Study Shows San Diego Taxpayers Have It Easy

Wednesday, June 22, 2005 | San Diegans pay less to city government than residents of similar-sized California cities despite having higher incomes and more valuable homes, according to a study by a University of California, San Diego political scientist.

A report by professor Thad Kousser argues that the city’s current financial crisis may be aided through measures to increase revenue rather than through spending cuts alone, and analyzes the feasibility of several such actions. It comes in response to a more alarming report released a few months ago that identified revenue shortcomings as a systematic problem in San Diego and held up tax increases as a solution to the city’s financial crunch. Although both studies ultimately agree that San Diego is a low-tax city, they differ in exactly how low it is relative to other cities.

San Diego receives only 83 percent of the average per-capita total revenue collected by California’s 10 largest cities, the new report finds. Total revenue includes monies from all property and sales taxes, plus income from public services and fines. Only three of California’s 10 largest cities – San Jose, Fresno and Santa Ana – receive less in total per-capita revenue than San Diego, whereas six, including Long Beach, Los Angeles and Sacramento, receive more. San Francisco, unique as both a city and a county, was excluded from the latest analysis, explaining some of its differences with the earlier study.

San Diego’s revenue figures are especially low given the area’s relative affluence and sizzling real estate market. The city was the second wealthiest of the comparison, with a median household income of $47,631. But for every dollar of household income generated in San Diego, the city takes in 7 cents in revenues – only 70 percent of the average revenue-to-income ratio for the cities compared.

Kousser’s report also finds that San Diego’s debt per capita is the lowest of the comparison – only 30 percent of the average value, or $785 for each resident. Anaheim and Los Angeles have per capita debt figures of $1,828 and $3,841, respectively.

“San Diego’s low level of debt seems particularly puzzling given the high value of property in the city,” the report says.

The findings come as San Diego faces a major financial crisis, with a large pension fund deficit and falling credit rating. The report suggests several ways the city might raise revenues as a way to ease the pain caused by budget and pension cuts, including:

– Charging residents a fee for refuse collection. The city currently provides the service free to residents, absorbing the $47.9 million it costs as a part of the city charter. Recovering the expense of refuse collection would cost each household about $8.64 per month.

– Raising the city tax on real estate transfers. Though San Diego has the highest value of real estate values in the state, it taxes the transfers at a rate far below that of comparable cities. Raising the tax could bring in between $10.6 million and $48 million annually, the report finds.

– Enacting a surtax on the use of utilities. San Diego is one of three major California cities that does not charge a utility users tax. The average utility user’s tax for the cities compared – about $92 per year, per resident – could bring $112 million to San Diego.

– Increasing the hotel room tax. San Diego’s current rate of 10.5 percent is lower than the California average of 12.4 percent. Raising it to this level would increase annual revenue by $9.9 million.

– Charging a daily fee on rental cars. San Diego could bring in between $1.2 million – $5 million annually by charging rental car dealerships a daily fee of $2 or $3 per rental. Such a “fee” would require only the vote of elected city officials to be put into place, whereas the above “tax increases” would have to go to voters for final approval.

Kousser said his goal with this report was mainly to evaluate the findings of the earlier study by the Center for Policy Initiatives. He maintains that his report has “no real policy implications.”

“I am not suggesting raising taxes,” he said.

For now, it appears almost no one is. Nearly all the candidates running for mayor have said they do not plan on raising taxes, though the City Council has begun approving a budget that will likely include severe cuts to the city’s core services. Donna Frye has said she would not raise taxes without voter approval – though at least a majority vote would be needed to raise taxes anyway.

Kousser said that hard times make increasing revenues “definitely an option” for San Diego.

“People who study this have known for years that San Diego is a low-tax city. The opportunity is there. It really comes down to, is there popular consensus?”

View Thad Kousser’s complete report. (This is a PDF file that requires Adobe Acrobat Reader software, which can be downloaded for free here.)

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