Cell-phone blues

Measure J’s defeat spells financial blow to city of Chico

City Finance Director Jennifer Hennessy and her department have the daunting task of figuring out how to repay local cell-phone users the utility tax the city has been collecting under an outdated ordinance.

City Finance Director Jennifer Hennessy and her department have the daunting task of figuring out how to repay local cell-phone users the utility tax the city has been collecting under an outdated ordinance.

Photo By melissa daugherty

What happened with Measure J? That’s something city of Chico staffers and the City Council will be discussing next month as they grapple with yet another hit to the city’s coffers.

Measure J was the so-called telephone-users’ tax that 53 percent of Chico voters nixed during the general election. The measure was placed on the ballot to update the city’s decades-old ordinance to include cellular and certain Internet phones, not just land lines. The city had already been collecting the fee from cellular providers, but the measure would codify the practice.

Because cell phones account for the majority of the $1.4 million generated annually by the tax, passage of Measure J would have secured about $900,000 for the general fund. And that’s a big chunk of change, as City Manager Brian Nakamura relayed to the council’s Finance Committee during the group’s regular meeting Tuesday morning, Nov. 27.

Nakamura contextualized what that dollar figure means in terms of public safety, services that account for a majority of the city’s general-fund budget, noting that the amount could finance seven or eight police positions or two-thirds of a firehouse’s operations.

“Those are significant reductions and impacts,” Nakamura said.

Moreover, the remaining revenue is likely to shrink as people switch from land lines to solely cell phones.

City Attorney Lori Barker said she was still looking into the ramifications of the measure’s defeat, including the possibility of establishing a procedure for those who request a refund. (During a telephone interview after the meeting, Barker explained that the city requires that refunds apply only to utility users’ taxes generated within a year.)

In the meantime, the city is setting the incoming revenue aside. Finance Director Jennifer Hennessy noted that the issue is complicated, since some of the big carriers provide both land lines and cellular service but do not differentiate between them.

City Accounting Manager Frank Fields, who later elaborated by telephone in Hennessy’s absence, said the Finance Department will have to develop a process to get the revenue back to the taxpayers. As for what the defeat of Measure J means to the city in the remaining portion of the current fiscal year, Fields estimated the general fund will take a hit of around $600,000.

That’s on top of other recent reductions of property tax and sales tax, as well as this year’s dissolution of the city redevelopment agency and its associated funding, a portion of which paid for certain administrative employees’ salaries. And those are just some of the known quantities, Fields said.

“We can cross our fingers and hope the state finds its own way,” he said.

In many respects, it’s difficult to understand why the measure lost.

Back in January, when a majority of the City Council voted to place the measure on the ballot, Barker explained that the existing 5 percent telephone tax was consistent with what has been imposed elsewhere throughout the state since the mid-1980s.

“That tax was created at a time when … everyone had local service, they paid for their long-distance separately based on time and distance, and it was all land lines,” she said.

In other words, telephone users have been paying the tax for decades.

But with changes in technology and billing practices, she said, there have been challenges to the tax, and in fact the IRS will no longer charge for it, except in the case of local service. Thus far, the city has been notified by at least one company, Metro PCS, that it wasn’t going to submit those revenues, based on the antiquated city code.

During that meeting, former City Manager Dave Burkland noted how important it was to preserve the funds. “Some may not think it’s the best time, but I think what we’re talking about is a clarification that preserves an existing tax,” he said.

To make the update even more palatable to voters, the council eventually decided to reduce the rate, from 5 percent to 4.5 percent. Councilmen Mark Sorensen and Bob Evans, both of whom argued the measure would expand the tax, cast the dissenting votes.

Barker said the City Council could bring the measure back to the voters, although by law such a vote must take place during a council election. Its first opportunity will be in November 2014. Neither she nor anyone else at the finance meeting ventured a guess as to why the measure failed.

But that will probably come up when Measure J is discussed at length by the full council, likely at the panel’s Dec. 18 meeting. In the interim, Barker’s still analyzing the extent of the impacts of the defeat.

“The measures have passed almost everywhere they have been presented to the voters,” she said.