City of Chula Vista: Utility User’s Tax – a Wolf in Sheep’s Clothing
By Ed Herrera
The City of Chula Vista is proposing a ballot initiative entitled Proposition “H” on the November 2, 2010 gubernatorial general election that, if approved, would broaden its 5% Telecommunications Tax under the City’s Utility Users’ Tax (UUT). The purpose of the measure is to allow the City to expand the scope of taxable services, collecting UUT revenue on a broad range of telecommunication services currently not covered by the existing ordinance.
For the first time, the City would impose the taxation of interstate and international telecommunications services, as opposed to only intrastate telecommunications. The initiative expands the definition of telecommunications services to include: wireless communications (such as mobile phones), text messaging prepaid/postpaid telecommunications, private communication services (T-1 lines), paging, voice over internet protocol (VoIP), and toll free numbers such as 1-800’s.
The city hall-led ballot initiative comes to voters a year after the Chula Vista City Council voted to hold a Special Election on May 5, 2009 to ask voters for a 10-year, 1% sales tax increase (Proposition A), which would have set the rate from 8.75% to 9.75%, the highest in the County of San Diego. Ultimately, while proponents claimed that opponents of the measure where unaware of the reality of the situation at city hall, it was the supporters of the sales tax increase that were unaware of the reality of the economic situation at homes and businesses—the measure would be defeated by 67%.
But, it did not stop there. The following year Chula Vista City Hall would propose a back door tax on response services rendered at the scene of an accident, dubbed the “crash/accident tax.” The City of Chula Vista, like many cities across the country, calculates its tax structure based on the services provided. Thus, adding additional charge backs as a source of revenue amounted to double taxation. Ultimately, City Hall would not be able to explain their actions to voters after taxpayer and business advocates sounded the alarm on the repercussions of the proposal.
Now, City Hall is proposing yet another tax increase. According to City Hall, the Utility Users’ tax proposes a simple modernization/update to protect the city’s telecommunications tax revenue stream claiming “…a perceived loophole in the current ordinance and changes in technology, which have put this funding at risk.” However, what the measure does is expand scope and reach of the tax, thereby increasing taxes. In fact, many wireless subscribers will see an immediate 0% to 5% increase.
What is most troubling is that the ballot language fails to indicate possible increases in taxes. It states quite the opposite. It asks voters if the existing ordinance should be modernized “…with no rate increase…” Even knowing this, the City Council voted to place the un-amended language on the ballot. That did not sit well with many, Cox Communications being one of them. “Cox Communications feels that it is disingenuous to voters to claim that the proposed measure is not a rate increase…The ballot language says that there is no rate increase. This is incorrect and misleading.” wrote a representative for Cox Communications in a letter to the Mayor and City Council dated June 8, 2010.
A common argument in support of the measure from City Hall is that the proposed modernization of the UUT is necessary for the language to be technology neutral, allowing the “City to treat all consumers equally.” This statement is a wolf in sheep’s clothing. What this simply means is that City Hall would like to legally force the tax onto all carriers and therefore, consumers under the proposed expanded scope. This also means there is no sunset clause. It is a permanent tax that will likely serve as a slippery slope to adaptively tax just about every form telecommunications as technology progresses—giving new meaning to the wireless phone commercial pitch: “We’ve got you covered.” And they will, in taxes.
Perhaps the most misleading argument in support of the measure is that, if passed, tax dollars collected will go towards funding public services. The truth is Proposition H contains nothing but rhetoric when it comes to protecting services. Not one cent of this tax is required to go to police, fire, or any other core city service for that matter. Prop H is a blank check and city politicians can spend this money any way they choose. And there is reason that they may. Aside from budgeting for service and personnel expenses, the City has several contractual obligations that it is legally bound to including pension funding, debt servicing, and pay raises.
With an ailing local economy with foreclosures rampant, hitting every corner, East and West, of the Chula Vista, many families continue to struggle, as victims of the recession continue to mount. Proposition H will undoubtedly take more than an extra toll on families.
Recent studies by the Centers for Disease Control illustrate how wireless taxes and fees are regressive in nature. According to the CDC survey (released in May 2010), nearly two-thirds of adults living in poverty or living near poverty live in wireless-only households. Taxing wireless services at an average rate of at least 11.83 percent every month adds up quickly and hurts those that can least afford it.
If it wasn’t bad enough that City Hall wanted to raise the sales tax on small business, it is determined to raise their telecommunications tax—vital to sales and the operation of business. Unfortunately, both tax increase initiatives have unintended consequences that put our businesses, city and local economy at a competitive disadvantage with other adjacent cities, resulting in more expensive wireless and communications services far outweighing any benefit. In fact, as the second largest city, second only to San Diego, places Chula Vista at the top of the list for potential investment. However, with the reputation of being “business-unfriendly” paired with increases in taxes, any possibility of attracting new industry, specifically in telecommunications, would be shattered. As it stands, many telecommunications service providers must develop custom billing systems exclusively for Chula Vista because of the city’s collection of the Utility Users’ Tax.
Proposition H is an example of poor public policy that fails to consider the harsh reality of the impact of the global recession and the larger economic landscape. It is by simple terms a dash for taxpayer cash and its casualties are more than the truth and economics. Voters should not be fooled. 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.
For these reasons, the Chula Vista Civic Association, Chula Vista Taxpayers Association, San Diego County Taxpayers Association, San Diego South Chamber of Commerce, and the Utility Consumers Action Network (UCAN), all urge Chula Vista voters to vote “NO” on Proposition H.
Ed Herrera is president and CEO of the Chula Vista Civic Association.