Munn on Various Tax Options Before the City

taxbillby 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.

About The Author

Disclaimer: the views expressed by guest writers are strictly those of the author and may not reflect the views of the Vanguard, its editor, or its editorial board.

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  1. DavisVoter

    If a municipality actually goes into Chapter 9 bankruptcy, it is fairly clear that revenue bonds have a privileged position. Although it could be argued that the GO bonds being discussed here would have the same position, that is less clear. So I would expect the market to demand a slightly higher promised return on GO bonds.

  2. Davis Progressive

    “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.”

    i think this comment really belies the problem with john munn. he may want fiscal discipline, but he’s not very knowledgeable about fiscal matters. he doesn’t understand that a parcel tax carries with it a specific revenue stream whereas a general obligation bond comes from the general fund where there is no necessary stream of revenue tied to it? glad the voters made the right decision on election night.

    1. Frankly

      He would come up to speed quickly enough as a CC member. He is plenty intelligent.

      Your comment reminds me of my liberal business partner about wetting himself when Obama previously talked in detail about a complex government program we work with.

      Note that program is a mess right now because of severe mismanagement by the Obama administration.

      Liberals tend to gravitate toward words and can be sold more easily by the snake oil salesman. But character and demonstrated action is much more important than is the demonstration of book smarts, IMO.

      But getting back to the point of his post… I agree with hims that a general obligation bond would be the best choice for the tax-us-again bailout.

      John’s primary problem – similar to others – is that he has not accepted the real reason we are in this mess… lack of business tax revenue… and has not endorsed the required solution for growing our economy to the a size that will provide a city like our adequate funding.

      1. Davis Progressive

        this isn’t a liberal-conservative issue. it’s an issue that munn didn’t know nearly as much as he thought and didn’t do what the other candidates like daniel parrella, robb davis, and even sheila allen did and do their homework.

        i heard from a member of the finance and budget commission that he had met with all of the candidate except one – i guessed sheila, but the answer was john munn.

        1. Frankly

          I have not seen one shred of evidence that John Munn exaggerates what he knows and does not know. I am more apt to trust a politician that says “I don’t know” and then can find the answers than I do someone that is driven to be the smartest guy in the room all the time on every issue.

          Frankly, my experience with respect to leadership is that technocrats generally make terrible leaders. Analysis paralysis and the need to meddle in so many details that it prevents others from being able to participate and make decisions at their appropriate level of authority. They are so worried about not being the expert on everything that they slow everyone else down. And in the end they suffer not extracting enough of the whole-is-greater-than-the-sum-of-its-parts advantage.

          In CA, one of the most telling examples of this was Gray Davis.

          1. Davis Progressive

            didn’t accuse him of exaggerating what he knows. simply stated his lack of knowledge led me to look elsewhere for fiscal conservatism.

        2. John Munn

          Davis Progressive might want to do some more fact checking. We all have opinions, but statements of fact should be true. It would be correct to say that I did not meet with every member of the Finance and Budget Commission. But I did attend their meetings when possible during the City Council campaign, reviewed materials that were provided to the Commission, and spoke with the Chairman. Anonymous comments based half truths as a basis for criticism, and especially personal criticism, should simply be ignored, which is what I shall do with similar comments in the future.

          John Munn

      2. Tia Will


        “I am more apt to trust a politician that says “I don’t know” and then can find the answers than I do someone that is driven to be the smartest guy in the room all the time on every issue.”

        I agree with your statement as written but see this from a surgeon’s point of view. I think it is fine to admit your lack of knowledge, but the time to get the information and be up to speed is before, in the case of the surgeon, the patient is on the operating table. In the case of a candidate for City Council, I would anticipate that they would do their homework, at least on the most pressing issues prior to the election. From my point of view having spoken to all of the candidates ( except Rochelle who was coming in well versed), Robb and Daniel demonstrated most clearly that they were working hard to master the pertinent issues in advance of the election.

