El Segundo Gives Preliminary OK to Hike Taxes

El Segundo council members voted 3 to 2 Tuesday to abandon a proposed payroll tax on business and instead informally approved a plan to raise three existing taxes to solve the city’s financial problems.

The new plan, which was approved by voice vote but must be formally adopted by the council, was proposed by Mayor Carl Jacobson and harshly denounced by the two councilmen who voted against it, Scot Dannen and Jim Clutter.

Clutter predicted that the plan would not raise enough new money because the city has previously encountered difficulty in collecting one of the taxes that would be increased.

He also accused Jacobson of bowing to local business interests, who have appealed to council members not to pass a payroll tax.

“His No. 1 obligation appears to be political rather than to try to plan how this community is going to work in the future as far as fiscal policy,” Clutter said in an interview.

Jacobson countered that his plan would work, and that compared to a payroll tax, it was easier and more practical to administer because the type of taxes that would be raised are already being collected.

He denied that he kowtowed to business. “I have never been afraid to stand up to business,” the mayor said.

The council has been grappling for months over how to increase city revenues. Without new revenues, the city faces a $1.6-million budget deficit this fiscal year, as well as further postponement of a number of capital improvement projects that it has not been able to afford.

Last month, after numerous meetings and study sessions, council members proposed that a payroll tax be adopted--a move that was quickly opposed by a number of companies, including Hughes Aircraft, the largest employer in the city, and Rockwell International.

The two companies asserted that such a tax would discriminate against them because of the large numbers of highly paid professionals on their payrolls. A payroll tax is levied as a percentage of the amount a company spends on wages and salaries.

Hughes and Rockwell threw their support behind a proposal by the city’s 500-member Chamber of Commerce that the city’s existing employee and square-footage taxes be raised.

Under the major elements of the plan approved informally on Tuesday, the employee tax will double to $120 per worker, and the square-footage tax will quadruple to 20 cents a square foot. In addition, an acreage tax imposed on some industrial businesses, including the city’s sprawling Chevron refinery, would jump from $300 to $500. Future increases would be tied to the consumer price index.

In Rockwell’s case, the increases in the employee and square-footage taxes would cost the company an additional $500,000 annually, according to George Wiley, Rockwell’s director of human resources. “Roughly, our taxes will double,” he said. The taxes are assessed each year.

In all, the plan is expected to raise more than $4 million annually in new revenues, according to city estimates.

But Clutter argued that figure would not stand because of the problems that the city has experienced in collecting the employee tax from companies that hire temporary, or contract, workers and do not count them as part of their work force. This is particularly true of aerospace companies, city officials say.

Even though the new revenue plan calls for stiffer penalties to be formulated to ensure compliance, Clutter said he believes that the city will be unable to collect the money it is entitled to.

“It hasn’t worked in the past. It is not a method we can track,” he said. “I feel in a year or less we are going to come back to the table and we aren’t going to have enough money.”

Dannen, who favored a payroll tax along with Clutter, argued that by raising the square-footage tax, the city would discourage retail development, thereby depriving the city of sales tax revenues.

‘Very Serious Concerns’

“I’m having some very serious concerns about where we are heading,” Dannen said.

The city has no major retailers, and council members have repeatedly said that attracting such development is one of their main priorities.

The plan given tentative approval Tuesday calls for retailers to get a 30-cent rebate on each dollar of sales tax revenue they generate for the city, a move designed to encourage retailers to settle in the city.

BIGGER TAX BITE FOR EL SEGUNDO BUSINESSES El Segundo has abandoned a proposed payroll tax in favor of increasing three existing city taxes to erase a projected 1989-1990 $1.6-million deficit in a $20-million operating budget. Total revenues are projections for the three taxes at the old and new levels.

Type of tax Current Current New rate New rate revenues revenues Employee $60 $3.2 million $120 $6.4 million Square footage 5 cents $957,000 20 cents $3.8 million Acreage $300 $277,200 $500 $460,000 TOTAL revenues $4.4 million $10.7 million

SOURCE: city of El Segundo