Orange City Council members are likely to place a one-cent sales tax increase on the November ballot to help quell a longtime structural deficit despite residents voting down a smaller increase two years ago.
At Tuesday’s 6 p.m. city council meeting, officials in one of OC’s oldest towns are expected to approve placing a 1% sales tax increase on the November ballot projected to bring in $37 million additional revenue.
As they weigh other options to bring in new revenue, officials say the one-cent tax increase is one of the only real ways on its own to help get the town over a structural deficit that has grown over the years and one they have struggled to turn around in recent years despite cuts.
[Read: Orange to Again Ask Voters for a Sales Tax Increase to Save Budget]
“At this stage, additional reductions would not represent efficiency gains, but rather further reductions in core City services,” read a staff report.
“The City has already reduced staffing, cut services, and deferred infrastructure investment. Without a new ongoing revenue source, additional reductions to public safety, parks, libraries, infrastructure, and other services will be required.”
Staff also says the proposed measure gives residents two options.
“This measure provides the community with a choice: maintain current service levels and reinvest in Orange, or accept further service reductions over time,” reads the report.
The proposed measure also includes an 11-body oversight committee to make recommendations on spending the tax dollars including individuals selected by the city council, local business and nonprofit owners, someone from a taxpayers’ association and a local parent.
Cuts & Revenue Growth
The proposed 1% sales tax increase measure comes after residents voted against a 0.5% sales tax increase in 2024 and as city council members head into summer with a projected $20 million budget deficit – a slightly higher gap this past fiscal year despite several cuts.
Last year, officials cut library hours, sidewalk steam cleaning, ongoing maintenance to Santiago Creek, city-sponsored events, security at Old Towne parking garages and held a few vacant police and firefighter positions to bring down an initially projected $19 million deficit.
The cuts came after hired consultants warned Orange City Council members the city would be bankrupt in a couple of years if they don’t make radical changes to their budgeting.
Staff said to quell the projected $20 million deficit they will have to transfer $17 million from three different spending buckets, eliminate 50 vacant positions and make other cuts.
“This is a short-term solution to an ongoing structural budget deficit. Consistent and ongoing revenue is necessary to not only balance the City’s budget, but fund and restore community programs and services,” reads the report.
Orange City Council members are also poised to postpone spending over $7.2 million on renovating a couple of fire stations, city hall and other buildings next year amid their budget crisis.
[Read: Orange Expected to Defer Millions in Infrastructure Repairs Amid Budget Crisis]
Officials in the college town aren’t the only ones struggling with bleak financial projections.
City council members in Irvine, Santa Ana, and Fullerton are also dealing with multi-million dollar budget gaps, with the latter two eying putting tax measures on the November ballot this year to try and get voters to help them out of the hole.
The common challenge, officials in Orange say, is inflation and rising costs outpacing revenue growth.
“This structural imbalance is not unique to Orange, but reflects broader trends affecting municipal governments statewide, where revenues grow incrementally while costs, particularly in public safety, pensions, and infrastructure, continue to rise at a faster and more volatile pace,” reads the staff report.
Beyond the sales tax measure, Orange leaders are also contemplating other ways to bring in money including becoming a charter city, raising hotel bed taxes, utility taxes and putting a tax on large parking garages in the city.
There is also interest in legalizing and taxing cannabis stores in the college town in a limited capacity – a source of revenue for a handful of cities in OC already.
[Read: Some OC City Officials Eye Cannabis to Bail Out Municipal Budgets]
“The question becomes whether Orange should continue to forgo that revenue while residents simply go elsewhere and valuable revenue lost,” said Councilman Jon Dumitru in an email earlier this month.
“The challenge is designing a program that is responsible, enforceable, and aligned with our community’s expectations. If we can do that, it becomes less about whether there are challenges and more about whether we’re willing to manage them effectively.”
Hosam Elattar is a Voice of OC reporter. Contact him at helattar@voiceofoc.org.