Topic #1: The Surpluses. We have said that the City does not need the utility tax because it has consistently been running budget surpluses that are now roughly equal to the utility tax revenue - a $2.4 million surplus last year, a $1.5 million surplus the year before that.

[Post-election update:  The surpluses have continued.  To see the current amount, click on the Updates link at the top of this page.]

What is the evidence that those surpluses exist? Or are they merely "roll-overs" from previous years?

Despite what some councilmembers and other city officials told you recently (and in their 1999 election literature), there is (and there was) a surplus. In fact, the City has had surpluses at the end of each of the last 5 fiscal years, and the surpluses continue to grow. Since the existence of the surpluses is controversial, we will demonstrate the surpluses in a variety of ways, including newspaper articles and official City documents linked below.

Here are the statements that first made us aware of the surpluses.

"We're in great shape. Money is just pouring in." (City Treasurer John Workman, quoted in Easy Reader of 2-5-98.)

"Viki, how much was the surplus, this year?"
"The total was around a million dollars." (Councilmember Sam Edgerton and Finance Director Viki Copeland, at 1-26-99 council meeting, during discussion of the City's annual financial report. Transcribed from the videotape.)

The situation has changed some since then. As noted at the very top of this page, the more recent surpluses are bigger. And their existence is no longer mentioned at council meetings.

Topic #1, continued: "Roll-overs," or Surpluses? Disinformation from No on H [of 2001 - see Special Note, above]. In a recent letter to the editor, No on H's campaign treasurer (who didn't disclose her connection to No on H) wrote:

"They [backers of Measure H] don't seem to understand that if a project is in this year's budget but does not get completely funded or completed, it rolls over to the next year's budget. They [backers of Measure H] call the rollover a surplus." (Easy Reader, 10-18-01, page 6.)

The "it's a roll-over not a surplus" canard persists because in 1997 the City decided to stop calling the surplus a surplus. (More discussion about that change is under Document Set #1, below.) The City's documents make it clear that the surpluses are not being kept in the General Fund and rolled over to fund or complete ongoing projects, but instead are automatically divided into three equal parts and moved into other funds. Partly as a result of those infusions of surplus cash, two of those other funds have become bloated:

The first of those is the Insurance Fund, which has received 1/3 of the surplus every year for the last five (Note 1) - a total of $1.7 million . It had a balance of $3.1 million at the end of the last fiscal year, up from $2.5 million the year before and $1.7 million the year before that (Note 2). In the present fiscal year (2001-02) the insurance fund is expected to have revenue of $1.2 million and expenditures of the same amount, which should leave its balance unchanged, at $3.1 million (Note 3).

The other is the Equipment Replacement Fund, which also has received $1.7 million from the surpluses. Despite record purchases of new cars and trucks, and $300,000+ spent to prematurely and unnecessarily replace a fire engine (Note 4), it had a balance of $1.8 million at the end of the last fiscal year, up from $1.5 million the year before and $1.4 million the year before that (Note 2).

Notes:
1. To see the official forms wherein the annual surpluses were calculated and distributed to these funds, see Document Set #1, below.
2. Balances are per the June 2001, 2000, and 1999 Treasurer's Reports. To see those reports - examine Funds #705 and #715 - click here: Treas Rep 01 --- Treas Rep 00 --- Treas Rep 99.
3. Adopted Budget book, page 20, copy available at the library or the Finance Department. Using starting balance given in June 2001 Treasurer's Report.
4. Letter from citizen to council. Fire Engine Letter.

 

Topic #1, continued: Documents on the Surpluses.
Set #1.

Documents set #1: Sometime after the close of each fiscal year the City's Finance Department calculates the amount of the annual surplus and how it is to be disposed of. They do that calculation on a form that was originally entitled "Formula to Determine Transfer of General Fund Surplus..." Over the years the form has been altered, both as to its name and in its content as well. The form for the fiscal year ending 6-30-96 was the last one on which they called a surplus a "Surplus." Now they call it an "Unexpended Funds Balance." More importantly, the method of calculating the amount of the surplus was changed. One major change first showed up on the calculation sheet for the fiscal year ended 6-30-99, when the City moved "designated reappropriations" upward so that they would be subtracted from the surplus. Click on the link to the right to see the forms from the last 5 years.

