National City Cutting Services Despite Recent Sales Tax Increase
Friday, August 13, 2010
National City is cutting back on city services to close projected budget deficits over the next two years, despite having the highest sales tax in the county.
GLORIA PENNER (Host): I’m Gloria Penner. I’m joined by the editors at the roundtable These Days in San Diego. Today, we’ll explore why a sales tax increase hasn’t protected National City from budget cuts, why security at Lindbergh Field is under investigation, and how deadbeat California threatens local jobs and businesses. The editors with me today are John Warren, editor and publisher of San Diego Voice & Viewpoint. Good morning, John. It’s good to see you.
JOHN WARREN (Editor/Publisher, San Diego Voice & Viewpoint): Good morning, Gloria. Thank you.
PENNER: And Kent Davy, editor of the North County Times. I’m glad you can make it down from North County to be with us, Kent.
KENT DAVY (Editor, North County Times): Glad to be here.
PENNER: And we welcome back Bob Kittle, KUSI political analyst and director of News Planning and Content. Well, Bob, join the fold again.
BOB KITTLE (Director, News Planning and Content, KUSI-TV): It’s nice to be back, Gloria. Thank you.
PENNER: You’re welcome. And I hope you say that at the end of the show, too.
KITTLE: I’m sure I will.
PENNER: Okay, our number is 1-888-895-5727, that’s 895-KPBS. Well, it was just four years ago that National City voters approved a whopping 1% increase in the city’s sales tax, which bumped that city’s tax from 7.75% to 8.75% then. I think it’s higher now. The funds went into the city’s general fund to boost city services and, yes, that tax is now 9.75%, the highest in the county. But National City now is cutting services. So, first of all, Bob, what’s being cut?
KITTLE: Well, they’re looking at cutting library hours, pool hours, rec center hours, senior centers and potentially they may have to make some cuts in public safety. They’re looking to cut about $4 million out of a $39 million general fund. And I think, really, this is a cautionary tale for the voters of San Diego as they consider whether to raise their sales by a half a cent in November. When the voters of National City jacked up their sales tax to 9.75%, that’s a full one percentage point higher than in the city of San Diego, they did it to preserve, as city officials explained it, to prevent cutbacks. But the point is, I think what we learned from National City is you can raise your sales tax but that doesn’t mean the money’s going to be spent where you want it to be spent and cutbacks can still be on – be necessary anyway. So while the voters of San Diego are being told if you raise your sales tax, we won’t have to cut back on police and fire, there’s absolutely no guarantee that that’s the case.
PENNER: Well, it’s true that National City has had to come – cut back and the way you described it, you know, some library hours and pool hours, some rec hours, but I would think, Kent, that if they didn’t have that increased sales tax, that their cuts would’ve had to be much more severe.
DAVY: The problem with that line of argument, Gloria, is that when you impose any level – any particular level of taxes, it changes economic behavior. And people laughed at Arthur Laffer and the famous Laffer curve but, in fact, he had a point and that is that as you move taxes up, people alter and change their behavior. For instance, consumers in general move to internet sales where they can try and avoid paying taxes at all. Consumers say instead of shopping for my car in National City, I’m going to go to who’s got a lower sales tax so I can save $200 on that car. Imposing ever higher taxes does not sell – solve your spending problem and it doesn’t ultimately solve your revenue problem.
PENNER: But it did bring in an additional $8 million into the city’s treasury, so they had more money to play with for…
DAVY: For a time. For a time. The question is, is in relative terms, had they not done it, had they filed, you know, and this is a terrible time. All the cities are struggling. Because of the decreased revenues, we have a very slow economy. It appears to be going into another dip. People are not spending their money. So that’s a real piece of it. It’s not that the government’s not taking a big enough share, it’s people aren’t spending their money.
PENNER: Well, let me ask our listeners about that. Okay, you’ve heard at least two of the editors weigh in on whether an increased sales tax for a city is the way to go when the city is starting to hit some financial difficulties, and I think both of them probably agree maybe it’s not. But on the other hand, we do have this slumping economy that Kent discussed. And let me give our number, Kent. 1-888-895-5727, 895-KPBS.
DAVY: If you go back and look at almost all the cities in San Diego and say what’s the fundamental problem going on there, and with the city budgets there are two factors at work. One is the decline in revenues, and the second is the enormous expansion of pension related costs. That’s where the money’s going.
