Nearly every crime drama on television uses this three-letter phrase to solve the mystery: “Follow the money.” With that in mind, California State Controller Betty T. Yee released, in late November, a detailed review of where cities get the money they need to operate. For our industry, the Utility User fees/taxes are the top priority because it is used, in part, to pay off bonded indebtedness to fund utility construction projects.
For the 2017-18 fiscal year, California’s 482 cities reported $83.42 billion in revenues and $81.08 billion in expenditures. The “Big Four,” Los Angeles, San Francisco, San Diego, and San Jose, generated the majority of their general fund revenue from an array of taxes, with property taxes being the primary source. Other government levies include the utility user, business license, transient occupancy, and sales and use tax.
The utility user tax is on the consumption of utility services such as electricity, gas, water, sewer, telephone, sanitation, and cable television. Either the city or the county may levy this tax, which is collected as part of the normal billing process and then remitted to the taxing body. San Diego currently does not have a utility user tax. There were 157 cities and four counties with a utility user tax in California as of a January 2017 report by California City Finance.
In addition to paying operational costs, these tax dollars usually are used to pay off bonds generated for the construction of new utility services or maintenance on existing public works.
Property tax is the king. Unless the California Constitution or federal law says otherwise, all property is subject to tax. Except for state-assessed property, the county assessor is responsible for determining the value of all taxable property in the county. The collection of property taxes and their allocation to the appropriate taxing jurisdictions are functions of the county tax collector and the county auditor, respectively. For FY 2017-18, the total tax for secured and unsecured California property was more than $74 billion. For this same period the Big Four general revenue score:
- Los Angeles—$1.28 billion, 30.5 percent;
- San Francisco—$1.43 billion, 41.9 percent;
- San Diego—$360.06 million, 27 percent;
- San Jose—$198.9 million, 23.6 percent.
Where does that money go? Most of it is used for public safety—police, fire, emergency medical services, street lighting, and disaster preparedness— and City Hall overhead.
- Los Angeles, with a utility user tax rate of 10 percent, $640.7 million, 15.2 percent of total general revenue;
- San Francisco, with a rate of 7.5 percent, raised $94.5 million, 2.8 percent of total general revenue; and
- San Jose, with a rate of five percent, collected $120.2 million, 14.3 percent of total public revenue.
A business license is required to conduct business in any California city. Most cities impose a business license tax; the tax computation and rate varies. For Los Angeles, the fee generally is based on gross receipts, and the price is a speci- fied amount per $1,000 of taxable gross receipts for each tax classification. For example, the tax rate for a Los Angeles retail sales business is $1.27 per $1,000 of gross receipts and $1.01 per gross receipts for a multi-media company. San Francisco’s business license tax also is a total receipts tax with varying tax rates depending on the type of business. For FY 2017-18:
- Los Angeles collected $535 million, 12.7 percent of total general revenue;
- San Francisco received $454.9 million, 13.3 percent of the overall public revenue;
- San Diego collected $20.7 million, 1.6 percent of total general revenue; and
- San Jose raised $70.7 million, 8.4 percent of total public revenue.
Sales and Use
Retailers engaged in business in California pay the sales tax, which applies to all retail sales of goods and merchandise, except those sales specifically exempted by law. The use tax generally applies to the storage, use, or other consumption in California of goods purchased from retailers in transactions not subject to the sales tax. The sales and use tax rate in a California locale has three parts: the state tax rate, the local tax rate, and any district tax rate that may be in effect. As of July 1, the sales and use tax rate is 9.5 percent in Los Angeles, 9.25 percent in San Jose, 8.5 percent in San Francisco, and 7.75 percent in San Diego.
Sales and use taxes provide revenue to the state’s general fund, to cities and counties through specific state fund allocations, and to other local jurisdictions.
For FY 2017-18:
- Los Angeles—$534.2 million, 12.7 percent of total general revenue;
- San Diego—$314 million, 23.5 percent of total general revenue;
- San Francisco—$298.2 million, 8.7 percent;
- San Jose—$177.4 million, 21.0 percent of total general revenue.