Firebaugh hopes utility tax tweak will lead to better budget
Aug 05, 2013 (The Fresno Bee - McClatchy-Tribune Information Services via COMTEX) -- Firebaugh voters this month tweaked a 25-year-old utility tax that has proven to be both a blessing and a curse to the tiny western Fresno County city.
The tax -- which covers landline phones and electric and gas service -- is 10% of each bill per month, which has helped fill the city's coffers. But the tax also has an annual $500 cap for each service. That's what has led to trouble because, for one reason or another, the city has been inconsistent about giving refunds to businesses that exceeded the cap.
A year ago, TomaTek Inc., a tomato processing plant in town, billed the city $735,000 for refunds from exceeding the cap the past three years.
"When we got that bill, that was one that opened everybody's eyes," Mayor Marcia Sablan said. "We're not used to dealing in those kinds of amounts." The city's general fund budget is only around $2.5 million annually.
TomaTek's refund, coupled with shortfalls in Firebaugh's trash pickup, airport and senior meals funds, pushed the town's deficit above $1 million. There was no reserve to tap.
To pay the debt, the city borrowed from its water and sewer funds -- which must be paid back with interest. Newly appointed City Manager Kenneth McDonald estimates that amount to be nearly $1.3 million.
Several months after TomaTek billed the city, another blow came: Westside Ford, Firebaugh's last new-car dealership and a major source of tax revenue, closed. City leaders, Sablan said, finally realized major action was needed.
"I think that everybody got scared when that happened, combined with the payment to TomaTek," she said.
In February, the council approved a special election, which -- to save money -- was held in conjunction with the 16th state Senate contest pitting Bakersfield Democrat Leticia Perez against Hanford Republican Andy Vidak.
The ballot question asked Firebaugh voters to immediately lower the commercial utility tax from 10% to 7.5%, and to lower the residential rate to the same level in July 2019. Most important, the measure eliminated the cap.
It passed with more than 75% of voters saying "yes." Residences rarely hit the cap, city officials said. A $300 monthly utility bill, for instance, would mean a $30 tax. In a year, that tax would total $360, which was well below the $500 cap. But a few of Firebaugh's larger businesses -- such as TomaTek -- could hit the cap in less than a month, city officials said.
"A cap of $500 was way too low for 2013," Sablan said. "It was OK for 1988, but not now." Firebaugh has around 260 businesses, but the number of large companies that likely will be affected by eliminating the cap is around 20, city officials estimate.
At the same time Firebaugh voters approved the first tax proposal, they rejected a companion measure that would have extended the users tax to cell phones and Internet phone service. Only around 40% of voters supported it. The measure needed a majority to win passage.
Turnout for the election was 29%.
The city council is scheduled to certify the election tonight.
McDonald said the utility tax dates to 1988. Over the years, he said, the city paid refunds off and on.
Other officials said Firebaugh realized fairly early that the cap was a problem. Businesses and homeowners don't pay the taxes directly to the city, but instead as part of their bills from Pacific Gas & Electric Co. and the phone company.
By the mid-1990s, the city recognized it wasn't keeping track of businesses that were exceeding the cap and could seek a refund. Not all did, and the law allowed them to ask for refunds only going back three years.
In 1997, a public dispute erupted between Firebaugh's city manager and its finance director over more than $320,000 in over payments the city collected.
At that time, the biggest refund -- $257,119 -- was sought by TomaTek. Other large companies in town also sought refunds.
Now that Firebaugh voters have lowered the commercial tax rate but eliminated the cap, McDonald estimates revenue will grow from around $300,000 each year to $540,000 annually.
But in a report to the City Council, he cautioned that "it is fundamental to establish the payment of our debt over a reasonable period of time as our number one priority." If all goes as planned, city officials hope to have $125,000 to $150,000 each year to pay back the loan from the water and sewer funds. Beyond that, they hope to -- among other things -- re-establish the city's reserve, phase in two new police positions that were cut in lean budget years and implement an equipment-replacement program.
The reporter can be reached at (559) 441-6320, [email protected] or @johnellis24 on Twitter.
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