PENNER: Well, I think that we probably will get to that significantly because a lot of people are talking about the cost of the pensions. But, John, let me go back to something that Kent said. To what extent do you believe that the slumping economy is responsible for a city spending more than the revenue can cover?
WARREN: Well, I think to a great extent. If you look at the case of National City, right now they’re trying to preserve a small $6 million reserve fund that they have. They could bypass some of these cuts if they took money from the fund—they’re going to take some—but they realize that there’s only so much left to take, and when that fund is exhausted then the city will be in trouble. If you look at Lemon Grove, on the other hand, I think their reserve fund is down to like $2 million and they’re looking at going into unincorporation to see that they can – or deincorporating, if you will, to see if they can get more from the county. So what you have is, the taxes are there but because across the board spending is down and people don’t have monies, it’s just a matter of time. National City said the matter would be much worse if they had not raised the tax when they did. They would truly be devastated at this point.
PENNER: You know, you raise an interesting point. Cities were fighting for incorporation for years. We have 18 incorporated cities in San Diego County, and now it may be reversing and they may say, no, we can’t afford to keep up the services, let’s go back into the county and let the county take care of us. But the county itself is having monetary problems. Bob Kittle.
KITTLE: Gloria, I’d like to pick up on Kent’s point, in particular as it applies to the City of San Diego. And it really is a spending problem that the City of San Diego has, not a revenue problem. And it’s because, as Kent noted, it’s the rising cost of the pensions for city workers. Now this year alone, we taxpayers are paying $80 million more into the pension plan than we did last year, we’re paying about $232 million this year. Over the next five years that figure is going to continue to rise. It will rise by about $100 million dollars more over the next five years, and the tax increase that the city council and Mayor Jerry Sanders are asking for would generate $103 million a year. So you can see what’s going to happen. That $103 million a year is going into the pension plan to pay for these very generous, overly generous pensions that city workers have.
PENNER: But isn’t it true that city workers now are contributing to their own pension, something that they did not do before.
KITTLE: Well, in the city of San Diego, they have always contributed something. They’re not contributing yet half of the pension cost, which is what the city charter requires because under contracts that the City has negotiated with the labor unions for city workers, the City picks up part of the workers’ contributions. So the workers are not yet, most of them are not yet paying the 50% that they should be paying.
PENNER: Just to drift back to National City for a moment, you know who Richard Rider is, he’s the head of the San Diego firefighters – uh, Tax Fighters. The firefighters.
KITTLE: Taxpayers, taxpayers, that’s it.
PENNER: Well, he criticized National City for not reducing excessive – what he said was excessive public employee pay and pensions but the city manager, Chris Zapata, says 89% of those employees pay into their own pensions. So it looks to me as though we are seeing an increase in employee contributions. John. John Warren.
WARREN: Well, one of the problems here, we have to realize that even though they make the changes like we did with the DROP program and is not applying in the city of San Diego to new employees and people are paying into National City and other cities, there’s still a period of catch-up here because you have employees that are in the system, they’re going to be retiring according to the old plans that are in effect and those plans are going to – those contracts, as we call them, will have to be honored. So that’s where the Catch-22 is, you’ve made a change but it’s going to take time for the change to catch up, thousands of dollars.
PENNER: Okay, well we have a lot of people who want to join in our conversation and I know that, Kent, you want to add to it. But let’s go to our listeners first and see what they have to say. We’ll start with Matt in North Park. Matt, how are you and welcome to the Editors Roundtable.
MATT (Caller, North Park): Thank you very much, and thank you for taking my call. I really just had a question. I know that National City raised their taxes, you know, it’s up to nine and a quarter percent or nine and three-quarters percent. I was wondering if anyone had done some type of study that would show where their taxes, their tax revenue, would have been last year had they not made that raise? And would they still have to be cutting social services if they didn’t make that raise or if they did, just either way.
PENNER: Well, I think that we raised that question a little bit earlier as to whether if they hadn’t raised their taxes whether the cuts would’ve been more severe. And I think the general consensus is yes. Now, what would’ve happened last year, I’m not sure but let me say this about that, Matt, and that is that in 2008 there was a ballot measure on the National City ballot to repeal the one cent sales tax and it was easily defeated by the voters, 57% to 42%. So let me turn back to Bob on this, why did the taxpayers want to keep paying the higher tax in National City?
