THE CITY OF SACRAMENTO'S UTILITIES TAXES

THE UTILITY TAXES - Most people don't know that the City of Sacramento has two different types of utilities taxes. The oldest is the Utilities User Tax (UUT), now set at 7.5%, covering all utilities used in the city, with the exception of utilities services provided by the city itself. The second is the Utilities Enterprise Fund Tax (EFT), approved by voters in June of 1998. The EFT was set at 10%, on all utilities type services provided by the city, the only such tax in the County of Sacramento, and for that matter, in any of the cities in the surrounding counties.

HISTORY OF THE UTILITIES USER TAX - The UUT was established as a 5% "Sales Tax" added to telephone, electricity and natural gas bills in August 1969. It was an era of rapidly rising property taxes throughout the state, and the City of Sacramento had the distinction of being second only to the City of Fresno in its applied tax rate against assessed value of property in the State of California. During budget hearings at the time, the Taxpayers League was intent on trying to hold down an increase in property taxes, and thought they had convinced the city to implement a strict austerity stance, and to slash $1 million from the proposed city 1969-1970 budget. Instead, they cut the budget by $414,000, increased license fees, and created a new 5% utilities "Sales Tax".

The 5% utilities tax remained constant until June of 1983 when the city, faced with a shortfall of $6.6 Million in its 1983-1984 budget, voted to raise the rate to 9%. At the time the League advised the council that, under such adverse conditions, it would cautiously support a temporary utility tax increase with a one-year sunset clause.

However the next year, the city council, was reluctant to give up the tax, identified as a Utility User Tax, notwithstanding that it had assured taxpayers that it would be assessed at 9% for one year only. The Sacramento Bee in an Editorial that appeared on February 22, 1984 stated: "Sacramento, unfortunately, has little choice but to keep the utility tax at 9 percent for at least one more year. That's a painful reality for the city council, since it raised the tax from 5 percent last year as a one-year-only stop measure to deal with a critical revenue shortfall. Everyone recognizes that the utility tax, even at 5 percent, hits the poor disproportionately, and that at 9 percent it takes a still harsher bite out of a low-income budget. It's an undesirable way to finance city operations."

The Sacramento Union disagreed with the Sacramento Bee and said in a Union editorial: "Taxpayers understandably have become cynical about 'one-shot' taxes. The cynicism is likely to deepen if the City of Sacramento follows through on its apparent intent to extend a one-year increase in its surcharge on electricity and gas bills that is scheduled to expire in July. The increase in the surcharge from 5 to 9 percent was a last ditch compromise by the City Council last June to balance the city's 1983-84 budget. There were those that winced when assured that the tax increase would only be for one year. A city finance report states that the one-shot tax increase must be extended to avoid deep budget cuts. There is no reason to doubt that the city continues to have budget problems. But so do many of the utility users who are being socked an average of an additional $55 per household by the increased surcharge. It seems reasonable to believe that the city could scrimp by better than many hard pressed taxpayers without turning what was supposed to be a one-shot tax into a permanent burden for local citizens."

The League agreed with the Sacramento Union, and that the tax should not be renewed. The League sent a letter to Mayor Ann Rudin and the city council recommending that the tax cease, pointing out that it was an 80 % increase being retained to finance a portion of the city's 5-year capital improvement program. The letter recommended that the plan for Capital Improvement be put before the voters with a tax program or bonding for the program. The letter was ignored.

In 1986 the UUT became a major political issue in the year of city council races. The 9% UUT was the highest rate in 48 of the state's 58 counties. UUT rate increases, piggy-backing on rapidly rising utility rates, were having an impact on low income people. The Sacramento Metropolitan Chamber of Commerce, the Taxpayers League, and the Sacramento Municipal Utility District openly favored reducing the 9% UUT, and all lobbied the City Council for a decrease, making the point that the UUT increases constituted a windfall tax. The council compromise was a decision to cut the tax by one-half a percent each year for 8 years, which would reduce the tax to 5% by 1994. The first cut, to 8.5%, was made in October 1986.

Reductions of one-half percent each year were continued for the next two years, lowering the UUT to 7.5%. In a time of budgetary problems, and as the bulk of the tax supported the City's public safety efforts, the City Council decided to ask city residents whether they would be willing to support stabilizing the UUT at 7.5%. The city prepared a local advisory Measure for the November 1988 general election, pleading the public safety case. In October 1998, the League Board voted unanimously to oppose what had become Measure G. Notwithstanding opposition arguments, Measure G was approved. Although an advisory vote is not legally binding, based on public acceptance of Measure G, the 7.5% UUT has been continued through today.

LEAGUE POSITION ON THE UUT - At the May 17th League Board meeting the issue of the county, and some of its cities receiving a substantial and unintended increase in utility taxes from ratepayers was discussed. The windfall increases resulted from rapidly accelerating natural gas and electric power rates, and substantial increases in telephone and cable television service charges. Presently the City of Sacramento's tax on utilities rate is 7.5%, the County's tax is 2.5%, the cities of Citrus Heights and Elk Grove tax is 2.5% and the cities of Folsom, Galt, and Isleton do not have a utilities tax. The City of Sacramento collected $42.7 million in UUT during fiscal year 1999-00, and budgeted $49.9 million in 2000-01, and $55.0 million for 2001-02. The League Directors reiterated their long-standing opposition to the City's 7.5% UUT, and expressed concern over the tax acceleration. They authorized the League Officers attending a meeting with City Manger Bob Thomas to discuss the possibility of a voluntary reduction in the UUT by the City Council.

League President Mersereau, Vice President Jonathan Coupal and Executive Director Joe Sullivan met with City Manager Bob Thomas, Assistant City Manager Betty Masuoka, and Administration Services Manager Joseph Chinn to discuss the UUT reduction. City Manager Thomas told the League's representative he would prepare a letter covering the issue for the League, and asked for another meeting before the League took a position on future action. He had been told by the League representatives that among considerations discussed at the Board meeting was a League ballot Measure for the next General Election, aimed at a vote to reduce the utility tax.

The letter received from the City provided information and documentation concerning the UUT, and the use of those funds by the City. The letter was provided to Board Members for use in its July 26th meeting. At that meeting the Directors affirmed that the League's ultimate goal is to see the city tax mirror the County rate of 2.5%, and from there to discuss further the viability of eliminating the tax throughout the County. The Board recognized the stark political reality that there will be opposition to its efforts, with the result that it may well be necessary to "take the issue to the voters" in the form of a local initiative ballot Measure.

The September 20th League Board meeting will serve to evaluate a plan to accomplish the League's objective of reducing the UUT, and will result in a letter to the City Manager and the City Council outlining the League's recommendations. Following that, the League's representatives will meet with City Manager Thomas, as was promised, before the League makes its final decision on the UUT.

Joe Sullivan, Executive Director