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Sunday, April 5, 2009 | In balancing the city of San Diego’s budget, the idea of asking voters to pay higher taxes has long been considered off the table.
But with the city looking to close a $60 million budget gap, tax increases are again a topic of discussion. Groups whose support of a tax hike would be important have voiced a willingness to look at increases as long as there is long-lasting budget reform.
“We would like to see some structural reform accomplished before we would get behind any sort of revenue enhancement,” said Ben Haddad, chairman of the San Diego Regional Chamber of Commerce.
This year is considered a crucial one for the city because of the dire state of the economy, the fact that the city is negotiating with all unions this year, and the recent election of four new council members.
How much salaries and benefits will be scaled back is a major part of this year’s budget and, many believe, a prerequisite for a tax increase. A formal concessions-for-tax-hike proposal is considered unlikely. A tax hike would come too late to help this year’s budget and well after labor negotiations conclude because of the election calendar, but some have begun floating 2010 as a possibility.
The pressure to ratchet up revenue could increase, in part because of falling markets that have exacerbated the pension deficit. The city’s annual payment to the pension system could increase by $100 million in the 2010-11 budget year.
Several council members have voiced a desire to look at a tax hike, typically with the caveat that the city must make financial reforms first.
Councilman Todd Gloria wants to see what increases residents would support — and soon. He said the city has slashed services over the years but needs more revenue to provide the services residents expect in the long run.
“The urgency of our problem dictates we try and put something together that the people support and put something on the June 2010 ballot,” he said.
Among the options that could be discussed are increasing hotel and sales taxes, hiking stormwater fees, and asking voters to increase their property taxes to pay for infrastructure repairs.
The most talked-about option is repealing the People’s Ordinance of 1919, which prohibits charging for trash collection at single-family homes. In Mayor Jerry Sanders’ State of the City address, he cited trash pickup as a service residents “expect and demand” and called for residents to sacrifice, a plea that was widely viewed as setting the stage for a tax increase.
Sanders has repeatedly said the voters will indicate when they’re ready for a tax hike and that it won’t happen until the city reforms pensions.
In February, he said “until we balance out the pension issues and balance out the benefit issues, I don’t think the public’s going to be in any mood to vote for any tax increases.”
Among those who have made similar statements is the San Diego County Taxpayers Association. President Lani Lutar said the group would consider supporting a tax or fee increase after the city has “demonstrated its compensation costs are under control.”
Haddad said while city employees have made sacrifices, he thinks the public has “generally been disgusted with the level of pension and retiree health benefits,” especially since most private-sector employees don’t receive similar benefits.
He said if city leaders are willing to make “tough choices” to close this year’s budget gap, he thinks it would be possible to get support for a ballot measure as early as next year.
But Haddad said much remains to be seen, including the exact cuts made this year and whether they qualify as “structural budget reform,” savings that persist from year-to-year instead of temporarily plugging a budget hole.
Another unknown factor is the state of the economy. If the recession persists into next year, it could hinder the public’s willingness to consider a tax increase, especially given California’s efforts this year.
“It’s going to be very difficult to raise taxes after the state raised them,” said Andrew Berg, executive manager of the National Electrical Contractors Association’s San Diego chapter.
The city’s voters have repeatedly rejected tax increases, twice voting down hotel tax increases in 2004 that would have mainly affected tourists.
Councilman Carl DeMaio, who says the city has a spending problem and not a revenue problem, has said he will lead the fight against a tax increase. But other council members have said it’s something to be considered once the city has its financial house in order.
Similar to Sanders, Councilman Tony Young said council members will have a “good sense from the public” if they’ve made sufficient changes. At that point, Young said it will “only be fair to ask the public” if they’re willing to consider a tax increase if the numbers show the city needs more money.
“I don’t think we’re there now,” Young said. “I think eventually we could be there, but it depends on a lot of things that happen in the near future.”
Labor negotiations taking place this month are a major factor. In the likely event negotiations deadlock between the mayor and unions, it will be up to the City Council to decide the contracts.
“There is a universal acceptance that a part of our budget solution lies with our workers and requires them to make concessions,” Gloria said, “and when I say universally, our workers believe that as well.”
How much workers will give up is ultimately a decision of the City Council, which can vote to impose contracts on employees. The council is generally viewed as labor-friendly and includes three new members backed by unions in last year’s election. The council’s power to broker an impasse has also increased after new City Attorney Jan Goldsmith opined that the council could craft a new contract proposal instead of simply voting up or down on the mayor’s final offer.
Gloria said it’s clear that budget reform must include more revenue. He said city leaders have failed to explain to voters “in an adult-like fashion what our options really are.” Inadequate funding, he said, has led to poor service that has confirmed residents’ skepticism of government.
One option Gloria thinks residents might support is a general obligation bond to address the city’s deteriorating infrastructure, especially if elected officials create a way for citizens to have input and oversight into what projects were funded. He pointed to the passage of a $2.1 billion schools bond last year as a model.
“Every other level of government is finding means of doing revenue increases,” Gloria said. “I don’t think we’re precluded from doing that, particularly if the alternative is closing libraries in their neighborhoods.”