Fullerton City Council voted 4-1 (Whitaker “no”) at their June 7 meeting to place a 1.25 cent sales tax increase measure on the November 2020 General Election ballot, to help offset a $7.9 million deficit, and voted to hire the private firm Terris Barnes Walters Boigon Heath, Inc. (TBWBH) Strategies to “educate” the public about the sales tax increase.

Background on Proposed Sales Tax

The City’s Infrastructure and Natural Resources Advisory Committee (INRAC) recommended on March 3 that the City approve a dedicated (special) sales tax ballot measure specifically for infrastructure improvements, following a six-month study of Fullerton’s infrastructure needs that found it to have been severely underfunded for decades. INRAC’s report stated that nearly $25 million a year was needed for necessary infrastructure improvements. A special infrastructure tax would require a 2/3 approval by voters in order to pass.

At that same meeting, FM3, a company that the City contracted with to conduct a community survey, reported that 6-in-10 respondents supported a potential general sales tax measure, which would not be dedicated solely to infrastructure, and would require only a majority vote to pass. The survey found that there was not enough public support for a special tax, as it would require a 2/3 vote to pass.

Based on this, the City Staff and the City Manager recommended that Council place a general sales tax, as opposed to a special (infrastructure only) tax on the November ballot.

Prior to the July 7 meeting, INRAC submitted a letter to Council expressing support for a special, but not a general, sales tax. “The Infrastructure and Natural Resources Committee (INRACA) is gravely concerned over the revenue ordinance and sales tax initiative introduced by City Manager Ken Domer and under consideration by the City Council. Our concerns are two-fold. First, the plan has been characterized as having been recommended and endorsed by INRAC, which it is not the case. Second, the plan seriously underfunds infrastructure, which will result in further degradation of our infrastructure, and roads, in particular,” the letter states.

Under California law, sales taxes may not exceed 10.25%. The current sales tax rate in Fullerton is 7.75%. Of that amount, 1% goes to Fullerton. The rest goes to the State and other programs.

The Financial State of the City

Prior to the Council vote on July 7, City Manager Domer gave a presentation in which he explained the financial difficulties the City is facing, and made the case for why a general sales tax is needed.

Largely due to the economic impact of COVID-19, the City’s fiscal year 2020-21 General Fund budget has a $7.9 million deficit.

This year, as a result of COVID-19, the City has already fired nearly all its part-time employees, cut funding to the Fullerton Museum Center, reduced the Library’s hours open to the public from 61 to 34 hours, and the executive staff has taken a 10% pay cut.

In recent weeks, following local and national protests, members of the public have pointed out that nearly 70% of City spending is for police and fire, and that cuts should be made there to fund other services.

Fullerton’s general fund budget for 2020-21.

Fullerton Mayor Jennifer Fitzgerald hosted a Virtual Town hall on July 9, to explain how Fullerton’s current pension liability (particularly for retired public safety employees) has become a major unfunded drain on City revenues.

Screen shot from Mayor Fitzgerald’s July 9 Virtual Town Hall on pensions with City Manager Ken Domer.

Taxes Fund the City

City revenues are largely derived from property taxes (approximately $47 million to the General Fund) and sales taxes (approximately $21.3 million) for the next fiscal year. These two revenues make up roughly 70% of the overall General Fund revenue to the City.

The staff report pointed out that one severe blow to local revenues was Prop 13 in 1978.

“Prior to the passage of Proposition 13 in 1978, a city would set their expenditure budget, and then set the property tax rate locally to generate the necessary revenue required to meet the expenditures that were not met with other revenues sources. Proposition 13 in 1978 dramatically changed that, setting property taxes at 1% of a base line assessed valuation of the property. Assessed values are allowed a 2% growth per year unless a property, typically residential, changed ownership upon which the assessed value was reset to the market value upon which the property was transacted. This is the reason why neighbors in Fullerton can be paying drastically different property tax amounts. A long-term resident who owned a property prior to Proposition 13 pays a fraction of the property tax of a neighbor who only recently purchased their house due to their difference in assessed values,” the staff report said.

Impact of Prop 13 on local revenues, from the City Manager’s report.

Programs the New Taxes Will Fund

According to the staff report, if approved by the voters, the revenue generated would help fund not only the improvement to the City’s infrastructure, but also the City’s homeless initiatives, community services, and public safety/emergency medical needs.

Text of the proposed sales tax ballot measure.

Citizens’ Oversight Committee

If the local sales tax measure is approved by the voters in November the City Council will appoint residents to a citizen oversight committee. “This committee would provide citizen oversight in collaboration with the City’s Administrative Services Department to ensure fiscal accountability, transparency, and to verify that sales tax funds are being used appropriately to meet residents’ priorities. A report will also be made to the INRAC so that the City’s infrastructure needs are continually addressed by the new funding,” the staff report said.

