City’s Utility Tax: One Down, One to Vote

Responding to public complaints about utility taxes that soared last summer with escalating electricity rates, Los Alamitos is cutting the tax on electric power usage by a fourth and will ask voters in November whether the 6% tax they pay on all their utilities should be repealed.

Officials said the electricity tax reduction, set to go into effect next month, would have little impact on municipal finances because it will merely lower revenue to the same level the city collected before electric rates went up.

But the $1.8 million raised by the overall levy on all utility bills constitutes slightly more than 20% of the city’s $8.8-million general fund budget, and loss of this income is something the city could ill afford, they said.

A California Supreme Court ruling, however, gave them little choice in the matter of a citywide vote. They are hoping Los Alamitos voters will follow the example of Stanton’s and extend the tax.

“The court said this was something that had to be put to the voters,” Councilwoman Alice Jempsa said. “I’m sure that’s why other cities in our area did so. Each month that tax is collected, it’s illegal to do so--if we are challenged.”

Jempsa said the two council decisions--to roll back the tax on electricity and put the tax on all utilities to a popular vote--were taken separately, and for different reasons.

“It was just a coincidence that they came up at the same time,” she said. “I was getting so much input from residents and businesses about how much the tax had gone up. The people I talked to, especially the businesses, were saying that they were paying so much more than they had previously.”

By cutting the tax on electricity by a fourth, Los Alamitos residents “would be paying about as many dollars as they did prior to 1999” and getting a needed tax break, Jempsa said.

Users Tax Rose With Rates; City Responds

Resident Tom Kneeshaw saw his electricity bill rise from last year’s $150 to $160 a month to about $260 a month lately. “That’s outrageous,” Kneeshaw said, “and my neighbors’ [bills] are pretty much the same.”

Since tax collections went up in lock-step with rising power rates, Los Alamitos and other cities suddenly found themselves sitting on windfalls. In Los Alamitos’ case, it went from collecting $640,796 in electricity taxes in 1999 to a projected $925,000 in 2001-02.

“Some local governments are doing the right thing . . . and have realized that the local government should not be making a windfall on the backs of taxpayers,” said John Cappell, president of the Howard Jarvis Taxpayers Assn. “They’re feeling the heat from taxpayers who are requesting reductions or eliminations of the utility users tax.”

Utility taxes are a legacy of California’s last economic downturn in the early 1990s, when the state took larger shares of revenue that had been going to cities and counties. More than 100 cities reacted to these revenue losses with user taxes on utility bills.

Most of these taxes were vulnerable to legal challenge, since they were seldom, if ever, approved by voters as required under Proposition 62. That proposition, adopted in 1986, requires voter approval of new or increased taxes by a two-thirds majority.

The Howard Jarvis Taxpayer Assn. made a test case of La Habra’s utility taxes, which the Supreme Court nullified in June.

Court Decision on Levy Leads to Ballot Measure

The high court justices stopped short of deciding that all such taxes were unconstitutional, limiting their ruling to the facts of the La Habra case. But that left other cities that had done the same thing in the uncomfortable position of waiting for a challenge and its foregone conclusion, or getting the tax ratified by popular vote.

Los Alamitos is choosing to let voters decide. Stanton put the tax before voters in November, and it was approved.

“I think the message we are trying to send [with both actions] is if there is an opportunity to reduce the utility users tax, we will do so,” City Manager Bob Dominguez said. “But we want to tell them that we need that tax.”

The city uses utility tax revenue to help pay for police, fire, parks, street maintenance and other services.

“Some people say, ‘I never use the park, I could care less,’ and some others say, ‘We’ve got to have those soccer fields.’ So as essential as the taxes are to the city’s delivery of services, there are no guarantees,” Dominguez said.

Kneeshaw, for one, is in favor of keeping the taxes, while applauding the reduction in the electricity portion.

“The utility tax is one of the very few taxes that you can see exactly where it goes,” Kneeshaw said. “Most go to Washington or Sacramento and come back as cents on the dollar.”

But because all of the utility tax goes directly to the city, “you can have some say in what happens to it,” he said. “So of all the taxes there are, it’s one of the fairest.”