Higher sales tax could generate $12 million
Sales taxes in Santa Monica may climb to nearly 10 percent by next year.
The increase being discussed, which is likely to go in front of voters this November, could generate $12 million or more in annual revenue for the cash-strapped city, officials said.
Responding to a swelling $11 million budget deficit this year and $23 million next year, the city may ask voters to increase local sales taxes by one-quarter or one-half percent, according to city documents.
That’s in addition to Gov. Gray Davis’ proposal of a 1 percent sales tax hike statewide. If both tax increases are passed, Santa Monicans and visitors could be shelling out nearly 10 percent on all retail sales.
City officials predict that the budget deficit will grow to $30 million annually by 2007 if revenues aren’t increased and spending is cut. And that estimate doesn’t consider possible city revenue losses because of the state’s massive budget deficit and the negative economic impacts from the war with Iraq.
The city currently receives about $25 million in sales tax annually — about 1 percent of the 8.25 percent sales tax collected on local sales by the state and county.
City Finance Director Mike Dennis has recommended to the City Council that Santa Monica be included in state bill AB 1412, which seeks legislative authority to allow local voters to increase the city’s sales tax rate.
Assembly Bill 1412 has recently been introduced to authorize 32 cities, including Los Angeles, West Hollywood and Beverly Hills, to increase their local sales taxes. Santa Monica can be added to the bill through coordination with the author and Assembly member Fran Pavley.
Since the 1950s, sales taxes have been set exclusively by the state and county, City Treasurer Dave Carr said. Sales tax in Los Angeles County rose from 8 percent to 8.25 percent on Jan. 1 of last year.
Kathleen Rawson, executive director of Bayside District, a non-profit organization that manages the downtown in conjunction with the city and promotes business, acknowledges that many people resist tax increases, but the revenue pays for important city services.
Some city officials said it’s necessary to consider every potential revenue source during these tough economic times.
“I see nothing wrong with at least giving ourselves the option (to raise taxes),” Councilman Ken Genser said, adding that any final decision will follow public input and a formal analysis. “Right now we don’t even have that option.”
Others council members agree.
“I’m open to looking at all options, including this one,” said Councilwoman Pam O’Connor. “There is a standard of services people in Santa Monica expect and desire. We can keep cutting things, but at some point we have to figure how to keep them.”
Councilman Kevin McKeown said he favors increasing the city’s options, but is skeptical of a tax increase.
“I think sales taxes tend to be regressive,” he said. “But it’s a matter of local control. Cities, and Santa Monica in particular, need the ability to create the funding the state has taken away from us. We cannot let California’s mismanagement take away the resources to provide Santa Monica residents with municipal services.”
Councilman Bob Holbrook said he favors keeping the option available, but getting voters to agree to a hike would be a challenge.
“It’s just a down time,” Holbrook said. “We’ve had three years in a row of down time, three years in a row of a tough market, three years in a row of people’s retirement funds going down. It’s just a hard economic time.”
- Kevin McKeown, Santa Monica City Councilman
Originally published in the Santa Monica Daily Press print edition on March 25, 2003. Read the original PDF.