Yes On Measure T

City Can Afford to End Unfair Utility Tax

(Published October 17, 2002, -Sacramento Bee)

The past few years have not been a golden age of financial management for the city of Sacramento. The city's problems have ranged from cost overruns at its public safety headquarters to a bailout of its golf business, wasting millions of taxpayer dollars. When the sink is leaking, the first thing you do to stop the damage is turn down the tap. Fortunately for city voters, Measure T on the November ballot gives them the opportunity to do just that.

Measure T, an initiative sponsored by the Sacramento County Taxpayers League, would gradually reduce the utility users tax the city now levies on the electricity, gas, phone and cable bills of households and businesses. It would trim the 7.5 percent tax, the highest in the region, by 1 percentage point a year for five years, until the city's tax reaches the same 2.5 percent rate paid by residents in the unincorporated county.

The utility users tax is a regressive tax on consumption. Unlike the sales tax, which exempts food and medicine, the city utility tax falls directly on necessities of life: heating, lighting, cooling and communicating. Because lower-income households spend a greater share of their incomes on such necessities, they also end up paying a higher share of the utility tax. A high utility tax hits particularly hard in Sacramento, home to many of the region's lower-wage workers.

From the perspective of those who depend on the city for a paycheck or a development subsidy, there's never a good time to lower a tax, even one as regressive as the utility tax. Opponents of Measure T, including public employee unions, developers and the elected officials they cultivate, claim that reducing the utility tax would create a budget cataclysm and force deep cuts in public services.

But from the perspective of taxpayers, there will never be a better time to cut this bad tax. Over the next five years the economy will likely be in a upswing from the recent recession, giving the city more room to adjust to a lower tax rate. Passage of Measure T need not trigger major cuts in public services in the city if Sacramento's leaders begin to place the same priority on efficiency and management shown in other cities around the region.

According to the city's own projections, passage of Measure T would not cut city revenues; it would merely slow the rate of revenue growth for the next five years. (The city also gets property tax, sales tax and vehicle license fee revenue in addition to the utility tax.) This slower revenue growth from Measure T would require the city to find efficiency savings of about 2 percent a year in a $300 million general fund budget. Savings of that scale are achievable with the kind of attentive management and cost discipline routinely practiced by private businesses and other cities.

There are rich targets of opportunity up and down the city's well-padded organization chart: The part-time City Council has a personal staff of 22 people, more than the full-time county Board of Supervisors, which serves three times as many residents. The city attorney's office, with 53 people, costs taxpayers twice as much per capita as the county counsel's office, which has a larger scope of duties. The Police Department devotes much more of its people and budget to administration and overhead than do other local public safety agencies. The list goes on and on.

Sacramento can have quality services without a heavily regressive utility tax. All that's required is for the city to be as efficient as Citrus Heights or Roseville and for voters to approve Measure T.

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August 27, 2001

Sacramento City Utility User Tax

Cut the Tax....NOW

THE UTILITY TAXES. Most people don't know that the City of Sacramento has two different types of utilities taxes. The oldest is the Utilities User Tax (UUT), now set at 7.5%, covering all utilities used in the city, with the exception of utilities services provided by the city itself. The second is the Utilities Enterprise Fund Tax (EFT), approved by voters in June of 1998. The EFT was set at 10%, on all utilities type services provided by the city, the only such tax in the County of Sacramento, and for that matter, in any of the cities in the surrounding counties.

HISTORY OF THE UTILITIES USER TAX. The UUT was established as a 5% "Sales Tax" added to telephone, electricity and natural gas bills in August 1969. It was an era of rapidly rising property taxes throughout the state, and the City of Sacramento had the distinction of being second only to the City of Fresno in its applied tax rate against assessed value of property in the State of California. During budget hearings at the time, the Taxpayers League was intent on trying to hold down an increase in property taxes, and thought they had convinced the city to implement a strict austerity stance, and to slash $1 million from the proposed city 1969-1970 budget. Instead, they cut the budget by $414,000, increased license fees, and created a new 5% utilities "Sales Tax".

The 5% utilities tax remained constant until June of 1983 when the city, faced with a shortfall of $6.6 Million in its 1983-1984 budget, voted to raise the rate to 9%. At the time the League advised the council that, under such adverse conditions, it would cautiously support a temporary utility tax increase with a one-year sunset clause.

However the next year, the city council, was reluctant to give up the tax, identified as a Utility User Tax, notwithstanding that it had assured taxpayers that it would be assessed at 9% for one year only. The Sacramento Bee in an Editorial that appeared on February 22, 1984 stated: "Sacramento, unfortunately, has little choice but to keep the utility tax at 9 percent for at least one more year. That's a painful reality for the city council, since it raised the tax from 5 percent last year as a one-year-only stop measure to deal with a critical revenue shortfall. Everyone recognizes that the utility tax, even at 5 percent, hits the poor disproportionately, and that at 9 percent it takes a still harsher bite out of a low-income budget. It's an undesirable way to finance city operations."

