City Beat

Would Sacramento's proposed sales tax increase go to pensions, salaries?

Sacramento Mayor Darrell Steinberg has an ambitious plan for what he would do with a sales tax increase in the city.

As Sacramento struggles with a simmering housing crisis, he'd likely try to use some of the tax revenue from a planned November ballot measure to build affordable housing. He would want some of the money to provide services and shelters to the city's growing homeless population. Low-income neighborhoods and minority communities would see big investments in job training programs, small business incentives and education. Millions more could pour into a seed fund to help launch grandiose projects like a technology campus near Oak Park.

In Steinberg's mind, a one cent sales tax would be "a true game changer in Sacramento," as he said in a speech earlier this month.

But does City Hall need the tax just to remain solvent?

As the costs of pensions and employee salaries increase, the city of Sacramento is forecasting budget deficits beginning next year. Those gaps are expected to reach $25 million by 2022.

The deficits would be much larger if a temporary sales tax approved by voters in 2012 goes away. Measure U was overwhelmingly passed by the voters six years ago, adding a half of a percentage point to the city sales tax that generates nearly $50 million a year for police officers, firefighters and parks maintenance.

Measure U will expire next year, and Steinberg wants voters to approve a November ballot measure that would increase the tax to one cent on the dollar and make it permanent. If they don't, not only would dozens of police officers and firefighters funded by Measure U likely lose their jobs, but the city's budget deficit would grow to $85 million by 2024, according to the city's budget forecast.

Steinberg's proposed sales tax would generate an estimated $100 million each year for the city — enough to address those predicted deficits. But the mayor insists he would not propose a one cent tax simply to cover the costs of pensions and employee salaries. Instead, he said he sees a sales tax increase as an essential tool toward growing Sacramento's economy, generating more city revenue and avoiding future dire budget situations.

"The only reason to advance the proposal that I am advancing is the unique opportunity to invest in job creation, workforce and affordable housing, real workforce development and to invest in our neighborhoods," the mayor said. "You grow a tax base by expanding a tax base. Of course, there will be skeptics who look at the numbers and say, 'Aha, he wants to do something else.' But I'm pretty clear where I stand."

Critics of the mayor's plan have in fact already pounced on the city's budget figures, arguing that Steinberg's sales tax measure will do little more than cover the escalating costs of public employee salaries and pensions.

Craig Powell, whose Eye on Sacramento taxpayer advocacy group is expected to be a leading voice in the opposition to the tax measure, wrote in an email to supporters this week that "the city's budget is out of control" due to recent salary raises approved by the City Council, future pension costs and the creation of new city programs.

"With the city bleeding red ink for all of the reasons listed above, it is a virtual mathematical certainty that, unless the city dramatically changes its current spending practices (and there are zero signs of that), the entirety of the tax increase will be eaten by escalating city expenses," Powell wrote.

The city's financial outlook has improved greatly since the depths of the recession. Revenue — largely from property and sales tax — is expected to grow by 6 percent over the next year, according to budget documents. And city budget officials said their forecast includes conservative revenue growth, meaning the deficits may not be as bad as expected.

But the future figures also assume that new contracts negotiated with public employee unions over the next several months will result in no new raises for those workers. That seems unlikely, given the City Council's desire to recruit and retain employees — especially in the Police Department.

A large chunk of the future deficits also are attributed to the city's growing pension obligations. The city will pay out $82 million in retirement to former employees in the fiscal year starting July 1. That figure will balloon to $129 million by the 2023/24 fiscal year, according to the budget forecast.

Steinberg said the city will be responsible with future labor contracts, saying he is willing to "have hard conversations, even with our friends."

"I have dealt with enough tough budgets over my tenure (in elected office) to know what is necessary to sustain and even add to public services over the long term," the mayor said. "Recessions come, budgets hit downturns. There's no other way (to sustain a healthy budget) than to be committed to growing a more robust economy and to be aggressive about jobs and housing and to not let up."

Related stories from Sacramento Bee