The Irvine City Council has directed city staff to develop an ad campaign, encouraging residents to buy from Irvine stores to help offset the ongoing drop in sales taxes caused by online shopping.
Mayor Pro Tem Christina Shea, at the June 12 council meeting which unanimously passed the budget, suggested the “aggressive marketing campaign” to help off-set a projected $6 million deficit in the 2018-2019 city budget.
“Sales tax doesn’t have quite the rosy picture … we have flattened out and in fact are fairly flat over the last several years,” acting City Manager Grace Leung said during the budget presentation. She said the revenue is expected to grow only half a percent. Online shopping has flattened sales tax revenue in many communities.
Leung said the city is using a patchwork of different funds to close the budget gap this year, including overhead cost reimbursements for Great Park activities in the general fund and the $2.1 million of the city’s $42.7 million reserve fund. The reserve fund is expected to be paid back with surplus funds from the 2017-2018 budget.
Irvine wrestled with the sales tax revenue problem last year when it passed its 2017-2018 budget, which also relied on various funds to close the budget gap.
“I do have a concern. Last year we had a shortfall, this year we have a shortfall,” Shea said. “We need to be … proactively promoting shop Irvine.”
Leung said Irvine isn’t the only city befuddled by the sales tax revenue problem from online shopping, combined with a shift from a goods-based economy to a service-based economy.
She said the sales tax revenue is from “taxing goods and not services, and the economy is moving into services … This is an occurrence that’s happening both county and really statewide as well.”
Irvine’s property tax — which makes up the biggest revenue of Irvine’s nearly $200 million budget at almost $70 million — is still increasing at about 7 percent a year, Leung said.
She also said the hotel tax, which is the third largest revenue source for the city at $20.4 million, is projected to bring more revenue to the city as new hotels are being built and some have recently opened.
“I think this is a very good bright spot for us on our hotel tax,” Leung said. “And it’s on the lower side as you look at the rest of the county.”
Leung also said she directed the city departments to maintain current budget levels.
“I asked the departments to hold the line” on staffing and spending, Leung said. “So really hold to the 17-18 budget as much as possible.”
During council deliberations, Councilwoman Melissa Fox proposed taking out of the budget the $41,000 annual expense for membership in the Association of California Cities — Orange County (ACCOC).
“It’s a very expensive program and its duplicative of League of Cities and what our staff does … and I’m a little concerned of the homelessness issue where they weren’t helping us very much and sometimes a little oppositional,” Fox said.
Fox’s proposal got support from Shea, who also said the membership isn’t worth the money.
“I do not go to the (ACCOC) meetings and when I did, the chicken was so bad,” Shea said. “They do a good job in many ways, but I think for each city to spend so much money … I’m just not sold on staying with them.”
Mayor Don Wagner defended the ACCOC membership.
“ACCOC has been smacked around today and let me come to their defense. First, I have considerable experience both locally and in Sacramento with both ACCOC and League of Cities,” said Wagner, a former Assemblyman.
He added League of Cities too often takes a legislative positions, which are ignored by legislators. Wagner also noted ACCOC’s efforts to create a regional body to help address the lack of housing for homeless people.
“Unlike League of Cities, they (ACCOC) are proposing and sponsoring legislation that will make a dent, hopefully more than that, but certainly a dent in the second and third steps of coming from homelessness. Not the emergency beds, but supportive and temporary (housing),” Wagner said. “Of the two organizations, they are the one doing the real work in Orange County.”
The council voted 2-3 on Fox’s motion to withdraw from ACCOC, with Wagner, Councilwoman Lynn Schott and Councilman Jeff Lalloway dissenting.
Spencer Custodio is a Voice of OC reporter who covers south Orange County and Fullerton. You can reach him at email@example.com.