Fountain Valley City Council Places 1-Cent Sales Tax Hike On The Ballot

The Fountain Valley City Council voted Tuesday to place a 1-cent sales tax increase on the November ballot. The vote was 4-1. Mayor Cheryl Brothers, Mayor Pro Tem John Collins and Councilmembers Michael Vo and Steve Nagel voted in favor, while Councilman Mark McCurdy cast the lone opposing vote.

The staff report paints a bleak picture of city finances unless the sales tax increases is adopted:

“The State of California has taken over $116 million in local tax dollars from Fountain Valley since 1992 and the City continues to lose another $3 million dollars every year in General Fund property tax revenues and about $8 million dollars in Redevelopment Tax Increment. In addition, the City’s General Fund is required to absorb another $1.2 million in annual Redevelopment obligations due to the dissolution of Redevelopment Agencies by the State in 2012.

For the last seven out of nine years, the City has used reserves to balance its General Fund operations. Since 2012 the City has been forced to adopt General Fund budgets with structural deficits. For the Fiscal Year 2016-17 that structural operating deficit has grown to $1.765 million. The City’s recently updated 20-year long term financial plan shows the City will continue to incur growing structural deficits each year and will run out of operational General Fund cash in 2019- 20. The undesignated fund balance will go from $0 to ($51.9 million) by 2025-26. To balance future budgets, major cuts to vital City services will be necessary including public safety and/or the implementation of other major revenue enhancement(s).”

Staff cited a number of steps taken in the last several years to correct the city’s structural deficit:

  • A reduction in full-time staff from 257 to 221.
  • Implementation of a three-tiered retirement structure
  • Mandating city employees to make contributions to their own retirement ranging from 6.25% to 12%
  • Elimination of retiree medical for new hires
  • Reduction of healthcare subsidies given to city employees
  • Contracting out city services including building permitting & inspections; tree and landscaping services; janitorial; utility billing printing and mailing; fire investigations; MetroNet fire dispatch; and street sweeping.
  • Consolidating Fire Chief/Battalion/Ops Chief into a single position
  • Refinancing pension funding to offset increases in CalPERS unfunded liability by reducing annual payments.

Even so, city staff maintains that without the sales tax increase, these measures are insufficient to prevent the city from running out of operational cash by 2019-20. 63% of the city general fund goes to public safety, which so far has escaped cuts.

Like La Palma, Fountain Valley also considered and rejected alternatives such as hiking the utility tax, the bed tax or imposing a parcel tax. They opted for the sales tax increase as the most politically feasible and most reliable revenue generator, and limited its duration to “no more than 20 years” – which is so far off on the horizon that it hardly qualifies as a sunset provision.

The council’s vote makes Fountain Valley the third Orange County city to place a 1-cent local sales tax increase on the November ballot; the Westminster and La Palma city councils recently voted to do the same. Stanton voters will vote on a measure to repeal the 1-cent sales tax they approved in November 2014.

As with the sales transaction and use tax increases placed on the November by Westminster and La Palma, this tax increase differs from a normal Bradley-Burns sales tax in that it follows city residents wherever they go – at least when it comes to major purposes. Fountain Valley residents won’t able to escape a local sales tax hike by making major purchases in jurisdictions with a lower sales tax; if they buy a car or dishwasher in Huntington Beach, they will nonetheless pay Fountain Valley’s higher tax rate.

While a significant campaign to defeat the Westminster sales tax increase is expected, it’s less clear that a similar effort will materialize in Fountain Valley. A number of Orange County conservative leaders are concerned that if these three cities succeed in obtaining approval for these tax hikes, then more cities will follow suit rather in order to avoid politically painful budget cuts.

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