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Commentary: Another tax debate

It’s an election year, which means time to talk about tax increases. This year we see proposals by the San Diego Association of Governments for a countywide sales tax increase as well as higher tax rates being floated by the cities of Encinitas, Escondido, Santee and San Diego.

Encinitas is exploring the idea of adding 1% to their sales tax “to pay for much-need improvements to the city’s roadways, drainage systems and other infrastructure.”  

Escondido has a coalition of community leaders, business members, labor and public safety organizations making an effort to add 1% to its sales tax.  Because the city “revenue has not been able to keep pace with the growing costs of providing services.” 

Santee is proposing a “temporary” sales tax increase. Proponents say it’s needed to “build and staff two new fire stations” and reduce response times.  

And in San Diego we see a push developing to add a point onto their sales tax. The city recently took steps to cut library funding to plug a potential $220 million deficit.

All appear to be altruistic efforts to fund services we all want. The pitches are focused on funding services that are good for the community.  

Helping the disadvantaged, fixing streets, maintaining libraries, improving public safety.  If we listen to the words being spoken they simply do not have enough money to provide what people need.  

But let’s ignore the words for a moment and look at actual spending numbers.  President Joe Biden says, “Don’t tell me what you value, show me your budget and I’ll tell you what you value,” so let’s use Joe’s rule to see what they value.

Certainly, the cost of everything has increased, but inflationary increases in the cost of services to residents are dwarfed by growth in payments to employee pension plans.  

Public agencies make two types of contributions to employee pension plans.  The “normal” payment is a contribution to pension coverage based on a percentage of the employee’s pay. 

Similar to private 401K employer contributions, but where it usually ends there in private plans, in public plans that normal contribution is just the starting point.  

Public employees have been promised payments higher than the normal contributions can fund.  To keep those promises, an unfunded actuarial liability (UAL) payment needs to be made — on top of the normal contribution — every year.  Real numbers show those UAL payments are consuming an increasing amount of city budgets.

In Encinitas UAL payments grew from $2.6M in 2018 to $5.1M in 2023, up an astounding 14% per year. That’s a growth rate over four times greater than inflation during that time.  And that’s not unique.

Escondido’s 2018 UAL payments went from $13.7 million to $26.3 million, also growing almost 14% each year.  Santee’s UAL went from $1.8M to $4.1M in 2023, a rise of 18% per year.  

San Diego’s latest data available is for 2022, which shows a contribution of $400.5 million.  Five years ago in 2017, the number was $322.9 million.  That’s a growth rate of 4.4% per year.  

All growth rates exceed inflation, and all are increases in cost that have nothing to do with maintaining streets, providing library services, or improving police and fire response.  

The city of San Diego tells us it’s going to cut from the neediest residents but doesn’t mention it’s doing that to benefit its employees.

We have an obligation to keep our pension promises, but the decision is not “how do we keep pensioners from having to live in the street,” but whether the need to fund higher pensions outweighs the need to fund better services for residents.

Pension data provided by the agencies to Transparent California shows the average annual pension payment of an Encinitas employee retiring after a full career (30+ years) was $105,085. In Santee, $99,317; Escondido $95,066; San Diego, $90,828.  

Maybe the residents of Encinitas and other cities feel this is inadequate and want to ensure ever-increasing pension payments are made.  

But having a city claim tax increases are needed for a host of reasons that ignore the real cause of financial issues is misleading at best.  

An honest discussion of tax increases should start by using data to identify the reason additional revenues are needed.  

Perhaps it’s time for our cities to look at solving the root cause of the problem and finding a way to move new employees onto a more affordable program (as San Diego once tried to do), rather than slapping a taxpayer-funded band-aid over the problem?  

We need to have that open discussion now if we don’t want to see these tax increase debates every few years forever.

Todd Maddison is the director of research for watchdog agency Transparent California.

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