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Sales tax increase: The city of Escondido potentially faces an $8 million budget gap this year.
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As deficit looms, Escondido once again considers sales tax increase

ESCONDIDO — Due to a potential $8 million budget shortfall in July, the Escondido City Council is once again weighing the option of placing a sales-tax increase measure on the November ballot.

The city’s current sales tax rate is 7.75%, which includes 7.25% for the state and a half-cent for the county’s Transnet program. The city receives just 1% of the sales tax.

And without new revenue streams, the city’s deficit gap is projected to balloon from $8 million to $23 million by 2036.

“Operating revenue has not kept pace with the growing cost of municipal services,” said Christina Holmes, the city’s finance director.

Staff presented options ranging from a half-cent to a one-cent sales tax increase as part of findings from a revenue subcommittee, which included Mayor Paul McNamara and Councilmember Mike Morasco, that evaluated the possibilities of a potential sales tax measure.

There are four scenarios for the proposed tax rates. Under the half-cent measure, Escondido would “survive” and generally maintain its current level of services with an increase of $14.1 million annually; under the ¾-cent measure, Escondido would “stabilize” and have the capacity to increase some levels of service with an additional $21.2 million; and under the one-cent measure, the city could “thrive” with $28.3 million in additional revenue.

According to Deputy City Manager Chris McKinney, with a one-cent sales tax increase, Escondido could greatly improve its road conditions to be on par with the rest of San Diego County. The city’s roads are currently ranked at 65 PCI (pavement condition index) and tied with the county on the lower end of the spectrum in terms of quality.

The fourth and final scenario considered was if no new revenue measure is put in place. In that scenario, the city would be forced to make severe cuts, including potentially losing 10 police officers, 12 firefighters and a whole fire station. Residents would also see a huge reduction in road maintenance and debris removal from homeless encampments.

Meanwhile, under a one-cent increase, the city could hire 12 firefighters and between 25 to 35 police officers, which would bring its law enforcement staff up to par with the rest of the county.

Beyond fixing its deficit, Escondido also needs a whopping $250.17 million in infrastructure improvements.

“The infrastructure needs of Escondido are daunting,” McKinney told the council.

Though a one-cent sales tax increase would not begin to cover that cost, it could help the city become more financially competitive when it comes to grants and bonds that could address such needs.

“One of the challenges our staff face with obtaining federal and state grants is that they all require matching funds, and we simply don’t have the resources to even match the grant funds,” McKinney said. “With more revenue in place, we’d be more competitive to accept a number of these grants because we’d have more matching funds.”

McKinney also said the city would be able to enter into more “responsible” debt services to address infrastructure needs because it would be able to show that the money could be paid back.

The council directed staff to survey residents about a possible sales tax increase to better gauge community sentiment toward what kind of increase residents would be willing to accept.

“That would be the logical next step in this conversation,” said City Manager Sean McGlynn.

One of the major items growing the city’s current deficit is its yearly payment for the state-required, public employee unfunded pension liability fund. While the city has made attempts to lower its annual pension payment through a reduction in benefits for employees hired after 2012, the costs continue to grow and range between $15 million and $22 million annually until the payments are completed in 2044.

Morasco, who has in the past opposed a sales tax increase, said the city could look at pension obligation bonds to help with those payments.

Councilmembers Consuelo Martinez and Joe Garcia noted their concerns regarding a sales tax increase along with current rising inflation rates and other costs of living.

“We’re already paying more for everything,” Martinez said.

Still, the numbers look bleak heading forward.

“It’s very depressing to see the numbers and that each year the deficit gets worse and worse,” Martinez said. “I know the city already operates very lean and I don’t see where we could make up for these deficits so I see why we’re exploring this.”

Martinez cautioned that going forward with the survey, the city needs to be careful with the spreading of misinformation regarding a potential ballot measure.

“We need to remind folks that City Council cannot raise your taxes, only voters can,” she said.

To place a sales tax increase on the ballot, it must receive four yes votes from the five-member council.

Deputy Mayor Tina Inscoe said that she wants staff to explore implementing a sunset clause that would eventually end any sales tax increase.