Despite a projected $1-million budget shortfall for the coming fiscal year, city officials hope to make at least a small reduction in Pomona's unpopular 11% tax on utility customers by January.
However, the City Council must first decide which of eight tax reduction strategies it will follow.
The city's options for lowering the tax were included in a "revenue impact study" prepared by city staff and presented to the council Monday night by City Administrator A. J. Wilson. A 1% cut in the utility tax by January is possible, Wilson said, and a significant reduction within two years is probable.
"To me, there was a given goal when I came here, which was to bring the utility tax below double figures," Wilson told the council.
But with expenditures expected to exceed revenues by more than $1 million, the council must first make up that shortfall by cutting services. The council must then decide how much utility tax revenue it can afford to lose.
An across-the-board 1% cut in the utility tax would cost the city $1 million in lost revenue during the first year. Even a "split-rate" reduction, under which residents would receive a 1% cut while businesses would continue to pay the full 11%, would result in a $400,000 loss of revenue.
After reading these figures, Councilman E. J. (Jay) Gaulding questioned whether Wilson's stated goal is feasible.
"I don't see, where we are right now, that we're going to be able to reduce the utility tax in the next two years," Gaulding said.
"We'll do it," Wilson said emphatically.
Gaulding and Councilwoman Nell Soto stressed the need to spare Pomona's low-income residents from the tax. Wilson's proposals include raising the maximum allowable income with which a family may be exempt from the tax to $15,000 a year for a household of three or more. Raising the income limit from the current $11,180 would triple the number of households that are exempt from the tax.
"Heads of households who support large families use more utilities and pay more taxes than smaller families with larger incomes," Soto said. "That should be weighed when considering the exemption."
The utility tax provides 28% of the city's revenue in its current $39.5-million budget, while sales tax provides only 19%, according to the report by the city staff.
Comparing Pomona to cities of comparable size, Wilson noted that Pasadena receives 21% of its revenue from sales tax and only 13% from its utility tax. Fullerton, which has a $36-million budget, receives 34% of its revenue from sales tax and does not have a utility tax.
Wilson's long-term plan is to increase sales tax revenue through extensive commercial redevelopment, thus reducing the city's dependence on the utility tax. But in the short run, a reduction in the utility tax for residents leaves the city with little choice other than to redistribute the burden to businesses.
Wilson said a reduction in the utility tax could be offset by increasing revenues through additional taxes on businesses. These options include:
Increasing the "cap" on the utility tax for large industrial customers from $36,000 to $72,000, which would result in increased revenues of about $288,000.
An "earnings tax" charged to employers in the city based on their gross payroll. A 0.16% earnings tax would bring in $1 million during its first year, the report estimated.
An employee tax charged to employers according to the number of workers on the payroll. An annual tax of $26.50 per employee would generate $1 million in revenue.
A square-foot tax assessed to a business according to the size of its factory, store or plant. An annual tax of 2 cents per square foot on all businesses would create $1 million in additional revenue. Wilson also suggested a "split-rate" version of the tax whereby industries would pay a higher rate than commercial businesses.
"You can mix and match these things," Wilson said. "They're not mutually exclusive."
The list of options in the report also included a direct payroll tax on the salaries of workers in the city, but Wilson said the cost of administering such a tax--estimated by city budget officer Dayle Keller at $200,000 a year--made it the "least desirable of all those alternatives."
Councilman C. L. (Clay) Bryant, a proponent of the payroll tax, said he agrees with Wilson about using a variety of measures to lower the utility tax but complained that the reductions envisioned by the city administrator are not sufficient.
"That's a bureaucrat talking," Bryant said of Wilson's cautious approach to cutting the tax. "He doesn't want to have to accommodate a budget that's been cut by 10%.
"We've got to reduce the utility tax, and however we do it is going to be painful for some people. I think our first shot should take it below double digits, and our second shot should be to cut to half of what it is. And the city will just have to live within that budget."