Hidden Taxes, Solvency and the Supreme Court

by Lou Binninger

Californians, today, are paying taxes for every move they make and don’t make. Money is forcefully taken and then laws and codes are manipulated to take more and more. For the bureaucrats it’s like angling at the fish farm. The fish are trapped.

There is a case before California’s Supreme Court questioning the legality of transfers of monies from city-owned utilities to the general fund of that same city. Citizens have accused the City of Redding of creating an unconstitutional tax by diverting surplus electric revenues ($6 million annually) to the general fund. The move was not approved by the voters. The strategy is called “payments in lieu of taxes” (PILOT or PILT) to rescue city budgets.

Californians have repeatedly amended the Constitution to keep politicians from taking their homes and belongings via taxation beginning with Proposition 13 in 1978. These efforts however have not prevented local governments from devious practices to take more cash.

Proposition 13 stopped assessors from reappraising property values routinely to raise more revenue. The measure established a new controlled method of property appraisals and taxation and how future taxes would need to have voter or legislative approval.

Local governments responded by relabeling taxes as special taxes as fees. In 1996, California voters passed Proposition 218 to again amend the state constitution to require that new special taxes be approved by two-thirds of those voters subject to the proposed tax, with the exception of fees for gas or electrical service.

In 2010, Left Coasters passed Proposition 26 closing another loophole by stopping cities from raising electricity and gas rates to pay for the utility-to-general fund transfers without voter approval, or without showing that the higher rates are necessary to cover reasonable utility costs.

“The City of Redding owns a municipal utility to provide electrical service to homes and businesses within the city. The city council approved a rate increase, then, six months later imposed a “payment in lieu of taxes” to “obtain funds” to cover general city budget items,” according to the Pacific Legal Foundation (PLF). Citizens say this is a hidden and unconstitutional tax. The Supreme Court soon will decide.

The City of Gridley in Butte County has been using the same tactic by annually drawing $1.6 million, then in 2016-2017 / 2017-2018 $1.5 million yearly and a proposed $1.4 million in 2018-2019 from its electric revenues. The shrinking transfer is due to maintaining the solvency of the electric operation which is the Goose providing Golden Eggs to keep the Gridley General Fund in the black.

In December 2017, the city council voted 3-2 to increase electric rates by 18% since the electric fund now had a deficit of $400,000. The deficit was caused by annually siphoning off millions and suffering some bad outcomes on speculative power purchases.

Not one community member attended the meeting to comment, according to the Gridley Herald newspaper. The rate increase meant a $25-$35 bump to the average homeowner’s bill said City Manager Paul Eckert. Without the increase Eckert and the council discussed options including bankruptcy.

The annual transfer of electric monies appears illegal according to Proposition 26 and the Pacific Legal Foundation. The solvency of California cities using these tactics may be threatened if the Supreme Court rules for the citizens of Redding.

What is Gridley thinking? While its hired staff says all is well, Chief of Police “Diamond” Dean Price makes more than any law enforcement leader in Northern California at $ 332,742 regardless of the city size, including San Francisco. City Manager Paul Eckert is at $206,672 for 2018-19. That’s over a half-million dollars for just two employees. Finance Director Juan Solis makes $178,876.

So, Gridley is running low on cash and raising electric rates with no vote of the constituents to cover overspending. That was supposed to be illegal.

Gridley covers 2.08 square miles and has 6,074 residents. Some of Bell, California’s DNA must have made it this way noting the notorious city salaries and monetary shenanigans for this Hiccup on Hwy 99.

Bell’s leadership went to jail, were fired or resigned for their nefarious management policies. The term “Bell” is now synonymous with government ripping-off the public like “Going Postal” describes the violent actions of a disgruntled employee.

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