by each driver. In addition, for those who use public transportation, buses also use our streets. So one way or another, nearly everyone uses and/or benefits from our local streets, bike paths, and sidewalks.
I was surprised to read in the Vanguard that the interest rate for a general obligation bond would be higher than for a revenue bond, presumably supported by a parcel tax, since both are paid for by taxpayers and have a low risk of default.
All things considered, I prefer the general obligation bond approach to pay for street, bike path, and sidewalk repairs because it reaches more residents who benefit from this work, it can only be used for specified capital improvements, repayment is based on the amount borrowed, and it is least likely to be incorporated into the on-going City budget. For a parcel tax, the ballot language should restrict its use to street, bike path, and sidewalk work to prevent these funds from being put to other uses and becoming part of the on-going City budget. And I would avoid creating a utility users tax because the City Council can use it for any general fund purpose, which makes it likely to be diverted to other uses and become part of the City’s on-going budget.