City of El Segundo 2014 Measure A Tax Hikes – City Attorney’s Impartial Analysis

Introduction

by Michael D. Robbins
Director, Public Safety Project, PublicSafetyProject.org

March 3, 2014

Here is a summary of Measure A, followed by the official City Attorney’s Impartial Analysis of Measure A. The summary includes information not provided by the Impartial Analysis, which required researching the El Segundo Municipal Code and making a Public Records Act request to the El Segundo City Clerk.

Measure A will appear on the City of El Segundo, California General Municipal Election ballot on Tuesday, April 8, 2014. It was put on the ballot by a vote of the City Council, primarily to pay for past and future excessive and unsustainable City employee raises and benefits and pension increases given by the City Council – especially for the firefighter and police “association” (union) members and their managers. Mayor Bill Fisher supported those raises and increases, and Councilwoman Suzanne Fuentes voted against them. City Council candidate Mike Dugan was not on the City Council and therefore did not vote for them, and given that he is fiscally conservative, it is likely he would have voted against them also.

Measure A is a massive permanent tax increase on residents and businesses. It will cost residents and businesses $6.6 million per year for the first three years. However, all the residents will pay the business tax increases that are passed on to them as customers.

Measure A does not have a sunset clause (expiration date) as two (Suzanne Fuentes and Carl Jacobson) of the five City Council members requested. Mayor Bill Fisher, Councilman David Atkinson, and Councilwoman Marie Fellhauer rejected their request to make all the new taxes and tax increases temporary for only a few years as needed.

Measure A creates four new 2.5% Utility Users Taxes (UUTs) on residents (Electricity, Water, Gas, and “Communications Services”), nearly doubles three existing existing Business UUTs (Electricity, Water, and Gas) to to 5.5%, more than doubles the existing Business “Communication Services” UUT to 4.5%, increases the Hotel Transient Occupancy Tax (TOT, or “bed tax”) by 25% to 10%, increases the existing Business License Tax (BLT) by reducing credits from Sales Tax generation, and creates a new 10% Parking Tax.

The “Communication Services” UUT is all-encompassing and will tax every charge on every one of your bills for every conceivable existing and future technology form of communication. Per El Segundo Municipal Code (E.S.M.C.) Section 3-7-1, the “Communication Services” UUT includes voice, data, audio, or any other information or signals, using any existing or future technology including land-line, DSL, cable, wireless, cellular, broadband, VoIP, and Internet.

The Measure A “Communication Services” UUT will tax your land-line telephone, cellular telephone, cable TV, satellite, paging, security alarm monitoring, and all other communication services. It will tax your internet access whether it is via DSL, cable TV, cellular phone network, or satellite. It will tax every charge on all of your “Communication Services” bills, including service charges, charges for extra services or features, and even late fees.

Measure A taxes solar energy if the residential or business electricity user does not actually own the solar panels on their roof, as with various solar panel lease and financing plans.

Measure A also taxes electricity co-generated by businesses and residents for their own use on their own property even though that is double-taxation. The UUT is already charged on the natural gas burned to generate the electricity, and the user is merely converting the chemical energy from one form to another before using it (to heat and then to electricity).

CITY ATTORNEY’S IMPARTIAL ANALYSIS

MEASURE A

Measure A would adopt an ordinance entitled the “Consolidated Tax Measure” (this Analysis refers to it as the “Measure”). If approved, on July 1, 2014 the Measure would increase the transient occupancy tax (“TOT”); increase the utility user tax (“UUT”) on commercial and industrial service users; impose a new UUT on residential service users; and add a new parking lot tax (“Parking Tax”), except for office visitor, retail, restaurant, theater, hotel, employee and valet parking. In addition, the Measure would reduce credits currently provided under the business license tax (“BLT”) beginning January 1, 2015.

A 8% TOT is currently imposed upon persons occupying hotels or motels within the City. The Measure would increase the TOT to 10%.

A UUT is currently imposed on commercial and industrial users utilizing electricity, telephone, gas, and communication services. There is no UUT currently imposed on residents. Under the Measure, the UUT would increase on commercial and industrial users and be imposed on residential users on July 1, 2014; then the increase would be reduced for all users on June 30, 2017, as follows:

The Measure would impose a new Parking Tax equating to 10% of annual gross receipts on persons engaged in the business of operating a parking lot for vehicles. The Parking Tax would be inapplicable to gross receipts attributable to office visitor, employee, theater patron, restaurant patron, retail patron, hotel patron, and validated parking; whether self or valet parking.

The current BLT allows businesses to utilize a credit against their BLT with a credit based upon the amount of sales tax revenue the City receives from the business. Currently, a taxpayer may use up to 40% of the sales tax revenue it generates to the City as a credit. For example, if a taxpayer generates $10,000 of sales tax for the City, it is entitled to credit $4,000 against its BLT. Beginning January 1, 2015, the Measure would reduce the BLT credit from 40% to 10%; and on January 1, 2018 the credit would be reduced from 10% to 5%.

Revenues generated as a result of the Measure are estimated to total approximately $6.6 million per year for the first three years it is in existence and then approximately $5.9 million per year thereafter. The revenues can be used for the City’s general governmental purposes.

To be adopted, the Measure must be approved by a simple majority of the voters in the city of El Segundo.

A “yes” vote on Measure A favors the Measure.

A “no” vote on Measure A opposes the Measure.