Chula Vista Utility Users Tax, Proposition H (November 2010)

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A Chula Vista Utility Users Tax, Measure H was on the November 2, 2010 ballot for voters in the City of Chula Vista in San Diego County. It was defeated.

Proposition H, if approved, would have broadened Chula Vista's 5% Telecommunications Tax (part of the City's Utility Users' Tax or U.U.T). The purpose of the measure was to allow the City to collect U.U.T revenue on a broad range of telecommunication services currently not covered by the existing ordinance which was adopted in 1970.[1]

The ordinance proposed two major modifications to the Telephone Users’ Tax:

  • Eliminating reference to the Federal Excise Tax (FET)
  • Broadening the scope of taxable telecommunications service

It would be broadened by taxing interstate and international telecommunications services, as opposed to only intrastate telecommunications, and expanding the definition of telecommunications services to include:

  • Wireless communications
  • Text Messaging
  • Prepaid/Postpaid telecommunications
  • Private communication services
  • Paging
  • VoIP
  • Toll free numbers

Election results

  • Yes: 23,271 (43.71%)
  • No: 29,974 (56.29%)

Election results are from the San Diego County elections division as of November 26, 2010.

UUTs and the FET

Many of the UUTs in California refer to the Federal Excise Tax (FET) in defining which utilities are covered by the tax. The FET does not cover certain telecommunications services. FET, for instance, does not cover:

  • Telephone calls which are not charged based on both time and distance (those paid by coin in phone booths, for example).
  • Any cell phone bills which are based on a package which provides a mix of local and long-distance calling for a flat rate. (In 2007, the IRS ruled that telephone service packages which provide a mix of local and long-distance calling for a flat rate or a fixed fee are not subject to the FET.)

When California cities realized that the wording of their UUT ordinance, by tying which utilities are covered by the tax to the FET's definition, did not allow them to extend their UUT to charging the tax on cell phone usage. Since cell phone usage is becoming more common, even replacing landline use, especially for younger people, cities feared loss of UUT revenues.

As a result, a number of city councils began putting before voters ballot measures to change the ordinance defining which telecommunications services could be taxed with their local UUT so that they could tax cell phone usage.

City budget

Chula Vista's budget for the current fiscal year, which ends on June 30, is $152 million, and it is facing a $3.5-4 million deficit. Some projections estimate that the annual shortfall will be in the range of $20 million/year for the next five years. This is due to decreased property tax revenues because of the housing value collapse.

Recent city expenses include:

  • A $66 million police station in 2001.
  • A $51 million Civic Center makeover.
  • A 25% pay increase over a five-year period for police officers, which began in 2005.

Since 2002, politicians in Chula Vista have taken funds from the city's rainy-day cash fund, shrinking it to an amount below the minimum set in city policy. The city policy requires that reserves should be at least 8% of the budget. This standard was adopted in 1996 to set aside money for unanticipated expenditures and economic downturns.

After the fund is used to close 2009's projected deficit of $3.5 million deficit, there will be $6 million left in the reserve fund, or 4% of the city's annual budget. At the 8% level, there should be $12 million in reserves.

In 2002, there was $31 million in the reserve fund.[2]

Opponents of utility users tax

Ed Herrera, President of the Chula Vista Civic Association and CEO of the San Diego South County Chamber of Commerce, is leading the opposition to Proposition H because:

  • Businesses, city, and local economy are at a competitive disadvantage with other adjacent cities which do not levy a utility users tax
  • Imposing a flat tax on a necessary utility service such as communication is regressive, hurting those who can least afford it.

Herrera also said, "It is very important to delineate that if it was the primary intention of City Hall is to protect itself from legal challenges and protect future revenue then, it should have included the newly defined scope of the services whilst providing a rate decrease so that it is such the case the proposed language is revenue neutral—however, it chose not to."

San Diego County Taxpayers Association is opposed to Proposition H, saying, "SDCTA OPPOSES the proposed modernization of the Telecommunications Users’ Tax because the City continues to fail to demonstrate sufficient fiscal responsibility to request additional revenue from taxpayers. In addition, SDCTA has concerns that the proposed ballot language does not properly convey to taxpayers the true implications of the measure, which is approval of a tax increase."[3]

Utility Consumers Action Network (UCAN) is opposed to Proposition H, saying, "Imposing taxes upon necessary services are unfair and should be an action of last resort by any municipality. Basic services such as electricity and communications are essential services that all persons, regardless of their means, must purchase. Imposing a flat tax upon those services hits the most vulnerable customers hardest. It is unjust and insensitive to many customers, thus warranting a no vote."[4]

The San Diego Union Tribune is opposed to Proposition H, saying, "...too many city leaders have tried to frame the debate over the ballot measure as an either-or question: Either approve it or watch services wither...This framing of the debate is not fair to Chula Vista taxpayers who now cover the entire cost of pensions that allow city firefighters and police officers to retire at age 50 with 90 percent of their final annual pay and general employees to retire at age 60 with 90 percent of annual and taxpayer organizations...contend the long-term tax hike could be much bigger than 5 percent as new communications devices come to the fore. They argue Chula Vista hasn’t done enough to shore up its finances long-term to deserve voter support of a tax increase...On balance, we agree."[5]

Supporters of utility users tax

Michael Meacham, Director of Conservation & Environmental Services for the City of Chula Vista, said that Proposition H is not a tax increase and that failure to pass the measure would result in the city's inability to collect the tax.[6]

Cheryl Cox, Mayor of the City of Chula Vista supports Proposition H, saying, "Proposition H is all about continuing to fund the services we all benefit from: maintaining streets and parks, keeping libraries open, and the police protection and fire services that keep us safe...” ."[7]

Conduct of campaign

  • The city council agreed in February 2009 to give its police and firefighters guaranteed, across-the-board salary increases for each of the next five years.[8]

Text of measure

The question on the ballot:

Proposition H: Shall the ordinance to modernize the City’s 1978 Telephone Users’ Tax (renamed the Telecommunications Users’ Tax), with no rate increase; maintain exemptions for low income senior citizens; ensure Tax proceeds continue to be available for general municipal purposes, including police, fire, streets, libraries, and parks; revise the method for calculating and collecting the Tax to reflect technological and legal changes; and amend the tax base to equitable include all applicable telecommunications services be adopted?[9]

See also

External links


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