OPINION -- Possible Tax Hike is Move in Wrong Direction

By Marc L. Verville

Buried in last Tuesday’s City Council meeting was Agenda Item 8.A: the Financial Status Update for fiscal year (FY) 2022, which ends on June 30.

For many, this portion of the Council Agenda might have seemed the least exciting. However, the presentation made by the City’s financial staff telegraphed some important policy directions the City is considering taking, none of them to the benefit of residents.

We learned that FY22 General Fund revenues were now projected to be $384 million, representing 92% of the pre-covid fiscal year 2019 revenues of $416 million. Thus, the revenues were approximately $32 million or / 8% below their pre-pandemic peak. General fund revenues are expected to exceed pre-pandemic levels in 2024.

The discussion seems to be limited to two areas: changing the number of City staff within a fixed operating structure and the ongoing reduction of services to residents. Missing was any discussion of improvements to the City’s operating structure to generate productivity and service enhancements in an organization with almost 2,000 employees.

According to the presentation, ongoing service reductions remain in place for areas such as the library, public landscape, maintenance, youth programs, and other community programs.

De-funded projects noted include Memorial Park expansion, City Yards modernization, Lincoln Neighborhood Corridor Streetscape, Olympic Boulevard sidewalk Improvements, playground reconstruction, streetlight upgrades and vehicle and computer replacement.

Focusing on just revenues, what are the City’s key prescriptions to accelerate the recovery? One of the last slides in the presentation addresses this question by recommending “Potential Revenue Measures” including a parcel tax to fund the libraries, an increase in the hotel bed tax, a parking facility tax, and an increase in the business license tax.

So, the City’s only response to fixing the revenue gap is to make the city more expensive for residents and business owners through higher taxes. This, in an already overtaxed city.

Curiously, no mention was made of restoring services as revenues come back since they are projected to end the year at 92 percent of the pre-pandemic level. Can an 8 percent gap to the pre-pandemic revenue levels really account for all the unfunded resident services?

The key takeaways are twofold. First and foremost, the omission of arguably the largest untapped available revenue source in the city -– sales tax revenue from a revitalized Promenade and downtown business district, including a fully functioning supportive parking infrastructure. Restoration of Downtown’s commercial vibrancy represents a $500 million taxable sale opportunity.

As recently as 2017 (the last year such statistics were published by DTSM), downtown accounted for around 50 percent of the city’s taxable sales. The Promenade directly generated over 40 percent of that revenue.

Moreover, a vibrant Promenade helped drive overall taxable sales in downtown as an anchor destination for the healthy visitor traffic. These financial benefits were in addition to the quality-of-life benefits from a family and visitor-filled bustling downtown.

Yet despite the obvious and substantial benefits uniquely available to Santa Monica from supercharging the recovery of the Promenade and the greater downtown, the City has chosen active neglect.

The City has chosen to simultaneously waste the financial potential of a unique and iconic asset and allow its deterioration, significantly contributing to both the degradation of the city’s quality of life and safety. Last week’s proposals continue in the wrong direction, increasing the cost of living and doing business in the city.

But wait, it gets worse. A parcel tax to fund the libraries? Clearly, the implications of such a revenue-generating proposal indicates the City is using this crisis to incrementally implement a policy of charging the residents for the services they use in the city, on top of the taxes they already pay for the provision of those services.

The cumulative impact of these policies can only be described as corrosive to the city’s quality of life and wellbeing.

What is the solution?

The upcoming fiscal year 2023 budget needs to adopt a residents-first philosophy, as well as actually pivoting to a real downtown revitalization. Destruction of downtown commercial infrastructure such as Parking Structure 3 is indefensible in this financial crisis environment, and can still be averted.

In addition, realizing real efficiencies in City operations while maintaining, or even improving service levels must be prioritized. High-cost city management functions must not be spared.

It's time for the City to stop looking at its residents and businesses as financial resources to be harvested.

Marc L. Verville is a resident of Sunset Park


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