Money fer Nuthin

An item from Joe Flynn ran Wednesday responding (in a sense) to my post regarding how much San Diegans pay in taxes and fees. My numbers came from the 2002 City of San Diego Facilities Financing Study (FFS Study). Joe cites numbers published by the Center on Policy Initiatives (the CPI Study) which was founded by the accomplished labor advocate, Donald Cohen.

Thanks to, and Flynn, we are beginning to have a numbers-based discussion here in analytically adverse San Diego. Maybe we’ll learn something along the way.

Water and Sewer Rates

This discussion is timely given the mayor’s proposal to raise sewer fees by 35 percent and water fees by 29 percent. These increases are above and beyond the 75 percent increase in sewer rates and the 90 percent increase in water rates that consumers have already had to pay over the past decade. What’s remarkable about this is that we already pay some of the highest water and sewer rates in the nation.

Why is this stuff so expensive for San Diego?

With respect to water, the logic in Flynn’s post is that we have to pay so much because we live in a “semi-arid” environment. But, there are plenty of communities in an equally, or even more, “arid” climate and their water rates did not increase 90 percent in the past 10 years with nothing to show for it but hundreds of millions of dollars in “deferred maintenance” and E. coli outbreaks. The excuse for our high sewer rates is that the cost of “repairing and replacing broken pipes” is more expensive because San Diego has “rugged areas.” But, San Diego is relatively flat by comparison to many communities. What’s so “rugged” about that? Plus, we dump sewage overflow right into the ocean.

That convenience is just not available to most cities.

You have to wonder how it is that we have put such a huge amount of money into the water and sewer departments yet we are in chronic violation of clean water laws and so much more is needed.

And, other fees have to be in line for an increase because significant revenues will be required to pay the massive pension deficit, even if Aguirre is completely successful in reversing the clearly illegal portions.

Median vs. Mean

The point of my post last Monday is that San Diegans appear to pay substantial fees and taxes considering the real income of families, the ingenious ways those taxes/fees are collected, and the amounts paid by other cities.

Flynn argues that we do not pay as much in certain categories as is collected in other cities, and we do not pay as much per capita compared to cities of similar size and economic condition.

But, the Flynn/CPI comparison is not apples to apples because, among other things, one San Diego major revenue category (ultimately paid for by consumers) has been excluded from the CPI study: revenue from the “Utility Franchise Fees and Taxes.” In addition, the ability-to-pay issue needs to be better clarified before launching a new round of assessments or taxes.

Let’s start with that one.

In my post last Monday, the FFS Study reported median family income for San Diego was $44,089, substantially less than other major city areas like San Jose, San Francisco, etc. So, any tax/fee increases on folks here would have a greater impact than in places where family income was far greater.

The CPI Study used by Flynn notes that: “When considering the contribution of residents to the city’s General Revenue, their incomes (and thus capacity-to-pay) should be factored in. The mean of all household incomes in San Diego was $64,072 in 2003.”

Family incomes here obviously did not go up $20,000 (45%) in just a few years! The difference is between the use of the median number and the mean number. They are not the same.

Put simply, the median is the most common number, while the mean is the average of all the numbers. By example, if we were studying only five families, four with incomes of $40,000 and one with an income of $1,000,000, the median would be $40,000 and the mean would be $232,000. You see how the median is much more representative of the central tendency of the sample set. Therefore, the CPI Study’s use of the “mean household income for San Diego, $64,072” is not reflective of the amount of income actually earned by most San Diego households. It’s too high. You need to look at the lower “median” household income for San Diego which is more reflective of the real incomes of most families, the ones that will be paying any proposed higher fees and taxes. This is very important because if a fee/tax program is implemented based on a $65,000 average family income when the family is really in the $45,000 income area, the imposition of new fees/taxes could help crush the liquidity of the center of the community (remember we also have massive new State bonding payments hitting homeowners next year).

Franchise Taxes/Fees

The Flynn article notes the fact that we don’t have a utility tax or a trash tax which do exist in other venues. True enough.

But, San Diego has some of the highest utility related franchise taxes/fees and surcharges in the state. These get pushed off onto consumers in the form of utility rate increases, surcharges and fees. Notice any increase in your utility bills lately? As pointed out from my last post, our franchise fees alone were the second highest in the state at over $38 million (San Francisco was only $9 million). Other cities have a statutory limit on what they can charge for franchise fees but San Diego does not recognize this limit.

So, what might otherwise have been raised through utility taxes or other described assessments is to some extent backfilled with franchise fees that get passed along to the utility users.

Under Grounding Surcharge Fee

In addition, the city imposes a utility “undergrounding surcharge fee” on all utility users which raises more than $45 million per year (and growing). This fee is referenced nowhere in either study. Maybe it’s unique to San Diego.

Trash Tax

As a result of the passage of Proposition C in this last election, outsourcing trash collection to a commercial vendor might convert the present no cost collection program to one that charges direct fees for collection by the private haulers. No one is talking openly about that yet.

Property Transfer Tax

Flynn makes passing reference to the fact that certain fees have a “regressive” nature (meaning the hit is on everybody equally rather than hitting those can afford more to a greater degree than those that can afford less). I think this a difficult place for Flynn/CPI, and certain council and political influences, given the realities of our current financial condition.

