The Coast News Group
Carlsbad City Hall
Carlsbad City Hall. File photo

Carlsbad discusses revenue woes, opposes sales tax increase, cannabis

CARLSBAD — Hours of presentations, reports and public comments left the Carlsbad City Council undecided on how to best address revenue concerns during a four-hour meeting on April 20 at the Faraday Center.

On the table were potential tax increases and legalizing recreational cannabis, but the council did not support either option. Instead, council members spoke about other ways to reduce the budget before city expenditures exceed revenue but did not provide any official direction to city staff.

The council also heard the results of its recent random survey regarding a one-cent sales tax increase or cannabis legalization. According to Tim Carney of True North Research, who conducted the survey, 57% of the 894 individuals surveyed supported a tax increase.

As for the cannabis survey, Carney said 41% supported legalization, 38% did not and 20% were undecided. However, 74% were in favor of a cannabis tax.

Councilwoman Teresa Acosta said an increase in sales tax would be regressive, especially with low-income residents. A new tax would impact a larger percentage of their annual income, Acosta said.

However, the council unanimously agreed they did not want to increase the sales tax and cited concerns such as inflation, high cost of living and impacts on low-income residents.

“I don’t approve of this tax for $20 million when you, as a city, are mismanaging our funds,” said resident Elle Arkins. “You are spending more than you are making. We are looking at affecting people on fixed incomes and low-income people are struggling.”

Mayor Matt Hall questioned staff on the number of new hires over the past several years and their associated costs, but staff did not have those numbers available. Regardless, the city has hired between 70 to 80 new full-time employees over the past four years.

Hall has been vocal in his opposition to the hires, and at times, voted against the preliminary or final budgets. Additionally, the city is also in contract negotiations with the Carlsbad Police Department and has $85.9 million in unfunded projects on the books.

Also, newly-adopted or amended state laws, such as the organics waste law, have piled on additional costs to cities.

Another challenge is the city’s pension obligation, to which it contributes a significant amount of funding. An ongoing point of contention is how the state calculates its expected returns on pension investments. Cities have long complained the state’s estimates are way too high and typically come in lower than projected, leaving cities on the hook to make up the difference.

Over the past five years, Carlsbad has contributed $56 million toward its pension debt obligation.

To address all of these factors, Zach Korach, the city’s finance director, said every city department is currently reducing its budgets by 2%.

“There are pension challenges with CalPERS and investment performance,” Korach said. “The state has just under $500 billion in assets from all agencies. There is a direct impact on participating agencies and required contributions.”

Korach said the council policy of a funded status of 80% will be met.

Laura Rocha, deputy city manager of administrative services, said the city is fiscally healthy, but time is not the city’s side. Rocha said the city will review potential cuts to services and the Capital Improvement Program for savings.

Hall said the council has also pivoted from a visionary board to more micromanaging, citing the more than 100-minute motions passed by the council in recent years.

According to Hall, the slew of motions waste time and money and lessens efficiency with staff as they must react to new directions immediately. For example, Hall pointed to discussions about converting a tree stump into a bench, which was later not approved, as a waste of time and money.

Hall also noted the city’s ability to pay for projects in cash has prevented unwanted debt and dipping into reserve accounts.

“Our lines are crossing, and we have to look at who we are and how we’re doing business,” Hall said. “I don’t think we have any idea the load we are putting on staff. When you take that times 100-plus (motions), that becomes a number. That becomes a cost.”