Gardena city officials, caught in a cash crisis, are considering raising the utility tax by 25 percent without bringing the issue to a citywide vote.
The city, saddled with a $26 million debt repayment related to a failed insurance venture, narrowly avoided a bankruptcy filing last month.
Negotiations are ongoing with Gardena’s main banker, Sumitomo Trust & Banking Co., for a restructuring of the debt outside of bankruptcy court. In late November, Sumitomo agreed to extend the repayment deadline from Dec. 15 to May 31.
Raising the utility tax is among a number of options city officials are considering to raise revenues. The council backed away from acting on the utility tax increase at its Dec. 14 meeting, but the idea remains on the table.
Doing so would require invoking a clause in an earlier ordinance that some Gardena officials believe allows them to raise the utility tax from 4 percent to 5 percent without voter approval. The measure would raise an estimated $1 million in additional revenues, hitting businesses hardest because they are the biggest users of electricity and telephone services.
City officials are also warning that next year’s budget could contain fee increases on permits and other business-related fees.
So far, the City Council has resisted any attempts at quick revenue fixes and put off any final decisions until at least this month, when the outcome of negotiations with Sumitomo becomes clearer.
City Manager Mitch Lansdell said there have been no developments in the talks since the extension was granted, “although we’re very hopeful that something can be worked out,” he said.
Most of the $26 million debt resulted from the city pumping money into an insurance company set up to offer liability policies to municipal governments. From its launch in 1993, the insurance company lost money as the market shifted and cities were able to find cheaper policies.
In 1995, the City Council voted to refinance the bonds, further racking up debt. Meanwhile, a venture to loan money to first-time homebuyers also ran aground as many recipients defaulted on their loans.
In 1987, the city’s utility tax was lowered to 4 percent from 5 percent. But by changing the word “reduce” in that original ordinance to “adjust,” the council could allow the rate to be “adjusted” up to 5 percent if city revenues fall short, according to a staff report discussed by the council.
The report also suggests applying the tax to wireless and international calls.
A utility tax increase would likely represent the biggest single revenue-raising option for the city, short of significant property sales.
The council on Dec. 14 crafted an ordinance that incorporates the word change suggested by staffers but did not move ahead and increase the utility rate. The ordinance comes up for reconsideration on Jan. 11.
“We were concerned that raising the utility tax without a vote of the people might be challenged in court,” said Gardena Mayor Terrence Terauchi.
Meanwhile, Lansdell said next year’s budget is likely to include several fee increases, which he termed “cost recovery measures,” since they are designed to fully recoup costs that are now partially subsidized from the city’s general fund. Likely targets include permit fees and fees to administer other government services for residents and businesses.
Early last year, the Gardena City Council imposed a $38 annual fee on the city’s 13 massage parlors to cover the cost of a new test required of massage parlor owners. And at the Dec. 14 meeting, the council changed the city’s burglar alarm one-time registration fee to an annual levy.
But these fee increases will make little dent in the $26 million payment. More substantial measures, like putting a general tax increase before voters or selling off major city properties, are viewed as non-starters.
Terauchi doubted that voters would pass a tax measure, adding that even they did, “there’s no guarantee if we were to pass such a tax that it would satisfy our bankers.”
