Sustainable Fiscal Policies

On November 1, 2007 Theresa Acerro and Jackie Lancaster gave this presentation to the Chula Vista city council:

Click here for a Video of just our presentation.

In light of the current General Fund Budget deficit we urged the City council to adopt a policy to follow more sustainable fiscal practices in the future.

1. Greater Attention needs to be given to the Jobs/Housing

Balance:

Jurisdiction	1990	2000	2004	%Change 1990-2000	% Change 2000-2004
City of Chula Vista Total Population Total Housing Units Total Employment***	135,160** 49,846** 60,740	174,319** 59,333** 70,540	209,133* 70,067* 74,180	29% 19% 16%	17% 15% 5%

As this section of a county wide chart from the Otay Valley Watershed Plan shows the city of Chula Vista in its rush to develop the eastern territories permitted the construction of way more houses than job/income producing commercial and industrial projects. We are now suffering the consequences of this unsustainable growth policy. Not only are we are a bedroom community with most people commuting to work by car, but we do not have the money to provide the services all these residents are demanding. Since Proposition 13, property taxes pay an increasingly smaller part of the service needs of residents each year. In California residential housing typically provides about 14% less income than it requires. Throughout the years developments in the east have been required to provide Public Facilities Financing Plans (PFFP). If past councils had paid attention to these documents they would have seen that after 5 years or so none of the housing developments would pay all their service needs. This is now becoming clear. We need to take action to make sure it does not continue happening. What is needed is a focus on jobs/income producing development until we have a sustainable, dependable income stream to provide the services our residents require and expect.

2. Over Dependence on Unsustainable Development Fees must end:

(Mr. Van Eenoo pointed out that this graphic implied development fees were mixed with General Fund revenue. He stated this was not done, because it is against the law. We believe him that the city keeps this money separate, but our point is that councils have been spending the development fees as though they were regular, dependable General Fund revenues.) Development fees by law can only be spent on what they were collected for and should be confined to the project they were collected for. The city has had the practice of putting all these fees in one big pot and then spending without a direct correspondence between fees collected and needed facilities. This caught up with the city when large amounts of development fees were expended on the new police station and civic center at the same time the housing market slowed down. The Rancho Del Rey Library is not likely to get built for some time, even though theoretically fees were collected for it. This problem needs to be avoided by focusing on needed services and facilities first instead of considering all income available for any desired use as was apparently done in the past. This crisis cannot be blamed on a drop in development fees. Although our budget director keeps implying this is the problem. The problem is the way the development fees were spent over the years when housing was booming and a lack of planning for future slumps. Development fees are one time income meant to be spent on one-time expenses. They were never intended to be a continuous source of income to provide ongoing services and maintenance. Unfortunately this is how the city spent them as our City Manager told a Voice of San Diego reporter on November 1, 2007. (When fees were not enough they borrowed money, which made the situation even worse. The developers may pay for the fire station but the city must put up millions to stock and staff it on an ongoing basis.)

The city started deficit spending in 2004 when they started to use reserves to make up for the difference in expenditures and revenue. Now they don’t have the reserves to see them through this bad time. The city needs to start relying on dependable revenue streams.

3. The Fiscal Irresponsibility of Building Housing in Redevelopment Areas needs to be paid attention to.

In Redevelopment areas all increases in property tax go to the Redevelopment Agency as Tax Increment. By law this money cannot be spent on any General Fund expense (shown in graphic as police, fire, maintenance and libraries). When residential housing is built in a Redevelopment area even if development fees are high enough to get the project built with adequate facilities and services, there is zero new money to provide ongoing fire, police, library, parks & recreation and other General Fund services to those homes for the years they are in a Redevelopment area. Instead of a 14% deficit there is a 100% deficit in money to provide on-going services. Our Budget Director confirmed this at the SWCVCA meeting on 10/22/07.

On top of this the Educational Revenue Augmentation Fund (ERAF) requires the city and county to take money from other tax revenues to reimburse the schools the difference between the 20% or less they get from the RDA and the 55% they are legally entitled to. Financially the city loses a lot of money by allowing housing to be built in a redevelopment area.

Commercial and Industrial properties in Redevelopment areas also do not pay added property taxes to the city, but they usually demand way less services than residential and provide other taxes such as sales taxes, business license fees, TOT, etc. so the city sometimes actually gains. Except, of course the mandatory payments to the ERAF, which gets 14% of all property tax money and leaves the city with only 14.7% this year in Chula Vista. The above graph is specific to Chula Vista and is from Mr. Eenoo’s presentation. The chart below shows the countywide distribution of tax dollars and was included in this year’s property tax bill:

Note that in 2004 the redevelopment agencies got 8% of the property tax revenue. They now get 10%.

When cities grow the result is higher crime rates and higher taxes. No one wants cuts in services that will compromise our public safety and quality of life, but hopefully no one will accept higher taxes either until the city becomes more fiscally responsible.

Click here to read an interesting article on Sustainable Development, which is an alternative to unsustainable expansion.

The council’s reaction to our presentation clearly illustrated the problem Chula Vista is facing:

While Councilman Rudy Ramirez showed that he understood the point that the city must start focusing on real economic development, which will increase the city’s revenues in a sustainable, dependable manner , Mayor Cox and Councilman Rindone just did not get it.

The comments of Redevelopment Manager Eric Crocket were as irrelevant as they were inaccurate. Zero dollars from property tax go to the state (See graphic from tax bill above). The graphic of the money flying away from General Fund services very accurately portrays how Redevelopment gets money that should go to the city’s General Fund, libraries, special districts, and the County, which provide services to us locally. As Issue One shows (after 20% set aside to affordable housing (49% of which is spent on administration costs) and 20% to schools, which by law should have gotten 55%) 53% of the redevelopment budget in Chula Vista goes to debt service and 39% to administration. In other words Redevelopment essentially supports itself and short changes the public. Since Proposition 13 an inadequate amount of property tax money is provided to fund needed services. Housing does NOT pay for its needs no matter where it is built. Cities must develop other sources of income in order to provide services and remain solvent.