Santa Rosa seeks to tax cellphones, keep utility tax cap for businesses

Santa Rosa moved forward with plans to expand its utility tax to cover cellphones but backed off the idea of eliminating the cap on the tax Tuesday after big energy users, including two hospitals, pointed out that their taxes would soar under the change.

As part of its efforts to “modernize” the tax, the council previously proposed eliminating the $1,000 cap per utility bill, reasoning that large businesses shouldn’t get a break from the tax.

But two major Santa Rosa hospitals balked at the proposal, claiming their tax bills would skyrocket if the cap were eliminated.

Officials from Kaiser Permanente said its utility taxes would soar by more than $150,000 annually under the plan. Officials from St. Joseph Health System, which runs Santa Rosa Memorial Hospital, said its tax bills would exceed $100,000 if the cap were eliminated. It is unclear how much the two health care organizations pay now.

Both noted that because they are round-the-clock organizations with multiple locations providing vital health care services, their ability to reduce their energy usage was limited.

The city’s economic development officials also told the council that eliminating the cap might create uncertainty for the very kinds of businesses the city was trying to attract, including high-energy users such as advanced manufacturing, food production and medical industries.

“We felt that it could hamper our business attraction and retention effort for these kinds of businesses,” said Danielle O’Leary, the city’s economic development manager.

The city’s tax on electricity, gas, cable TV and landline telephones has been in place since 1970, raising $9.6 million for general city operations in 2013. The inequity of requiring landline owners to pay the tax and not cellphone users is one of the key drivers of the need for an update to the tax.

Several council members noted that the fall ballot is crowded with several tax measures, including ones for schools and roads, and the city needed to reduce the risk that the public would see the changes simply as a way to raise additional revenue.

In fact, several council members noted, the measure is aimed at updating the ordinance to reflect changes in the law and technology that threatened at least $1.6 million in revenue from the tax. The goal is not to generate new revenue, but merely to be more fair and preserve that vital revenue stream, they said.

“We need to deal with this, and we need to deal with this now,” Vice Mayor Robin Swinth said.

In an effort to make the tax more palatable to voters, Swinth proposed lowering it from its current 5 percent to 4.25 percent. She said her goal was to get as close to the tax being as “revenue neutral as possible.”

Others expressed concern about cutting it too close, however, given the uncertainty in the estimates for how much the tax would actually raise. The council agreed on a 6-1 vote, with Councilman Gary Wysocky dissenting, to lower the rate to 4.5 percent and keep the $1,000 cap in place. Under that 4.5 percent scenario, estimates are the city would generate $11.9 million per year, or 24 percent more than 2013. The plan that included eliminating the cap would have generated about $1 million more.

Mayor Scott Bartley noted that efforts to modernize so-called “utility users tax” measures have been successful when the rate is lowered as Santa Rosa proposes.

Wysocky said he couldn’t support the measure because the city had failed to tackle a needed revision in the Measure O sales tax for public safety and gang prevention before asking taxpayers for more revenue.

He claimed the additional taxes would effectively help the city pay for increases in public safety departments, but other council members and City Manager Kathy Millison pushed back against that characterization.

“To say that it primarily goes to certain services is wrong,” Millison said. “It’s simply not true.”

The money is general fund revenue that is spread equally across the city’s general operations, she said.

Councilwoman Julie Combs said she had similar concerns and worried that proposed ballot language suggesting the money would be going in part to parks would be misleading given the Measure O realities.

To resolve that dispute, the council agreed to change the proposed ballot language to not name any specific departments that would benefit from the tax revenue, but instead note that it would support “essential city services.”

Council members instructed City Attorney Caroline Fowler to provide them at their Aug. 5 meeting with a 500-word argument in favor of the ballot measure.