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A Subtle Way to Generate City Revenue : Finances: The utility tax is gaining popularity. It's easy to administer and doesn't require the approval of voters.

March 14, 1993|MIKE WARD | TIMES STAFF WRITER

SAN GABRIEL VALLEY — For city budget-makers strapped for cash, there is so much to be said for slapping a tax on utility bills that five San Gabriel Valley cities have done it in the past year, and others are considering the possibility, despite the political risk.

City officials say the tax has these advantages:

* It is easy to administer because utility companies send out the bills, collect the money and forward it to city coffers.

* It nicks just about everybody, spreading and diluting the pain to minimize complaints.

* It is easy to include exemptions for the poor, eliminating extreme hardships.

* There is no worry about inflation because revenue goes up as utilities raise rates, and utilities are always raising rates.

* No approval from voters is required.

* Unlike sales tax revenue, which plunges in a recession when people stop buying cars, furniture and other items, utility tax revenue holds steady because people never shut off the lights, gas and water even when times are tough.

So it's no wonder that cities are turning to the utility tax as sales taxes slump and the state usurps other revenue sources, including property taxes, to solve its own budget problems.

Azusa, Claremont, Covina, San Marino and South Pasadena have initiated utility taxes within the past year. In addition, El Monte doubled its rate and Monterey Park increased the commercial rate and extended the tax to residents for the first time.

Pomona, Pasadena, Alhambra, Arcadia, Baldwin Park and Irwindale also levy utility taxes, and the county supervisors have been imposing a utility tax on residents and businesses in unincorporated areas since 1991.

In some cities, residents have grudgingly accepted the tax, but in Covina, the entire City Council is facing a recall election over the issue. The Covina council imposed a 6% levy on electricity, gas, water and telephone bills last fall.

In Pomona, the tax has been a political issue for several years and is emerging again as a source of contention in the April 20 mayoral election.

Pomona has the area's highest rate: 10% on all telephone bills, 10% on other utility bills charged to homes and apartments and 12% on utility bills charged to businesses. The tax raises $13 million a year, making it the city's biggest single source of revenue--more than the $9 million Pomona collects from property taxes or the $8 million it nets from sales taxes each year.

Councilman Tomas Ursua, who is running for mayor, contends that the tax is so high it is driving businesses out of the city, while his opponent, Planning Commissioner Eddie Cortez, views the tax as a necessary evil.

Ursua said benefits from the tax are illusory because it deters businesses from moving to Pomona, depriving the city of sales tax and business license revenue it would otherwise receive.

He said the city has taken a Band-Aid approach to its fiscal problems by patching in utility taxes instead of drastically cutting costs. Pomona and other cities must learn to live within their reduced means, he said, adding, "You're going to have to reinvent city government."

Ursua sounded the same theme in 1991 when he narrowly lost an election for mayor to Donna Smith. She declined to run for reelection this year, but her views on city taxation are not far from those of Cortez, a longtime Pomona businessman.

Cortez said that retaining the utility tax is necessary to maintain city services while the city strives to boost economic development to gain new revenue.

"I am opposed to the utility tax, but what we have to do is face the fact that it's an integral part of our budget," he said. "I will remove it when we have the revenue to replace it."

*

Both Pomona and Pasadena have levied a utility tax since 1969.

Pasadena Mayor Rick Cole said the tax has not been a political issue in Pasadena in recent years even though "ours is fairly high."

Pasadena raises $16.5 million a year from a tax that ranges from 7.5% for electricity, gas and water to 7.86% for telephone bills and 8.92% for cable television service. It is a substantial part of the budget, but less than the $19.5 million the city gains from sales taxes and the $17.9 million from property taxes.

Most other cities have lower rates, usually 5%, and impose the tax on fewer utility bills, often exempting cable and water. Most cities exempt low-income utility users, and a few put caps on utility charges so that, for example, the Huntington Library in San Marino has a ceiling of $4,000 a year, and no business in El Monte pays more than $40,000 a year.

*

In Covina, the City Council tentatively approved a 9.5% utility tax last August but lowered the amount to 6% before it took effect in November.

Virginia Vignol, one of the leaders of the successful effort to force a council recall election over the tax, said she objects to both the tax and the way it was adopted.

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