Vernon residents and businesses could soon see an increase in their utility bills under a proposed tax measure that could go before voters in April.
Business owners filled city hall chambers Tuesday to hear more about Measure Q, which if passed would increase the Utility User Tax (UUT) from 1 percent to 6 percent. The city council is expected to call for the measure to be placed on the April 11, 2017 election ballot during the January 10 council meeting.
“Business owners don’t have a vote but it’s important to educate them because they will be the ones affected by it,” explained City Administrator Carlos Fandino, quickly claiming the measure is not a revenue-generating measure but rather a good governance decision.
For years, Vernon has sought to shore up its budget deficits by transferring funds from the city’s profitable Gas and Electric Department to its general fund, an amount that reached $9 million in each of the last two years.
The practice recently prompted the credit rating company Moody’s Investor Service to downgrade the city’s rating to a negative outlook, Fandino said. The State of California discourages such transactions because it is viewed as a hidden tax.
To offset the increase, the city is prepared to offer electric utility customers a 5 percent bill credit equivalent to the utility tax increase, which would be covered by the elimination of the operating transfer.
All other utility customers, however, including water, gas, fiber optics and phone, will still see their bills go up by 6 percent.
Under the proposed rate increase, a moderate sized business should expect their water bills to go up $550. Residents on the other hand will see less than a $2 hike in fees.
If passed, Measure Q is expected to generate a net gain of $1 million, says Fandino, who says the city is simply “moving dollars from one bucket to the other.”
“It is still an increase,” says Peter Corselli, vice president of U.S. Growers Cold Storage, one of the city’s largest businesses.
“The cost of doing business in the city goes up,” added Henry Haskell, chief executive officer and president of Square-H Brands, Inc. “This is an increase on the backs of industry.”
Corselli told EGP his large business would see one of the highest jumps in the city, explaining that at $3 million a year, utility costs are his business’ second largest operating expense.
With just 300 residents in a city with over 1,800 businesses, Vernon prides itself for being business-friendly, often boasting that its utility rates are lower than those of neighboring utility companies.
The city has not raised gas prices since the city’s inception, according to Fandino.
Dave Gardena of Baker Commodities, however, told EGP rates have been going up for years and he does not understand why the city would increase electric rates only to credit it back.
“The revenue is still coming from utilities,” he said “It’s just a horse with a different color.”
When asked how long the 5 percent bill credit would be offered, Fandino said that answer would be determined by the results of the city’s yearly rate analysis.
Why does the city always look to increase utility rates when it needs to fill in the budget, one business owner asked? City Finance Director Bill Fox responded that Vernon is unique and its small population prevents it from generating revenue from other sources, such as taxes or local government returns that are calculated based on the size of a city’s residential population.
“When you have 300 residents you don’t get much of a share,” he said.
After the presentation, Haskell told EGP he’s now convinced that the increase is needed.
“I feel good about it,” he said. “I don’t see it as an increase; the reasons he talked about were reasonable.”
According to the city, business owners and residents will have the opportunity to file arguments for or against the measure next year, and a public examination period will be held before it goes before the voters.