In this fraught election year it is easy to be caught up in the intensity of the Presidential race while trying to ignore the incessant barrage of campaign ads for an array of confusing ballot measures. But near the bottom of your ballot is an important local referendum that requires your support.
Measure “E” is a request by the City Council to raise our local sales tax by three quarters of a cent to 10.25%, which is the legal maximum. This is a modest measure that would increase the sales tax by 75 cents for every $100 you spend on taxable goods.
Back in April, I predicted how COVID-19 would impact our city budget; unfortunately my fiscal predictions were pretty close to the mark. The city’s operating budget is going to be short by approximately $35 million dollars. While the City of Los Angeles is talking about employee furloughs and huge cuts in programs due to a predicted budget short fall of 6% to 9%, West Hollywood’s budget short fall is close to 25%.
Measure E would generate approximately $11 million in new revenue that would offset a large portion of our budget deficit. Voting for Measure E is the right thing to do to protect West Hollywood’s social service programs and allow the city to be even more proactive in providing assistance to those hurt by the economic impacts of COVID-19.
Although West Hollywood essentially breezed through the 2008/2009 Great Recession, the COVID-19 recession is still playing itself out and it hit us in all the places that our budget was venerable. It has long been clear that the city’s tax base is over dependent on the hospitality industry. Our relatively painless passage through the last recession led a lot of folks at City Hall to think that West Hollywood was not susceptible to the laws of economics. Alas we are learning this is far from true.
The city’s tax base has four major pillars: the transient occupancy tax (hotel room tax), parking revenue, sales tax and property tax. When COVID-19 hit, three of the pillars went down like dominoes. Only property tax revenue has been immune to the virus. Nationally hotel occupancy is down by 60%; in West Hollywood that number was even lower. Several of our hotels on the Sunset Strip never opened this summer. The lack of visitors translated into lost municipal revenue. Our parking meter revenue crashed and without expired meters, there were no parking tickets, which is the more lucrative leg of our parking revenue. In a bid to resuscitate our restaurants, metered parking spaces are being blocked, but that was a necessary expedient to bringing some life to Santa Monica Boulevard. But the tax revenue from restaurants is not offsetting the loss of parking revenue. If it was not for Target, BestBuy and parts of Melrose, our sales taxes receipts would be even grimmer. Without visitors, we have more unemployed bartenders and go-go boys than any other city per capita. Even though the city saved $5 million due to the cancellation of Gay Pride and Halloween, we still face a serious shortfall.
I have been blindsided to discover how many people I know who said they would not vote in favor of Measure E because they felt the city was awash in cash. It is true that our municipal budget contains funding for social services, arts programs and infrastructure investments that are largely missing from the majority of California cities. But that does not mean that cuts to services won’t be painful for many of our residents.
While City Council members often remind us that West Hollywood has well of $100 million in reserves, what is not necessarily obvious is that a “reserve” is not the same as a surplus. Fortunately the city’s revenue stream since the early 2000s has allowed us to accumulate an enviable amount of cash, that money acts as a “reserve” to guarantee our municipal bonds, the funding tools we have used to create the library, the tremendous improvements in West Hollywood Park, finance affordable housing and, purchase the land at the corner of Crescent Heights and Santa Monica boulevards. There are limits to how deeply the city can dip into its reserve without endangering our triple AAA bond rating. That rating is what allows the city to finance the borrowing of millions of dollars at incredibly low interest rates. That is a very good thing and needs to be preserved.
It is important that voters realize that the city has dipped into our reserve because we have been faced with new budgetary demands in the face of a massive loss of revenue. It is not clear how far we can eat into our reserves without hurting our bond rating.
The City Council has approved hundreds of thousands of dollars to provide legal services to tenants faced with potential evictions, increased funds for residents facing food insecurity and has provided up to $3,000 for unemployed tenants to pay their rents. Frankly, unless we want to see hundreds of evictions of long-term tenants, the city is likely to be forced to spend even more money to keep people in place. I want the City Council to spend more money to protect tenants if that is what it takes to keep West Hollywood folks in their homes.
