City proceeds with tax measure citing “very strong support”

Last night the Hayward City Council unanimously approved a resolution to place a 1/2-cent city sales tax measure on the June 2014 ballot. It did so on the recommendation by staff who had previously declared that potential voters showed "very strong support" for the tax increase.

Apparently, a sampled group of likely voters indicated support to the tune of 66-percent, according to the city's consultant, Godbe Research. However, this group was only effectively exposed to the City’s one-sided message. The research consultant warned that support could quickly erode should the electorate be exposed to counter arguments without a sustained campaign in favor of the measure. To foster such a campaign, the Council previously approved $114,000 in consultant fees for "outreach and education." Never-the-less, I expect voter support to be fleeting as it simply doesn't make sense for a truly informed electorate to approve such a measure.

Many reasons exist as to why voters should oppose this tax increase, and I’ll elaborate on them in the coming months. But for the moment, I want to touch on just a few to get the conversation started.

Let’s begin with the absurdity of the City’s claim that it has over half-a-billion dollars (that’s a five with eight zeroes behind it) in unfunded needs and that only an additional half-cent of every future dollar sale will get us by. This kind of claim requires some scrutiny. We ought to be taking a closer look at these supposed needs, and in particular, the justification and alternatives to each. The latest report of the Capital Improvement Program provides a laundry list of city desired projects with no identified funding that total $325-million. Having perused this list I can assure you that not all of these projects are critical and that the expected augmentation of Measure B will fund a substantial number of the most expensive of them.

Next let’s examine the lack of funding. After all, we do pay a plethora of taxes: property taxes, sales taxes, an emergency facilities tax, and a utility tax. We also pay other taxes and fees, such as the gas tax, Measure B tax, vehicle licensing fees, etc. which provides the City with millions of dollars in grants each year. Where exactly does all this money go, if not to the city's most critical needs?

The San Jose Mercury News - Public Employee Salaries Database offers a clue. A query of the latest available data (from 2012) reveals that the City’s 20-highest compensated employees (including a contract employee) each took home a quarter-of-a-million dollars or more in salary and benefits. In fact, there were a half-dozen employees whose compensation was north of $300,000 in that single year. That’s nearly six times the median household income of Hayward residents and more than many small businesses earn in annual revenue.  One has to wonder if voters strongly favor this as well. Because this is the reality of what a general fund sales tax actually supports.

Click on the chart above to view a more detailed and expanded PDF version.

Then there has to be the consideration of impact to business in the city. The City's position, supported by its revenue enhancement consultant, Muniservices, is that the impact will be negligible. I don't think so. If approved in conjunction with the almost certain passage of the County Transportation sales tax measure (another Council supported initiative), Hayward's sales tax will be an even 10-percent. This will make it the highest in the state, a distinction that will be shared by only five other cities in this state of 478 (assuming no additional tax increases occur at other highly taxed cities). If you believe this is negligible, think again.

A 10-percent sales tax will have an adverse impact for several reasons. First, it passes a psychological threshold that is known to influence sales. Retailers set prices at $9.99 instead of $10 for a reason. Second, while the new higher rate might not drive smaller purchases to surrounding communities, it will almost certainly drive more small purchases to out-of-state retailers via the Internet. Larger purchases will most definitely be driven to neighboring communities as the difference can be substantial. For example, if a contractor needs to purchase $50,000 in building supplies, why would he buy them at the Hayward Home Depot when he could drive down Crow Canyon Road and buy them at the San Ramon Home Depot for a savings of $750 (10% tax rate vs. 8.5% tax rate)? And finally and perhaps most importantly, having the highest sales tax rate in the state, in conjunction with our other special taxes, basically screams that Hayward is unfriendly toward business. This equates to a critical fail as the city's real future revenue growth stems from a thriving business community.

If the City would only focus this much staff time, consultant time, and precious funds on fostering and attracting new business as it has on this effort of taxation, our economic forecast would be far more encouraging and positively sustainable.