Commission Impossible

Lon

For the record: the police facility ($20 million) is not part of the General Fund deficit projecton. That would be part of the Capital Improvement funding, i.e. RDA and/or Development impact fees.

I agree with you and Mark Sorensen, the $112 million deficit projection will continue to grow as we learn more details.

Bob,

Thanks for posting, and for the correction. I thought they stated that the police facility (pahse 1) was incorporated into existing funding and was not adding to the deficit. Maybe you could give us a City finances overview as far as the interaction between General/Park Funds, CIP, RDA, and whatever else is out there. I'm sure people that read this blog would be interested to hear about it. You're the budget boss Bob Best.

I'll call you quad-B from now on.

Lon

Most of the budget discussions, so far, have been regarding the General Fund.

Yes, they have tossed $20 million toward police facilities (That is, if you can merely “toss” $20 million), but that is on the CIP (Capital Improvement Program) listing, predominantly (if not entirely) coming from RDA funds. Not General Funds.

At some near point in time, they’ll likely assign some portion of Phase 1, and probably all of the subsequent phases to new development. With annexations virtually complete, subsequent phases should be attributable to new development.

What is still missing from the deficit numbers are two major items: 1) Personnel additions other than Police/Fire; 2) a complete explanation of their transfers into the General Fund (EG: gas tax money).

Bob Best asked the question, but, they were not clear this morning on exactly how much the “transfers-in” exceed actual “road work” activities funded by General Fund Dollars…

It will be interesting to see if the City can give itself a pass-through of property tax dollars from its own RDA (though, that would merely shift the problem to a different pocket in the same pair of pants), and genuinely fascinating to see to what extent the City is able to renegotiate the sales tax revenue sharing agreement with the County…. As I said before, I’m sure that County is absolutely thrilled with that idea….

What exactly was your idea regarding applying sales tax to (internet) interstate commerce?

Mark,

It was more of a question or possible concern than idea. My understanding of California internet sales is this.

If selling within California a retailer needs to collect the sales tax for the location of the sales office. California has somewhere around the 5th largest economy in the world. My concern was that by increasing sales tax in Chico you could remove a competitive advantage for companies that are primarily internet based, with regards to selling to other Californians. A local example might be Improvements Direct.

California also has "use tax" laws where the purchaser is supposed to pay local sales tax if they purchase from an out-of-state retailer. These are unenforced. That use tax law also applies to sales to different California tax districts, but as I said they are unenforced. It's possible that these laws have changed, but the 2005 BOE guidelines are that you do not need to charge your customers a special district tax if you ship a product into the district, but you do not do business there.

I was asking if the city had considered whether an increase in local sales tax would negatively effect companies that sell online by making them less competitive. This can be most damaging to resellers whose margins are low to start with. Santa Cruz has an 8.5% tax (7.25% state tax + 1.25% for the tax district). If I bought two identical items on the internet and one came from Santa Cruz and the other from Chico I would pay 1.25% more for the pleasure of doing business with Santa Cruz.

Also, if you look at Chico as a market it is pretty small. From an economic development standpoint it would be best for Chico if we attracted companies that sell to a wider market, and accumulate sales tax from areas of California outside of Chico. Internet sales do that. If we were to raise our tax rate would we make it less likely that those companies would locate here? Would companies already here decide to leave?

An enterprise zone directed at attracting online retailers who can provide good jobs and increase our sales tax base might be something worth looking at (as opposed to wholesale manufacturers). I've read very little about enterprise zones and how they may be formed, but I have seen suggestions that sales tax can be credited to businesses within them.

Lon

Lon:

Ah ha….(bang on the forehead). Now I get it…

I definitely mis-understood your point this morning…. And definitely agree with those thoughts.

Dummy me… a year ago I was thinking that there was something of a budget crisis looming, so I thought that the subject would see the light of day, and that it would prompt ‘someone’ to call for a sales tax increase, so I wrote this late last summer:

http://www.marksorensen.net/e2006a/salestax.htm

Similar thoughts, though mine were more directed at our potentially eroding status as a regional retail center.

Of course, this entire line of thinking also leads to other thoughts of how “economic development” could raise city revenues, but such things are likely to be vehemently opposed as being “growth inducing”.

But, as it turns out, I must have been wrong last year. Apparently there was no issue balancing the budget, at least according to our current Mayor in this 11/02/2006 CN&R combination Guest Commentary and Get-Out-The-Vote piece:

http://www.newsreview.com/chico/Content?oid=234495

Mark,

The basic premise of what you wrote and what I'm saying is the same. If we have a sales tax increase we are less competitive than our local neighbors. But you also point out that we are becoming less competitive due to improved retail opportunities in surrounding communities. That will likely continue to be the case.

However with internet sales based businesses we could out compete large urban areas and draw sales tax from a broad geographical area.

This is not a simple or short term strategy. It could have been 10 years ago. As many people have stated Chico has the University, Junior College, Airport, Hospital, and other amenities. Attracting nimble mid-sized companies here that retail across the state should be feasible.

It becomes less feasible if we ratchet up our tax rates.

On the Holcombe article, I've referenced it on this blog a few times. He was rather wrong on the sales tax estimate point, and the argument that the deficit was a result from an accounting change. He was not so wrong on the point that the various Councils unanimously supported steep increases in employee benefits.

But we'll just have to run for City Council and fix it. Unless of course I'm elected to City Manager, then you're on your own.

Lon