Editorial: Sales tax and money madness

Posted on August 21, 2016 by Sonoma Valley Sun

In November, voters in the City of Sonoma and in the County will be asked to approve a swarm of tax measures. Some measures would approve the issuance of taxpayer-funded county and school district bonds for construction and other purposes, and others would impose or extend sales taxes.

As to the latter, Sonoma’s City Council will ask voters to renew the half-cent sales tax due to expire this year.

Having enjoyed the revenue from this “temporary” sales tax, the City now finds itself virtually addicted to the money. We expect the City’s ballot argument will stress the importance of this revenue to balance the City’s budget and fund public services, but we remain unconvinced.

First of all, sales taxes are regressive.   For those with lower incomes, sales taxes take a higher proportion of their income than that of those who are more well off, placing a greater burden on those who can afford it least.

Then there is the matter of what City Council considers to be ‘public services,’ which on examination look very much like private business subsidies. From our perspective, the City has been far too prone to make long-term agreements to pay or divert money from the General Fund – the City’s bank account – to subsidize private businesses at the expense of City residents, including low-and moderate income residents who will be expected to fund that generosity.

To list a few examples:

  • The renewal of the Tourism Improvement District (TID) for a 10-year period means that the City relinquished the opportunity to collect between $7-10 million that could have been collected and retained by the city as Transient Occupancy Tax (TOT). The city’s loss has been the hotel industry’s gain, as the TID subsidizes hotel marketing operations.
  • Funding the Visitor’s Bureau for three years to the tune of $100,000/yr. thereby removing this money for uses other than tourism, which is already heavily promoted by the aforenoted TID.
  • Subsidizing the Chamber of Commerce’s payroll to the tune of $250,000 over two years is more than being “business friendly.”
  • Offering private businesses (but not City residents) ‘forgivable loans,’ something no responsible lender does.
  • Making a $25,000/yr. commitment ($250,000 over ten years) to a private group hoping to build a community pool, outside the City.

The City knew the half-cent sales tax measure had a “sunset clause,” but that reality seems not to have stimulated appropriate financial caution. Instead of avoiding very questionable long-term financial commitments to private interests, Council has assumed that City residents would renew the sales tax to fund them.

We don’t think this was prudent decision-making, particularly in light of the unfunded city employee pension plan whose fortunes are tied to the state Public Employees Retirement System (PERS), whose 2015 investment returns were well under 1.5%. Any shortfall in pension obligations to City employees will have to be made up by the City’s taxpayers, but how this figured into the above-noted giveaways to private interests is anyone’s guess.

Instead of being cautious, the City continues to boldly kick the fiscal can down the road, banking that voters will support its spending choices by continuing its half-cent sales tax revenue and absorbing the quality of life burdens inflicted by growing tourism. With a November ballot jammed with competing tax measures, we think that’s taking a big gamble with the City’s future.

Sun Editorial Board

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