California Voters Add Local Taxes on Top of New Levies

California voters, who approved statewide sales and income tax increases of $6 billion a year, also approved higher sales levies in about two dozen cities and counties strained by the financial downturn.

The municipalities, limited in raising property taxes by Proposition 13, appealed for the boosts to help repair roads, pay rising pensions costs and avert further cuts to staff and services.

“State and local government budgets have been hit extremely hard over the past few years, to an extent not seen in past recessions,” Alan Auerbach, an economics and law professor at the University of California, Berkeley, said by e-mail before the votes. “The sales tax is about the only option that local governments have to raise tax revenue.”

Municipalities in California, the most populous U.S. state, can’t impose higher sales taxes without going to voters, and the state caps real-estate levies at 1 percent of a property’s most- recent sales price. Three California cities -- Stockton, San Bernardino and Mammoth Lakes -- have filed for Chapter 9 bankruptcy since June.

Voters approved Governor Jerry Brown’s plan to increase the statewide sales tax to 7.5 percent from 7.25 percent, and boost rates on income starting at $250,000. Those making $1 million or more will pay 13.3 percent, the most of any state. The increases, which will raise an estimated $6 billion annually, are to expire by 2018.

‘Severe Cuts’

“We’ve received such severe cuts from the state that we do not feel we can any longer provide the quantity and quality of services to the most vulnerable populations, especially in health care and human services,” Carole Groom, a supervisor in San Mateo County, said ahead of the vote.

San Mateo County is home to Visa Inc. (V), the world’s largest payment network, and Oracle Corp. (ORCL), the largest maker of database software.

Voters there approved a sales-tax increase of half-percent for 10 years that will bring in $60 million in revenue annually.

Other municipalities asked their voters to approve sales- tax increases to make up for the loss of redevelopment dollars. Brown, a 74-year-old Democrat, killed redevelopment programs statewide this year and snatched their tax funds to cut California’s deficit, putting additional strain on cities.

Redevelopment Loss

Healdsburg, a tourist destination in Sonoma County within a 20-minute drive of more than 100 wineries, “lost millions” when redevelopment was eliminated, Marjie Pettus, the city manager, said in a telephone interview before the vote.

“Redevelopment was the only tool we had to promote economic development in Healdsburg,” Pettus said.

The city had just issued $20 million in bonds for infrastructure projects when the dissolution of redevelopment put the use of the money on hold, she said. Voters approved a sales-tax increase to 8.5 percent from 8 percent, which will generate about $1 million annually in new revenue for 10 years.

California cities had used redevelopment funds for infrastructure improvement, graffiti removal, rehabilitating downtown buildings and, in some cases, to supplement expenses typically paid out of a general fund.

Brown was faced with an estimated $26.6 billion budget deficit last year when he signed legislation abolishing about 400 redevelopment agencies statewide. The law took effect in February.

Eastwood’s Carmel

In Carmel-by-the-Sea, where actor and director Clint Eastwood served as mayor in the 1980s and near the famed golf course at Pebble Beach, voters approved a measure to increase the sales tax by 1 percentage point for 10 years.

The new funds will go toward capital projects, including maintaining city streets, and to pay off a $6.2 million pension liability to the California Public Employees’ Retirement System, the largest U.S. pension fund, Ken Talmage, Carmel’s vice mayor, said in a telephone interview.

“The local governments really need to try to compensate for the lack of property taxes, sales taxes and other streams of revenue they used to get,” Ann Crigler, a political science professor at the University of Southern California in Los Angeles, said by phone.

“They are going to the community and saying ‘We have some real needs here and are you willing to help?’” Crigler said.

Other municipalities with sales-tax increases included the counties of Fresno, Marin, Napa and Santa Clara, along with the cities of Albany, Capitola, Culver City, Moraga, Orinda, Salinas, Vacaville and Williams.

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.