El Segundo May Opt for Utility Tax

El Segundo voters probably will be asked to approve a 4% utility tax that council members say is needed to balance the city’s budget.

The council voted 4 to 1 Tuesday to prepare a proposal for the November ballot that would impose the tax on gas, water, electricity, phone and cable television bills.

City Manager Art Jones said industry would provide about 65% of the projected $3.8 million that the tax would bring in each year. Residential users would pay only about 10% of the projected revenue, with commercial users making up the difference.

The measure would add about $60 to the annual utility bill of a family of four living in a house, Jones said.

Mayor Opposed to Tax

Mayor Jack Siadek cast the only dissenting vote, saying he opposes adopting a tax before other options are exhausted.

There was no dissent on the council on one point, however: El Segundo needs the money.

A budget approved by the council June 16 contains a $500,000 deficit. City officials say the deficit would have been larger if the city had not deferred expenses and tapped reserve funds. Jones said the city needs to come up with at least $3 million in additional revenue this year.

Under the state’s Proposition 62, the utility-user tax requires both a two-thirds vote by the City Council and approval by a majority of voters. If the council approves the proposal at its next meeting, as expected, it will appear on the Los Angeles County election ballot in November.

While awaiting the voters’ decision on the tax, the council agreed to delay proposed increases in recreation and business license fees.

Discussion at Tuesday’s meeting returned repeatedly to the financial reality of recent years in El Segundo: Residents, long accustomed to having industry pay for many municipal services, must accept a larger share of the burden. The city has been forced to impose new fees, cut spending and use reserves as the area’s aerospace and petroleum industries experience lean times.

“This is the fairest tax we can come up with,” Councilman Keith Schuldt said. “It’s fairly broad-based and it has worked well in other cities. It’s better to go to the voters and hold off on these other measures we can impose without the ballot.”

Council members said the referendum proposal should include language lowering the tax if new revenue is found and providing exemptions for elderly and needy residents.

Challenge to Council

South Bay cities with utility-user taxes include Inglewood (10%), Torrance, (6%), Redondo Beach (5%) and Hawthorne (3.5%). Jones said the average utility tax in the area is between 6% and 8%.

Siadek challenged council members and the city staff to keep exploring other revenue sources before taking “the easy out.”

“A tax is onerous by definition,” Siadek said. “I’m not convinced we’ve exhausted other options. We have room to go for one more six-month period before we turn on the spigot of taxes.”

Siadek said alternative revenue sources include sales taxes from out-of-state sales by El Segundo companies and a potential property-tax windfall from Senate Bill 407, which is being debated in the state Assembly. The bill would give El Segundo an additional 5% in property-tax money now going to Los Angeles County.

He also suggested creating a redevelopment agency and tapping the federal government for the impact of widespread defense work it does in El Segundo.

‘Balance the Budget Now’

“We’re dreaming,” Schuldt said in response. “I’ve heard this stuff since we got on the council. We need to balance the budget now.”

Siadek remained adamant about the need for “innovative” revenue development. In an interview Tuesday, he took issue with Jones’ budget report that the reserve fund is down to about $2 million, saying the city actually has a total of $6.5 million available that could be used to balance the budget.

“That’s what reserves are for,” Siadek said.

Jones said Siadek was referring to money in contingency funds that Jones and Finance Director Jose Sanchez did not feel they could define as reserves while drawing up the budget.

Representatives of industries that would bear the brunt of the utility-user tax said in interviews they will study the measure’s potential impact before telling city officials their reactions.

“We support the city’s efforts in general,” said David O’Reilly, manager of the Chevron USA refinery. “Any mechanism that is equitable is fair game. A deficit is bad for everybody.”

Chevron plans to hold down utility costs by implementing a gas-turbine electricity generating system in early 1988, O’Reilly said. He predicted the utility tax would cost the company an extra $500,000 a year.

Hughes Aircraft Co. representative Vern Watnik attended Tuesday’s meeting and said his company would review the proposal and the alternatives before commenting. Siadek estimated that Hughes, the largest employer in El Segundo, would face more than a million-dollar annual utility cost increase if the tax passes.

Wesley Bush, manager of the El Segundo Chamber of Commerce, said the business community recognizes the city’s problem but would frown on another tax.

“There are a lot of other options that would generate money,” Bush said. “It’s kind of tough for businesses. We’ve already got a high business-license tax that we thought would solve the problem. The council’s in a bad spot, though.”