LOS ANGELES (Reuters) - Californian cities hobbled by crippling deficits are rushing to declare fiscal emergencies to help solve their money problems, yet they are backing away from the tax increases that such declarations make possible.
Over the past six months, city councils in at least seven municipalities invoked a state law which allows them to put tax hikes on the ballot much more quickly in the event of a “fiscal emergency.”
Burdened by expensive public employee contracts and the fall-out from the housing meltdown, the cities are struggling to avoid the fate Stockton and San Bernardino, both of which recently filed for bankruptcy protection.
But now some of those cities are thinking twice about the wisdom of seeking tax hikes.
On July 31, the Los Angeles suburb city of Duarte dropped a proposed ballot initiative to hike its local sales tax by up to 1/2 percent when the proposal couldn’t muster the required unanimous vote of its five-member city council.
A day earlier, the city council of Stanton, in Orange County, voted 5-0 against a ballot measure that would increase its utility tax from 5 percent to 7 percent. Mayor Carol Warren cited “signs of improvement” in first quarter business activity.
In June, Stanton voters had rejected a council proposal for a similar tax increase on electricity, natural gas and telephone service.
The retreat reflects political realities in California, where tax increases often generate noisy and well-funded opposition from business groups and self-styled taxpayer advocates.
California cities have few options when it comes to raising revenue. Property taxes, which are collected by the counties and shared with the cities, cannot be raised significantly due to Proposition 13, in force since 1978. Cities are also restricted from taxing personal income, or specific items such as cigarettes and alcohol.
Local tax increase measures also face another big hurdle this year: two statewide tax increase measures are on the ballot for the fall, including one promoted by Governor Jerry Brown that would temporarily raise the state’s sales tax and create a new tax bracket for those earning over $250,000 a year.
“Voters are getting very angry that their government keeps coming back and asking for more money,” said Darry Sragow, managing partner of the law firm SNR Denton in Los Angeles and a long-time Democratic campaign strategist. “The voter is saying, ‘I’m cutting back, you should be doing the same thing.’”
California voters already rebelled against the rising numbers of tax hike proposals, said Jerry Nickelsburg, a senior economist for UCLA’s Anderson Forecast, who says they’ve rejected the last five tax increase measures on the state ballot.
In June, California voters rejected the a $1 a pack increase on cigarettes, usually a reliable voter-getting, even though the money was to be directed to cancer research and other research. Anti-tax groups spent $46.8 million to campaign against it.
“The rule has always been that its much easier to raise taxes on the local level than the state level, because voters see the money being spent in their own neighborhood — on streets, cops on the beat,” said Dan Schnur, a former aid to California Governor Peter Wilson and director of the Jesse M. Unruh Institute of Politics at the University of Southern California.
“It’s much harder to just say, ‘help us fix this budget mess to avoid bankruptcy,’” said Schnur.
In the June elections, voters in a number of localities approved local bond issues and parcel taxes, mostly to boost school funding.
Local leaders who are moving ahead with tax proposals hope voters will recognize the tangible benefits that could come from tax hikes.
The La Mirada city council, which projected a $475,000 surplus for its $67.9 million budget, identified $67 million in needed repairs to curbs, traffic signals and other improvements when it voted on July 24 to put on the November ballot a proposal to add 1 percent to its 8.75 percent sales tax.
Even so, the council decided to end the tax increase after five years when a survey it commissioned showed nearly two third of its voters would reject it otherwise.
“We’re not convincing ourselves that getting approval will be easy,” said La Mirada city manager Tom Robinson. “We’re dealing with the loss of revenues due to the Great Recession, and we think the voters know we haven’t been over-spending.”
The city of El Monte, outside Los Angeles, opted for a different kind of approach. On July 24 it put a proposal on the November ballot to increase taxes on sugary drinks, a move it said would help it fight obesity among its children.
The proposal drew immediate opposition from industry groups who were fighting a similar tax proposed two months earlier by the city of Richmond, California.
“This tax is a sign of the times,” said Bob Achermann, executive director of the Californa/Nevada Soft Drink Association, said. “City governments are looking for revenue. We think this is a misguided approach.”
Additional reporting by Tim Reid; Editing by Anthony Boadle