    2. John Munn

      This reply is coming late because I have been out of town. I may actually be dumber than Davis Progressive thinks, because my understanding of general obligation bonds is that they are backed by the value of property in the taxing jurisdiction, payments come from line items on our property tax bill, rather from the City’s general fund, are paid directly to the bond holders, and are non-discretionary. In other words, the City Council cannot decide not to pay them.

      John Munn

  3. Frankly

    Congress wants to raise the 18.4 cents-a-gallon federal gas tax and 24.4 cents-a-gallon diesel tax each by 12 cents over the next two years, and then index the taxes to keep pace with inflation. The increase would be applied in two increments of 6 cents each.

    The reason… keeping the federal Highway Trust Fund solvent.

    Sound familiar?

    Again, we are paying WAY too much for our government labor and so we end up spending less on infrastructure, but instead of reducing the cost of government labor so that we can afford to maintain our needed infrastructure, the government keeps demanding more and more tax increases.

    The net effect is the taking of money from poorer private-sector employed residents to give to the wealthier public-sector employees that belong to the unions that pay for the politician’s campaigns.

    1. Davis Progressive

      i think michael bisch made the essential point yesterday – we are not changing the way government works or state laws here. we instead need to come up with a way to fund our government before run out of money on the one hand and are able to build an innovation park. and no, mace 391 is not coming back, so bury the dead horse and focus on the live one which from what i’ve heard is about to slip-slide away based on internal politics in the city.

      1. Frankly

        The same internal politics that allowed Mace 391 to “slip away”.

        So let’s bring those horse killers to light!

        BTW – I am not surprised that the other options are slip-sliding away. We don’t own the land, so we can only beg.

    2. South of Davis

      Frankly wrote:

      > Congress wants to raise the 18.4 cents-a-gallon federal gas tax and 24.4
      > cents-a-gallon diesel tax each by 12 cents over the next two years, and
      > then index the taxes to keep pace with inflation.

      I just read in the Chron that CA also wants to increase the price of gas:

      “The deal means 25 percent of the money the state gets from selling carbon emission rights – including the expected 10- to 20-cent-per-gallon bump at the pump starting next year – will go to high-speed rail.”

      The good news is that $5/gallon gas should make traffic a little lighter, the bad news is that $5/gallon gas will make out wallets a little lighter…

      1. Barack Palin

        Yes, take money out of everyone’s pocket to fund the way overpriced heavy union labor high speed rail that hardly anyone will ever use. There’s your Democrats hard at work for the good of California.

          1. Barack Palin

            I didn’t, if was mostly liberal Democrats that did not think about the fact that someone actually has to pay for it, but’s that’s par for the course. Besides, do you think it would’ve passed if everyone knew their gas prices were going to rise as a result of a tax to pay for this albatross of a project? Somehow I don’t remember reading about that in the election language.

          2. Davis Progressive

            i don’t know, it just always amazes me how complicated we seem to make things that everyone else seems to do as a matter of routine.

  4. TrueBlueDevil

    Davis Progressive, can you please tell me what other US state or comparable country “do as a matter of routine” a half-baked high speed rail line? (I would say we can’t compare California to Japan, doesn’t work.)

    This thing is riddled with major problems, and probably legally shouldn’t be built right now, given what we voted for.

    I think the price has tripled or more compared to what we were told it would cost to build. If you put those true numbers down, it wouldn’t have passed. This is typical, over-promise and under-deliver.

    Second, we know odds are quite high that the CHSR will not be ‘high speed” from San Jose to The City, so that increases the time it would / will take to get from LA to downtown SF. Going high speed in that stretch seems both illogical (so local train service will have to stop running 1/2 their routes?), and it will be tied up in lawsuits.

    These two items alone would have changed big chunks of minds when voting.

    I think Jerry Brown wants a high-profile project like his Daddy used to build. But this White Elephant makes no sense, and will instead be a large blemish on the career of Governor Jerry Brown.

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