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Sales Tax Town Hall gets briefing from city manager

Sales Tax Town Hall gets briefing from city manager

Escondido City Manager Sean McGlynn and Director of Finance Christina Holmes gave a grim briefing on the city’s budget to attendees of the second  Town Hall sponsored by Escondido Citizens for Safety on Tuesday, December 19 at the conference room of the California Center for the Arts, Escondido.

The setting was appropriate since the sprawling Arts Center would most likely be shuttered, maybe for years, maybe for good, if the city fails to staunch its structural deficit. The difference between revenues and expenditures, unaddressed, will average $10 million the first five years, and $18.2 million annually for the next 15 years.

The program was introduced by Ryan Gardiner, a consultant for Citizens for Safety. The first time the Town Hall was held, about a month ago, the police and fire unions were putting up the money. Since then, the Teamsters, who represent maintenance workers, have joined the coalition.

The presentation was like reading the menu for a last meal on death row. It concentrated the mind.

The library is another facility facing shutdown.  City employees are heading for the exits. The parks and city pools would also be closed.

The city manager didn’t attend to urge citizens to do anything. He makes this presentation to any group that invites him. So the public will know what the city faces beginning in a few years when the straw inserted in the budget reserves makes a dry, hollow sucking sound.

“We will talk to any group,” said McGlynn. “This is in no way an endorsement.”

Holmes spoke with a slide presentation, “The Presentation,” which is becoming well-known around town. The pair have spoken to The Rotary and other civic groups. The presentation was also made to the council in June.  In September, the council held a “Vision” meeting on the structural deficit. In November the council’s ad hoc subcommittee on the budget was formed.

At the June 7 council workshop, the council was shown three scenarios to address the structural deficit: 1) Proportional across-the-board budget reductions, 2) Across-the-board but preserve public safety departments, 3) Targeted business model approach.

Holmes explained that Escondido is a “full service” city, unlike, neighboring San Marcos, which doesn’t provide its own water or police, but contracts with the County for Sheriff’s deputies, and has a water district within its boundaries. Escondido has its own police department and water department.

Health and Safety, i.e. Police, Fire And Public Works, make up 75% of the budget. Items that come under the umbrella of “quality of life,” such as Community Services, parks and recreation, the library, recreation, senior services, etc., make up the rest.

The council has already committed to maintaining the police and fire at current strength. Which would mean hitting the rest of the budget with a sledge hammer. Close the library and you pocket $2.94 million. You save another $2.4 million if you close the Arts Center, including its two theaters and museum.

Fifty-three percent of city revenues come from taxes. Sales tax is the largest at 39%, or $49 million this year. Next comes property taxes at 28% of the budget, and other taxes, 13%. This year’s total expenditures are $141,144,800, of which $11.3 million is deficit, with that shortfall coming out the city’s rapidly shrinking reserves.

The council said it wants to look at three possible revenue options: 1) Taxing short-term rentals, i.e. B&Bs and Air B&B’s, called TOT (Transient Occupancy Tax. 2) A parcel tax to benefit the library. 3) Full cost recovery for things such as recreation programs.

Knowing that this guillotine is poised over the city’s neck, staff have been taking cost saving measures. It has eliminated 106 full time positions and deferred maintenance on city facilities by $8 million annually.  It is also controlling pension and employee benefit costs, investing in technology and forming strategic partnerships to provide services.

The department of development services has a 25% vacancy, which means “everything is moving at a snail’s pace [including process business and development permits]” said McGlynn.

You can’t really defer maintenance forever. Eventually sidewalks fall to pieces. The city, McGlynn said, gets $5 million from gasoline taxes to maintain the streets. If it were to stop doing that to any degree, that money would go away.  “To keep getting the gas tax the city has to keep investing,” he said. “The council has done a really good job in maintaining streets,” he said. “But it’s hard to see how it can continue to maintain city streets at current levels.”

McGlynn said the council discussed eliminating the police department and contracting with the County for law enforcement. “When you do that [as they have done in San Marcos] you don’t save that much money and you also lose a lot of local control.” The council has, so far, said, “ ‘We are interested in local control.’ ”

They are also exploring a partnership with the County to operate the public library. But, once again, “that doesn’t come free,” said McGlynn.