Docs: Formula for Surplus

Articles
on
Surplus

Docs: Bank
Balance

Topic #2: Campaign Contributors. The Yes on H [of 2001 - see Special Note, above] committee plans to spend less than $1000 during the entire campaign, so is not required to file campaign spending disclosures. On the other hand, No on H had raised $7617 as of mid-September. Who is providing that money? So far, the only large contribution disclosed has come from the union for some of the employees at City Hall. The next disclosures are due shortly, 12 days before the election. But if this campaign is typical, the most interesting contributions won't be revealed until well after the election is over (in the filings due January 2002). Nonetheless, using recent history as a guide, it is possible to predict the identities of some of the contributors. We need only look at the contributors to the 1999 No on D campaign. The only retail businesses contributing were four restaurants located on the Plaza, who gave $2300. And only one out of the four was identified in reports filed prior to 1999's election date. The other three were not disclosed until January 2000. Those merchants' motivation to contribute should be self-evident. To see the complete campaign filing documents from 1999, click on this link: Contributions (220KB).

Note added 10-30-01: Another set of campaign spending disclosures (covering 9-23 to 10-22-01) has just been filed. No on H filed just one page listing its recent contributors. That page has been added to the bottom of the page containing the 1999 contributions. The link is directly above.

Topic #4: History. What is the history of Hermosa's Utility Users Tax? Click on this link: UUT History (120KB).

Topic #5: Sewers. No on H's literature claims:

"Public health will suffer if sewers are not repaired and rehabilitated. This year the city budget appropriates $700,000 from the General Fund to maintain city sewers. This maintenance will have to be cut back severely if the UUT is repealed."

We find this claim ludicrous. A quick glance at the Treasurer's Report for June 30, 2001 (Treas Rep 01) reveals that the Sewer Fund began the current fiscal year (2001-02) with a balance of $3,374,490, more than sufficient to complete the $2,667,172 of sewer projects in the City's Capital Improvement Program (CIP), without the planned transfer of $700,000 from the UUT income stream. To see a table of those CIP projects, click here: Cap Improv Table (110KB). It is interesting to note that that table shows no new sewer projects approved in the current budget year - the projects are all from fiscal years 1999-2000 and 2000-01.

Topic #6: Street Projects. A repeat of the sewer scare tactics. No on H's literature claims:

"Residential street repairs will be severely reduced with the loss of UUT funds."

The June 30, 2001 Treasurer's Report reveals that the six funds that provide the money for street repairs started the current fiscal year with total balances of $3,661,000, more than sufficient to complete all of the street repair projects in the Capital Improvement Program without any further appropriations. Furthermore, five of the six funds are not dependent upon UUT money at all. Their money comes from gas taxes and downtown parking revenue. Those five funds are expected to receive $2,379,000 additional income during the year (see 2001-02 budget book, funds #109, 115, 120, 146 and 150 on pages 12 - 16), bringing the total balances available to fund street repairs to $6,040,000 - without the planned $400,000 transfer from the UUT! Significantly, that $6 million available this year is 2/3 of all the money needed to fund all 5 years of the $9 million street repair program the public has been promised. (For documents, see links in Topic #5, above.)

Topic #7: Police/Fire Funding. No on H's [of 2001 - see Special Note, above] literature says that of the expected $1.8 million of UUT revenue, $700,000 will stay in the General Fund "to help pay for safety." That raises the question: Since there's no absolute guarantee that there will be a surplus again, how can we make up for that $700,000 and balance the budget?

We believe that there is at least $1,400,000 in expenditure adjustments and new revenue available to the City, with at least $1,100,000 of that being repeatable every year. See below.

Expenditure Adjustments. Police and fire overtime, which amounted to at least $456,000 in Fiscal Year 1999-2000, should be carefully examined. The automatic $350 per month car allowance for councilmembers and department heads should be reduced, saving $25,000. The Assistant Fire Chief position, established earlier this year but not yet filled, should be cut, for a savings of $180,000. The City Hall remodel that is now starting, already over twice the cost of the original budget, must be monitored to minimize cost overruns. The City must learn to not repeat its past spending blunders. For more details, click here: Exp/RevenueDetails.

New Revenue Sources. Raise the Bed Tax percentage, get $405,000. Promote PCH businesses, get $100,000 more sales tax. Bring the hourly rate we charge to provide police to big event promoters up to our cost level, get $50,000. Apply for a GALE grant for alcohol enforcement, get $40,000. In many locations, raise the sidewalk dining rent, presently $1 per foot, get $100,000. Enact a new sales permit fee on liquor and other high risk businesses to offset the extraordinary legal and police/fire costs arising from the downtown club scene, as the City of Santa Cruz has done. Get $200,000. On a one-time basis, move back to the General Fund the $300,000 of Compensated Absences Fund money that the council was going to take for the City Hall remodel. For more details, click here: Exp/RevenueDetails.

