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California Cities' 'Fiscal Emergency' Put Tax Questions On The Ballot Faster

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Some California cities are declaring fiscal emergencies so they can quickly get tax hike initiatives on local November ballots.
Some California cities are declaring fiscal emergencies so they can quickly get tax hike initiatives on local November ballots.

STANTON, Calif. -- There's a new twist emerging as some of California's most financially troubled cities look for ways out of their predicaments: They're declaring fiscal emergencies so they can quickly get tax hike initiatives on local November ballots.

Leaders are turning most often to an increase in the local sales tax. But there also are proposals for hikes on utility taxes, parcel taxes and, in the Los Angeles-area city of El Monte, a proposal to tax sugary drinks.

Last month's bankruptcy filing by Stockton, quickly followed by one in Mammoth Lakes and then San Bernardino's sudden declaration of a fiscal emergency and plan to file for bankruptcy drew attention to an increasingly common theme – some communities battered by the economy and unable to control costs now are heading toward insolvency.

El Monte finance director Julio Morales said San Bernardino was a wakeup call. Local officials declared a fiscal emergency last week, clearing the way for a ballot question asking residents to approve a 1 cent-per-ounce tax on sugar-sweetened drinks. Local officials think the tax would bring in up to $7 million per year.

"We don't want to wait like San Bernardino and say, `We can't make payroll,'" Morales said.

La Mirada, Fairfield and Culver City are among other communities that declared fiscal emergencies this year and placed sales tax increases on their ballots. The Orange County community of Stanton declared a fiscal emergency, got a utility tax question on the June ballot and voters rejected it. Now the city may try again in November.

It's unusual and perhaps unprecedented for so many cities to declare fiscal crises in such a short period.

"It is relatively new – and a sign of desperation," said David Brunori, professor of public policy at George Washington University who specializes in tax policy and has studied state and local finance in California.

A "fiscal emergency" requires a unanimous vote by a community's governing body, usually a city council. Such a declaration allows cities to more quickly place a tax question before voters, rather than waiting up to two years for the next scheduled local election.

That so many cities are choosing this route causes David Kline, spokesman for the California Taxpayers Association, to speculate some local leaders may be "crying wolf." He surmised some officials are declaring an "emergency" because it enhances the chances for passing a tax question and saves them from having to make deeper cuts.

"If the city has a track record of mismanaging money and not doing anything to control spending and that's why it's near bankruptcy, the voters will probably be disinclined to give them more money," he said. "But if the city can show they've been hit by economic changes, voters might be more forgiving."

There is strong anti-tax sentiment in California these days, based at least partly on skepticism that elected officials will use the money wisely. That helps explain why a proposed increase in the state's cigarette tax _an idea usually popular with the public – was defeated in June.

Local officials who favor tax hikes believe residents will recognize the need for more money rather than more budget cuts. But muddying the prospects for local tax hikes is Gov. Jerry Brown's tax initiative. It would raise the income tax for people making more than $250,000 per year, and would boost the state sales tax by a quarter-cent. Brown has warned of further state cuts if his plan loses.

Conventional wisdom holds that voters are more likely to pass taxes at the local level. But a surfeit of revenue measures on the November ballot could overwhelm voters.

"My prediction is that people are going to reject tax hikes at all levels of government," Brunori said. "It's not that they don't like government – they do. But they really don't like bad government."

Voters in Stanton rejected a tax hike last month, prompting cuts in police and fire staffing. A sign at the entrance to Hollenbeck Park – a long, narrow swath stretching beneath massive power lines and equipped with benches, winding paths and a colorful jungle gym – reads "Park closed due to budget cuts - no trespassing allowed."

City Manager Carol Jacobs said the cuts to police and fire have nearly balanced the city's budget That's a big improvement from earlier in the year, when she warned the city could eventually face bankruptcy due to the drop in tax revenues.

But Jacobs said Stanton will need more money in the coming years, and getting a tax question before voters is more responsible than delaying any action until the city's reserves are gone.

"It's like waiting to look for a job until you have no savings and your house gets foreclosed on," she said.

Going back to voters for a tax increase carries risk, said Roy Ulrich, who teaches tax and communication policy at the Goldman School of Public Policy at University of California, Berkeley.

"Local electeds are also subject to voter approval, and if they keep asking for tax increases that are turned down, their own jobs will be in peril," he said. "Voters can get angry and say, `You didn't try to cut spending, you just came to us and asked for a tax increase.'"

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