Measure may be before voters on the Nov. 2 ballot
The City Council sent out a call for help late Wednesday night when it decided that the city would have to raise taxes or fees to close persistent budget gaps and avoid cutting critical services.
The most likely increases, so far, are a one-quarter percent add to the sales tax, which would need approval by a majority of voters, and an emergency dispatch fee, sometimes called a 911 fee, which would only need council approval. Before council decides exactly what to raise, it wants to hear from the voters.
Paperwork for any increase needing voter approval in the Nov. 2 election must be ready for the Registrar of Voters by July 21, though City Manager Ed Tewes said a reliable revenue source was more important to fiscal stability than an immediate revenue source.
“We’ve made significant cuts,” said Councilwoman Hedy Chang, who had been reluctant to move toward higher taxes. “It’s time to look elsewhere for money.”
Earlier in the evening council heard of $100,000 in further cuts to the upcoming budget, on top of $800,000 previously cut and an almost $1 million borrow from the reserve fund, all the result of a continuing economic downturn and more local tax money flowing to Sacramento than planned.
Clearly, they were told, cuts are not enough unless council wanted to make deeper, more serious reductions that would cause “pain” for a majority of residents and could include reducing the police department. A boost in retail and hotel business would help tax revenue but could not be counted upon.
While income from property taxes and business licenses are up, revenue from sales taxes, hotel taxes and car taxes were still down, with city income overall down 5 percent.
Councilman Larry Carr, Chang and City Treasurer Mike Roorda, as members of the Finance and Audit Committee (FAC) along with Chang, have wrestled for months with questions of whether to suggest increases, what to raise and by how much. Financial and civic details were filled in by Tewes and Finance Director Jack Dilles.
At the May 26 FAC meeting, the committee decided to recommend that the council consider increases and council Wednesday accepted the FAC opinion.
Chang, especially, in early discussions, insisted that “significant cuts” be made before anyone mentioned the words “revenue enhancement” – the phrase City Hall has adopted for tax and fee increases. Carr, early on, said he could see the writing on the wall and was a bit more comfortable with the idea though still not pleased with the situation.
As midnight neared on Wednesday, Roorda took the council through the FAC’s reasoning.
“We will need $800,000 in new revenue in the 2005-06 budget,” Roorda said, “and $400,000 more (on top of the $800,000, equaling $1.2 million) in 2006-07.”
Dilles explained that the total ongoing and permanent need will be for $1.2 million in new revenues each year, starting in 2006-07. Two new facilities coming on line and needing maintenance and operating funding – the community center and the aquatics center – have beefed up the expense column, the aquatic center adding $1 million to the 2004-05 budget alone, Dilles said.
Roorda said the committee had lengthy discussions on how to make any tax or fee increases as fair as possible and paid by the people who would reap the benefits:
• Fairness and equity – similarly situated taxpayers should be taxed similarly
• Transparency and visibility – taxpayers must know what the tax is and how it works
• Neutrality – the effect of a tax on business and consumption decisions should be minimal
• Certainty – tax rules specify when and how to pay and how the amount is determined
• Economic growth and efficiency – the tax shouldn’t bar production or business
• Appropriate revenue – the tax or fee must prove adequate and reliable
“It’s the steadiness of the revenue that is important,” said Tewes. The city must be able to count on its income.
Council had approved in January what it calls a Sustainable Budget Strategy for achieving a meeting of revenue and expenditure.
“We will bring the budget into balance by June 30, 2008,” Tewes said.
Council also discussed reducing barriers to new businesses.
Carr said he was concerned about easing too many city rules standing in the way of economic development, or improved retail.
“Do we want to be so aggressive that we are willing to accept any business regardless of its impact on the city,” Carr asked. “I would rather pay a higher tax and not have to deal with lots of big box stores.”
Carr also shone a spotlight on cost recovery, where fees do not cover the city’s cost, as in the recreation department.
“We must have the complete cost recovery conversation,” he said, “though I am not in favor of complete cost recovery in everything.”
Chang said she thought a general tax was needed.
“Let’s push this ahead so as not to miss the general tax (vote) in November,” Chang said.
Councilman Greg Sellers wanted the voters to understand that a tax increase was not a frivolous undertaking.
“We are one of the leanest cities in the Bay Area,” Sellers said.
Councilman Steve Tate said he doesn’t like the idea of a 911 fee.
“It may be facing legal challenges elsewhere,” Tate said. “It’s attractive and relatively painless but, not quite as evenly dispensed as a sales tax.”
A 911 fee would be assessed on every phone line in the city to cover dispatch 911 costs in the Morgan Hill Police Department. The fee would potentially produce $500,000 a year.
Dilles made it clear that an emergency response fee is charged to everyone with a phone; it is not a fee paid by people who call 911.
“The cost is recovered from all citizens,” he said. “You don’t get penalized when you call.”
The biggest source of city spending is for police and fire protection – nearly 65 percent of the general fund, with recreation programs following with almost 15 percent. Roorda called up what he called the “dark days” of the early 1990s when police were laid off, the Morgan Hill Fire Department essentially sold to the county and the recreation department completely disbanded.
Only in the past two years has the police department returned to its 1990 level, even though the population is much larger; the recreation department had been eliminated entirely and was re-established in 1998. The city now contracts with Santa Clara County Fire Department for fire protection services.
“Past the early 1990s we saw a period of economic growth,” Roorda said, “when the city rebuilt the infrastructure and revenue increased faster than expenses.”
The council was cautious with spending, he said, ending up with the substantial reserves which have proved useful in the latest fiscal emergency.
“It’s important to bring revenue options to the voters,” Mayor Dennis Kennedy said.
“Revenue enhancements” will again be discussed by the council at meetings on June 16 and 23, and, if necessary, on July 1.
Contact council members: www.morganhill.ca.gov or 779-7271. Carol Holzgrafe covers City Hall for The Times. She can be reached by e-mail at ch********@mo*************.com or phoning (408) 779-4106 Ext. 201.
