Steinberg on sales tax increase: ‘One penny could change the economic arc of Sacramento’
Mayor Darrell Steinberg’s plan to put his big and bold plans for Sacramento on the taxpayers’ credit card moved forward last week. The City Council voted unanimously to support his revised budget plan.
Let’s start with the good news.
There’s plenty of it in this budget, which the City Council will formally adopt this month. It keeps key promises the mayor and City Council made to Sacramento voters when they convinced them to raise their own taxes by supporting Measure U last year.
Among the items the City Council plans to fund with a “rare” $51 million surplus created by the new half-cent sales tax:
▪ $1.3 million to expand “pop up” activities for teens
▪ $1.9 million for new baseball and soccer fields in north Sacramento
▪ $1.3 million to restore the Iceland ice rink in north Sacramento
▪ $2 million for a bike trail in Pocket/Greenhaven
▪ $650,000 for youth programs, like summer camps and extended pool hours in Meadowview
▪ $1 million to allow kids to ride public transit for free
All in all, the first year’s allotment makes good on the talk of investment, equity and inclusion with which the mayor sold Measure U to voters. There’s more to come in future years, including big investments in affordable housing, mental health services and help for the homeless.
The bad news: Going forward, the free rides and social investments will come with hefty interest payments that will cost Sacramento taxpayers for decades. The council has decided to move forward with a bond proposal scheme to get future Measure U revenues – estimated at $40 million a year – upfront through borrowing.
This will allow the city to receive a $125 million lump sum in advance, with the option to take another such loan in the future. This would put taxpayers on the hook for $16 million a year to repay the debt over the next 30 years.
“The city would pay roughly $425 million over the 30 years to receive the $250 million, estimated city debt manager Brian Wong,” per a Bee story by Theresa Clift.
Sound like a good deal to you? Probably not, and it’s unlikely that nearly 57 percent of Sacramento voters would have supported Measure U if it had been framed as a long-term debt scheme.
Mayor Steinberg says voters knew what they were getting into, saying he mentioned the creation of a “capital equity fund” more than once during the campaign.
There’s a huge difference between the vague idea of a “fund” and $200 million in interest and debt service payments. Nowhere in the ballot language was such mechanism mentioned.
If the debt scheme was part of the plan all along, the mayor should have been up front about it. Experts differ on how risky the debt scheme is, and it’s smaller than it would have been thanks to a proposal by Councilman Steve Hansen, which essentially cut Steinberg’s original proposal in half.
In addition, Hansen’s compromise contains certain safeguards, such as allowing the City Council to opt out of taking the second $125 million loan. What are the chances of the council passing up the chance to put another windfall on the credit card?
Time will reveal whether the city has made a wise choice. As we have written before, taking on debt payments totaling tens of millions of dollars a year when the budget is already strained and we’re overdue for a recession seems unnecessarily risky. It’s not clear why the mayor did not simply wrangle the votes necessary to allot the $40 million a year in revenue from Measure U’s new half-cent sales tax to the promised projects.
When recession hits and budgets tighten, will Sacramento regret this exuberance? Maybe. Much depends on whether Steinberg and the City Council succeed in pulling off the series of tax base-expanding and job creating social improvement miracles they have promised.
If we’re going to put Sacramento voters on the hook for 30 years of debt payments, we had better make it count.