After four heatedly debated meetings and a series of unlikely compromises, the El Segundo City Council unanimously moved to place a tax measure on the April ballot that would raise a combination of taxes to address a looming budget deficit and the city’s fast-deteriorating infrastructure.
The ballot measure is largely aimed at a variety of taxes on business that El Segundo has historically kept well below all surrounding cities, including the Utility Users Tax (UUT) and hotel “bed” tax, but would also newly impose a 2.5 percent utility tax on residents.
If approved by voters, the taxes would raise an estimated $6.6 million annually over the next three years and $5.8 million thereafter. The funds would address a projected $3.8 million deficit beginning next year and more than $4 million in deferred maintenance that has impacted the state of city streets, sidewalks, and facilities.
“I think we can all agree no one likes this discussion — no one likes to tax anyone, especially our businesses, who are so supportive of our community and our Ed Foundation and so many things,” said Mayor Bill Fisher at the outset of the discussion during the Nov. 19 meeting.
“It is the answer,” Councilman Dave Atkinson said near the conclusion of the discussion at the Dec. 11 meeting. “This is the answer….Let’s be who we used to be — El Segundo. That is what this is all about.”
The front-loaded nature of the taxes, intended to quickly address the city’s sagging streets and other infrastructure work deferred during the recent recession, derived from a proposal forwarded by the El Segundo Chamber of Commerce. The council, in keeping with the city’s status as one of LA County’s most business-friendly communities — El Segundo was awarded the LA Economic Development Council’s inaugural business-friendly award six years ago and was a finalist again this year — had asked the Chamber to help arrive at an acceptable level of new taxation.
The Chamber’s original proposal, submitted at a special meeting Nov. 26, called for $6.9 million in taxes for the first three years and $5 million the next two and included a “sunset clause” that would have ended the taxes thereafter. The council rejected the idea of a sunset clause and questioned if $5 million would be enough beyond the taxes’ third year; city staff had estimated a minimum of $5.8 million annually would be required to keep the city above water. The Chamber came back on Dec. 3 with a compromise that eliminated the sunset clause. It was this compromise that the council adopted on Dec. 11.
Chamber representative David Herbst, who’d earlier cautioned the city not to adopt a “tax and spend mentality,” expressed hope that the taxes could one day be lessened once the city regained solid footing. But he told the Council that the Chamber appreciated “the robust, detailed discussion” and would join a citywide campaign in favor of the ballot measure.
“We hope that this new tax base, combined with the strengthening of the city’s economic development efforts, will ensure the financial stability of El Segundo for decades to come,” Herbst told the council.
The mayor expressed amazement at the Chamber’s willingness to work with the city.
“Where in the U.S. does a business community come to a public entity and say, ‘Here is our tax proposal for you?’” Fisher said.
“Thank you for being so responsive…and agile,” said Councilwoman Suzanne Fuentes.
“Your offer is generous and fair and I think it says something in our town that the business community is willing to pony up, and that they are asking the residents to help a little bit,” said Councilwoman Marie Fellhauer. “I think it’s more than fair.”
The residential component of the ballot measure would impose a 2.5 percent tax on residents’ utilities for the first three years and 2 percent thereafter; at 2.5 percent, the average home would pay an estimated $75 per year, raising $855,700 annually in new revenues for the city. The UUT business rate would increase 2.5 percent to 5.5 percent, remaining below the regional average of 7 percent, adding $3.5 million annually to city coffers. The hotel bed tax, or TOT, would increase 2 percent to 10 percent, remaining below the area average of 12 percent and adding $1.275 million to city revenues. Additionally, a new commercial-only tax on airport parking will raise $295,000 annually, and a 10 percent reduction in a sales tax credit enjoyed by businesses will generate $552,750.
“We are still keeping a lower cost to do business here — we are just adding incremental taxes, just to get our head above water,” Fisher said. “That’s really what this is about.”
Each member of the council had different ideas about exactly where to strike the compromise, but all agreed that city urgently needed to address its ongoing shortfall. City staff has been reduced by nearly 20 percent and remaining employees have taken both both salary and benefit cuts, and even last year’s 10 year $65 million tax agreement with Chevron was not enough to keep the city solvent.
Councilman Carl Jacobson, who has served on the council for 21 years, offered an historical perspective. He noted that two state propositions — first Prop. 13, and then Prop. 218 — froze the city’s tax codes far below statewide averages and took away the city’s ability to do anything about it. Prop. 13 particularly had unintended local consequences in that the city, historically tax averse, ended up receiving less of its own residents tax dollars locally than virtually any city in the state — 6 cents on the dollar, as opposed to the average of 11 cents per dollar among LA County cities and as much as 15 cents in neighboring Manhattan Beach.
In this way, El Segundo’s longheld business-friendly ethos came to cripple the city’s ability to keep up with increasing costs and hit it especially hard during the recession. Jacobson said El Segundo’s forefathers meant well but in a sense created the present predicament.
“Although I don’t like parts of [the tax proposal], I think we need to do it,” Jacobson said. “Prop. 13…it was a godsend at the time, but El Segundo happened to be at the wrong place at the wrong time. It was perfect storm, and we are going to have to dig out. There is no way we are going forward without having to do it.”
Fellhauer said the choice is between approving the ballot measure or allowing a drastically different city to replace what El Segundo has now, one in which everything from public safety to recreation services is drastically reduced.
“I don’t want to see our libraries shut down,” she said. “I don’t want to see Rec Park shut down. I don’t want to see chain-linked fences…and grass growing six feet tall. I don’t want to see that in our town. If you want to see all this happen, then go ahead and fight this…I don’t know what you are fighting for, but it is certainly not El Segundo.”
Atkinson argued vehemently throughout the process that the city needed to do more than “put a bandaid” on the financial gap it faced. He first proposed a tax package of $7.4 million annually, and noted that raising taxes to the local average would mean $11 million in new taxes.
“Well, we are not looking for $11 million,” Atkinson said, arguing that the Chamber’s proposal didn’t put the city on economically sustainable ground. “We don’t want to be on par with other cities. We want to maintain the lead, and keep going forward…I look at the the city of El Segundo as needing to be more of a business — not just business friendly, but more of a business operation.”
But in the end, even Atkinson compromised, as the Council voted 5-0 to move forward with the ballot measure.