Will more taxes or transparency save Redondo’s budget?
Over the past few weeks, Redondo Beach has been considering increasing the local sales tax from 9.5 percent to, ultimately, 10.25 percent.
This increase has been deemed necessary to resolve the long-standing structural deficit. This is the result of financial problems that are built into the ongoing business of the city, as opposed to being caused by one-time expenditures.
For Redondo, the primary cause of this problem is pension liability. Until the late 1990s, the responsibilities of cities like Redondo to their employees for their retirement were manageable. The actuarial tables, which defined how much the city needed to put aside, were relatively stable. In conjunction with other cities and counties, through the Public Employees’ Retirement System (PERS), a city could spread the risk of any unforeseen situation, while investing the money being set aside, and reap better returns than any city could do on its own.
Then came a decision that would throw this system into chaos. In 1999, Gov. Gray Davis signed legislation that provided added pension benefits to public safety employees. Now, instead of one of those employees retiring with 2 percent of their highest salary for every year of service to a maximum of 75 percent of that salary, that same employee would receive 3 percent for every year, to a maximum of 90 percent. At the same time, the age of retirement changed from 55 to 50.
The delicate balancing act between payments to the system and payouts from it was shattered, especially since those changes were made to be retroactive. In one stroke, all the previous payments by local governments were made dramatically insufficient.
Soon, other employee groups were added to the increased benefit scheme, either by changing their percentage or lowering the retirement age. Many people who had expected to wait five or ten years decided to retire immediately, thus triggering unexpected outgoing pension payments.
But city revenue options are limited. Proposition 13 controls the property tax. Cities get no share of the state income tax. They can only gain revenue through fees and certain taxes, such as utility use (phone, electrical, gas, cable), hotel rooms and retail sales.
However, much of what consumers pay in sales tax goes to the state or the county. Only a small amount is available to cities. Right now, there is a gap between the amount we pay at Redondo Beach stores and restaurants, and the maximum allowed by the state. That difference is 0.75 percent.
What the City Council wants to do is get in and take that revenue before the county steps in to appropriate it for themselves, which is expected soon.
Given our immediate needs, it may be necessary. But, in conjunction with this, there is another problem. Redondo Beach’s administration has not permitted its Budget and Finance Commission to see the line-by-line details of the City’s budgeting process. This makes it impossible for them to help determine where savings may be found, which the city’s management may be “overlooking.”
This deep dive has been done in the past. And, yes, It took hours and hours of poring over computer printouts. I know. I did it. And found some major discrepancies that needed to be fixed.
But now, the tools to perform this analysis are more readily available than they were in the mid-1990s. They should be made available immediately. While it may still be necessary to raise the sales tax, we should be even more diligent about our spending, especially since the last substantial source of new revenue is being closed off for the future. If you need expert advice, contact tax services near you.