The Morning Report
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Lemon Grove is one of many small municipalities in California struggling to keep its finances in order, but most don’t get to the point of questioning their very existence.
The same can’t be said for the East County suburb, where voters are being asked to approve a three-quarter cent sales tax increase to “save” the city, according to one ballot argument. Measure S on the March primary ballot has no sunset and is projected to generate nearly $3 million in additional revenue annually if passed.
Without that money, disincorporation is a real possibility. Lemon Grove might dissolve into the county’s domain — to be governed not by a city council but by the Board of Supervisors. The opponents of Measure S, including a former city councilwoman, are well aware of what’s at stake and argue that city leaders haven’t coupled their plan for more revenue with a decrease in spending.
Another opponent has sued to stop the sales tax measure from even going before voters. So far, he’s been unsuccessful but the court case is ongoing. There remains a chance that Measure S passes next week and is later invalidated by a judge.
With nearly 80 percent of the city’s current budget going to public safety, Measure S supporters say the additional revenue would fund much-needed services, many of which have been cut over the years due to longstanding budget issues. The measure also mandates an independent audit and citizen’s oversight committee, which they say would ensure accountability.
But even if Measure S passes, there’s no guarantee that an extra $3 million a year is enough to keep the city together over the long term.
Sales taxes are a primary source of revenue for cities in California, but it’s been declining in recent years. In fiscal year 2019-2020, sales tax revenue is projected to decrease by another 4 percent, a trend that promises to persist in the long term, according to financial experts.
William Glasgall, director of the Volcker Alliance, a New York-based nonprofit that studies and advises local governments, was skeptical that Measure S would provide more than a temporary solution.
“If they raise the rate and the trend is still going down, then in five to 10 years their expenses go up and if the trend is declining, then they’ll be back to where they were before,” he said.
City Manager Lydia Romero said this perspective fails to account for the nature of the proposed tax, which would allow Lemon Grove to tax online transactions for the first time ever. She said the overall trend of more people shopping online has led to the tax revenue decline Glasgall mentioned.
From a financial standpoint, Glasgall’s concern is hardly more promising than the alternative. If the tax fails and the city isn’t able to stimulate revenue in other areas, reserves are projected to dip under 25 percent in as few as five years, according to the city budget.
Meanwhile, city officials have given little consideration to disincorporation. Unless the city manages to increase revenue in the long term or find a way to slash ever-growing expenses — primarily fueled by rising pension and public safety costs — experts say a county takeover may be the only option.
Romero said she was unsure how that process might work “because I can’t tell the future.”
The city declined to draft a report on the potential impacts and processes for disincorporation about a year ago, said City Councilman Jerry Jones. He said with no support from the Council or city manager, his request for more information on the potential for disincorporation was never pursued.
In ballot statements in support of Measure S, language about maintaining the city’s independence is in the forefront, but there’s no mention of disincorporation.
Mary England, a former city councilwoman and opponent to the tax measure, wrote an op-ed in favor of disincorporation in the Union-Tribune in October. But in a recent interview, she denounced supporters of the sales tax increase for alluding to disincorporation in their ballot statements.
“I believe that’s a scare tactic,” England said. “I don’t think that’s fair to the voter.”
Meanwhile, the city has been similarly unwilling to talk about disincorporation.
“Disincorporation is not coming from city hall and it’s not coming from the City Council,” Romero said. “It’s coming from Mrs. England, who is an opponent of Measure S.”
Only 17 cities have dissolved throughout California’s history, and the reasons for Lemon Grove’s inability to stay afloat aren’t completely clear. Officials have continually cited rising pension costs while admitting the city has had it better than most on this front. Romero said the city never experienced a full recovery following the recession in 2008.
With many small communities in California have passed new sales taxes in recent years to cover rising costs, Lemon Grove officials would prefer to think of their city’s problems as being part of the larger trend.
“It’s really a structural problem that stems with the state of California,” Romero said.
But that explanation neglects the fact that talks about losing cityhood are well beyond the norm, Glasall said.
“Demographically, Lemon Grove … is the average city in terms of its median age and its income per capita,” he said. “It’s like an average city. It’s not like a city that’s got an overwhelmingly poor population or an overwhelmingly old population that requires a lot of services. The reasons for the fiscal troubles are a little beyond me.”
England, who served on the City Council from 2000 to 2012, pointed to a 2010 city-funded survey showing that the current fiscal crisis was many years in the making. The report predicted a budget shortfall of $2.8 million by 2019 — although the actual shortfall today is closer to $500,000.
The city was able to lessen the blow, but it would be difficult to argue Lemon Grove has maintained a favorable financial position over the past decade. England asserts this could be the product of political apathy on the part of city officials, who have made few efforts to generate significant additional revenue in light of the budget deficit and are now looking to taxpayers to pick up the bill, she said.
England, who is also the president/CEO of the La Mesa Chamber of Commerce, also said the city has been slow to engage with the business community.
“Outreach needs to be done because those businesses are the ones in the trenches,” England said. “If the government wants to find out what’s really going on, where do you go? You should go to your business people.”
This was the approach England took to supporting the city during its earlier financial crisis when she was on the City Council, but Romero said that method doesn’t stand as strongly today.
“Can we do better for economic development outreach? Of course,” Romero said. “But right now, I have to put the priority on the services that are needed most, and that right now is public safety.”
England has also accused city officials of dragging their feet on developing an ordinance that would allow them to profit off the establishment of marijuana dispensaries within city limits.
“Be ahead of the curve, have that ordinance ready so when a cannabis shop comes, and they will with time, you can tax them instead of opening those doors and not being able to tax them,” England said.
Lemon Grove voters in 2016 passed a measure that would allow for medical marijuana dispensaries. Two conditional use permits have been granted to pot retailers, but the city is still without a brick-and-mortar shop.
The city is in the process of developing a taxing mechanism to profit off marijuana sales, Romero said. The City Council could send the issues to voters in the November ballot.
To help diversify its revenue sources, the city has also offered a passport processing service and transitioned away from printed materials at meetings. The city has also installed electric billboards along the freeway and tried reducing personnel costs by leaving empty positions open and by contracting out certain responsibilities.
Also looming in the background is a lawsuit claiming that Measure S should be invalidated due to a procedural failure on part of the city clerk, Shelly Chapel.
The plaintiff, Lemon Grove resident John Wood, who opposes the tax, said advocates began gathering signatures to place the measure on the ballot before information about the initiative was published in the East County Californian in July, as required by law. Without counting the signatures gathered before the legally mandated newspaper notification, Wood said, the initiative would not have qualified for the ballot.
In a Feb. 21 court hearing, San Diego Superior Court Judge Gregory Pollack declined to rule on the case to avoid influencing the outcome of the vote.
“Once the ballots are printed, I think it’s best that the court defer and (rule on the case) post-election,” Pollack said.
Pollack is scheduled to make a decision on March 20.