Commentary: Does Pasadena Need Higher Sales Tax Rate, $70 Million Bond?

The City of Pasadena has about $450 million in cash, reserves, investments, receivables, and surplus property according to its Certified Annual Financial Report for 2011.  Nonetheless, the city is pleading that it needs a quarter percent (0.25%) sales tax increase to avoid a mostly-artificial $1.4 million planned decrease in its operating budget revenues for 2013.  Pasadena also asserts it needs voter approval for a $70 million bond to make fire stations and bridges more earthquake safe.

At a City Council meeting on July 16, well-known luxury auto dealer Virginia Rusnak and Chamber of Commerce CEO Paul Little sent letters opposed to Pasadena’s proposal to raise the sales tax by one-quarter of a percent (0.25%).  Little also questioned the need for the $70 million bond to upgrade fire stations and bridges.

Rusnak sent an email asking the City Council to reconsider the sales tax increase because it might drive auto purchasers to other nearby cities.  The city’s proposed 0.25% sales tax increase would put Pasadena at a disadvantageous 9.0% rate while Glendale, Burbank, Glendora, Arcadia, and La Canada would remain at 8.75%.

Sales tax revenues were $31.3 million or about 15 percent of the City’s operating budget in 2012.  If retail sales were the same as last year, the quarter percent sales tax increase would generate about $894,000 in additional sales tax revenues.  But if total retail sales in the city go up naturally by a quarter percent no tax increase would be necessary.

The California Legislative Analyst’s Office (LAO) is forecasting a 6.2% increase in sales and use taxes statewide for 2012-13 and a 5.5% increase for 2013-14.  If sales taxes increase as forecasted by the LAO, this would make the proposed 0.25% city sales tax increase an unnecessary windfall for the City during what is being called a “managed Depression.”

Former City Councilman and present CEO of the Chamber, Paul Little, asked in his letter why the Fire Department could not be asked to identify other costs savings that could offset the $70 million cost to replace four fire stations and gold-plate earthquake safety upgrades to other fire stations in Pasadena.  City Manager Michael Beck indicates in the Pasadena Star News that the fire stations would collapse in an earthquake event.  But there has been no independent engineering analysis to ascertain the reliability of such a statement.

Perhaps a blue ribbon team of volunteer retired engineers not picked by the City could help in verifying the extent of earthquake safety upgrades actually needed.  Concurrence of such groups as the Pasadena Patriots-Tea Party and the Pasadena Republican Club as to selection of such a blue ribbon panel could add to its integrity.

Pasadena gold-plated the earthquake safety upgrades to the $150 million renovation of the Pasadena City Hall by requiring installation of a luxury base-isolation system.  Buying extra earthquake safety insurance may have been more cost effective.

Issuing a $70 million municipal bond would cost the city about $5.1 million a year in bond principal and interest payments over 20 years at a going bond interest rate of 4 percent.  Financing luxury earthquake improvements through a bond would end up costing the city about 45% more, or $31.5 million more, than if it paid for it on a cash basis – called “pay-as-you-go” or “pay-go.”

The City also has $14,353,368 in value in surplus real property that is being held for sale according to its 2011 Financial Report (CAFR) that could also possibly be applied to any earthquake safety upgrades of fire stations and bridges.

The LAO’s forecasted increase in sales taxes for 2012-14 and the $14.35 million sale of surplus real estate could reduce the City’s need to finance only about $52 million of the $70 million in estimated costs for the earthquake and bridge upgrades.

City Councilman Terry Tornek was quoted in the Pasadena Star News: “Wherever I go, to the grocery store or anywhere else in town the question is: “are we going bust?” Tornek stated his answer is “no.”