Council to Consider Potential Tax Measure for Unfunded Needs

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While the council has in the past talked about a parcel tax, they are now looking at consideration of a General Utility User Tax that could address unfunded needs such as road maintenance, bicycle paths/trails, and other priority capital projects. Right now, the city is looking at the state average of 5.5% raising approximately $5.3 million annually.

Staff writes, “Realizing the need to engage in long-term thinking and planning, the City Council directed a Council Revenue Subcommittee of Mayor Dan Wolk and Councilmember Brett Lee in the summer of 2014 to look closely at revenue measures, specifically to look at alternatives to enhance the revenue base in support of City services. They were to look at the array of long-term unfunded needs and priorities and identify a funding mechanism to address the City’s financial needs in support of unfunded projects.”

Utility users’ taxes “are levied as a percentage of the direct cost of the utility service delivered, and may be levied on utilities such as gas, electric, telephone/communications, water, sewer, sanitation and/or cable TV. The tax appears in the monthly billing paid by the customer and the tax is paid to the utility, which in turn remits the taxes to the local government that levied the tax.”

Utility-Tax-2

There are some advantages to this form of tax in that it is easy to collect and administer, it tracks with inflation, it applies to a broad range of populations, and it is not sensitive to economic downturns like other general taxes.

Unlike a parcel tax, it is imposed as a general tax which requires a simple majority vote conducted during the municipal election.

Staff writes, “It should be noted that one advantage of a UUT is that is a durable tax that is more consistent than the City’s most significant general taxes. UUT inflates with time and it tracks with growth in consumption of the elements that are subject to the tax. It is less susceptible to economic downturns than property tax and sales tax though it must be acknowledged that effective resource conservation may have some impact upon future consumption patterns. In a city such as Davis, which is largely built-out, a UUT would provide needed stability to the general fund budget.”

Staff believes the revenue measure should be placed on the ballot for the June 2016 election, which would also have city council candidates and likely at least one Measure R vote. This would require the council to make a final decision no later than February 2016.

The biggest downside to this type of vote is that, because it requires a simple majority, it is a general use tax, meaning that the city could use its monies for whatever purpose it sees fit. This is the problem raised during the sales tax campaign.

Writes staff, “A Utility Users Tax could be specified for certain types of services or projects, such as transportation, public safety, parks maintenance or animal control, but the identification of such restriction(s) in the adopting ordinance would invoke a requirement for two-thirds majority voter approval because the UUT would no longer be characterized as a general tax—it would be transformed into a special tax subject to the super-majority vote per the California constitution.”

As was discussed in the spring of 2014, one way partially around this is to have “companion measures on the same ballot for the purposes of having the voters advise the elected officials on how the new revenues should be used.”

However, “An advisory measure cannot, however, be constructed in a way that would place any requirement upon the elected officials that would override their discretion on the use of the revenues. Examples of such advisory measures are attached. If the City of Davis were to include advisory measures, staff would recommend a measure that asks about paying for infrastructure projects for roads, bike paths, greenbelts, and parks/sport parks. The use of such advisory measures is limited and there is no evidence that they are effective in building support for the UUT.”

As such, council back in 2014, quickly discarded the idea of an advisory measure.

 Utility-Tax

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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34 Comments

  1. Tia Will

    One advantage to this form of tax that I can see is that it does leave some room for personal choice in asset management. Because it is based on utilization, as individuals, if you conserve, you will pay less. Frugality is rewarded which I see as a positive not only for individual savings but for our well being over all in the long run.

  2. Paul Thober

    A General Utility User Tax is a much better approach than the endless parcel taxes and sales tax increases, both of which are regressive. A GUUT would be less so; generally people with higher income or higher net worth would pay more. The fact that passage of the tax would be democratic, i.e. a minority could not prevent enactment, is a bonus.

     

     

     

     

        1. Gunrocik

          In theory, our elected representatives would have control.  Take a look at who plays a key role in funding the tax measures and does a lot of the leg work as well–the city’s labor unions.

