Los Angeles hopes voters will extend tax-hike tolerance into 2013
By Rick Orlov dailybreeze.com
California has apparently decided 2012 will be the Year of the Tax Increase.
On Nov. 6, Californians passed Proposition 30, which increased the state sales tax by a quarter percent for four years to help cover the state deficit and prevent further cuts to education funding.
On the same ballot, voters in 28 out of 36 California cities OK’d local sales tax hikes.
Now, Los Angeles voters will decide whether the willingness to increases sales taxes continues into 2013. On March 5, residents will be asked to increase the city sales tax by a half-percent, designed to bring in up to $215 million next year, covering nearly all of a projected $216 million shortfall in the city budget.
“On the surface it looks as if voters are more amenable to supporting revenue proposals,” said Raphael Sonenshein, executive director of the Pat Brown Institute at California State University, Los Angeles.
“But, I think you have to go back to look at the specific campaigns and what the money will be used for. I don’t think you can say with certainty that voters will approve this tax.”
Council President Herb Wesson developed the new city sales tax proposal after looking at alternatives, spokesman Ed Johnson said.
“None of the other taxes bridged the gap and none of them polled very well,” Johnson said of proposals to increase the parking occupancy tax, hike the documentary transfer tax or impose a $39 a year parcel tax for parks.
“We looked at what other cities were doing who were facing similar budget challenges and their success at the polls. We felt it was something that we should at least put before voters.”
If passed, the sales tax in Los Angeles would be 9.5 percent.
That’s higher than most of L.A.’s neighbors. Burbank, Glendale, Culver City, San Fernando and Agoura Hills all have a 9 percent sales tax. Thousand Oaks’ tax rate is 7.5 percent while Santa Monica is at 9.5 percent.
Larry Kosmont of Kosmont and Associates who publishes an annual guide on the most expensive cities in which to do business, said he believes the city is asking for trouble with the proposed tax increase.
“I think it’s problematic for Los Angeles,” Kosmont said. “It just makes Los Angeles, as a city, more expensive.
“Los Angeles has all these borders where it’s easy to go to cities with lower sales tax. You can forget seeing big TVs, washers and dryers – all the major consumer goods – being sold in Los Angeles in the near future.”
The increase in the sales tax would not affect car sales, since car buyers are charged based on the tax rate where they live. However, it could affect other large items.
“People will just go over the border to where sales taxes are less expensive,” said former Mayor Richard Riordan, who is opposed to the tax hike. He has proposed a ballot measure to overhaul the city’s pension systems to reduce city costs.
Kosmont said the biggest problem with sales taxes is they are so regressive – hitting the poor and middle class the hardest, which is why cities have tried to avoid raising the tax.
But, he said, with the loss of Community Redevelopment Agencies that provided some funding for programs and the difficulty in raising other taxes, the sales tax has become the latest target of public officials.
The last major local increase in the sales tax was passed in 2008, when voters approved Measure R, a 30-year half-percent tax hike to pay for transit and transportation projects. Measure J, which would have extended the tax another 30 years to 2069, failed on Nov. 6.
Most of the city’s sales tax – 6.2 percent of the current 8.75 percent – goes directly to the state.
Los Angeles only receives about .75 percent now, which brings in about $332 million a year, the city’s fifth largest revenue source.
State law limits how much the sales tax can be increased by local governments to a maximum of 2 percent. The county of Los Angeles already uses 1 percent of that for transportation programs, leaving the city of Los Angeles with access to the remaining 1 percent.
The request to have voters approve a sales tax increase comes as Los Angeles has tried to remake itself as more business friendly.
Councilman Eric Garcetti, who is running for mayor and opposes the sales tax proposal, has backed a plan that would phase out the city’s business tax, arguing that would attract new business investment and boost other tax revenue.
Mayor Antonio Villaraigosa, who has been lukewarm on the sales tax proposal, has called for a number of other breaks for businesses – from business tax holidays to tax exemptions for start-up firms.