City Council Approves Preparing Sales Tax Ballot Measure for November Election

Formal vote on the measure by the Council to be taken in July

Published : Tuesday, March 6, 2018 | 6:56 AM

City Council Approves Preparing Sales Tax Ballot Measure for November Election

[Editor's Clarification: The proposed municipal sales tax which was discussed is a 3/4 of one cent tax (0.75 of one cent) on each taxable dollar. This amounts to 7½ cents per $10.]

 

After City Manager Steve Mermell Monday outlined his strategy of cost reductions over the past few years to fill gaps in the City’s budget, and said, “It’s not good enough to just get by,” the Pasadena City Council voted 7-1 to approve preparing a ballot measure for the November 2018 General Election that would ask voters to approve adding a 3/4 cent municipal sales tax to local purchases.

Councilmember Steve Madison voted against the proposed measure, saying, “Maybe we’ve been too good at budgeting, … I don’t see a sense of urgency from the community over this.”

Over the past several years, according to a finance department staff report, the City has implemented significant cost reductions including the elimination of 123 staff positions (of which 23 were sworn police officer positions); significant budget cuts exceeding $19 million annually, and pension reform which shifted over $5 million in annual pension costs to employees.

According to the staff report, based on current projections the City will need to reduce expenditures and associated service levels in the General Fund by $3.5 million in fiscal year 2019. Furthermore, additional reductions will be necessary in future years to maintain a balanced budget and avoid the need to draw down the City’s emergency contingency reserves.

Pasadena currently enjoys a rating of AAA on its General Obligation debt from Standard and Poor’s and this past year fully funded its General Fund 20% emergency contingency reserve that serves as a bulwark against possible future economic recessions or natural disasters.

However, in spite of reductions made last fiscal year, which totaled $4.1 million and involved the elimination of 14 full time equivalent staff positions, the staff report noted that the General Fund Five Year Financial Forecast indicates that operating expenditures will exceed annual revenues next fiscal year and each year into the future unless action is taken.

Taken as a whole, the report added, the City’s projected revenues and expenses show a mismatch over the life of the City’s current Five Year Forecast, with expenses outstripping revenues by $32 million over the next five years.

While these projections tend to be somewhat conservative, the chart below graphs projected vs. actual financial results for the General Fund in recent years, the trend is clear, the City’s expenses are exceeding available revenues. Faced with such a structural deficit there are few options, which need not be mutually exclusive, the report said.

Revenue from the proposed sales tax could also be shared with the cash-strapped Pasadena Unified School District.

As the report noted, “The situation with the PUSD creates uncertainty for several programs operated by the City at PUSD facilities, such as the aquatics program. The City and PUSD have been partners for after-school and summer recreation programs and jointly manage certain facilities. The elimination of current PUSD programs or the closure of PUSD facilities may put pressure on the City to provide additional programming.”

“This is an opportunity to show PUSD that we are a true partner,” said Councilmember Hampton, in support of both the sales tax measure and the concept of sharing revenue with the school district.

Hampton — a former School Board member — also asked if the proposed tax could be rolled out in increments, but Finance Manager Matthew Hawkesworth seemed skeptical about the idea, saying that it had never been done before.

“Whatever it is, it is,” he told Hampton. The Council recommended as part of the vote, however, that the idea of a phased tax roll-out be explored.

Prior to the vote, City Manager Steve Mermell also noted that he worried about the loss of opportunity by not approving the proposal immediately.

As noted in the staff report, November 2018 may, “at a practical level, be the City’s last opportunity to place a local measure that would maintain quality services and invest in aging infrastructure in front of voters.”

“Let’s leave it to the voters,” he said.

Mermell also noted that while the 3/4 cent local tax would be expected to generate approximately $21 million per year, to the individual consumer it would add only 0.75 of one cent to every $1.00 of taxable transactions, the staff report noted.

“I’m cautious about this, but I can see the need,” said Councilmember Victor Gordo, who questioned the proposed measure at a past City Council meeting.

A separate advisory ballot question would also be placed in front of the voters asking them whether a portion (1/3 was recommended) should be used to support local public schools and educational programs.

These would be separate ballot questions, and the advisory measure would be non-binding on Council. In the event the Council chose not to proceed with an advisory measure or if the advisory measure were to garner less than 50% support by voters, staff would continue to recommend pursuing a 3/4 cent tax for general City purposes as opposed to seeking a lower amount.

The staff report also noted that in order to properly prepare for a November 2018 ballot, a robust public outreach and informational campaign would necessarily need to begin immediately.

Council staff will prepare the appropriate materials and return to the City Council no later than the meeting of July 23, 2018, in order to provide adequate time to be placed on the November 2018 ballot.