L.A. moves ahead with tax-hike plan
The Los Angeles City Council agreed to place a half-cent sales tax hike on the March 5 ballot to avert new cuts in city services, drawing immediate opposition from critics in and outside city government.
Voters would decide the measure, which will boost collections by an estimated $215 million a year, on the same day they choose a new mayor. And there were signs the proposal already is influencing the race, which is expected to focus heavily on resolving the city’s chronic budget crisis.
Mayoral candidates Jan Perry and Eric Garcetti, both council members, voted against the tax plan Tuesday. City Controller Wendy Greuel, another top mayoral contender, said she also opposed the tax hike, which would apply to millions of everyday transactions, as well as major purchases such as electronics and appliances.
The proposal also came under attack from former Mayor Richard Riordan, a Republican multimillionaire who is promoting his own ballot measure to roll back pension benefits. He accused City Hall leaders of foisting bloated employee retirement costs on consumers.
Left-of-center groups complained that council members had caved to real estate interests by dropping plans for a tax on property sales in favor of one that disproportionately hits working class Angelenos. “The process was entirely hijacked by the real estate folks,” said Sunyoung Yang, lead organizer for the Bus Riders Union, an advocacy group for low-income residents.
A second and final vote on the sales tax ballot measure is set for next week. If approved by voters, the measure would leave Los Angeles with one of the highest tax rates in the state -- 9.5 cents on every dollar of taxable sales.
Whether the burst of early opposition will sink the proposal remains to be seen. Nearly 30 cities and counties across California persuaded voters last week to hike sales taxes. Los Angeles’ increase would need only 50% plus one of votes cast to pass. And employee unions, a powerful player in city elections, are expected to solidly back the measure -- and put money behind it.
Pressure has been building at City Hall to increase revenues after years of staff cuts and reductions in services have failed to erase large, recurring budget deficits.
City Council President Herb Wesson, who engineered the tax hike plan, as well as other lawmakers said they had no practical alternative for next year’s ballot. Other revenue proposals were not as popular, they said, and would not have generated nearly enough money to close next year’s budget shortfall, which is expected to reach $216 million.
Police Chief Charlie Beck has raised the specter of police officer layoffs if the tax increase is not granted. Without extra funds, lawmakers warned, the city will have to carve into police and fire department budgets -- which make up more than 70% of the city’s discretionary spending.
“What [this] will do is give us $200 million that we desperately need,” Councilman Bill Rosendahl said.
That sum won’t fully resolve Los Angeles’ budget woes, which are expected to worsen in 2014 before things start improving, officials said.
“The fact of the matter is, even if this measure passes, the city continues to confront an additional $100-million shortfall the following year,” said City Administrative Officer Miguel Santana, the top budget official at City Hall.
Part of the backlash against the sales tax proposal -- the first imposed directly by the city -- stemmed from its unexpected nature and swift advance toward the ballot.
Santana spent six months laying the groundwork for a real estate transaction tax, only to change course two weeks ago. The real estate lobby successfully steered Santana and council members away from that idea, arguing that a sales tax increase would do better with voters and generate more than twice the cash.
Harvey Englander, whose lobbying firm represents a coalition of real estate boards, acknowledged he presented Wesson and Santana with the poll numbers for the sales tax hike.
Wesson said he was motivated to push for the sales tax measure by the success of similar proposals up and down the state. He argued that he and his colleagues already have made significant budget reductions, including eliminating 5,000 positions and securing concessions from employees on retirement costs.
“We have done many tough things to show we’re serious about putting this city on the right economic path,” he said. “But I don’t think we can solely cut our way out of this problem.”
Perry said she feared the sales tax hike would cause some businesses to leave the city and others to stay away. A private consulting firm retained by the city concluded last week that the benefits of increasing the sales tax would outweigh any loss in business activity. The firm said higher tax rates could depress spending by up to 1.3%, with sellers of building supplies seeing a decrease as large as 3.9%.
Mayor Antonio Villaraigosa has withheld support for the tax increase, instead pressing the council to reaffirm its support for hiring police officers. He also argued that the city needs to press ahead with 209 job cuts, more than half of which could involve layoffs.
By embracing the sales tax hike, the council dropped plans for three other measures: the property transaction tax; a hike in the tax on parking lots; and a tax to generate more money for park and recreation programs. Sean Rossall, who represents park advocates, said his clients now may try to get a property tax for parks on the city’s May ballot.