OAKLAND — Voters here will have the chance to throw their leaders a financial lifeboat next month by approving a new sales tax that would put Oakland on par with some of the highest-taxing cities in California.
If approved, Measure A would impose a half-percent extra cost on numerous goods sold in Oakland, raising roughly $30 million a year in revenue — a crucial boost for a city that projects gaping budget deficits next year and in 2027 of $140 million and $126 million, respectively.
In recent elections, Oakland voters have overwhelmingly approved most tax proposals, but Measure A may receive closer attention because it comes amid a financial crisis officials and appears on a shorter ballot.
Voters will decide on the measure in a special election on April 15, where they will also choose a new mayor to finish the term of Sheng Thao, who was recalled in November.
The one other ballot item will elect a new Oakland City Council member in District 2, which includes Chinatown, Jack London Square and areas south and east of Lake Merritt, to complete the term of Nikki Fortunato Bas, who became an Alameda County supervisor in January.
“Without (Measure A), Oakland faces a serious budget deficit which will lead to severe cuts to critical services,” states the official ballot argument in favor of the tax signed by several city officials, as well as by mayoral candidates Barbara Lee and Loren Taylor.
“This means fewer first responders, deteriorating roads, and reduced public safety,” the statement continues. “(Measure A) won’t solve everything, budget cuts will still be required, but it will help maintain vital city services.”
An argument against the measure, authored by City Hall gadfly Gene Hazzard, calls the ballot language “misleading” and rails against a lack of sufficient enforcement regulations, among other criticisms.
The expected $30 million raised annually by the tax is not enough on its own to solve deficits over the next two years that are “structural” in nature, meaning they emerge from the city’s fixed costs outpacing its revenues, regardless of economic trends.
City officials haven’t provided precise numbers to explain the upcoming deficit but have pointed mainly to declines in tax revenues from home sales, business licenses and hotel occupancy, as well as to excessive overtime pay generated by an understaffed and overspending Oakland Police Department.
The deficit, however, won’t look as large when the cuts that officials already have made in recent months — including 43 layoffs and 34 demotions of city workers — are taken into account.
“The real dilemma is that, yes, people say they’re paying too much, and they are paying a lot of tax, but the amount they’re paying right now is not sufficient to cover the services they both demand and deserve,” said Dan Lindheim, a former Oakland city administrator who now teaches public policy at UC Berkeley.
The tax proposed to voters would raise the obligation faced by people buying goods in town by 0.5%. Oakland does not yet have its own sales tax, but Alameda County’s rate, 10.25%, is the highest of any county in California.
If the tax is passed next month — by a margin of 50% plus one votes — then Oakland’s new overall sales tax rate, 10.75%, would equal what’s charged in neighboring cities, including Alameda, Albany, Hayward and Emeryville. It is the highest rate of all cities in the state.
There is no sunset on the tax, meaning it would last forever if approved, unless it is repealed by voters in a future election.
The argument in favor of the tax promises the money would help hire more police officers, improve 911 response times, strengthen fire protection, fix streets, and keep parks clean, among other benefits.
In reality, the money would go to the city’s general purposes fund, where it could be used for anything the Oakland City Council might want, including to cover salaries and other operational costs. That’s how money in several funds intended for other purposes were utilized this past year amid the city’s budget crisis.
Unlike property taxes, which vary based on the assed value of properties, sales taxes are applied equally regardless of income level and are considered “regressive” because people who earn less money are hit harder by the tax.
Still, property tax increases are constrained by Prop. 13, a state law dating back to 1978, while other common taxes bear their own consequences. Business taxes can lead to storefront closures, and taxes on utilities are similarly regressive, disproportionately affecting lower-income residents who pay their energy and water bills.
“Among the choices that are available to local governments, sales taxes are actually the most common, for a reason — the alternatives are not great,” Michael Coleman, a consultant who authors the online California Local Government Finance Almanac, said in an interview.
California’s sales taxes are actually less regressive than in other states, such as Hawaii, Florida and Texas, Coleman said. Groceries and medicine are among the goods that aren’t eligible to be taxed in this state, while someone getting a car fixed here would be taxed on the new parts, but not the service itself.
The economy’s shift toward internet-based services has led the average ratio of money spent in California on sales taxes, compared to overall income, to fall by half over the past five decades, said Brad Williams, a municipal finance consultant in Davis.
Lee and Taylor, widely considered the frontrunners in next month’s mayoral election, are both backing the tax, though they appear to diverge in their plans for cutting the city’s costs.
The main political divide between them seems to be whether they believe city leadership should protect workers’ salaries or demand that public-employee unions accept concessions and even additional layoffs.
Beyond that, however, higher taxes for residents to help cover the city’s costs may simply be a reality of the times — particularly in Oakland.
“Cities are faced with a lot of challenges — the homeless crises, for example — that maybe they weren’t facing 10 or 15 years ago,” said Williams, who formerly served as chief economist of the non-partisan California Legislative Analyst’s office.
“You can talk for days about, ‘Why is that?’ and so forth,” he added. “But the hard fact is they do have more pressures to spend.”
Shomik Mukherjee is a reporter covering Oakland. Call or text him at 510-905-5495 or email him at shomik@bayareanewsgroup.com.