Sacramento Tax Increase Proposal Represents Statewide Trend

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

The Sacramento City Council vote to place a tax increase on the November ballot is representative of what we’ll see around the state in many localities: a call for more taxes to maintain basic services when in reality the money is needed to meet pension obligations.

In one sense the argument that the money is needed to maintain services is correct. Because greater pension costs will eat into the general funds of local governments, services provided by government will be cut because of reduced revenue. The problem is that officials promoting the tax won’t talk about pensions. 

What’s needed is transparency.

In Sacramento, the city council placed a 1-cent sales tax on the ballot to offset a ½-cent tax that is soon to expire. The new tax will be permanent. The tax is projected to raise $100 million, twice what the temporary tax now brings in. The new money is purportedly for specific projects but money is fungible and can be used where the city needs it—and the city needs to deal with rising pension costs.

(UPDATE: The current tax take from the 1/2-cent tax is actually $36 million. The $50 figure came about because of carryover money from previous year. A full penny is about $72 million. Thanks to Dan Walters at CALmatters for the correct information.)

The city budget speaks of the long-term difficulty Sacramento faces dealing with pension obligations. “The pension cost (normal cost and unfunded liability combined) in the General Fund alone is projected to be $134 million in FY2024/25 when the rate change is completely phased in. This reflects an increase of more than $66.9 million over the eight years which is a 99.6% cost increase from FY2017/18 to FY2024/25.”

Sacramento’s General Fund has increased about 25% from the 2009/10 budget to now from $385.9 million to $484.4 million. Even that steady increase cannot match what is needed to keep pace with the expected pension demands.

A tax increase is a way to meet the obligation but you won’t hear much about that when a campaign is mounted for the tax increase. At the council meeting approving the tax there was talk of maintaining basic services and supporting a plan that would confront multiple problems including homelessness, neighborhood investments, and job issues.

This formula is not exclusive to Sacramento. Many local governments must face pension costs that are burdening their General Funds and are turning to taxpayers for relief. By paying more in taxes the taxpayers have less to contribute to their own retirement costs.

The debate over these taxes should be truthful about the pension monster that is devouring local budgets. Once that happens more attention will be focused on how to deal with the problem.

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