The Sacramento Union disagreed with the Sacramento Bee and said in a Union editorial: "Taxpayers understandably have become cynical about 'one-shot' taxes. The cynicism is likely to deepen if the City of Sacramento follows through on its apparent intent to extend a one-year increase in its surcharge on electricity and gas bills that is scheduled to expire in July. The increase in the surcharge from 5 to 9 percent was a last ditch compromise by the City Council last June to balance the city's 1983-84 budget. There were those that winced when assured that the tax increase would only be for one year. A city finance report states that the one-shot tax increase must be extended to avoid deep budget cuts. There is no reason to doubt that the city continues to have budget problems. But so do many of the utility users who are being socked an average of an additional $55 per household by the increased surcharge. It seems reasonable to believe that the city could scrimp by better than many hard pressed taxpayers without turning what was supposed to be a one-shot tax into a permanent burden for local citizens."

The League agreed with the Sacramento Union, and that the tax should not be renewed. The League sent a letter to Mayor Ann Rudin and the city council recommending that the tax cease, pointing out that it was an 80 % increase being retained to finance a portion of the city's 5-year capital improvement program. The letter recommended that the plan for Capital Improvement be put before the voters with a tax program or bonding for the program. The letter was ignored.

In 1986 the UUT became a major political issue in the year of city council races. The 9% UUT was the highest rate in 48 of the state's 58 counties. UUT rate increases, piggy-backing on rapidly rising utility rates, were having an impact on low income people. The Sacramento Metropolitan Chamber of Commerce, the Taxpayers League, and the Sacramento Municipal Utility District openly favored reducing the 9% UUT, and all lobbied the City Council for a decrease, making the point that the UUT increases constituted a windfall tax. The council compromise was a decision to cut the tax by one-half a percent each year for 8 years, which would reduce the tax to 5% by 1994. The first cut, to 8.5%, was made in October 1986.

Reductions of one-half percent each year were continued for the next two years, lowering the UUT to 7.5%. In a time of budgetary problems, and as the bulk of the tax supported the City's public safety efforts, the City Council decided to ask city residents whether they would be willing to support stabilizing the UUT at 7.5%. The city prepared a local advisory Measure for the November 1988 general election, pleading the public safety case. In October 1998, the League Board voted unanimously to oppose what had become Measure G. Notwithstanding opposition arguments, Measure G was approved. Although an advisory vote is not legally binding, based on public acceptance of Measure G, the 7.5% UUT has been continued through today.

LEAGUE POSITION ON THE UUT. At the May 17th League Board meeting the issue of the county, and some of its cities receiving a substantial and unintended increase in utility taxes from ratepayers was discussed. The windfall increases resulted from rapidly accelerating natural gas and electric power rates, and substantial increases in telephone and cable television service charges. Presently the City of Sacramento's tax on utilities rate is 7.5%, the County's tax is 2.5%, the cities of Citrus Heights and Elk Grove tax is 2.5% and the cities of Folsom, Galt, and Isleton do not have a utilities tax. The City of Sacramento collected $42.7 million in UUT during fiscal year 1999-00, and budgeted $49.9 million in 2000-01, and $55.0 million for 2001-02. The League Directors reiterated their long-standing opposition to the City's 7.5% UUT, and expressed concern over the tax acceleration. They authorized the League Officers attending a meeting with City Manger Bob Thomas to discuss the possibility of a voluntary reduction in the UUT by the City Council.

League President Mersereau, Vice President Jonathan Coupal and Executive Director Joe Sullivan met with City Manager Bob Thomas, Assistant City Manager Betty Masuoka, and Administration Services Manager Joseph Chinn to discuss the UUT reduction. City Manager Thomas told the League's representative he would prepare a letter covering the issue for the League, and asked for another meeting before the League took a position on future action. He had been told by the League representatives that among considerations discussed at the Board meeting was a League ballot Measure for the next General Election, aimed at a vote to reduce the utility tax.

The letter received from the City provided information and documentation concerning the UUT, and the use of those funds by the City. The letter was provided to Board Members for use in its July 26th meeting. At that meeting the Directors affirmed that the League's ultimate goal is to see the city tax mirror the County rate of 2.5%, and from there to discuss further the viability of eliminating the tax throughout the County. The Board recognized the stark political reality that there will be opposition to its efforts, with the result that it may well be necessary to "take the issue to the voters" in the form of a local initiative ballot Measure.

The September 20th League Board meeting will serve to evaluate a plan to accomplish the League's objective of reducing the UUT, and will result in a letter to the City Manager and the City Council outlining the League's recommendations. Following that, the League's representatives will meet with City Manager Thomas, as was promised, before the League makes its final decision on the UUT.

Joe Sullivan, Executive Director

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September 24, 2001

Mr. Bob Thomas, City Manager
City of Sacramento
915 I Street
Sacramento, California 95814

Dear Mr. Thomas:

This letter seeks to respond both to your letter, and to the discussion which took place between you, city staff, and members of the Sacramento County Taxpayers League during the month of July. It further seeks to apprize you of recent decisions taken by the Sacramento County Taxpayers League in the aftermath of our discussions. Before I begin, however, please let me thank both you and the members of the staff who took the time to meet with us and to provide additional information as a result of our meeting. I can assure you that the materials as well as the concerns voiced by you and staff were given careful consideration by our Board of Directors, and were factored into the decision outlined below.

