Utility Tax Hike: a Temporary Fix for Economic Woes

The new $1.6-billion budget approved by the City Council last week may represent only a temporary reprieve in Long Beach’s relentless slide toward economic disaster that has wiped out its $29-million reserve fund in the last five years, some city officials say.

In imposing a 43% utility tax increase to stave off drastic spending cuts, several council members said Thursday that they were reacting to what they perceived to be a new public tolerance for higher taxes to pay for vital services such as fire and police protection.

But at 10 cents on the dollar, they said, the utility tax--one of the few directly controlled by the city--may be as high as they dare push it.

“We’re not out of the storm yet,” Councilman Evan Anderson Braude said. “We have some really serious problems ahead.”

Echoed Councilman Thomas Clark: “It’s becoming increasingly difficult.”

The city’s economic woes began about five years ago, according to Bob Torrez, the city’s budget manager. Caught in the grip of shrinking oil revenues and low sales-tax income, city officials began chipping away at public libraries, parks, senior citizen services and the maintenance of city buildings to balance the budget without raising taxes.

Then along came the national recession and all bets were off.

Until the 1986-87 fiscal year, Torrez said, the city had between $29 million and $40 million in reserves. Since then, he said, virtually all of that money has been used to balance the budget, leaving the reserve coffers empty. “Today we don’t have a dime (in reserves),” Torrez said.

One result has been a gradual re-evaluation of the council’s opposition to tax increases.

In 1990, Long Beach voters were asked to approve Proposition E, a measure to impose a special property tax on residents to pay for the addition of 75 officers to the city’s police force. The measure fell far short of the two-thirds vote needed for approval. But it did garner more than half of the vote--about 51%--something that some City Council members now say is a signal that the public’s opposition to tax increases is eroding.

“More people realize now that there’s no such thing as a free public service,” Mayor Ernie Kell said. “There is a certain quality of life that we come to expect and most people are willing to pay for it.”

Encouraged by the example of Proposition E, the council approved a 2% increase--from 5% to 7%--in the city’s utility tax the following year to pay for hiring 43 sheriff’s deputies to beef up the city’s police force. “We really didn’t have much of a negative reaction,” Clark said. “Overall, it was received on the basis that the intent was to enhance policing capabilities.”

This year the council approved an even larger increase--bringing the tax to 10%--to stave off drastic budget cuts that most council members believed would otherwise be necessary.

Even those who supported the increase, however, concede that 10% is about as high as they are willing to go. “At 10%, you reach a kind of saturation point” beyond which people are unable to pay, Clark said.

Compounding their fears, council members said, is the fact that state legislators, grappling with their own budget deficit, are considering changes that would cut funds now given to cities, costing Long Beach as much as $11 million a year.

City officials have expressed a number of ideas on how to deal with the deepening financial crisis.

Clark said he favors an overhaul of the federal and state tax structures that would allow the city more control over sources beyond its utility tax. Examples, he said, might include sales and property tax.

Councilman Ray Grabinski said that the city must be more creative in finding new ways of raising money, including asking the federal or state governments for support on specific projects such as gang prevention.

And Councilman Warren Harwood, one of only three council members who voted against the utility tax increase, said he believes that a lot more can be done to trim expenses and make better use of potential revenue sources that have not yet been fully tapped.

One thing the city could do, he said, is move more aggressively for repayment of a loan made to the downtown redevelopment district when it was formed in 1975. With interest, he said, the debt now amounts to about $60 million.

In addition, Harwood said, the city should get more money from the harbor and try to bolster sales tax revenues by encouraging businesses to move from blighted areas to locations where they are more likely to succeed.

“What I’m looking for is an equitable spreading of the tax burden,” he said, “and that’s what isn’t happening.”

Some community leaders share his general concerns. Although they support the latest tax increase, they do not want the trend to continue.

“If this continues we are going to see more flak,” said Dick Gaylord, president-elect of the Long Beach Board of Realtors. “We have to start looking at cutting. We won’t always be able to increase taxes.”

Randall Hernandez, Chamber of Commerce vice president, said he agrees with council members who are looking for other sources of income. For example, he said, the city could save money by contracting for some services.

And Alan Lowenthal, president of Long Beach Area Citizens Involved, an activist group, expressed fear that the council might in the future choose to cut vital social services rather than tap the port, developers or local businesses for support.

“The issue (of finding other income sources) has been raised,” Lowenthal said. “We shouldn’t drop it.” Rather than waiting until next year’s budget hearings, he said, “we should start talking about this now.”