It has been more than a year since voters, by a margin of 58-42 percent, passed the city’s half-cent sales tax increase. That margin, while comfortable in a simple majority election, falls well short of the needed two-thirds margin for a parcel tax or any specific use tax.
That reality coupled with polling from the spring of 2014 likely explains why the city council is strongly considering a utility user tax (UUT) rather than a parcel tax when it seeks to finally address infrastructure needs.
There is an added advantage to this type of tax – it is far less regressive. The UUT would be based on actual usage of utilities like water, electricity, phone, cable, cell, etc. Whereas the parcel tax is the same whether you have a $200,000 home or a $2 million home, the UUT is a percentage of actual bills.
Staff argues that it 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.”
All of that is good. The problem is that it is a general use tax and therefore, however the council sells it to the public and whatever promises they make, at the end of the day it goes into the general fund.
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.”
And that may be a way around this problem – you would still have a better tax, but you would then be able to control where it goes.
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, sidewalks, 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. Back then, the council was clearly concerned about the practicality of locking themselves in to specificity. That was the problem.
Ultimately they decided to go with no advisory measure after toying with language that would require at least three-quarters of the tax revenue to go to infrastructure. After reading expenditure needs, Councilmember Brett Lee argued that such a requirement would not work.
Back in February 2014, the council decided that, when it came time to fund infrastructure, the parcel tax was the way to go.
Then Mayor Pro Tem Dan Wolk stated, if we want to increase the revenue we take in and direct it toward infrastructure, “I think the challenge is, is the sales tax measure the route that we take to address those large infrastructure items.” He added, “My conclusion was the parcel tax, even though it was a two-thirds vote, was the way that I kind of came down, because that allows you through a measure to say, ‘hey voters this is what we’re going to do with this money, this is the only thing we can do with this money…’”
The problem as it stands right now is that the council has a long list of potential capital projects that could be supported by the new revenue measure – anything from badly needed road maintenance, to bike path and sidewalk repair, big ticket items that top $100 million and perhaps even more.
But along with those are the “nice to haves” – the $9 to $10 million for Community Pool turning it into a 50-meter pool with a six lane warm-up. Also listed is the $24 million Sports Park proposal.
The problem with a utility user tax is that council can say see, here are the things that we can see the tax going to fund. They can even list them on the ballot as possibilities. But they cannot state or preclude a future council from taking the money and using it for a 50-meter pool or a sports park.
But it is actually quite a bit worse than that. There is no legal mechanism that would prevent a future council from taking the estimated $5.3 million tax revenue and giving it to the employees in the form of compensation increases. In fact, when the voters passed the original half-cent sales tax in 2004, that $3 million was given to employee groups including the firefighters, who in 2005 received a 36 percent pay increase over a four-year period of time – what turned out to be about a $3 million general fund hit.
Just last year, the Davis City Council put the sales tax on the ballot and decided not to include an advisory vote to direct how the money would be spent. One of the councilmembers noted that the decreased amount of the revenue from the $5 million to about $3.6 million would prevent the money going to employee compensation.
But now there is talk that the employees will get at least a one time, one percent COLA. Since the only reason the city is in the black right now is the sales tax, in effect, some of the sales tax revenue could go directly to the very thing that the council told us it would not go to – employee compensation.
There is a way around this and that is to go away from a general use tax. To reiterate the point from Dan Wolk back in February 2014: “My conclusion was the parcel tax, even though it was a two-thirds vote, was the way that I kind of came down, because that allows you through a measure to say, ‘hey voters this is what we’re going to do with this money, this is the only thing we can do with this money…’”
Is the council willing to risk the two-thirds vote in order to assure the voters that they are passing a tax that will go to roads rather than pools/sports park or employee compensation? My guess will be no.
In February of 2014, I wrote a column, “Will Not Support Sales Tax Measure in June.” I quickly backed off that and the measure enjoyed only feeble opposition. But if people more credible than Jose Granda and Thomas Randall decide to oppose the tax, things could get more interesting.
At this point I am not threatening to oppose a utility user tax, but I am not comfortable with it despite the fact that I have been beating the road repair drum for six years now – long before city council acknowledged the crisis. My concern is that money that is supposed to go for roads could get diverted for other uses.
A UUT is probably more fair than a parcel tax, but making it specific use and a two-thirds vote strengthens it, in my view.
—David M. Greenwald reporting