By KEVIN McCALLUM
THE PRESS DEMOCRAT
Santa Rosa may ask voters in November to tax their cellphones to help fund general city services.
A subcommittee exploring the city’s financial options is recommending that the City Council put a measure on the ballot to “modernize” the city’s Utility Users Tax to include cellphones.
The city’s existing 5-percent tax on electricity, gas, cable TV and landline telephones was instituted in 1970. It is capped at $1,000 per utility. Last year the tax raised $9.6 million for the city’s general fund.
But in recent years the city has seen an erosion of the tax as more people cancel their landlines and rely solely on cellphones. The total tax is down about $200,000 from its high in 2009, and further declines are expected. In addition, the ordinance contains dated language and definitions that make it difficult to administer.
“Your current ordinance is a dinosaur,” said Donald Maynor, an Atherton attorney who advised the committee on the tax. “You need to either update it or lose the revenue to either litigation or technology.”
The goal would be to lower the current rate of 5 percent, perhaps to 4 percent or 4.5 percent, for some or all utility categories, while broadening its reach to include all cellphones billed to city residents.
Landlines would continue to be taxed under the proposal, albeit at a lower rate, meaning some city residents would pay a phone tax on two bills.
The current tax isn’t fair because it effectively “exempts an entire class of phone user,” said Mayor Scott Bartley, who serves on the committee with council members Jake Ours and Councilman Gary Wysocky.
He stressed that while cellphone users would be taxed locally for the first time, residents without cellphones, who are often lower income, would see their utility taxes on electricity, gas, cable and landline bills go down.
How many cellphone users would be affected and how much revenue could be raised is not clear. One city estimate, assuming a switch to a 4.5 percent rate on all utilities, predicted $2.8 million in additional revenue could be raised from cellphones users.
That could be partially or fully offset by the drop in revenue from the lower rate. The city is revising its estimates in advance of a March 11 presentation City Manager Kathy Millison is planning to make to the council.
Even if the change turned out to be revenue-neutral, it would be worth doing for the sake of equity and to prevent future erosion of revenues, Bartley said.
“We’re at risk of losing what we already have,” he said.
Jack Atkin, president of the Sonoma County Taxpayers Association, said his organization is not against the change if it is revenue-neutral “and not a way to increase the tax burden once again.”
Atkin said his group also would not be against increasing the $1,000 cap, which affects large businesses. While the subcommittee has discussed raising the cap to $5,000, Bartley said because it affects so few business, it’s not clear it would raise enough additional revenue to be worth doing, he said.
Wysocky said the Wednesday morning meeting was the first time the committee discussed dropping the overall tax to 4.5 percent, which, though final estimates are not complete, would likely increase taxes overall. He signaled he might have a problem doing so if other financial issues facing the city are not addressed.
“It is really a modernization or is it just raising taxes?” Wysocky asked.
He said he was concerned that the committee seemed to be focused on a tax hike instead of confronting city expenditures, such as the ever-increasing baseline funding requirements contained in Measure O, the 20-year, quarter-cent sales tax to fund public safety and gang-prevention efforts.
Numerous other cities around the state have successfully passed such changes to their utility taxes, Maynor said. When the tax on cellphones is accompanied by a drop in the overall rate, even a slight one, voters have strongly supported the measures because the concept is easy to grasp, he said.
The deadline to place the issue on the November ballot is early August, but the council would need to act by May to give staff time to draft the ordinance and ballot language, City Attorney Caroline Fowler said.
Bartley said the committee continues to consider ways to resolve the Measure O baseline issue, as well as the 2010 quarter-cent general sales tax Measure P, which runs out in 2019. He said the committee was considering ways to combine and extend both measures into one, which he said could be an “elegant solution” to two pressing financial problems facing the city.
You can reach Staff Writer Kevin McCallum at 521-5207 or firstname.lastname@example.org. On Twitter @citybeater.