          As David has pointed out many times — where did the 2004 sales tax measure go — to the labor unions.  And why isn’t our labor-controlled City Manager asking for more labor concessions?  Last year’s additional sales tax measure has temporarily filled in the budget gap.  Who did a lot of the leg work to get the measure passed?  The labor unions.

          Unless you earmark a tax in Davis, it is going to labor.

  3. Don Shor

    So this would just go into the general fund, no matter what any council member or candidate might say as to its intended uses, and could be redirected by any future council majority.

  4. Barack Palin

    I calculate that a 5.5 percent utility tax will cost most people $20 to $25 a month or $240 to $300 a year.  They will be hitting us with much more than a $100 or $150 parcel tax per year with this tax and we will have no power to stop them from giving away the store again to public employees.  I hope the community sees through this and fights against it.

      1. zaqzaq

        I do not see this as a problem.  At some point they are going to have to raise taxes to pay for the infrastructure.  This is the easiest way of doing so.  What they do with it needs to be monitored.  I have gotten to the point of taxes passed for a particular purpose which limits the use of the funds as more problematic.

  5. Gunrocik

    Both Don and Barack have nailed the two biggest problems with this proposal.  First, you can’t earmark the money –otherwise it takes a two-thirds vote.  A UUT is a general fund revenue — and while we can all claim we will be fiscally prudent and put it into unmet needs — if PERS rates spike — you can guess where the money will probably end up.

    Second, our utility rates are skyrocketing.  Seen your water bill lately?  Sewer rates will also continue to go up and we all know PGE will continue to convince the PUC to allow PGE to continue to increase some of the highest electric rates in the country.  Barack’s estimate is quite low in my estimation as to what a 5.5% tax would cost the typical family.

    The UUT could easily fail — water rates will be even higher by next year and I would guess a lot of voters will be just as skeptical about the UUT as they were about last year’s sales tax measure which only received 50% of the vote.  If the usual suspects mount a “No” campaign, it will be dead on arrival — especially if they point out all the luxury items noted in the wish list above.

    I believe the new Wolk-controlled administration doesn’t really want to raise revenue the old fashioned way — by growing the tax base through an innovation park and other ventures — they don’t want to offend their no growth base.  They would rather ensure that we have some of the highest tax rates in the country.  I would argue that the next tax measure will get major push back–as this town has become more affluent–thanks to our growth policies restricting housing supply–we are going to have more No on tax voters–and as the city continues to gray since families can’t afford to move here–we will have more fixed income voters saying No as well.

     

     

    1. Barack Palin

      Yes, I wanted to keep my estimates conservative because apt. renters will pay less towards utilities than homeowners.  But you’re right, homeowners wit expensive cable, internet and cell phone packages and high electricity costs  might be getting hit with as high as $40 to $50 a month.  Davis is getting expensive to live here.  It’s time to say NO.

      1. hpierce

        Ok  $50/mo for a 5% tax, = $1.000/mo utility bills (before the tax)… REALLY?  For an average Davis resident?  I call BS as strongly as I can.

        I know some fairly affluent, non-conserving folk (full cable package, etc), and none of them have $800-$1,000/mo total utility bills.

        1. David Greenwald

          For me:
          Cable: $250
          Water: $130
          Cell: $225
          Electricity: $125

          So that’s $730 a month, so that’s $36.50 a month plus some change. I could see people with a bigger house and more in water and electricity costs pushing $1000.

          1. Matt Williams

            As a point of comparison, for me:
            Cable: $0
            Water: $200
            Cell/Internet: $170
            Electricity/Gas: $270
            So that’s $640 a month

        2. Barack Palin

          It’s just my wife and I and we pay $200 a month for cable, Internet and home phone, $120 for cell phones, $150 for PGE , $100 for water and sanitation, $30 for garbage collection, all adding up to $600 a month and there’s just two of us.

          If hpierce really read my post he’d see that I said that SOME residents will be paying as high as $40 to $50 a month which I stand by.

          Hpierce needs to recalibrate his BS meter, it’ obviously broken.

