What the Councilman Asked the Voters to Do

Re “Behind Clarke’s Cool Move, from Three-Quarters to a Half-Cent”

[Editor’s Note: In an effort to understand the willing of the people about a proposed sales tax hike going into last Monday’s meeting, City Councilman Jim Clarke polled 140 constituents and received a whopping 79 replies. Here is the email he sent.]

I'm sure you have been following the discussions the City Council and community have been having regarding our long-term and on-going budget shortfall of $7 million to $8 million annually and the need to consider raising additional revenues while trying to make additional cuts in spending.

One way to produce additional revenue is by increasing the sales tax (currently 8.75%). Of the 8.75 cents raised out of every taxable dollar spent, the City of Culver City receives only 1 cent not the entire amount. Other taxing jurisdictions get most of the funds.

The benefits of increasing the sales tax are that the additional revenues are relatively small per transaction, but spread out over thousands and thousands of transactions. A ½-cent increase in sales tax is estimated to generate $8 million of additional revenue to Culver City but would only add a nickel to a $10 lunch. Another advantage is that most of the revenue would be paid for by non-Culver City residents. There are many other cities in L.A. County who have enacted sales tax increases. We would not be at a disadvantage with surrounding cities of Santa Monica or Inglewood. Because it is a general tax and not a dedicated tax, it can be approved by the voters with a simple majority rather than a 2/3rds vote. Under the protection of Prop. 22, the state would be prohibited from absconding with the funds.

The downside of a ½-cent sales tax is that it would only cover the existing (structural) deficit. It would not add to our Reserve Fund, which we have drawn down, nor would it fund our under-funded capital improvement projects (estimated to be underfunded by $2.5 million annually). Nor would it address future employee contractual obligations (and those employees have already renegotiated their contracts to decrease City expenses).

A ¾-cent increase would cover existing expenses as well as provide additional funds to replenish our reserves, carry out our capital improvement program and fund future contractual obligations. The downside is that it may be harder to get voter approval, would put Culver City at a higher tax rate than surrounding cities and might potentially impact on businesses relocating here.

There is also the question of whether there should be a sunset period for the tax increase. Some discussion has been around a five-year period, hoping the economy will pick up by then. But if the sales tax increase only funds us to existing levels, when the funding sunsets and the economy hasn't turned around, we might need to go back to the voters and ask for an extension. Even before then (in 2014) we might need to propose an infrastructure assessment district to fund our capital projects, which would require 2/3rd voter approval and would be paid for by Culver City property owners. Making the sales tax increase permanent, however, might be a harder sell to the voters.

Polling that has been conducted on this subject in Culver City indicates support above 70% for a sales tax increase with a ½-cent more favored than a ¾-cent. Whether there was a sunset provision seemed to make little difference in the survey. And while we have obtained anecdotal evidence that having a higher tax rate doesn't drive business away, there may be some evidence that it does.

In the final analysis, doing nothing is no longer an option. So I ask the following questions:

1. Do you favor or oppose putting a sales tax increase on the ballot in November?

4. Any other opinions or comments you have.

Thanks for taking the time to respond and I apologize for this lengthy email but it is a rather complex issue.

Mr. Clarke may be contacted at jimbclarke@gmail.com