Tax increase implemented to aid budget

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There's no way to sugar coat the situation. Valencia County commissioners voted to increase gross receipts taxes countywide by a half percent in order to avoid a nearly $1.8 million shortfall at the end of the next fiscal year.

There's no way to sugar coat the situation. Valencia County commissioners voted to increase gross receipts taxes countywide by a half percent in order to avoid a nearly $1.8 million shortfall at the end of the next fiscal year.

The decision to increase taxes on purchases was made because the county is out of options, said County Manager Jeff Condrey.

"We are in an untenable position where some type of corrective action was required," Condrey said. "The county has been on an austerity program for many years. That low-hanging fruit is gone. There are major issues to deal with and difficult decisions to be made."

After four budget hearings, where commissioners reviewed the alternatives available to balance next year's budget, they voted 4-0 to move forward and implement the tax increase.

As the workshops progressed, it quickly became evident that the years of spending more than it was collecting in revenues was catching up with Valencia County. The county has managed to stay afloat because the ending the cash balance that rolled forward each year covered the spending gap. Now that cash balance has all but disappeared.

Without a change, the county's finance director Nick Telles said by the end of next fiscal year, June 30, 2015, the county would be more than $1.8 million in the hole.

During the workshop on May 21, Telles presented the commissioners with a choice — either increase revenues or be prepared to lay people off.

"With 64 percent of our budget going to salaries and benefits, when you're looking at a shortfall that big, there's really no where else to make up that kind of funding," Telles said Tuesday. "The county is already pretty lean. In the three years I've been here, the county has done two budget cuts and a zero-based budget.

"All the fat has been cut. If you cut more, you start hitting bone."

Both Condrey and Telles said cutting the budget means cutting back even further on the already underfunded, understaffed services the county provides.

"The commissioners have deferred maintenance on facilities, equipment is in disrepair. Generally, the public is not happy with some basic of the services like animal control, road maintenance and certainly the solid waste situation at Conejo.

"All these issues, they all take money to fix. Some counties that don't have these GRT options could go to the state and ask for a bail out. But I think for Valencia County, the state would say no. We've been given the tools to correct the problem but they haven't been implemented. We are at the point of virtually no choice."

The .5 percent increase in GRT comes from two different local options the county can implement — 3/8 is for hold harmless replacement and 1/8 is a correctional GRT to fund operations of the Valencia County Detention Center. If collection projections are correct, the county will end the next fiscal year with an ending cash balance of $90,744.

"If you look at out transfers out (to the jail), they're killing us," Telles said.

Annually, the county's general fund bears the burden of nearly $3 million in operational expenses for the jail. With more and more prisoners being housed in other facilities due to overcrowding and a massive jump in the cost of the jail's health care contract — a nearly $600,000 increase — costs are climbing but revenues are in no way matching.

"As I understand it, detention costs are up all over the state and nationwide. This is not unique to Valencia County," the finance director said. "Across the board, our revenues have been flat but expenditures have not. People are already unhappy about the quality of services. If we have to make up that nearly $1.8 million by cutting services, I don't think a lot of good is going to come of that."

Even with an increase in revenues, Condrey said county employees should not expect a raise in the coming fiscal year.

"I feel for our employees. Many have gone for some length without an across-the-board increase of any sort. But that is not what these proposed GRTs are about," he said. "They are about solving basic infrastructure and fundamental government problems."

Due to the timing of the enactment requirements for the GRT and when the county will actually receive disbursements from the state, Telles said the county can realistically expect to only receive a quarter of the revenues the GRTs will generate.

Annually, the .5 percent will bring in about $4 million, but the county will only see about $1 million of that in the 2014-15 fiscal year. The taxes will go into effect in January 2015, and disbursement from taxation and revenue usually lags about two months, Telles said.

With that being the scenario, Condrey said the fiscal year starting in July will be very difficult financially.

"We just don't have the resources to add personnel or raises. The 2016 fiscal year may look better; the economy may have recovered by then, we'll have a full year of revenues if the taxes go forward."

The hold harmless portion of the GRT can be implemented by the commissioners without a public vote, but the correctional 1/8 is subjected to what is called a negative referendum. That means if enough signatures are gathered from county residents, the correctional GRT will be put to a public vote.

In 2009, after a previous jail tax expired, the commission voted 3-2 to enact a one-eighth GRT for the jail. However, the public pushed back, gathered petition signatures and voted down the tax on a 2-1 margin.

Since then, the transfers from the county general fund to the jail have increased exponentially, Telles said.

The vote of the five-person board at the May 28 commission meeting was 4-0 because Commissioner Alicia Aguilar abstained from the vote. She withheld her support of the proposed budget not because she doesn't support the GRT, but because she says there's no solid plan in place.

"I have publicly said I would support some sort of GRT. However, for 18 months I have been asking for a full assessment," Aguilar said. "I would like to know cost of operation and see a plan as far as a recommendation from the county manager and staff as to what we need to do to get handle on a $1.7 million deficit.

"I want to know our over-all operation, identify expenditures, deficiencies, before we tax the taxpayers. If we're going to do it, we need to provide enough information to taxpayers to know why we're doing this. We should have a long-term plan as to how we are going to get there."

Aguilar said the GRT solution being proposed is a revenue plan only.

"That needs to be attached to expenses. Once we do that, we identify problems and can come up with the best solutions that the commission, staff and most importantly, the taxpayers can support."

During the budget meetings, the commissioners expressed support for the GRT increase and acknowledged it was far from a perfect solution.

Commissioner Mary Andersen said as the county has become an urban county, there is a demand for services the county previously didn't have.

"We are in a vice and we are squeezing the life out of the services we can give people," Andersen said. "Our citizens have to understand there is only one way to get money for county government. And that is to impose taxes on the citizens. No one likes an increase in taxes. I don't like it."

The problem has been building for several years, said Valencia County Commission Chairman Charles Eaton on Tuesday.

"We've been spending more money than we're bringing in. We're not happy with having to make the decision but the writing was on the wall. The alternative was not something we wanted to do," Eaton said. "I think GRT versus property taxation was the way to go."

Most complaints from citizens about county services tend to be about law enforcement, roads and animal control, Eaton said.

"If we start to cut they're going to be more upset. When they pick up the phone, they want a response," he said. "I was here in the '90s when the county had to reduce staffing, layoff employes and reduce them to 32-hour weeks.

"It was a dismal day when that decision was made. It hurt families, it hurt children. I personally don't want to have to make that decision, so I hope my fellow commissioners understand the situation today. I understand it's hard to raise taxes. Hopefully the public understands the importance off services provided by county government."

Commissioner Jhonathan Aragon said once the public sees the "actual hit (the county) is taking, they will support this."

The county's current GRT rate is 6.375 percent, of which the county keeps 1.25 percent and the remainder, 5.125 percent, goes to the state.

Telles said a one-eighth increase to GRT would add 12.5 cents per $100 spent on taxable purchases. A half percent increase to the GRT would increase a $100 purchase by 50 cents. Gross receipts taxes are not charged on groceries and most prescription medications.

The GRT increase would be applicable to purchases made in the unincorporated parts of the county as well as in the municipalities.


-- Email the author at jdendinger@news-bulletin.com.