Council to consider revenue measure in November – Staff recommends 1 percent sales tax increase

Photo by rupixen on Unsplash

By David M. Greenwald

Davis, CA – For over a year now, the Davis City Council has prioritized the need for a November revenue measure. Although they have considered the range of options, given their desire to have the revenue measure pass by 50% rather than a supermajority (two-thirds), the council will likely decide between a utility user tax and another sales tax increase.

Staff recommends a 1 percent sales tax increase.

Staff notes: “The City Council has long struggled to balance the costs of required and desired programs and services, the necessary infrastructure, growth and development to meet the interests of the community, and the revenues necessary to fund those programs, services and infrastructure. »

Staff adds that the city continues to recover from the COVID pandemic while, at the same time, the costs of goods and services have increased rapidly.

Staff explains: “Post-pandemic construction costs have repeatedly exceeded initial estimates, with increases across California at a rate of 9% year over year, making it increasingly difficult for the city, through no fault of its own, to budget and succeed. bid on capital improvement projects.

They also spoke of a dizzying rise in energy costs.

They noted: “Utility costs, particularly gas and electric costs through PG&E, have increased by $1 million in the current budget year, an unrelated cost increase at the will of the City and without an increase in service delivery. »

In the current fiscal year, “staff presented a budget with a General Fund reserve of 7.5 percent, half the target level of 15 percent, as well as more than $3.5 million in carryovers or one-time General Fund reductions.”

They warn that these cuts are only a short-term bridge and “are not sustainable in the long term”.

Cities have limited options to generate revenue beyond existing funding from the state and county.

If the city hopes to pass a measure with a simple majority, then the council and, ultimately, voters must approve a general tax, the revenue from which can be used for general government purposes.

Staff notes: “The first priority would be to ensure existing programs and services are maintained. The second priority includes strengthening the General Fund Reserve and funding deferred capital projects, equipment replacement and liabilities. The third priority is to allocate funds to new programs/services and/or improve existing services based on Council priorities.

They add: “A small reserve makes it difficult to respond quickly to emergencies or unexpected needs. Assuming typical inflationary growth, both in revenue and expenditure, and in the absence of other major changes in spending levels, the reserve could be restored to 15% within two financial years. The council could also choose to restore the reserve more slowly, so that a greater proportion of any new revenue funds other priorities.

According to a poll conducted in November, a majority of voters recognize the city’s need for additional funding and are willing to increase taxes to maintain services.

Affordable housing, homelessness and crime/public safety are top priority issues for voters and are the most important issues facing the community.

At the time of the survey, support for a potential measure exceeded the necessary threshold.

Maintaining public safety, roads and bike paths are top priorities for voters.

The City currently has “a 1% local transaction and use tax, and has the option to increase the tax by an additional 1%.”

Staff recommends “that Council direct staff to prepare an ordinance and accompanying resolution to increase the existing sales tax from 1% to 2%, for a total sales tax rate of 9.25%.”

Such a tax would initially generate about $11 million.

Staff notes: “Apprehensions regarding a potential sales tax ballot measure included concern that an increase would be too high and would make Davis uncompetitive with neighboring jurisdictions. »

However, they point out that “other communities in the area have sales tax amounts comparable to Davis, and some are also planning sales tax measures in November.”

West Sacramento is at 8.25% and recently took steps to vote in November to increase that number by 1%. Woodland is at 8% and discussing a sales tax increase for November. Folsom, through a citizen initiative, will put a sales tax increase measure on the ballot.

Furthermore, they point out, “most Bay Area communities already exceed 9%.”

If the City Council agrees with the staff and subcommittee recommendation to place a general sales tax measure on the November 2024 ballot to increase the sales tax by 1%, then the Council may direct the staff and the city attorney to return on June 18, 2024. city council meeting to approve placing the issue on the November ballot.