The City of Davis has found itself facing a daunting revenue problem, and is proposing to solve the problem with spending cuts and a sales tax increase.
“The increased funding, should the measure pass, would generate approximately $3.7 million annually and would be used to help address a structural deficit in the city’s budget,” said Kelly Stachowicz, the deputy city manager of the City of Davis.
This $5.1 million deficit has been caused by Davis Waste Removal franchise fees, increases in other resource expenditures, personnel-related fee increases and several paid benefits outside of the city administration’s control.
Several internal attempts have been made to decrease this structural imbalance without creating any drawbacks to the wallets of the public. Over the past several years, the City of Davis has made $11 million in spending cuts, and has reduced 22 percent of its workforce since 2008. However, these efforts have not raised sufficient revenue.
The City Council, Council Subcommittee and a more specific Revenue Focus Group have been considering options, hoping to represent the Davis community as a whole. These factions have come to a general understanding that the City of Davis requires greater revenue.
According to the City of Davis 2014-15 Budget Presentation, an increased revenue would be part of a larger economic development effort working towards the goals of the city. This would include an improved administrative framework, long-term city financial planning and eliminating the need to ask citizens for money in the near future.
“Consistent with the presentation, the funds will be used toward long-term city obligations as well as utility and infrastructure costs. In concert with this effort, the city is working on a focused economic development strategy compatible with Davis values,” said Yvonne Quiring, assistant city manager and administrative services director for the City of Davis.
The current sales tax in the City of Davis is 8 percent, which is lower than the sales tax rate in Woodland and Sacramento. The goal of the June 2014 measure is to raise the sales tax in one-eighth cent increments, leading up to an eventual 8.5 or 8.75 percent.
The UC Davis on-campus sales tax functions under a different sales tax value, 7.5 percent. Because of this, on-campus stores would not be affected by the City of Davis sales tax increase.
“The impact of the proposed sales tax increase on students would be dependent on the extent to which they make purchases in the City of Davis,” said Julia Ann Easley, senior public relations representative for strategic communications at UC Davis. “UC Davis Stores charges the sales tax applicable for each of its locations. The downtown Davis store charges 8 percent. The campus stores charge 7.5 percent. The Sacramento store has yet another rate.”
According to the California Board of Equalization (BOE), the government sector for tax administration, California sales tax is imposed on all California retailers and applies to all sales of tangible personal property in the state. The sales tax is then paid directly to the BOE by the retailer.
To sell for a profit, a retailer is required to have a sales permit. Even though consumers at the Davis Farmers Market or Flea Market may not pay sales tax for their purchases, the retailers are still obligated to pay the government for the sales tax that the customer would have paid.
There are certain exceptions to sales tax, including food products, medical oxygen delivery systems, aircraft fuel for immediate consumption, feed analysis tags, wheelchairs, deep sea-fishing watercrafts, nonreturnable containers and foliar land fertilizer.
“Taxes based on percentage of retail prices are, economically speaking, a relatively low-impact way for governments to raise money,” said Spence Petersen, a fourth-year managerial economics major. “Now, 8.75 percent is a relatively high number compared to 8.5 percent in Sacramento and 8.25 percent in Woodland. Undoubtedly, this will draw some business outside Davis borders, but I don’t see it being any significant amount.”
The sales tax increase would pass with an electorate majority vote, and would become effective Oct. 1. The funding would cover public facilities, pools, park maintenance and further community outreach. Additionally, it could be expanded to include repair, rehabilitation and replacement of city and public property.
“If the measure does not pass, the city will need to determine what cuts to make to address the budget shortfall. If spread evenly across departments, those cuts approximate 12.5 percent of each budget; if public safety is excluded from cuts, the percentage rises to about 25 percent,” Stachowicz said.
In the event of too much money being generated, the excess revenue could result in building up General Fund reserves, or an early termination of the sales tax increase.
There are multiple options for the inclusion of a Parks Tax increase within the long-term plan for sales tax increase, as well as continued City of Davis reductions and operational changes.
The main goal of the sales tax increase is to alleviate the strain of the monetary deficit on the City of Davis, in the hopes that the more cooperative and supportive the community, the more they will benefit. All students and community members of age are encouraged to vote.
