To Get Out of the Red, City Considers Raising Taxes

April 20, 2017 by · Leave a Comment 

MONTEBELLO – With no assets to sell or a voter-approved utility rate increase to generate more money, Montebello officials are now scrambling to figure out how to avoid a $5.6 million budget shortfall. Among the items under consideration: a possible sales tax increase.

“Certain [past] fixes have been Band-Aid(s),” said Mayor Vivian Romero last week during a presentation on a draft of the city’s budget. She was referring to past actions to balance Montebello’s budget, at least temporarily.

“We need to look at long term solutions,” Romero said.

Montebello has struggled to find it’s footing ever since California’s 425 redevelopment agencies (RDAs) were dissolved in 2012, taking away a pool of money cities depended on to encourage economic development that would in turn increase funds for city services.

Since dismantling its RDA, Montebello has had a tough time keeping its budget in the black – despite an increase in other revenue – at times turning to the sale of city-owned properties to generate one-time funds.

With those options maxed out, city officials are now eyeing as possible remedies increasing the sales tax, implementing a utility user tax and hiking fees for city services.

Montebello’s Fiscal Stimulus Ad Hoc Committee, created in 2016 specifically to come up with ideas for raising city revenue, presented the three options during the April 12 city council meeting.

While tax increases and fee hikes are generally unpopular, Montebello resident and employee Cecilia Lopez supports increasing taxes as a solution to the city’s financial crisis, which could result in a $5.6 million budget shortfall in 2017-2018 if no new money is found or costs cut. The shortfall include $1.7 million to fund city-owned operations such as the golf course and water system.

“Let’s invest in long term solutions,” Lopez urged the council during the meeting.

The city projects revenue of $54.2 million for 2017-2018, but ongoing costs for police and fire, parks and recreation, street maintenance and other city services are expected to hit nearly $60 million.

“This is just the cost to operate at the very minimum,” emphasized Councilman Art Barajas.

The ad hoc committee –made up of Romero, Councilwoman Vanessa Delgado, department heads and representatives from the city’s bargaining units ¬¬– estimates a 1-cent hike in the sales tax would generate $9.5 million a year in new money, more than enough to cover the projected deficit.

If approved, Montebello’s sales tax would jump to 10.5 percent, after adding in the voter approved quarter-cent tax hike for countywide transportation improvements and a quarter-cent increase to combat homelessness, which both go into effect July 1.

Voters in Pico Rivera and Commerce have approved similar tax increases to fund long overdue infrastructure repairs and other services. According the city, a 1-cent increase could produce as much as $190 million for Montebello over the next 20 years.

“When we visit those cities [and spend money] we are helping them, why not help ourselves?” said Montebello City Employees Association member Delia Delgado, who like Lopez supports a sales tax increase.

Montebello officials said last week they would consider studying city fees to determine if they are in line with those in other cities. Ad hoc committee members believe such a study would conclude fees should go up, and estimate a 10 percent hike on permits, plan checks, fines and penalties would bring in another $690,000 a year.

The city previously estimated taxing utilities would generate $5 million in added revenue.

Neighboring cities have both a utility tax and higher sales tax, pointed out Councilman Jack Hadjinian, who favors an increase.

The soonest the city could put a sales tax hike measure before voters would be November 2018, unless the city council opts to declare a fiscal emergency and pay for a special election. Waiting until 2018 would not solve the city’s immediate financial issues.

Councilman Bill Molinari is against any emergency declaration. Last year, he successfully stopped the council from putting a tax hike measure on the ballot, saying such a move would put the city’s credit rating for bonds at risk. Molinari prefers to look into adopting a utility tax and updating the city’s fee schedule as a way out of Montebello’s financial crunch.

Councilwoman Delgado, who last year proposed the sales tax hike, now says she understands why the measure did not move forward and why residents voted against raising water rates, which would have generated millions of dollars in added revenue.

“We need to build trust,” she told her colleagues, implying residents do not trust the council to use the money wisely or as intended.

The ad hoc committee suggests forming an advisory committee that would recommend to the city council how any additional sales tax revenue should be spent.

The bottom line is the structural deficit will only get worse without action, Barajas said.

‘We’re going to deal with it this year or the following year,” he argued. “This [deficit] is very real; it’s not going away on its own.”

A representative of the city’s transit union, Albert Rivers, said he is tired of hearing about the “transformation” taking place in Pico Rivera due to the added sales tax revenue.

“I’m tired of them saying, ‘look at Pico [Rivera],’” he said. “It’s time they say, ‘look at Montebello.’”

 

City Running Out of Options to Balance Budget

August 4, 2016 by · Leave a Comment 

MONTEBELLO –News that city officials were considering holding a special election to raise the local sales tax or the tax on utilities has prompted a new round of calls for more belt-tightening and transparency in Montebello.

Both proposals could be dead, however, now that the city council has tabled discussion on a 1-cent sales tax increase and/or a 6.5 percent hike in the utility tax, which if passed by voters during a November special election could have raised as much as $14 million in new revenue for the cash-strapped city.

The 4-1 decision to cut off discussion came during the July 27 council meeting, when several speakers questioned the hastiness of the proposals, demanding the council instead tighten spending, starting with cutting their own salaries and benefits.

