Council Split Over How to Deal With El Segundo Deficit

For the past six weeks, El Segundo City Council members have huddled once or twice a week at City Hall to try to solve the city’s most pressing problem--a shortage of money.

The meetings have sometimes lasted into the early morning hours as the council, which typically splits 3 to 2 on major revenue issues, has debated ways to tackle a deficit expected to grow to more than $8 million next year if needed capital improvement projects are carried out. The city’s budget this year is about $20 million.

The good news, council members on both sides of the split said this week, is that a compromise has been reached to hold a special election in March. The election will allow voters to decide two ballot measures--one that would increase taxes for businesses and another that would do the same for all property owners. If both are approved, the measures could generate nearly $6 million annually, they said.

The bad news, at least two council members predicted, is that voters are unlikely to approve either measure and the community’s long-range economic situation will continue to be uncertain.

“It’s crippling us,” Councilman Jim Clutter said Wednesday of the council split.

The 3-to-2 split has hampered the council’s efforts to find new money sources because, under state law, four council members must vote in favor of putting any revenue measure before the voters.

Although all council members agree the city’s fiscal problems will continue unless new monies are found, they do not agree on where those funds should come from.

Councilmen Bob Anderson and Alan West favor residents paying more in taxes or fees, while the others believe businesses should pay more. The compromise offers an option that would split any new taxes between businesses and residents.

In recent years, El Segundo has struggled to balance its budget and has been forced to dip into its reserves and limit spending in such areas as capital improvements.

Although once flush with money, the city has struggled since 1982, when the local Chevron refinery lost a major contract as Southern California Edison switched to natural gas--and millions of dollars in sales tax revenues stopped flowing.

Simultaneous with the decline in city revenues has been a flurry of development on the city’s east side that has turned El Segundo into one of the county’s major employment centers--and increased the city’s budget for public works and public safety, including fire and police protection.

Reserves Have Dwindled

El Segundo officials said that the city’s reserves have dwindled to about $3 million, enough to cover a general operating budget deficit expected to total $1.6 million in the 1989-90 fiscal year. However, if capital improvement projects now slated for the same year are included in the budget, the deficit jumps to $8.2 million. They are likely to be postponed unless money can be found to pay for them.

Clutter, as well as Mayor Carl Jacobson and Councilman Scot Dannen argue that compared to many other cities in the Los Angeles area, El Segundo charges companies far less to operate within its borders.

Figures compiled by the city show that, based on all taxes charged companies, El Segundo collects $104 annually for each employee. By comparison, the city of Los Angeles collects $277.

West and Anderson “are against developing any taxes against business interests even though we are radically below what Los Angeles charges its industrial residents,” Dannen said.

But Anderson and West have taken the unpopular position that residents should be contributing more to the city’s coffers. “You have to ask yourself, ‘What can I do to help the city out?’ and the residents aren’t doing very much right now,” Anderson said.

The compromise reached by the council calls for a measure to be put on the ballot that, if passed, would increase by 2% the city’s utility tax on business. The measure would also remove the city’s present exemption from the tax for power-generating plants. That means that the giant Southern California Edison Co. plant in the city would pay the tax. If approved by voters, city officials estimate, the measure could raise $3.3 million annually in new revenues.

Additionally, council members have agreed to put a measure before voters that would tack on an assessment to property tax bills. The money raised would be used for the city’s employee retirement fund, which is administered by the state. Although city officials said they do not know at this time how much the average property owner would pay, the assessment is expected to raise $2.5 million--the amount the city now pays into the fund.

Without the entire council campaigning for the assessment, Anderson said that he is pessimistic that the residential tax will be approved. In the past, residents have voted against measures that would have increased their tax bills, he said.

Moreover, Clutter said he believes the utility tax measure may meet a similar fate.

Edison has already mailed a letter to residents and businesses declaring, in essence, that it would pass along the cost of the tax to its El Segundo customers. The utility contends the tax would increase by $5 a year the amount the average El Segundo homeowner pays for electricity, while some businesses could face an increase of up to $50,000.

Although Edison would have to receive permission from the state Public Utilities Commission before it could levy the surcharge on El Segundo residents, the letter created a stir among many residents who do not want to see their electric bills go up, Clutter said.

“It appears to me that the letter was the death knell for any change in the utility tax,” he said.