Utility-Tax Critics Blame Development for Fiscal Woes

The glistening rows of steel and glass skyscrapers that have sprung up on El Segundo’s east side in recent years have become the focal point of a residents’ campaign to defeat a tax measure on the Nov. 3 ballot.

Leaders of the El Segundo Residents Assn. and the Group United for Residential Rights (GURR) are opposing a proposition that would impose a citywide 4% utility-user tax. The groups, in their ballot argument, contend that residents are being asked to “plug the massive tax leaks caused by the high-rise office buildings” that have been built in the 5.5-square-mile city.

“The residents are getting the short end of the stick,” Nestor Synadinos, co-chairman of GURR, said in an interview. The political action committee was formed last year to defeat a proposed office project and was successful in getting it scaled back.

“For years and years (city officials) have been telling us commercial expansion is good for us,” Synadinos added, “and the more we expand the more we go into debt.”

With the exception of Mayor Jack Siadek, who is opposed to the tax, city council members say the utility-user tax is needed to balance the city’s budget this fiscal year. Until the measure is voted on, the council has agreed not to act on proposed increases in recreation and business license fees.

The proposal, which would impose the tax on gas, water, electricity and intrastate telephone services, could raise $900,000 by the end of the fiscal year next June, and, in future years, bring in an estimated $3.5 million annually, El Segundo officials estimate.

The officials predict the tax would cost residents from $2.84 to $4.64 per month, depending on family size. For a family of four living in a house, the tax would add about $60 annually to their utility bill, city officials estimate.

The measure must receive a majority of votes cast to become law. Other South Bay cities have already adopted such a tax, including Torrance, Gardena and Redondo Beach.

City officials agree that the flurry of new commercial development has strained city services and therefore contributed to budgetary woes. Since 1982, hundreds of millions of dollars have been spent by major corporations to construct new office facilities on the east side of Sepulveda Boulevard.

As a result, the work force in El Segundo (population 14,600) has swelled to an estimated 75,000 to 78,000 people this year compared to 43,000 seven years ago. A 1983 study commissioned by the city estimated that 63% of the city’s services went to industry--much higher than most cities, according to City Manager Art Jones.

To offset the added costs brought about by the development, city officials within the past three years have imposed two new taxes on businesses, including a $60 head tax on employees. Together, those taxes bring in about $4 million annually to the city’s general fund, according to Jose Sanchez, El Segundo’s finance director.

But city officials say El Segundo’s fiscal problems stem largely from the dramatic decrease in sales-tax revenues the city had been collecting from the sprawling Chevron USA refinery. Until 1982, the refinery provided the city with more than 80% of its revenues, allowing city officials over the years to build a large reserve and keep taxes low.

In the last five years, however, the city’s sales-tax revenues plummeted as Chevron lost a major contract and oil prices dropped. For the fiscal year 1986-87, for example, the city collected about $2.7 in such revenues, compared to $11.6 million in 1979-80.

Unlike the refinery and retail establishments, the office buildings that have been erected in the city do not generate sales taxes.

City officials say money has had to be transferred from the city’s general fund reserve the past several years to balance the budget, which is expected to have a $1-million shortfall this year despite cuts in some city services such as street maintenance. The general fund reserve is expected to shrink at the end of this fiscal year to $1.4 million from $5.3 million four years earlier.

“None of us like to see new taxes,” said Councilman Keith Schuldt. “But we also have to be practical, and the practical part of this whole thing is that we just don’t have the income any more that we did.”

The ballot measure calls for the tax to be proportionately reduced if city sales tax revenue increases to a level that is equal to or greater than 80% of the revenues received in 1979-80. The measure also allows council members to cut or eliminate the tax if other revenues increase to a point where city officials believe the utility tax is not needed.

Officials at Chevron USA and Hughes Aircraft Co., two of the city’s largest corporations, said that the companies have not taken official positions on the utility-user tax.

“I guess you could say we are not out there opposing it because the city has got to do something,” said David O’Reilly, general manager of the refinery. “Frankly, we can’t see any alternatives better than what is being proposed right now.”

O’Reilly estimated that if the tax is approved by the city’s voters, Chevron’s tax bill will increase $400,000 or more annually.

Hughes spokesman Mike Murphy said that although the company has not come out against the tax, it is “not convinced the tax is needed at this time.” “We are willing to work with the city on the study and development of an equitable and balanced tax system,” Murphy said. Hughes, which has about 28,000 employees based in El Segundo, will pay about $1.5 million more a year in taxes if the measure is approved, he said.

Mayor Siadek said he disagrees with contentions by city officials that only a small portion of the city’s reserve funds could be transferred to the general fund to balance the budget. Finance Director Sanchez has estimated that of the estimated $13 million the city holds in various reserve funds, only $2 to $3 million is discretionary and could be moved to the general fund.

“I don’t think it’s time for us to go to something as onerous as a utility tax,” Siadek said.

Both Synadinos and Steven Edlefsen, president of the El Segundo Residents Assn., said they are not anti-business and that they would have supported a utility-user tax if residents had been exempted.

“We are opposed to increasing taxes on residents when it is being done under the pretense of solving the problems of the city deficit,” Edlefsen said. “The problems of the city budget are really caused by the tremendous amount of commercial office building that has occurred in El Segundo.”

The two said the city, for the first time in its history, decided earlier this year to impose sewer fees on residents, and have cut library book purchases to save money. They also argue that the city has no control over utility rates except on water, and the council can raise that rate, thus increasing a household’s utility tax bill.