Ring ’em Up for a Half Penny More, Please

If there is common ground in the discussion on revenue, it is this that San Diegans pride themselves on being “America’s Finest City” and are invested in keeping it so. The logical path forward then, is to present reforms to voters that involve an increase in their investment for maintaining and restoring essential services provided by the city. The purpose of this commentary is to address two questions: why raise revenue now and why raise the sales tax?

The singular crisis that no reform can address is that the city is structurally underfunded. The city does not raise enough revenue to pay for general services such as police and fire safety, with a recurrent gap that is estimated at between $80-$100 million every year. And the fundamental underpinning of the city’s insolvency and past gimmicks has been a record of ignoring the revenue problem for decades. The pension system was used as a piggy-bank for expensive projects the city could not afford.

In his nationally acclaimed book, While America Aged, Roger Lowenstein writes:

“The immediate cause of the debacle was that the city was chronically short on cash — but then, the same could be said of almost any government. The deeper cause was the extreme reluctance of local politicians to close the gap by levying taxes … To a succession of San Diego mayors and city officials, therefore, pensions held a particular allure. Being short on cash, these officials (over a period of many years) connived to avoid making the required and necessary pension contributions. In effect they tapped the pension fund for every purpose that might appeal to politicians — park maintenance, policemen’s wages, new fire trucks, subsidies for sports teams.”

As Lowenstein affirms, the city’s revenue problem has been documented throughout the past decade. Two facts are indisputable. First, the city raises the least revenue in comparison to per capita income among the largest cities in California. By corollary, if the city raised the average amount of revenue as other comparable cities, we would have hundreds of million of dollars in revenue more every year to pay for general fund services. Second, the city of San Diego charges less (or nothing) in comparison with other large cities in business license fees, utility user taxes and trash collection. For example, the average business account in San Diego generates $79 in revenue for the city, where as the average business account in California’s largest cities generates $610.

Now, there will be naysayers that continue to pretend that we have no revenue problem. Then there are some that say that “now” is not a good time, as if they had offered a meaningful solution when the economy was better, or will have one before it is too late. And then there are some that hide behind a “reform” mantra, and advocate for cutting services when residents need them the most.

Now is the time for new revenue to restore essential services. In these economic times, the public has increased need for safety from crime, fire and medical emergencies, public investment creates and retains local jobs, working families rely even more on parks, libraries and lifeguards, and businesses benefit from clean and safe neighborhoods.

Responding to the debate between cuts and taxes in a tight economy, Nobel laureate economist Joseph Stiglitz wrote:

“In a recession, you want to raise (or not decrease) the level of total spending — by households, business and government — in the economy. That keeps people employed and buying things, and makes it more likely that business will want to invest to serve that consumer demand. Budget cuts reduce the level of total spending … The main effect of the proposed tax increase, by contrast, is to (mildly) reduce consumption. But every economist will tell you, America’s long run problem is that we have been consuming too much — too much for our future well being, and too much for our environment. A tax cut would nudge us along in the right direction.”

There are several reasons why raising the sales tax by a half cent is the most prudent course.

First, the sheer size of revenue ($100 million) cannot be matched by any other source, except a Utility Users Fee that would have a similar impact on consumers. According to the Independent Budget Analyst, the other options are the Business License Fee ($14 million), the Transient Occupancy Tax ($13 million), Real Estate Transfer Fee ($8 million) and Commercial Parking Tax ($31 million).

Second, in terms of businesses this is an equitable and sustainable formula. (In terms of households, the equity question is debatable). It is a sustainable source in that it will remain viable even when a new economic order emerges from the recession. This is because almost every business, from restaurants to construction contractors, pays a proportional share of their expenses. Even business-to-business purchases made to out-of-state vendors have to pay a use tax at the same rate.

According to the Organization for Economic Co-Operation and Development, an international organization for business development, between revenue neutral options, taxes on consumption (such as sales tax) are better for economic growth than taxes on income, because they are more efficient.

Finally, raising the tax to 9.25 percent makes us at par with other large cities in California. It is a sustainable revenue source that is not as impacted as other revenue sources by economic restructuring. A simple (unweighted) average of the sales tax rate in the ten largest cities comes to about 9.2 percent. San Jose charges 9.25 percent, Los Angeles, Long Beach and Oakland charge 9.5 percent. In the county, the cities of El Cajon, La Mesa, National City and Vista charge higher taxes than San Diego.

San Diegans deserve the right to vote on whether or not there needs to be a greater investment in paying for the service levels that will keep us “America’s Finest”.

— MURTAZA BAXAMUSA