Official Backs Bid to Reduce Cities’ Utility User Taxes

As electricity rates rise, consumers will get hit with a double whammy because of an obscure utility bill tax that many California cities have quietly been collecting for years.

A member of the state Board of Equalization charges that some cities will reap windfalls from the utility user tax, and he is backing a grass-roots movement to slash or repeal it.

Few local governments are hurrying to forfeit the money, saying that they need it to pay their own higher energy bills.

“It’s wrong to profit during a crisis,” said Dean Andal of the Board of Equalization, which collects sales, alcohol, tobacco and other taxes. “This is going to be one of those cases where the public is saying, ‘Wait a minute, I need the money too.’ ”

The California Public Utilities Commission has approved electricity rate increases of up to 71% for Southern California Edison customers and 80% for Pacific Gas & Electric customers to trigger conservation efforts, avoid rolling blackouts and recoup billions that the state has spent to buy power.

About 150 California cities and half a dozen counties impose the utility user tax, typically 5% to 11% of the total on electricity, gas, water, telephone and cable TV bills. Cities can use the money for road repairs, park upkeep, higher salaries or anything they choose. The tax is the second-largest source of revenue, after property taxes, for some cities. Statewide, cities collected $1.3 billion in utility user taxes in 1997, the latest year for which figures are available.

Andal, joined by the Howard Jarvis Taxpayers Assn., wants cities to set an example during the energy crisis by tightening their belts to meet higher energy costs. “It’s only fair to ask government to shoulder some of the burden,” Andal said.

David A. Jones of the League of California Cities said it is unrealistic to think that local governments can cut back like individual residents can.

“It’s apples and oranges,” he said. “We’re not taxpayers. We clean the streets; we provide the services to the homeless; we catch the bad guys.”

His organization, which represents local-government interests in Sacramento, opposes any across-the-board effort to reduce the utility tax.

Nonetheless, a few cities see merit in a cut.

“We’re trying to impress on our residents and businesses that things need to be done on the conservation side,” said Gary Nordquist, management services director for Fontana, where the City Council voted May 1 to cut the tax from 5% to 4%.

Earlier this year Stockton cut its tax from 8% to 6%.

In late April, the Oakland City Council voted to reduce the tax to about 5% from 7.5%. But Mayor Jerry Brown vetoed the action, saying that the state could renege on the city’s portion of vehicle license fees or other sources of funding as the energy crisis deepens.

Other cities said they have no plans to let go of the tax money.

“We don’t see that there’s any windfall for us at all,” said Thomas Gardner, administrative services director for Ventura. Electricity use citywide declined 4% in the 12 months ending in April, and the tax money fell correspondingly, he said.

Charges Spark Controversy

Gardner pointed out that if the state government’s conservation campaign is successful, energy bills won’t go up and neither will the revenue from the user tax.

Such arguments aren’t making points with people like Lorne E. O’Brien, a Rancho Palos Verdes resident who wants his city to cut the tax. “They’re riding on the back of a crisis in California,” he said. “The cities should limit the increase to an average of whatever they collected in the last three years.”

Opponents of the tax cut effort said that average users would save at most a few dollars a month.

A Culver City resident who pays $75 a month for electricity now pays an 11% user tax of nearly $100 a year. If the resident’s bills rise by 40%, the tax would increase by $40 a year.

The Jarvis tax relief organization said the money that cities will gain far exceeds what they need to offset power costs. “To be fair, there are some cities that will have higher energy bills,” said Jon Coupal, the group’s president, “but they should be required to prove it. In many communities there is indeed a substantial windfall because of the energy crisis.”

If cities don’t act to cut the tax rate, residents have the muscle to do it themselves, Andal and Coupal said.

Long Beach residents did exactly that last fall. They used Proposition 218, the so-called Right to Vote on Taxes Act approved by California voters in 1996, to slice the utility tax rate in half with a ballot initiative.

Initiatives Aim to Slash Tax

Andal has a similar plan in mind for Los Angeles. Like other California cities served by municipal utilities, Los Angeles has been insulated from recent statewide electricity rate increases.

But price spikes in natural gas supplies, which fuel the generating plants, have led to higher natural gas bills for Los Angeles residents. For the fiscal year ending June 30, the city will get an extra $20 million from natural gas user taxes, city officials said.

Andal and the Jarvis group have asked the city to cut the tax--10% for homes and 12.5% for businesses--in half. If that doesn’t happen by mid-July, they will circulate initiative petitions, Andal said.

Los Angeles Deputy Mayor Jennifer Roth said the city needs the $20 million. “There are additional across-the-board costs the city has to bear,” she said, citing the higher cost of gasoline needed to fuel city vehicles.

She said Mayor Richard Riordan recognizes the need for future tax relief and has proposed decreasing the natural gas user tax to 6% for residential users.

The utility tax issue also is getting some attention in Sacramento. Two similar bills, AB 14X by Assemblywoman Barbara Matthews (D-Stockton) and SB 62X by Sen. Charles Poochigian (R-Fresno), propose to scrap the flat percentage rate in favor of a formula that would reduce the total amount of tax money collected. Neither bill has advanced to the committee hearing stage.