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After years of budget deficits, brought on by the end of redevelopment, and a dwindling slate of options for cutting costs, Westminster officials are debating whether a local sales tax increase might be the only way to bring financial stability to the city.
Gov. Jerry Brown’s decision to eliminate redevelopment agencies as part of his 2012 state budget reform package dealt a crushing blow to many smaller, built-out cities like Westminster. Overnight, the city of 92,000 was staring down a $10.4 million budget hole, which forced a period of austerity that included major layoffs and service cuts.
Although city leaders have been able to draw from a general fund reserve to pay off that deficit, time is running out for them to come up with a long-term financial strategy, as that reserve will run dry by 2018.
A local sales tax increase is certainly not unheard of, even in conservative Orange County. La Habra passed a half-cent increase in 2009. And voters in Stanton, another city devastated by the end of redevelopment, passed a one-cent sales tax increase in last November’s election.
Stanton, on the verge of bankruptcy in 2012, eliminated its budget deficit this year, which city officials attribute to revenue from the sales tax.
You don’t have to look far either to see how deep budget cuts can go.
In Placentia, another small city on the verge of bankruptcy a few years ago, council members debated placing a half cent local sales tax measure on the Nov. 2014 ballot, but ultimately failed to get enough votes.
The city has cut its general workforce by 45 percent and contracted out a number of city services to private companies, including engineering, permits, planning, inspections, traffic and sewer maintenance and neighborhood services.
Police overtime and school crossing guards have been reduced and city employees are asked to pay 100 percent of the employee contribution to their pensions.
Is There Political Will for a Tax Hike?
In Westminster, councilmembers say they don’t want to see more cuts, but so far it’s unclear whether there is enough support behind raising taxes as a viable alternative.
Carey said a sales tax measure could be “the only way to save the city,” according to the minutes.
City officials estimate a one-cent local sales tax, which would bring the citywide rate to 9 percent, would bring in an additional $12-$13 million annually.
Even councilman Tyler Diep, a self-described conservative who has spoken vehemently against using taxes and fees to generate revenue, is now saying he won’t rule out a sales tax measure.
At the June 24 council meeting to approve the budget, Diep softened his language.
“We can either raise taxes — and yes, I’m saying it — to maintain level of services, or you can cut services in the form of cutting employee salaries,” Diep said. “If we don’t pull that trigger, one of those options or a combination of both, we’re not getting out of this mess.”
“Even cutting salaries is not realistic — how do you cut six million off of employee salaries?” he added.
Reached by phone on Tuesday afternoon, Diep said he didn’t want to comment on the budget or the possibility of a sales tax ballot measure yet — saying that he tends to shy away from talking to the press.
Carey later added that while she supports the idea of a sales tax initiative, the city needs to educate the public about the city’s budget issues before it tries to place a local sales tax measure on the ballot.
Rice, Mayor Tri Ta and councilman Sergio Contreras didn’t return calls for comment.
Little Room For Cuts
The tone among council members is that, aside from small savings here and there, there are few places left to cut.
Carey warned that the city could lose employees to budget deficit fatigue and low morale if they make more cuts.
“We’ve projected what it would look like if we made one million in cuts, two million in cuts…it would look ugly. We’ve had to add positions back in because we can’t cut services,” Carey said. “To make arbitrary cuts this year, it just upsets your staff and it doesn’t solve the problem.”
The city lost 67 employees to layoffs and early retirements in 2012, as part of a budget plan to reduce the deficit by $5.8 million in a single year, according to the 2013-15 adopted budget.
Since then, city management has added back some positions while shuffling around duties and consolidating responsibilities in city hall, and many employees have taken on tasks outside their normal job descriptions.
In 2011, before the end of redevelopment, the city had 152 employees outside of the police department. This year there were 117, according to the revised 2014-15 budget.
Like many cities across the state, public safety costs consume most of the city’s spending, with the Police Department taking up 54 percent of the city budget.
Its vacant headquarters, which completed a $52 million expansion in 2011, is perhaps a testament to both the city’s reliance on redevelopment, and its failure to rebound after the state eliminated that financing tool.
The glittering, three-story, 91,000 square foot building was built with the expectation that the department would grow and lease out space to other law enforcement agencies. Amid citywide cutbacks and a declining economy, neither of those expectations ever materialized.
Staffing in the Police Department has gone from 164 people in 2011, to 150 at present. Sworn staff positions, currently at 87, have been relatively stable since 2011, although a handful of those positions have been left vacant year to year.
At the June 24 meeting, Diep criticized his colleagues for approving new two-year contracts with the police and municipal employees’ unions, which included salary increases and one-time stipends in exchange for an increase in employee contributions to their pensions.
“Don’t think that just because they pay more into their pension costs, that it’s a wash,” Diep said. “It’s not a wash, [the increases] amplified our deficit.”
“I think we know that now,” Rice replied.
Westminster staff will present the city council with budget strategies at workshops that will be held throughout the summer.
Correction: Due to an editing error, a previous version of this story mistakenly stated that the city of Westminster had a $10.3 billion deficit in 2012. The deficit was $10.3 million.
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