Santa Ana officials tonight will discuss the possibility of suspending a voter-approved sales tax increase – meant to bring in extra money for a city that originally faced year-by-year budget deficits and spends most of its taxpayer cash on public safety costs – at the request of Councilwoman Ceci Iglesias.
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Iglesias – who describes herself as a fiscally conservative Republican – is challenging her council colleagues to join her in calls to lower sales taxes in the city for people and families making purchases during the coronavirus public health crisis on tonight’s meeting agenda.
What’s scheduled for tonight is only a discussion. If council members want to hold a vote on suspending the tax or send it back to voters, they would have to give direction for it at tonight’s meeting and it would presumably come back at the next or future one.
Despite the tax being put in place by voters, Iglesias said she wants to see if the city has the power to suspend it.
In a Monday phone interview, she said her hope is that the council tonight has the “political will” to suspend the sales tax, also known as Measure X, to lessen what she described as a burden on people making taxed purchases on things like food from restaurants and encourage more residents to support local businesses in the city during health separation guidelines to limit interactions and nonessential trips out in public.
The tax “affects individuals who are still buying in our city” during the crisis – “especially the essential stuff they need that is taxed,” Iglesias said, saying for example that families who opt to buy fast food – taxed under Measure X — for its affordability would see “relief.”
But as the coronavirus public health crisis lands a hit on the local economy, forcing retail stores and other businesses into closure, some question whether the sales tax is something to even worry about right now.
“Up to this point in time, it’s kind of a moot point with COVID-19 (the novel coronavirus strain),” said Michele Martinez, a former member of both the City Council and the sales tax’s oversight committee.
“People aren’t buying cars, and certainly not buying goods,” she said, adding a “new normal” is coming for Santa Ana as she expects “significant impacts” to the city’s finances from lost sales tax revenue.
“If we assume the impact continues until September, we could lose $20 million of revenue or more,” said city Finance Director Kathryn Downs at a March 26 budget presentation, adding that the city continues to collect data on the crisis’ impacts.
“The lost revenue will impact city services,” she added. “The question is by how much.”
“I look at this crisis as an opportunity for the mayor and City Council … they’re bright folks, and they need to hunker down and figure out a strategy,” Martinez said. “One thing that’s doing very well right now is cannabis.”
As retailers, car dealerships and other businesses remain closed throughout the duration of the coronavirus crisis, cannabis dispensaries like From the Earth on Orange Ave and People’s OC on Grand Ave remain open, and continue to generate tax revenue after voters in 2016 approved Measure Y, a recreational marijuana business tax of up to 10% that was estimated to bring in more than $8 million in extra annual revenue to the city.
“Thank goodness the council moved in that direction back then,” Martinez said.
Employees at From the Earth and People’s OC, reached over the phone, said they’re still in business, and pot sales have largely been unaffected by the public health crisis.
Measure X was marketed to voters as a way to bring extra cash toward maintaining city infrastructure and addressing homelessness in the city, which faced millions of dollars in budget shortfalls in future budget years at the time it was brought forward.
An extra $60 million is what staff expect to generate every year from the tax until 2029, when the sales tax rate lowers, and extra annual revenue drops to $40 million until 2039, when the tax increase goes away completely.
Though members of the public appointed to serve on the oversight board for Measure X started raising questions last year over whether the money was going where promised – or if it was actually going toward paying off city debts and personnel costs.
The City spends more than half of its taxpayer-funded general fund on public safety, specifically the police department, which this fiscal year accounts for $133 million in city spending and includes salaries for employees.
A few months after voters approved the sales tax, the city proposed $25 million in raises for police officers, which the council granted in February last year. The only critics of the raises were Iglesias and Councilman Juan Villegas, who quickly became subjects of criticism by the police union through memos and letters to the council.
Eventually, the police union put more than $300,000 behind efforts to recall Villegas and Iglesias last year. Only the recall seeking to unseat Iglesias was successful enough to prompt an election set for May 19, where voters will decide whether she should stay in office or be replaced.
Three candidates, all women, have thrown their hats into the race to replace her if she’s unseated by voters.
Brandon Pho is a Voice of OC reporting fellow. Contact him at bpho@voiceofoc.org or on Twitter @photherecord.