The total of expenditure adjustments and revenue sources above is at least $1.4 million, $1.1 million of which is repeatable annually. There are numerous other possible expenditure/revenue adjustments available to the City. For example, at the 6-12-01 council meeting, with a stroke of the pen the Council increased parking fees to bring in an additional $667,000 annually.

Topic #8: Other Taxes. More disinformation from No on H [of 2001 - see Special Note, above]. No on H's literature claims:

"The Utility Users Tax is the ONLY tax you are charged, in which every dollar comes back to the city."

They've conveniently forgotten:

Landscaping & lighting (on prop. tax bill) - $480,000
Business license ----------------------------- $627,000
Permits and other licenses ------------------ $580,000
Cable TV franchise (on cable bill) --------- $200,000
Electric and gas franchise -------------------- $95,000
Refuse collection franchise ----------------- $176,000
Transient occupancy ("Bed Tax") ---------- $812,000

Source: Current city budget book and June 2001 Revenue Status Report

Topic #9: Other Cities' UUT's or Lack Thereof. Many neighboring cities do have UUT's, but we haven't found a city anywhere that automatically exempts citizens simply because they're 62 years young, as we do here. They all have an "income test." El Segundo's UUT doesn't apply to residences at all, and is a maximum 3%, 2% on phone service. Palos Verdes Estates' UUT will "sunset" (expire) in 2003, as ours was supposed to 13 years ago. Long Beach's UUT rate is being cut in half over the next few years.

Manhattan has no UUT. Their "vote on a bond" process offers many advantages over our system. They get to vote as to which projects get funded. They get more project for less money: Their current $15 million bond will cost a flat $54 annually per household, and since they will be "paying later," they will be paying in deflated dollars. In contrast, we Hermosans begin to pay UUT for our projects several years in advance, get to watch our dollars deflate while they are sitting inactive in the City's large savings account during those years; and the UUT levy we pay will continue to rise with the cost of utilities. Finally, MB residents' bond payments are on their property tax bills and are easily tax deductible while our UUT payments are not.

Topic #10: The MacPherson Oil Lawsuit. It's been argued that we may need the UUT money in order to pay MacPherson off, should he prevail. However, the City's latest Comprehensive Annual Financial Report says (at page 40):

"In the opinion of the City's management, the event will not have material adverse effect on the financial position of the City."

Special Note, Oct. 2007:  Purely by coincidence, the 2007 City-sponsored measure to increase the UUT was given the same ballot letter designation as the 2001 Citizen-sponsored measure to repeal the UUT!

Topic #11: If we vote it out, can we vote it back in?  No on H [of 2001 - see Special Note, above] repeatedly misleads the voters. As of 10-30-01 the following "Q & A" was posted on the No on H website:

Correction, byYes on H [of 2001 - see Special Note, above]:  It takes only a simple majority to vote in a general purpose tax - one that goes into the General Fund as our present UUT does. It's hard to believe that the councilmembers behind No on H don't know that. Is this a repeat of November 1999, when the anti-repeal ballot pamphlet argument signed by four councilmembers claimed (incorrectly):

(We first noticed the "vote it back in" question and (incorrect) answer on No on H's website on 10-30-01. It was the top-most item on their "More Facts" page. We posted the correction (above) on this website on the 31st. By November 1 the Q & A had disappeared from No on H's site!)

Yes on H [of 2001 - see Special Note, above] stands by our original answer - it takes only a simple majority. A common practice among cities is to fund popular and/or necessary programs with surcharges such as UUTs, and unpopular programs from regular taxes. Assuming our present UUT has been voted out, a future city council which wanted to convince the voters to enact a new UUT would most likely cite the need for money to fund popular activities such as police, fire, sewer and street repair - just as they have done during the current campaign. And a tax that pays for general activities such as those is a "General Tax" that requires only a majority vote.

Topic #12: Hard Times Ahead, "Take-Backs" by the State? No on H has argued that we will need the UUT to make up for cuts in other City revenue.

We believe that our local economy will remain healthy, that Hermosa will continue to be a very desireable place to live, and visit. Compared to Northern California's Silicon Valley, our property values are holding strong as are our local defense industry's contracts. We believe that this is not the time to take money out of local circulation. So do our Federal and State legislators. They have encouraged spending as opposed to saving or taking, and are considering a State bond to deal with their potential deficits. The Hermosa City Council must see the future that way also. Otherwise, why would they have just approved (August 28) spending $2 million+ to remodel a portion of City Hall, a low-priority, non-urgent project?

Hermosa Beach Friends of the Library
Post Office Box 515
Hermosa Beach, CA 90254

Hermosa Beach Education Foundation
Post Office Box 864
Hermosa Beach, CA 90254