Morro Bay is considering a sales tax to cover an expected $1.8 million budget gap

If Morro Bay doesn’t take drastic measures to slash its budget or find new ways of generating revenue, the city says it faces a general fund deficit of around $1.8 million in 10 years — representing about 10% of its budget.

That’s why the City Council voted 4-1 on Tuesday with Councilman Jeff Heller dissenting to authorize consultants to conduct studies and polling on whether the community would support a sales tax on the November 2020 general election ballot.

Heller expressed support for considering a general parcel tax, which was left off the table.

It’s undecided exactly how much a proposed Morro Bay sales tax measure could be, though a 1% tax increase would generate about $2 million per year, City Manager Scott Collins said.

Instead of a potential sales tax measure, the City Council could also opt for a more limited harbor assessment ballot measure focusing on needs specific to the harbor area versus the overall General Fund.

“The poll will look at the level of community support and the level of tax that might be appropriate to pursue,” Collins said.

Other county communities, including the city of San Luis Obispo, also are considering sales tax measures to help fill funding gaps.

“I think we need to look seriously at the magnitude of this issue and the urgency,” Mayor John Headding said. “We have serious financial difficulty, and our new economic development opportunities will take time, and show incremental increases. There is real urgency here.”

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Morro Bay is considering a sales tax to help pay for needed city budget costs and a projected $1.8 budget deficit in 10 years, city officials say. Joe Johnston jjohnston@thetribunenews.com

Morro Bay pensions and health costs cause of budget challenges

Morro Bay’s council hired consultants Lew Edwards Group and FM3, with a reserve budget allocation not to exceed $83,750, to identify “potential risks, problems, opportunities, messaging and other relevant issues” before it decides on whether to move forward with a tax measure.

The polling will include a 20-minute survey of up to 300 city residents by FM3, which has worked on more than 530 approved local tax and bond measures statewide with a “success rate of over 95%,” the staff report stated.

“The primary cause of this shortfall is employee pension and health costs outpacing revenues,” a city staff report noted. “These (projected budget) increases, while outside the city’s control, threaten the city’s ability to maintain current service levels and accumulate funds for much needed infrastructure, capital, vehicle and equipment investments.”

A harbor assessment would likely come in the form of a parcel tax affecting mostly city residents, Headding said, while a sales tax would include a significant amount of tax money generated by tourists.

SLO has projected out-of-town residents would pay for as much as 70 percent of the revenue generated from sales taxes, including tourists and shoppers from outside county communities.

How a new tax would help Morro Bay

A new Morro Bay sales tax stream would help pay for infrastructure costs including parks, streets and public facilities such as bathrooms and lighting. Council members say infrastructure is showing signs of wear and age — requiring upgrades to continue to make Morro Bay an attractive tourism destination.

The city already has already slashed around $500,000 from its pre-recession staffing levels, reducing its total number of full-time employees from 105 to 97.

Morro Bay has eliminated positions such as deputy city manager, capital projects manager and a building official, and reduced hours for fire administrator assistant and recreation office assistant positions.

Collins has acknowledged the city’s staff is stretched thin with a heavy workload.

“This race to the bottom is not working,” said Councilwoman Dawn Addis, expressing her support for exploring tax options. “Cutting, cutting, cutting is not the way to go. We need to address this.”

The city, like other communities countywide, is faced with making CalPERS pension paydowns as a way to keep retirement-related costs down.

CalPERS pension paydowns will result in “significant long-term savings, although increase short-term expenditures,” city officials wrote.

In public comment, Morro Bay resident Betty Winholtz opposed the expenditure on consultants, saying she felt it was unnecessary use of public funds to pursue an idea the council could decide on its own, as residents are being asked to pay more already for costs related to the planned new sewage treatment facility.

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Nick Wilson covers the city of San Luis Obispo and has been a reporter at The Tribune in San Luis Obispo since 2004. He also writes regularly about K-12 education, Cal Poly, Morro Bay and Los Osos. He is a graduate of UC Santa Barbara and UC Berkeley and is originally from Ojai.