The fact is, to provide new billions in infrastructure, and additional billions in revenue for municipal labor pension deficit payoffs, the numbers are so staggering that the usual dialogue on “progressive” vs. “regressive” revenue sources just gets left by the wayside. There is no realistic relief to these conditions unless the whole of the general population is fee/taxed very seriously, and for a very long time. This is not a place where the folks at CPI would feel comfortable, with good reason.

I’m betting we see a “Non-Conforming Property Transfer Tax” proposal in the 5 percent range pretty soon. Most people aren’t aware that San Diego already imposes a “Conforming Property Transfer Tax” of 55 cents per $1,000 value (or $220 for a $400,000 home sale) that is collected from the seller. This is above and beyond the “Conforming Property Transfer Tax” imposed by the county (which is another 55 cents per $1,000).

An additional “Non-Conforming Property Transfer Tax” would probably be split between buyer and seller. The FFS study notes that some view this as a progressive tax, since it roughly correlates with property-based wealth. So, at 5 percent the sale of your $400,000 house could cause a tax payment to the city of $20,000 n now that’s some real money! The city would need a simple majority voter approval to increase this tax under Prop 218.

Storm Drain Fee

And, let’s not forget that the city imposes a “storm-drain fee” on all of us, which is not collected by a lot of other cities.

You will recall the City proposed to increase this fee by 125 percent in 1998 through a Proposition 218 election, but the measure failed. Now the City plans to increase storm drain fees in the upcoming round of budget stuff. Recent case law requires these fee increases to go to the voters.

No Audited Financial Statements

To me, raising rates/fees or taxes without any audited financial statements (for the last third of a decade) doesn’t make a lot of sense.

The fees discussion need not start with the “you owe this money because you haven’t paid me what you should have in the past” routine. It’s not true. And, I think we should look first to see what the city’s really doing with the money it’s already receiving.

Finally, we might want to see the list of all the fees the mayor intends to increase over the next five years so we don’t get these things slow-rolled out, one at a time.

Park It Over There

There is an interesting proposal floating around to, essentially, privatize operations at Balboa Park. This is based, sort of, on the Central Park Conservancy in New York City, an entity that was formed to do a better job of maintaining Central Park than was being done by municipal government. (I guess we do have something in common with New York City after all.)

The Union-Tribune editorial board already supports the concept based almost entirely on the fact that the reality of the city’s financial recovery looks bleak and long. Another reminder of the pervasive consequences of our choices in that area.

Here’s the rub. Historically San Diego city government fully jettisons things only when it sees a big financial stinky coming down the trail and needs to avoid. This occurred, for example, when the city formally moved payment of retiree health care premiums from the city’s general fund to the retirement system to be paid in violation of IRS regulations out of retirement assets – from those wonderfully magical “excess earnings.” The projected massive premium increases (up to 60 percent) for retiree health had only downside liability for the City, so it was perfect to lop off this massive obligation while the public wasn’t looking.

By comparison, the successful Convention Center Corporation (CCC) is a separate corporate entity from San Diego, but the city is its sole shareholder which, though not a good idea long term, allows the city to “bleed” the CCC short term for money. The CCC is separate for operations, but not so separate that the city can’t get at the food locker. This happened in 2001-2 when the pension deficit was first surfacing and the Mayor’s Office told the convention center’s board of directors it intended to discontinue the $5 million maintenance distribution the CCC gets from the city’s $110 million transient occupancy tax revenues (much of which is due to the fantastic condition and operations of the center).

This even though the $5 million annual support payment was built into the written representations and commitments made to the investors that bought the bonds that financed the center (not that we historically have cared much about the correctness of our financial representations to the capital markets). The city intended to take that money because it was broke and thought it could. Might happen again this year. So, not a full lop. Separate for operations, but the city can still scarf the goodies.

A Saturday letter to editor reminds us that even the1 cent TOT specifically dedicated to Balboa Park was later “taken” back by the City and used for other things.

Which brings us back to the “new” Balboa Park proposal.

If the idea is make the Park Conservancy fully separate, including the municipal funding side (like the zoo) to operate and develop Balboa for the public, well maybe that makes sense. It would certainly provide encouragement for more private philanthropic donations which are essentially unavailable as long as the city operates the park and remains in financial distress, a situation which simply will not change much for a long while. And, operations may improve in other respects.

On the other hand, if it is to take the operating expense off the city’s books while still leaving the city able to “raid” park revenues or sell park assets – which is more likely the case given our history and current financial condition – Balboa Park will be ruined all that much faster. We might want to give that a bit more thought.

POB Me? POB Me-Not!: Not that it matters in the short run because we are still light years away from returning to public finance, but the recent edition of Pension and Investments reports that in a current case pitting the Pacific Legal Foundation against the Governor re his intent to raise $929 million in POB’s to “plug a hole in the state budget”, the Superior Court spiked the plan ruling it would violate provisions of the California Constitution requiring debt issues exceeding $300,000 to first be approved by the voters. The Legal foundation said it was a “victory for all Californians”. The State’s finance department spokesman was not available for comment. “Filling holes” in government operating budgets with massive long term borrowings n not so easy these days.

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