KITTLE: Well, I guess you’d have to ask the taxpayers. That’s certainly their right. I have no problem with the tax if the voters approve it and, in this case, the voters of National City have approved these tax increases. So if that’s the decision they make, that’s fair by me.
PENNER: Okay, John.
WARREN: You know, I think you have to consider the personality and makeup of each city. National City is a very small like family oriented entity where things like the library, the senior center, the park, I mean, the pools, this is so – such an important part of the total city that the people would quickly come together to preserve it as opposed to, say, in the city of San Diego, we’ll say, well, we’ll take some pool cuts and library services but we can make it and we’re not going to worry about it. And so there’s a difference in the personalities that contributes to the support.
DAVY: As you think about pension in most cities, and I don’t know San Diego’s – the details of San Diego’s pension issues but I can talk a little bit about Oceanside for the public safety there. Their payroll for public safety, 30 to 35% of it is in pension-related costs. Right now, the employees side—there are two sides, the city’s contribution and the employees’ contribution—the city picks up the entire set, including all 9 percentage points of the employees’ share, the 9 percentage points. So that part of the conversation in Oceanside is how much should the employees pick up of their own share? Any? All? Some? Half? And every one of those percentages that they will pick up will make a substantial difference in the amount of money that the city has to raise to fund these pensions.
PENNER: So where is that now?
DAVY: It’s under negotiation with firefighter contracts that are being negotiated right now.
PENNER: So this is – Kent, let me understand. So this is strictly a union, negotiation with the union.
DAVY: Sure, absolutely.
PENNER: Okay but what about the employees who don’t belong to that union?
DAVY: They currently contribute – I’m – Let’s see, I’m not sure I can remember. I know they contribute at least half of their own share. It may be that they contribute more than half…
DAVY: …of their own share.
PENNER: That was Kent Davy. He’s the editor of the North County Times. Bob Kittle.
KITTLE: Well, you know, Gloria and Kent and John, in the City of San Diego, Donna Frye, as part of the push to get the sales tax on the ballot proposed that the city eliminate the so-called pick up, that is the portion of the workers’ contribution that the taxpayers pick up. Within two days of that, after meeting with union – the leaders of the unions at city hall, she scaled that back to say it would only eliminate the pickup for non-union workers. Now, that elim – that exempted 93% of the city workers from having to pick up, eliminated. Only 7% are non-union. That really just speaks to the clout of the public employee unions and it means that the savings that would be realized here are absolutely minimal.
PENNER: Okay, gentlemen, we are going to go into a break. Let me just say that our lines are packed, they’re full, people want to talk about this. So after the break, when we come back we’re going to take some of these callers and find out what they have to say. This is the Editors Roundtable. I’m Gloria Penner.
PENNER: This is the Editors Roundtable. I’m Gloria Penner. And at the roundtable today I have Kent Davy from the North County Times and John Warren, San Diego Voice & Viewpoint, and from KUSI, we have Bob Kittle, and we have you. So we were about to call in the callers but I have to tell you something. I did something really – There we are. Our first caller is Ben from San Diego. Ben, we’re talking about city sales taxes and whether city sales taxes should be raised in order to help cities from having to cut services. And you’re up first after the break. Hello, Ben.
BEN (Caller, San Diego): Yes, hello. I’m calling because I wanted to comment on the issue of paying increased sales tax on a automobile bought in National City. It’s my understanding that that increase only applies to residents of National City and not to anyone that lives outside of National City.
PENNER: Okay, Bob Kittle.
KITTLE: No, that’s absolutely true and if you fill out the paperwork you can pay the lower sales tax from where – from the city in which you are a resident. But I would guess this, Ben. Before National City raised its sales tax, most car buyers never bothered, they didn’t worry about it, they just went ahead and paid the tax. It was going to be the same if it – whether it was in National City or not. I suspect that National City, because people now are paying attention and are filling out the paperwork so they pay the lower sales tax, I suspect that has hurt the amount of revenue that National City collects from car sales. That’s only anecdotal on my part. I have no numbers to support it but that’s my guess.
