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Utility tax debate: halt it now, or tax to the max?

NOTE: On Feb. 13, the Menlo Park City Council voted 4-1 to set the new utility users' tax at the maximum rate: 3.5 percent on utilities (water, gas and electric bills) and 2.5 percent on communications (landline phone, cell phone, cable TV and Internet bills). Thee opposing vote was cast by new council member, John Boyle. Below, Mr. Boyle, and Councilwoman and Mayor Kelly Fergusson, who voted for the tax, explain their positions.

Boyle: 'The tax would probably not have been on the ballot had the $3.7 million surplus been known'

By John Boyle

In my first three months on the Menlo Park City Council, one thing clearly stands out: We need fuller and more timely information on our city finances.

Due to limited resources, our city's financial team has an incredibly difficult job, and they are doing the best they can. However, we need to do better. Similar cities have found ways to do more frequent financial reports and have formed audit or finance committees to work with the city staff to improve the process and its transparency. I plan to continue pushing the city to embrace these types of "best practices."

Perhaps the most pressing example of how this lack of financial information has impacted all of us is the new utility user tax. Last summer, based partly on erroneous forecasts, our former council decided to place the UUT on the ballot. Many other people endorsed, campaigned, and voted for it based in part on poor information.

I think our City Council owes it to the public to minimize this tax. If you watched our Feb. 13 council meeting, you know that I lobbied to consider repealing the UUT or to set it at zero. Instead the council voted 4-1 (I opposed) to proceed immediately with the UUT at the maximum rate.

In my view it is not clear that the tax is needed. We have a long history of overly conservative forecasts like last year's. The city's current long-term forecast projects annual deficits of approximately $1 million without the UUT. But over the past 10 years, the city's actual outcome has always beat the forecast by a significant amount, ranging from $2.5 million to $9.5 million each year. There are other reasons to reconsider the tax:

• Although I'm not advocating deficit spending, I believe that with a record $35 million general fund reserve, we can afford to use a more optimistic forecast until proven wrong.

• If we do implement the tax, it will be hard to not spend it.

• Once expenses ramp up, it will be hard to reduce them.

• The UUT measure would probably never even have been placed on the ballot (let alone passed) had the $3.7 million surplus been known and disclosed.

The employee contracts

The negotiations that led to the pending city employee contracts are another example of where better financial information would have helped the council. Again using erroneous estimates, the prior council proceeded down certain negotiating paths. When the new council took office, an official impasse had already been declared. We made the best of an unfortunate situation by getting the SEIU and AFSCME unions to accept a three-year package that includes a significant pension increase, but also includes minimal raises (0 percent in year one, 1 percent in year two, and 2 percent in year three).

While the 35 percent pension increase is dramatic, it is the same as what the vast majority of our peer cities are offering. We would be at a loss to recruit and retain our top employees if we remained uncompetitive in this regard. This was an especially important point as we look to hire a new city manager. Also, by avoiding any substantial near-term salary increases, the total cost to the city is projected to be lower than any other available alternative.

A side note: The reason for the 4 percent immediate increase for management vs. the deferred 3 percent cumulative increase for the unionized employees reflects the fact that our unionized city workers are currently paid at levels consistent with other cities, while our management staff are currently paid at a rate significantly below the averages elsewhere.

John Boyle is a member of the Menlo Park City Council.

Fergusson: 'Without the utility users' tax,

By Kelly Fergusson

The need for the utility users' tax (UUT) is based on Menlo Park's ongoing and 10-year projection of a structural deficit in the city's annual finances. Over the past 10n years, the budget was "balanced" by failing to spend money on proper street maintenance, and failing to pay for other known liabilities. The city's purported "balanced budgets," including year-end "surpluses," masked an unhealthy ongoing annual financial picture.

Over the past five years, city councils made extremely difficult choices to cut services and raise fees. Two years ago, the city manager proposed a way to solve the $2.9 million structural deficit once and for all — hold the 2005-06 budget static, with no set-asides for infrastructure and known liabilities, and concentrate freed-up staff time on devising long-term cost saving and revenue-improving strategies.

Staff's strategies were then ranked by public input to the Your City/Your Decision process. In early 2006, the City Council implemented $1 million of these deficit-reducing strategies, including staff cuts. (Twelve percent of staff positions have been cut since 2001). Still, a $1.9 million annual structural deficit remained. Public input favored a tax to close the remaining gap.

In summer 2006, the City Council unanimously placed the UUT on the ballot for the voters' decision. Despite $100 million in big-oil anti-tax TV ads (to defeat Prop 87) during the November 2006 election, and subsequent failure of every other local tax measure up and down the Peninsula, Menlo Park's UUT still passed.

Without the UUT, the $1.9 million annual structural deficit remains. Pointing to the 2005-06 "surplus" as reason to eliminate the tax misrepresents the big picture of the city's finances. Likewise, pointing to past history of "surpluses" fails to account for lack of street maintenance and liability payments in those years. No UUT in 2006-07 would cause a $1 million deficit — that's fiduciarily unsound.

Deferred maintenance, known liabilities, service levels, employee compensation — all these comprise the true cost of running the city, and must be considered when looking at its whole financial picture. Voters and past and present councils understood this and took needed action to restore our city's financial health.

Labor agreements

Read no further if you object to employees receiving annual cost-of-living adjustments (COLAs) — we are too far apart philosophically. But assuming COLAs are reasonable, your council negotiated a cost-effective labor agreement while granting the employees' top priority — the 2.7 percent at 55 pension benefit.

By foregoing 3.6 percent, 2.5 percent, and 2.5 percent COLAs for respective years of a three-year contract and accepting only 0 percent, 1 percent and 2 percent, the employees entirely pay for their improved retirement benefit. In fact, taxpayers SAVE about $200,000 annually compared to COLAs.

Bottom line, Menlo Park taxpayers are getting a better deal than did taxpayers in Palo Alto and Redwood City. Hyped-up rhetoric around this issue isn't based on the numbers.

4 percent executive raise

Easy decision. Top staff hasn't had any raise in two years. City Manager Boesch just resigned — and his salary was $30,000 annually below market rate. We can't afford squandering our human capital with penny-wise, pound-foolish salary policies.

Kelly Fergusson is a member of the Menlo Park City Council. She holds the title of mayor.