I often hear complaints that some of the incumbents have acted as if it were their fiscal genius that created the city’s healthy reserve, so let them apply their supposed monetary wizardry to get us out of this crisis. These comments are warranted because the city’s abundant revenues are based on our very small size and our location next to Beverly Hills and Cedar Sinai rather than some superlative budgetary magic. How many 1.9-square-mile municipalities have anything like the Sunset Strip, Boys Town, shopping districts like Melrose and a couple of lucrative studios within their city limits? West Hollywood has good economic bones and has had that from the very beginning; we just needed a bit of rational management to bring it all together.
I am confident that West Hollywood will recover within the next 18 to 24 months. But that does not mean we should be complacent. Remember the City Council has pretty much already committed West Hollywood to having a subway and paying anywhere from $70 million to $500 million in construction costs. I tend to think we are going to be on the hook for construction costs of something much closer to that higher number than the lower number. Councilmember John Heilman recently told the press that West Hollywood expected our share of these costs to be defrayed by help from Washington or Sacramento. Given the impacts of COVID, that is an extremely irresponsible prediction to make. So far, the city has not floated any less painless way of paying for the subway than this sales tax increase. It will bring us $11 million in new revenues in the coming years and that number will increase over time.
West Hollywood is likely to face a new crisis in the form of underfunded pension benefits in the near future. CALPERS, the pension system, is seriously underfunded, and because of West Hollywood’s generous salaries and top heavy management, our share of any pension shortfall is going to be painful to future City Councils. So a bit more revenue will come in handy.
Alternatively, when good times return, perhaps the additional sales tax generated by Measure E can allow the city to eliminate the business license tax for most of our small businesses.
We also need to support Proposition 15, which will force commercial property owners to pay their fair share of property taxes.
Back in 1978 when Howard Jarvis crafted Prop. 13, he allied himself with commercial property owners to fund his successful campaign to roll back property taxes. That has been a diabolical deal with the devil. While Prop. 13 has allowed homeowners to buy into the American dream, it has been an unfair windfall to commercial property owners who have not paid their fair share toward our schools, public safety or our infrastructure. Thanks to dubious legal fictions, commercial properties have changed hands without the full re-appraisal of property values upon sale, which has short changed California’s schools and local governments out of billions of dollars in much needed revenue. Many of these legal shenanigans have been with the connivance of County Assessors and our Democratic majority legislature, which have been loath to close these loopholes. Prop. 15 will do exactly that.
California is 42nd or 43rd in per student spending in the nation. Unlike fortunate West Hollywood, most cities struggle to meet their infrastructure needs and can barely pay for rising costs of fire and police protections even in good times. Talk of “defunding the police” is a joke in many cities in South LA County; they are struggling just to provide basic law enforcement protections. Most cities don’t build affordable housing because they simply don’t have the revenues. If Prop. 15 passes, this will change and up as much as $12 billion annually will go to local governments and our schools.
I know a lot of you are upset at Monte Overstreet and other local commercial property owners who seem to be willing to have vacant storefronts rather than work with our small business owners. Well here is a great way to stick it to them. You can’t raise rents on vacant buildings and sooner or later the laws of economics will kick in, and they will have to lower rents and work with commercial tenants.
As an attorney I have a triple net lease, but I am not worried about receiving a huge rent increase due to rising property taxes. First, the tax increases will take up to three years to implement, so the economy should be well on the road to recovery by that time. Also office vacancies are at a historic high. The current amount of empty commercial office space will take years to fill. In other words, your accountant, therapist, dentist or doctor will not be in danger of eviction or have to pass huge rent increases on to consumers. Major retail chains will just absorb the costs rather than jack up prices. That is just propaganda by the anti 15 folks.
Passage of Prop. 15 will be a huge benefit to West Hollywood and all California cities. West Hollywood has about 1,200 commercial parcels; many of them are relatively new developments that have enjoyed unrealistically low property tax rates. West Hollywood could replace our aging water pipes, update our electrical grid, improve parks or finance more affordable housing. Not all of this new money will go toward sending City Council members to the South by Southwest Music Festival or provide keys to the city to dubious public figures. We could do wonderful things with this enhanced property tax revenue.