PENNER: Okay, well, you know, it sounds as though it might be a distinct possibility, as they say. And thank you very much for your call. And now let’s hear from Lem in Scripps Ranch. Lem, you’re on with the editors.
LEM (Caller, Scripps Ranch): Well, thank you for having me, and welcome back, Bob Kittle. It reminds me of the old adage, fool me once, shame on you, fool me twice, shame on me. We haven’t implemented the savings that were supposed to have been done or at least attempted to save on the outsourcing and now they want to give us another bunch of smoke and mirrors on how they’re going to do these other reforms. Now then, you’ve already brought up since I’ve been on the phone, the fact that they weakened the contribution part significantly. Then you have the other areas that they’re trying to do the same thing, like Goldsmith is trying to get around the ordinance about the paying for the tax – the trash collection. There’s just so much that’s going on that I have no trust in my government anymore.
PENNER: Ah, well, you know, that is a universal problem. A lot of people feel very strongly about whether they can really trust the people that they elect to represent them. Thank you very much for your comment, and now let’s hear from Jeff in El Cajon. Jeff, you’re on with the editors.
JEFF (Caller, El Cajon): Well, thanks for this opportunity. I have two quick points, if I may. One, the taxpayers of California instituted 172 years ago that was a sales tax increase for police and fire. In San Diego County, none of that money goes to fire, it all goes to law enforcement and the district attorney’s office. We just saw Bonnie Dumanis get a $10,000 raise. Sheriff Gore got a $10,000 raise. And yet no money goes to fire. The second point is I’m kind of tired of hearing people attack employees who worked diligently and had a contract and the politicians underfunded the retirement systems, that’s why they’re in trouble. They chose to spend the money on ticket guarantees and a lot of other things that aren’t associated with government.
PENNER: Okay. Well, thank you. Thank you for your comment. And Kent Davy, you want to respond to that.
DAVY: Only to this extent. Contracts are contracts, I understand that but, in fact, back in the late nineties and the early 2000s, first spurred by the California prison guards, governments in California went around and on rough terms gave million dollar raises to every one of its employees by jumping its pension benefits from two-at-fifty to three-at-fifty. It’s just a give – it’s just a flatout giveaway of money.
PENNER: Well, let’s have final comments on this before we switch to another subject. At this point, we do see that National City has one of the lowest earning populations in the county with the highest sales tax. How fair is this, do you think, John? Do you feel that there’s an extra burden put on people with low per capita income?
WARREN: Well, I would say clinically you could call it that. And that’s, you know, one of the biggest arguments we have going on in the state in terms of where’s a tax fair? But we gotta remember, it’s a question of what people are willing to pay for. And, again, the makeup of National City is such that people would rather pay, at least up to this point, than to lose those services that Bob identified that are considered a critical part of their everyday life. One individual, a senior, said, you know, without the senior center, where do I go? It’s not just to be there, it’s a place to have contact with people. So I don’t know how we put a dollar on that in terms of the people who are voting.
PENNER: You know, just listening to the tenor of the discussion and to what our callers had to say, Bob—and I’m going to give you the final comment—you almost have the feeling that we are pitting segments of the community against segments of the community. You heard the last gentleman talk about what about the public employees? I mean, they’re not getting a penny of this or something to that effect. And you have people like elected officials picking up more money into their salaries. Are we seeing this kind of schism developing?
KITTLE: Well, certainly the push for the sales tax in the city of San Diego was started by the public employee unions. I don’t see that as pitting the unions against anybody in particular but a sales tax is about as broad-based a tax as you can have. It hits everybody. And in the case of San Diego, it hits – it would hit people who would, you know, don’t even live in the city of San Diego but might shop there. And, frankly, it is true that a sales tax is regressive in the sense that the lowest – the lower income people pay a larger percentage of their income for the sales tax than do wealthier people. And in National City, the average household income is $20,000 below the state average. It’s a very moderate income community. So, frankly, it – in my view, it does hurt the poorest part of the residents of National City.
PENNER: Okay, and with that we are going to wrap up this segment. If you have comments that you weren’t able to get on the air, and I know there were several of you that were still waiting on the line, go to KPBS.org/editors and you can register your comment there and we will read them, and so will a lot of other people. All right, on to the next topic.