Public Comments

Prior to Council discussion of the item, the City Clerk read the 8 public eComments that had been submitted by residents, with half supporting and half opposing the proposed sales tax.

A few spoke in person at the meeting, and opinions were split.

Sean Paden said that the City hasn’t had a balanced budget for years, and that the solution is not raising taxes, but rather curbing pay and benefits to City employees, including pension reform.

Tanya McCrory said that the City “has not been good stewards of our tax money historically” and that the proposed general sales tax ignores the infrastructure recommendation. She suggested pension reform and eliminating police overtime.

Chair of INRAC Thad Sandford said that although his committee sent a letter opposing the general tax, he supports the general sales tax because of the City’s revenue needs.

Arnel Dino, also a member of INRAC, said he still supports the special infrastructure tax.

Council Discussion

Prior to voting, Council members gave their thoughts on the proposed sales tax ballot measure.

Mayor Jennifer Fitzgerald said that in her 8 years on City Council, other methods to help the City’s financial situation have not been enough, or the City has been unwilling to do them.

“There should be things we can do without raising sales tax, but this community has proven to me time and again that they’re not willing to do them. I think it’s time to let the people decide what level of service to they want from this City,” Fitzgerald said.

Mayor Pro Tem Jan Flory said that the sales tax should be put to the voters “to let them decide what kind of community they want to live with. Do they want to live in a community that doesn’t have those quality-of-life features they count on so much—the library, the museum, community center, parks, etc.”

Councilmember Ahmad Zahra pointed out that a sales tax is regressive, meaning it disproportionately impacts lower-income residents.

“But so does poor infrastructure; a flat tire from a bad road can be a major economic hardship on a low-income family. What COVID-19 has shown is that we have no resiliency as a City…Ultimately it is not my decision, it is the peoples’ decision. All we’re deciding today is to send that question to the people to ask, ‘Do you want to do this or not?’” Zahra said.

Councilmember Jesus Silva said that this was a “tough call” but that “We need it for our roads and to address homelessness…I know raising any kind of tax is hard, but I think it’s the best thing for our city right now.”

Councilmember Bruce Whitaker, the lone “no” vote, said that the solution is to “find ways for our “City staff to increase productivity” and he criticized “the propensity of government to overspend its wherewithal and…to take it out of the pockets of the citizens you serve. We’ll get the ballot test on this,” Whitaker added.

About TBWBH Strategies

Council also voted 4-1 (Whitaker “no”) to approve a $125,000 contract with Terris Barnes Walters Boigon Heath, Inc. (TBWBH Strategies) for public education services about the measure. On their web site (www.propsandmeasures.com), TBWBH Strategies describes itself as “California’s leading revenue measure strategy and communications consulting firm…We’ve passed over 430 successful bond and tax measures, providing more than $20 billion in voter-approved funding for facility and infrastructure improvements and quality public services in California.”

According to Gov. Code Section 54964, “An officer, employee, or consultant of a local agency may not expend or authorize the expenditure of any of the funds of the local agency to support or oppose the approval or rejection of a ballot measure, or the election or defeat of a candidate, by the voters.”

According to a staff report, “The goal is to educate the residents about the needs of the City and let them ultimately decide. Thus, the purpose of this consultant is to simply educate voters on the City’s financial condition, service needs and infrastructure needs while being compliant with all legal requirements.”

Three public comments on this item were opposed to hiring a consulting firm.

“Why does the City need to spend $125,000 to convince voters that they want a general sales tax?” Jane Rands said.

“I find the idea of paying for you guys to get this tax passed very uncomfortable. It sounds like legally you can’t actually advocate for the tax, and yet I’m having a difficult time drawing a distinction between spending $125,000 that very much needs to be spent in other areas of the City to advocate for this tax, so it sounds like you’re following the letter but not the spirit of the law,” another commenter said.

Deputy City Manager Antonia Graham said, “The reason for an outside consultant is that the City cannot advocate for a sales tax measure. Having a third party helps us to ensure that we do everything legally and that we are in accordance with the government code. There have been cities that have done this on their own to educate their residents, and they have gotten in trouble with the State.”

“It’s very important that we educate and not advocate,” Domer said. “This is a firm that is knowledgeable and recognizes that line to make sure that a city stays within it.”

Councilmember Bruce Whitaker, who voted against the item, said, “The way to communicate with the residents is through performance and results. That speaks volumes and builds the kind of confidence you need to pass something like this. Using outside consultants has the opposite effect, generally.”