Although the city is doing what it can to control future pension costs, it is still on the hook for existing ones. That is the main driving force behind the increasing deficit over the next two decades.

“The reason we are having a conversation now is so we don’t reach the point of the draconian: “ ‘We can’t fund this anymore,’ ” said McGlynn.

Several years ago the city brought in a private library company to run the Public Library. Many opponents painted this as “privatizing” the library, although it wasn’t. It was sold as a cost-saving measure. And it did save some money, but it still costs $3 million annually to operate the library.

“The council is exploring whether the community would be willing to pay a property tax to fund the library,” said the city manager. Residents in the unincorporated areas pay that as part of their property taxes.

One woman asked if the city could charge for parking and impose a vacancy tax for buildings left unoccupied? McGlynn said such an increase, “would barely make a dent.”

Deanna Smith, chairman of the board of the Escondido Chamber of Commerce, asked if the one cent sales tax many are talking about, “would be enough?”

McGlynn said he couldn’t comment on that. The council has been told that taxing short-term rentals could bring in about $1 million a year, depending on several factors. “This would bring them into compliance with other hotels,” he said.

The possibility of taxing cannabis sales in the city, “has a long way to go,” said McGlynn. It could bring in between $3 to $4 million. But that also depends on what other cities are doing, since they can compete with any sales here. The public would need to approve a tax on cannabis, he said. If the money was aimed at a specific purpose, it would require a two-thirds vote to pass. If it just went to the General Fund it would need a simple majority.

He emphasized that the council has not endorsed ANY funding options yet. It’s just exploring them. Making decisions will begin in January.

January, coincidentally, is when the coalition who put on the Town Hall plan to begin collecting signatures to put a sales tax on the ballot. Many blanks need to be filled first. Among them: what kind of tax would they seek, a special or general tax increase?

Two rival candidates for the city council’s 4th District—Stef Holden and Judy Fitzgerald—were in the audience—and both made brief comments during the meeting.

Holden said, “We are being told we are not going to cut essential services, but if things continue this way, at what point will we start shutting fire stations?”

McGlynn said there will be a “balloon” effect after five years when the deficit swells to where even safety services will feel the blade.

Holden said the “dirty little secret” is that after dark there are “six black and whites at most patrolling the entire city.”

McGlynn said you can’t partially fund a fire station. “You either close the fire station or you fully staff it,” he said.

At this point in the evening the city manager and finance director made their exits. “I can’t talk about what you all may be talking about in a few minutes,” he said as he left.

Ryan Gardiner took over and noted that the purpose is to put something on the November 2024 ballot.

He explained that a “citizens’” initiative is different for one put on the ballot by the city. In fact, the city council would have no say what’s in it, or what it asks for.  “The council would have no way to stop it,” he said.

About 7,700 signatures would be needed to qualify for the ballot. The police, fire and Teamsters unions have agreed to fund the effort at $100,000, he said.

“We are at the beginning of that process.”

There are complications. One, a statewide initiative has been qualified for the November ballot: The Taxpayer Protection Act. It would apply retroactively—if the voters approve it— and in some cases special taxes that pass would be undone if they didn’t have a two-thirds majority, explained Gardiner.

Carol Rogers, of the Downtown Business Association, said city employees pushing the measure, “are concerned about their pensions but they are also concerned about a better city for all of this. This will support all of us together.”

Judy Fitzgerald said, “We are talking about law enforcement. We do need to keep that local. There is a big difference between deputies and police officers.” She added, “Maintaining the streets and parks and keeping them well-lit is part of safety.”

Gardiner said the tax coalition would “look to qualify and pass the initiative,” and would spend to do that. For those who wonder if such an effort could do better than a year ago when Measure E was defeated by 400 votes, he said, “There is a dramatic difference in turnout between a year when there’s a gubernatorial election and one when we vote for president.”

Some suggested the name of the coalition, and by extension the ballot measure, should reflect that the initiative would benefit everyone in the city, not just public safety workers.