As you recall, members of the Sacramento County Taxpayers League sought a meeting to discuss our concerns respecting the City''s utility users tax (UUT)……a tax currently levied at the rate of 7.5%. While recent increases in electricity rates by the Sacramento Municipal Utility District have brought the city''s UUT into higher relief, the League has long been concerned with the application of a tax upon what we consider to be necessities of modern life -- i.e., electrical power for lighting, heating and cooking, use of a telephone, etc. We also have long wondered why the City''s UUT is fully three times higher than that levied in either the county''s unincorporated areas, or any other city in Sacramento County, while several cities within the County (e.g., Folsom, Isleton and Galt) levy no such tax at all.

Given these longstanding concerns, together with the recent changes in electrical rates for all county residents, the League Board of Directors began a process of inquiry and review to consider what -- if any -- changes we should seek in the City''s UUT. Having concluded this process, the Board of Directors fully discussed the issue of the City UUT, and then took a formal vote to undertake express actions seeking to reduce the UUT rate within the City of Sacramento.

While you may be somewhat familiar with the current composition of the SCTL Board of Directors, it may surprise you (as well as most other observers) to know just how many League Board members are themselves elected local government officials. Each of these individuals -- whether they represent water boards, park and recreation districts, or some other local subdivision of government within Sacramento County, share precisely the responsibility which you and the members of the City Council bear in making difficult budgetary decisions, working with existing revenue sources, and responding to the needs of the voters and constituents who elect them. Their voice, their experience, and their respect for the need for minimal disruption of an existing budgetary process all were foremost in the minds of our Board as we chose the course of action of which we are writing to inform you and the members of the City Council. As approved in formal deliberation by its Board of Directors, the Sacramento County Taxpayers League hereby proposes -- and in the weeks ahead will come before the Council to seek approval of -- the following:

Introduction and enactment of an ordinance that will reduce the city UUT from its current 7.5% rate to 5.5% effective July 1st 2002, with subsequent 1% reductions each July 1st until the rate reaches 2.5% (i.e., from 7.5% to 5.5% on July 1, 2002; from 5.5% to 4.5% on July 1st 2003; from 4.5% to 3.5% on July 1st 2004; and from 3.5% to 2.5% on July 1st 2005). The rate shall remain at 2.5% from July 1st 2005 until changed.

Inclusion in the ordinance that any change to the provisions of this measure may only take place upon the approval of a majority of the voters casting ballots at a regularly scheduled election.

Given the strong belief of most of the members of the League that the tax should either immediately be reduced or abolished altogether, we feel that this proposal is a thoughtful and reasonable accommodation to the budgetary process of the City, while meeting the recognized need for a significant reduction of a tax upon necessities which disproportionately impacts low-income and single-parent families. Furthermore, given the gradual reduction in the tax as we propose it, and the steadily growing revenues which derive from imposition of the UUT, it is entirely possible that the City''s actual UUT revenues will continue to increase (albeit more slowly), or at worst fall gradually as the rate is reduced, as a result of enactment of this proposal.

Let me assure you that this latter fact is one that will not sit well with many of our members. Particularly in the aftermath of the significant SMUD rate hikes, escalating PG&E bills, and the undeniable fact that the City UUT is 3 times higher than anywhere else in the County, there is considerable -- and quite strong -- sentiment within our ranks for an immediate rate reduction to 2.5%, or for elimination of the tax altogether. As I have outlined above, the Board has sought to balance these competing concerns by adoption of the proposal we will bring before the City Council for its approval. However, as a result of action taken on behalf of all of the members of the Sacramento County Taxpayers League by its Board of Directors, I can assure you that absent swift and significant action by the Council to enact an ordinance that meets the parameters of our proposal as detailed above, the League is prepared to move to qualify an initiative for the November 2002 ballot which would directly reduce the UUT to 2.5 percent effective January 1st2003.

As our Executive Director Joe Sullivan indicated to you on the telephone recently, we are pleased to meet with you once again prior to coming before the Council, and we send you this letter to ensure that neither you nor any member of the Council will be unaware of either our efforts, or of the nature of prior discussion or the deliberations which underlie the League''s decision to act. We very much value the strong working relationship which the League has developed at every level of government within Sacramento County over the last 40 years, and it is in large measure due to the vast experience which the League and its Board members have in local government and in working with you and others that we place our faith in the Council to ""do the right thing"" rather than immediately resort to a ballot initiative.

In closing, we KNOW that the members of the City Council can, if only they choose, make an important choice for each of their constituents in adopting the ""Taxpayers League Plan."" It is precisely this goal toward which I hope we may direct the conversation at our next meeting, and I look forward to meeting with you at your earliest convenience so that we may begin the process of affording the members of the City Council the chance to vote upon this measure.

Thank you again for the time and effort you have given the League and its member representatives on this issue.

Respectfully,

Richard Mersereau
President

cc: Members, Sacramento City Council Members, Board of Directors, Sacramento County Taxpayers League

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