City has balanced budget

Dave Brooks

The city has a balanced budget with extra money in the bank, but a

recent state Supreme Court decision and renewed demand for services

could see local officials increasing property taxes and city fees.

City Administrator Penny Culbreth-Graft released the city’s

2005-06 budget last week, showing the city with a 3.5% increase in

expenditures from the previous fiscal year to $318 million.

The city was able to make 14 new hires in the police and fire

departments and to begin saving for infrastructure improvements. But

it still faces short-term losses from Sacramento, as well as a recent

precedent-setting court case jeopardizing $6 million in discretionary

spending.

To make up the difference, the council might consider raising the

retirement tax it adds onto resident’s property taxes and increasing

the amount residents pay for local services, Culbreth-Graft wrote in

the city’s budget summary. By law, the city could quadruple the tax.

That could mean an annual increase of about $23 per $100,000 of

assessed value. A Huntington Beach resident with a $500,000 home

would pay about $150 per year to help offset the city’s retirement

costs.

Anti-tax activist Chuck Schied said he was happy Culbreth-Graft

was able to balance the budget without a tax increase, but worried

that labor unions or civic groups could pressure the council to

capture the extra dollars in future budget years.

“I’m glad that she’s taken a conservative approach,” he said, “and

I want the council to realize that they don’t have to do it.”

The talk of the increase comes on the heels of a California

Supreme Court decision not to hear an appeal by the city of Fresno in

a lawsuit brought by the Howard Jarvis group. In that case, a state

appellate court overturned a Fresno fee charged in lieu of property

taxes the city would have collected if certain city utilities were

privately owned. The court found the taxes violated Proposition 218,

the Right to Vote on Taxes Initiative, because the taxes were not

itemized and did not directly pay for a city service.

Huntington Beach has a similar fee tacked onto its water rates,

and could lose $5.8 million a year to city coffers if the city

determines its own allocation isn’t lawful. Huntington Beach city

officials divert about 15% of the money they collect from the water

bill into the general fund.

City Atty. Jennifer McGrath said the allocation is used to make up

the money the city would have earned if its water system was run by a

private company -- franchise fees and property taxes. That money goes

to pay for city services like police and fire, but the court ruling

requires these fees only be spent to recover the direct cost of

providing the service -- in this case, the city can only charge for

the cost of pumping and delivering the water and must provide an

itemization of how the money is spent.

The city is currently determining whether its own allocation of

the water fees is illegal and could reallocate the $5.8 million to

the budget during midyear budget talks.

“If the study supports additional transfer, the transfer can be

done by midyear,” McGrath said. “It can be done at anytime in the

budget year.”

The June decision marks the second time in recent years that a

legal case brought by the Howard Jarvis group has potentially cost

the city money. In 2001, a Superior Court judge ruled that an

override tax the city was charging to pay for retirement costs

violated Proposition 13 and the city had to repay property owners

nearly $27 million in back taxes.

Since that time, the city has created a new way to determine how

much money it can charge in property taxes to pay for benefits

approved before Prop. 13 passed in 1978.

That formula, approved by the state attorney general’s office,

would allow the city to charge four times what it currently charges,

bringing in an additional $6.3 million annually.

City Councilman Dave Sullivan said the Jarvis group would likely

contest any rate increase.

“I’d be very hesitant to do any type of increase other than what

the City Administrator is already recommending,” he said. “It’s

difficult to determine what rate is legal and what rates are illegal,

and I don’t want the city in that mess again.”

* DAVE BROOKS covers City Hall. He can be reached at (714)

966-4609 or by e-mail at [email protected].