Thursday, August 16 , 2018, 2:02 am | Fair 68º


Ron Fink: Tax or Fee? Lompoc Officials Can’t Seem to Figure It Out

Very few communities can bill themselves as “full service” cities. The City of Lompoc offers its citizens all of the essential services: water, waste water, trash pickup, electrical, public safety and recreation to name a few.

To pay for these services there are two ways to collect needed funds, taxes or fees.

Taxes support General Fund services such as public safety, parks and recreation. In order to collect taxes, the government must submit their proposals for how much to collect to the electorate, that’s you and me, for a vote.

If the tax is for a specific service, say the fire department, it must capture two-thirds of the votes; if it’s general in nature and lumps public safety, parks and recreation into one tax, then they only need half the votes plus one, a simple majority, for it to pass.

Fees on the other hand are collected for so-called “Enterprise Services” such as water, waste water, trash pickup and electrical utilities.

The amount of the fee to collect is based on a majority vote of the governing body and is not subject to voter approval.

Governments once abused the property tax system by simply raising taxes to pay for all sorts of things, so back in 1978 voters passed Proposition 13, which limited the amount that these taxes could be raised each year.

Prop 13 created a problem for politicians: how can we pay for our favorite projects if we can’t just keep raising taxes?

So after Prop 13 passed, they devised a system of “fees for service,” which is used today for many services such as building plan checks, building permits, fire inspection services, utilities and on and on.

Then the politicians discovered another clever scheme: charge the fee-based enterprises for services they get from the General Fund.

Now they didn’t have submit those pesky tax increases for voter approval. Just transfer fees to cover General Fund shortfalls and then convince the elected leaders that they needed more money for the utilities.

Voters caught on, and in 1996 they passed Proposition 218 and in 2010 Proposition 26, which significantly limited the amount of money that could be transferred to the “actual cost of service provided.” 

In other words, work had to actually be performed for the enterprise by the General Fund in order for fee revenue to be transferred.

Prop 218 specifically prohibited the transfer of funds for “services that were available to the general public such as public safety services.”

But politicians and city and county managers still needed money, so they concluded that a percentage based transfer plan met the test of transferring fee revenue for the “actual cost of service provided.”

Once again taxpayers didn’t agree, and there have been numerous court judgments and out-of-court settlements that were decided in favor of those who opposed a percentage based transfer as opposed to paying for the actual cost of the service.

Recently the City of Lompoc hired a consultant to prepare an Enterprise Reimbursement Study to determine how much would be transferred to the General Fund; apparently that info hadn’t been updated in a couple of decades.

The methodology used by the consultant was based on a proportion of each utilities budget, not the actual cost of services performed.

They also included a transfer for public safety services equal to a “proportion to the value of each of the enterprises’ capital assets compared with the value of all public and private property in the city.”

Members of the community and the Santa Barbara County Taxpayers Association took exception to this approach, and so did some of the members of the Lompoc City Council.

A single-purpose ad hoc committee was appointed to examine the plan and see if it met the requirements of Propositions 218 and 26.

The committee recommended a careful examination of the study prepared for Lompoc in comparison with other studies and legal challenges to the same methods proposed by the city’s consultant.

The SBCTA supported the recommendations of the committee; however, there were many questions that surfaced during the course of discussion that could not be answered, so the SBCTA submitted a letter to the council July 19, 2016, requesting that they ask the city staff to answer a number of questions relating to what the SBCTA considered inadequacies in the plan.

One of those questions was “Request a legal discussion of any relevant litigation or settlements, including a summary of successful judgments/settlements against jurisdictions, relating to transfers of Enterprise Fund fee revenues to the tax based General Fund using a percentage/proportional methodology rather than the direct/actual cost.”

At the close of the committee presentation, the council directed staff to prepare a response to the recommendations including replies to all of the questions that the SBCTA asked.

We will have to wait and see what the outcome of the staff research is considering the number of judgments and settlements that seem to point to a faulty study.

— Ron Fink, a Lompoc resident since 1975, is retired from the aerospace industry and has been active with Lompoc municipal government commissions and committee since 1992, including 12 years on the Lompoc Planning Commission. He is also a voting member of the Santa Barbara County Taxpayers Association. Contact him at [email protected]. Click here to read previous columns. The opinions expressed are his own.

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