It may be that this is simply an issue that resonates only for the “Vanguard 10,” but it is difficult to judge as the MOU (Memorandum of Understanding) issue has received scant attention outside of the Vanguard. However, we have already seen how the issue could impact both a potential soda tax and a utility user tax (UUT).
The city council has not yet decided if it will place a tax measure on the ballot to fund road maintenance and what type of tax it would be. The issue is scheduled to come before the council next Tuesday.
The Vanguard readers are already skeptical of a potential utility user tax or a soda tax. Some, of course, are opposed to all new taxes, but others are concerned about whether the council would turn around and use taxes in ways that the voters are not intending.
One of the problems, as the Vanguard has pointed out, is that any general tax goes into the general fund. That means, while the council can bill the tax as going for roads or potential children’s health programs, nothing would prevent the council from taking part or even all of the tax to give to employee compensation.
The problem is even worse than that. The council could pass a parcel tax, which can be specified as a specific fund tax, use all of the money as designated on roads, but utilize funding to transfer all or part of the existing $4 million for roads to other needs, such as… employee compensation.
In yesterday’s article, Bob Fung of Civenergy, in comments, notes that one thing Dan Carson, Elaine Roberts Musser and John Munn “discuss is a possible companion advisory measure that provides for a way to monitor the spending of UUT revenues.”
The problem with this approach came up last week as we recounted the winter 2014 sales tax discussion, where the council ultimately opted against an advisory vote for a number of reasons, particularly the difficulty of specifying the uses but also reasoning “that times had changed and the council could not get away with giving away the store again.
One councilmember suggested that the half-cent sales tax and $3.6 million in revenue is small and therefore will preclude it being used for salary increases as it will go to pay for the city’s increasing water bill, PERS (Public Employees’ Retirement System) contributions and retiree health costs. The argument was, “There was no point in an advisory measure for the smaller amount.”
Moreover, an advisory would not prevent the council from backfilling existing general fund expenditures that are going to pay for roads now and freeing up existing uses for other priorities.
Others questioned whether the revenue generated from the sales tax passed in June 2014 was “specifically spent on employee compensation.”
The evidence there seems overwhelming. In June of 2014, Measure O was put on the ballot to close what was projected as a $5.1 structural imbalance. That imbalance reflected about $3.55 million in infrastructure and other resource needs, $1 million in personnel related increases including the 2% COLA (Cost-of-Living Adjustment) in the previous MOUs, as well adjustments in the salary savings projections, and then $1.2 million increased costs in OPEB (Other Post-Employment Benefits), PERS, Medical Leave, and Medical Insurance.
By last December, city budget projections showed stronger than expected sales and property tax revenues closed part of the structural deficit. But as the revenue projections from last spring show, even with the sales tax in full effect, which means the whole projected $3.6 million in revenues, the city is only projecting to do slightly better than break even on revenues versus expenditures in 2015-16, 2016-17, etc.
By 2018-19, the city projected about a $1.1 million surplus ASSUMING all things remaining equal. Plugging in a one-percent annual COLA puts the city very slightly in the red the next few years before squeaking into the black in 2018-19 by $100,000.
Both projection tables show the city plunging into the red in 2021-22 when the sales tax measure expires.
What does this tell us? It tells us that, at least on paper, the city is using the $3.6 million in expected revenue to pay for the additional $1.1 million that the new MOU provides.
I don’t see any way to avoid the implication that the sales tax money in part is going to pay for increases to employee compensation.
However, one reader posits the issue as this: “The sales tax revenue was spent on roads, street lights, just as promised. The question that should be asked is: Where is the money going to come from to pay for the COLAs?”
For that reader, “Councilmember Swanson has answered that question according to her view: more economic development, increase in city fees, proposed new tax (parcel or UUT). Another CC member is thinking about increasing the TOT (transit occupancy tax, i.e. hotel fees). She did not say the sales tax increase funding would pay for the COLAs. And secondly, it has yet to be determined if the sales tax set to be expired will be renewed or not. So in my opinion it is an incorrect statement to say that the sales tax increase will be spent on the COLAs in light of all of the above info I just gave.”
But that argument did not seem convincing to the core of the Vanguard 10, the ten or so regular commenters. Instead, as Mark West put, the city spent the sales tax money “to buy something frivolous.” He added, “It is completely reprehensible that the City Council would spend this money without knowing in advance how they will pay for it. Revenue first, expenses second, not the other way around.”
For the Vanguard 10, at least, any talk about a soda tax or UUT, or other revenue measure, is going to tap into the question of trust that the council will not simply turn around and use it for other purposes.
The city unfortunately has a history of playing bait and switch with taxes. In 2004, Measure P was put on the ballot as the original half-cent sales tax.
In the argument on the ballot in favor of Measure P, the signers, which included Lois Wolk (Assemblymember), Helen Thomson (Supervisor) and then-Mayor Susie Boyd, argued: “The City faces increasing costs. We will face higher expenditures if we are to provide the additional police protection and meet park and recreation and open space commitments we have made to our citizens.
“Without Measure P revenue,” they argued, “given the uncertain state support to the General Fund, we would be faced with very deep service cuts in police, fire, and parks.”
However, a 2010 Vanguard study found that the money would end up going largely to increased salaries, particularly for fire, who in April 2006 were retroactively given an annual increase in compensation of 8.46 percent per year – or 34 percent over the course of their four-year contract.
While the city sold the public that the measure would pay for additional protection for police, it actually went for increased salaries, and fire got by far the largest increases in salaries. And while it was billed as a way to meet park and recreation commitments, in fact, we had to pass a parks parcel tax just two years later because we had used the entire sum to pay for employee compensation.
The question then is how can the council credibly commit that it is going to spend tax money as promised rather than turn around and spend it on other priorities? The ability to raise the taxes might hinge on that calculation.
—David M. Greenwald reporting