Councilwoman Vanessa Delgado, the lone vote against tabling discussion on the potential tax ballot measures, said she is looking for a long-term solution to balancing the budget, now over $1 million in the red.

Fire and Police make up the majority of the city’s $51.9 million budget this fiscal year. (City of Montebello)

Fire and Police make up the majority of the city’s $51.9 million budget this fiscal year. (City of Montebello)

“Selling assets is a temporary solution: We will be faced with the same problem next year,” said Delgado who was disappointed her colleagues did not at least allow discussion of the issues to move forward.

Montebello is again facing a budget shortfall and must find a way to avoid the financial woes of the not to distant past when the city was forced to make drastic cuts in services and shed employees to cover its budget deficits, which at one point reached $12 million.

Mired in political uncertainty and accusations of misuse of funds, and one of the worst financial downturns in history, it took three interim city managers and changes of several department heads to finally get a recovery plan in place to stay afloat.

The situation today is not as critical, but Montebello’s current $1.1 million deficit – the first since the 2010-2011 fiscal year – comes at a time when most cities are experiencing more financial stability and even growth due to improved economic conditions.

Larry Kosmont served as Montebello’s interim city administrator and financial consultant in 2011 and 2012 and was instrumental in helping the city develop its economic turnaround plan, which included putting the breaks on hiring and deep cuts in some city services. The result was several years of balanced budgets.

“[Montebello] had money in the bank, the economy has been strong, [the city] should be in better shape,” Kosmont told EGP.

Montebello’s sales tax make up an estimated 25 percent of the city’s revenue generating around $13 million. (City of Montebello)

Montebello’s sales tax make up an estimated 25 percent of the city’s revenue generating around $13 million. (City of Montebello)

Like many others, Kosmont believes “belt tightening” is the key to turning Montebello’s finances around, but points out that the council and staff must to be willing to make the tough decisions.

When Kosmont arrived in Montebello, the city was facing a $2.7 million deficit and lacked the cash flow needed to pay employee salaries and day-to-day expenses.

By requiring employees to pay a share of their retirement, implementing furloughs, revising city fees and pushing departments to control spending, the city was able to balance its budget and to secure a loan to pay its employees, EGP reported back in 2011.

The city’s increasing operating costs were something Montebello, a city once nicknamed the “Beverly Hills of the Eastside,” could no longer afford, Kosmont told EGP.

As in most cities, the biggest chunk of Montebello’s budget goes to public safety. This year, 65 percent of the revenue in the city’s $51.9 million budget will go to covering the cost of the police and fire departments.

Contracting out some of those services could be a start to reducing expenses, but Kosmont acknowledges it would be tough sell with residents who have rebuked past efforts to contract with the County while pushing back against paying more taxes.

Larry Salazar, one of the founders of the “No New Taxes” political action committee (PAC), said his group is ready to fight any measure to impose new taxes, just like it did back in 2004.

Salazar said he doesn’t believe the council can be trusted to “know what to do with our money.”

Some claim that a lack of faith in the current council and city staff is why voters in the June Election failed to approve the $14 million sale of the city’s water system, despite “not a dime” being spent in opposition.

“It’s quite evident that there is truly mismanagement of our city budget,” Yvette Fimbres said at last week’s council meeting. “This is precisely why Measure W was voted against…we demand transparency and we have yet to see it,” she said, referring to how the council goes about making it’s spending decisions.

Some of Montebello’s neighboring cities have imposed special taxes to take some of the burden off their budgets, Delgado pointed out to EGP.

But if Montebello can’t raise any taxes or sell off its aging water system, the city will have to look at what are likely to be equally unpopular options,

“People need to understand that if we don’t increase revenue we have to make cuts and layoff,” Delgado said.

Councilman William “Bill” Molinari told EGP he voted to table discussion on whether to take the tax raising measure to the voters because he felt there was not enough time to do proper outreach, and he’s against the city issuing the emergency declaration required to hold a special election on raising taxes in conjunction with the November General Election.

“Declaring a financial emergency could bring risks to our credit rating and bonds,” explained Molinari. A lower rating could increase what the city has to pay in interest on its financial obligations and future borrowing.

According to Kosmont, his 30 years of experience working with cities leads him to believe that cuts to cover a $1 million shortfall could be avoided if time is taken to review every invoice, department and position. For example, he said, many cities get into the pattern of ordering supplies they already have, tying up cash. Looking at what and how the city orders and pays for supplies might have helped Montebello avoid its current deficit, Kosmont said.

For years, current and past councilmembers have bemoaned the city’s inability to attract new, sales tax generating businesses, despite such gains being made by its more working-class neighbors.

But Montebello has struggled to develop a real, long-range economic vision or strategy for the city that is consistent with its current reality, rather than the image of what it was in the past, according to Kosmont.

“It’s not selling property and increasing taxes that the city needs, rather an increase in revenue,” says Kosmont, who points to the city’s failure to develop the Whittier Boulevard commercial corridor as an example of missed opportunity for economic development.

At the time of the city’s past budget woes the country was in the midst of a deep recession, but has since recovered, noted Kosmont.

“Now is the time to act,” he said. The city needs discipline but “it can be done again.

 

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