Most city revenue is from property taxes and sales taxes. In the last couple years many properties have been reassessed downward in Downey and many other communities for the first time in recent years.
The reduction of income for cities shows up first as a deficit in the general fund which, by the way, is where the police and fire salaries come from. Secondly, a reduction in income to Redevelopment agencies appears. This reduction leaves less money to pay their bond indebtedness. The Long Beach Redevelopment Agency is in financial trouble with the debt service on their bonds for the downtown project. Because downward reassessment of the Redevelopment projects on Ocean Blvd. has caused a severe drop in tax increment income, they are trying to solve the problem by adding more land to the project area in an attempt to grab new tax increment dollars. Usually a Redevelopment Agency is not in as much financial trouble as a city’s general fund. But, the greater the city’s involvement in Redevelopment programs, the greater the shift in funds away from the general fund to the Redevelopment agency.
Many cities are looking for alternative sources of income to make up this deficiency in the general fund. One of the popular “quick and dirty” ways is through utility taxes. Downey’s utility tax law was already on the books, so all the Council had to do to pay for additional police officers was to simply take a vote to raise the rate from zero percent to 5 percent. While the motivation was admirable, the execution was corrupted by directing the new monies to pay for everyday operating expenses. However, the utility tax did produce over four million dollars ($4,027,031) last year to augment the general fund, which means that for the 93-94 tax year, each 1 percent in utility tax produced $805,406.
How high the utility tax rate can be raised is a politically sensitive issuer. I believe that the limit is in the 6 to 7 percent range. If that is true, that would mean there is not much more available from that source to solve Downey’s budget shortfall.
There is one source that can be tapped a second time. The Downey Redevelopment Agency has enough bonding capacity to sell more bonds and repay our general fund the $5.8 million owed to it. That would be an improvement over the usual smoke and mirrors of Redevelopment financing.