      2. Michelle Millet

        Maybe I’m doing the math wrong but 7 units (I’m assuming we are talking CCF)  works out to be about $30/month not $130. The city may be overcharging you a $100 month;-)

  6. hpierce

    Wow… you ARE a consumer… I guess I stand corrected as to the uber-consumption habits of Davisites… $12,000/year in utilities… now I understand the need for VG subscribers @ $120/year or more each, and why there should be no City employees earning over 100K/year.  Thank you for the revelation.

      1. hpierce

        Hey… I admitted to the fact that I must be on the low side of the bell curve, and said I stand corrected.  What do you want from me?  Blood? [you ain’t going to get that!]

        And, you are probably the next to last person to righteously call one portion of one comment a ‘tirade’.

        1. Frankly

          I was just interested.  Did not make sense to me.  Are you upset that David likes his cable TV, etc.?

          I won’t list my utility bills for fear you will rip me to shreds!!!  😉

        2. Michelle Millet

          We don’t have cable, we switched to Apple TV, pay for Hulu and Netflix, and buy any TV shows/movies we can’t find there from iTunes. (I think we found a utility tax loop hole;-).

    1. David Greenwald

      The cable bill includes internet and home phone just like BP’s. The Vanguard donations primarily go to monthly expenses. I only receive a small monthly from the Vanguard as a “salary” which goes mostly to pay my rent. I hardly think you can accuse me of living it up.

      1. Sam

        That is exactly why a UUT tax is better than adding another parcel tax. Instead of stating they are going to add $500 per house and $300 per apartment and having everyone gasp at the expensive new tax, they can say “Just a small 5% tax on utilities and Davis is able to afford all of the wonderful items on the list”. At least half of the voters won’t take the time to do the math to figure out that both taxes will cost them the same every year. Anyone that does and complains we can just point out that they must be living an extravagant lifestyle like David!

         

        1. Barack Palin

          Yes Sam, most people aren’t going to realize how much this is going to cost them.  We need to educate them on how much a tax like this will affect them in order to defeat it.

  7. Barbara King

    I see no mention of landline telephones or cell phones in the graphic that estimates the revenues from a utility tax, but commenters are including phone costs in their estimates of what would be taxed.  Is the city considering including telephone bills in the utilities to be taxed or not?

    1. Barbara King

      To answer my own question:  Although the graphic that shows estimated utility tax revenue does not include telephone bills as taxed utilities, other parts of the staff report do include telephone bills.

  8. Frankly

    First ask the question why does this money not exist to take care of all of these current unfunded needs and wants?

    Answer:

    1. Previous (and seemingly current) city councils and city management gave it away to city employees in the form of higher pay and millionaire retirement benefits for selfish and political reasons.

    2. The old guard (and seemingly current) NIMBY, change-averse, no-growthers effectively blocked and prevented what should have been an appropriate level of economic growth for the city; thereby causing too little tax revenue generated by local economic activity.

    Also note the posturing and maneuvering by certain CC members in advance of city employee labor negotiations.  Based on all the clear signs, we would be better off just calling it a GUT TAXPAYERS FOR CITY EMPLOYEE RAISES tax.

    This idea is DOA.  It will be ripped to shreds if attempted.  Not only that, but it will drag down the popularity of the current city council with it… as a clearly telegraphed end-around method to give more money to their union pals.

    Here are the ONLY alternatives worth considering:

    1. Permanent “Prevent Peripheral Development and High Rises” Parcel tax of at least $500 per year, and probably closer to $1000 per year.  This would also depend on if we renew and/or increase the sales tax increase that will sunrise.

    2. Temporary “Cover Needs Until We Grown the Economy to What it Should Be” parcel tax of $100-150 per year, and get more aggressive supporting the peripheral innovation parks and their population of tax-paying business.  Again, the amount should depend on consideration of the sales tax increase term or renewal.

    And for any and all alternatives, we absolutely hold the line on city employee compensation… due to the impact of any raise causing exponential increases in the unfunded pension liability.  And due to the fact that all city employees are currently significantly over-compensated in consideration of the general labor market when factoring their total pay and benefits.

    1. Anon

      The City Council already promised your alternative 2, but seems to be drifting back towards your alternative 1.  With the steep increases in water rates on the utility bill already in place, I suspect an unspecified general fund utility tax with no guarantees on what it will be spent on like this is DOA.

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