Chino Hills To Seek Sales Tax Increase, Following Chino’s Ploy To Stave Off Bankruptcy

The Chino City Council on November 21 voted to place a one cent per dollar sales tax increase on the March 5, 2024 ballot.
The initiative will correspond with the 2024 California Primary.
According to City Manager Linda Reich, if passed, the tax will generate a projected $28 million per year.
According to Reich, the city is running a $5.7 million deficit this year and without any revenue enhancement will average a $15 million per year deficit over the next decade. With $73 million in reserves, the city will burn through that money at some point in the 2028-29 fiscal year.
According to the city’s finance director, Rob Burns, the city’s financial picture has deteriorated substantially in the last five months. It thus appears the deficit will escalate in a geometric progression rather than a simple mathematical one going forward. The current $5.7 million deficit will hit $7.1 million in fiscal year 2024-2025, Burns said. A numbers analysis shows the deficit reaching $11.7 million annually in 2026-27, then $17.4 million in 2027-28 and something close to $29 million by 2028-29. Burns concurred with Reich, predicting the general reserve fund will be empty at some point in fiscal year 2028-2029.
To stave off bankruptcy, Reich has formulated a plan, endorsed by the city council at the November 21 meeting, to ask the city’s voters to approve a one percent sales tax increase by means of a measure on the March 5, 2024 ballot. If approved, according to Reich, the tax would redress the city’s deficit circumstance and over the years would provide an additional quarter of a billion dollars or more of funding to create needed infrastructure in the 113-year-old city.
Unspoken by city officials is the lack of fiscal discipline that virtually all city’s in San Bernardino County and California engaged in prior to the economic downturn that gripped the country, state, region and local area from 2007 to 2013 and which has resumed since the 2014 economic recovery began. Wages – salaries, perquisites and benefits – provided to governmental employees have risen on average in that timeframe on a scale well beyond what is being paid in the private sector on average. Retirement debt in particular is choking local governments, as the amount of money hemorrhaging from city coffers to cover retirement payment costs has resulted in what is referred to in governmental parlance as unfunded pension liabilities, individual debts which have escalated beyond what most cities can logically pay without drastically reducing outlays for the basic services it is their duty to provide as municipal entities. Over the last few decades, the cost of employee wages has risen to represent the primary cost of city operations, and with the steepening unfunded pension liabilities – referred to in the simplest terms as pension debt – heading into the stratosphere, a situation now exists where cities one by one in California and in San Bernardino County are paying employees who are retired and no longer working more than they are paying employees currently on their payrolls.
Public employee unions have both created and compounded this situation by pooling their memberships’ dues to make hefty donations generally to incumbent officeholders – mayors and city council members – who are willing to provide constant salary and benefit increases to municipal employees. Those officeholders then use that money to purchase mailers, handbills, fliers, newspaper ads, television ads, radio ads, billboard space and other electioneering means to convince voters to vote for them. When candidates emerge who speak openly about the burden that local government is bearing in paying for salary and benefit increases or advocate for holding the line on such salaries and benefits, those public employee unions will either directly or through political action committees conduct campaigns to discourage voters from voting for those office seekers.
In this way, officeholders in most jurisdictions in California, Southern California, the Inland Empire and San Bernardino County do not have the courage to impose a moratorium on municipal salary and benefit increases or to seek concessions from public employee unions in which those employees agree to pay or benefit cuts.
Such is the situation in Chino, where on November 21, Chino Mayor Eunice Ulloa, who is currently the longest serving municipal politician in San Bernardino County, without making any mention of escalating city employee salary costs or the financial toll of the city’s unfunded pension liability, appealed to the city’s voters to have faith in her judgment and that of the city council in the request for the increased sales tax.
“Please, trust us,” she pleaded.
Ulloa stated that she and the council had acted as responsible stewards of public money by requesting three years ago that the city project its finances in two-year budget cycles rather than the traditional one year cycle running from July 1 to July 30 in each governmental fiscal year, while also asking for five-year and ten-year projections of Chino’s municipal finances. Taking this “responsible” approach, she said, she and the city council found it “quite shocking” that the city would see its reserves evaporate somewhere in the course of 2028-29.
The council left it to Reich to come up with a solution.
The paradigmatic options that Reich had to contemplate consisted either of the city paring back its spending or increasing its revenues.
For Reich, the application of financial discipline that would include reducing spending would necessarily come at a personal cost. She could not very well call upon the city’s employees and their public employee unions to acquiesce in an across-the-board and wholesale reduction in employee salaries and employee benefits if she was not willing to impose upon herself the same economy. Reich’s ascension to the post of city manager had come about as a consequence of her succession of the immediate past city manager, Matt Ballantyne, who had been lured away to become city manager in Fontana with a substantial pay increase last year.
Reich has now arrived in the position she has built her entire municipal career toward, that of city manager and the prestige and income that comes with holding such a position. She is now being provided with $337,890.61 in total annual compensation for serving as city manager, consisting of $233,452.59 in salary, another $38,230 in perquisites and pay add-ons, $53,950 in benefits and a $12,258.02 contribution toward her pension fund. While Reich’s $337,890.61 contrasts quite nicely with the $78,672 in median household income in Chino, among the county’s 24 city and town city managers, she falls below the median. For a host of reasons, she believes, as do her political masters on the city council, that it would be improper to ask her to accept a dime less than she is making.
Thus, when Reich conducted her survey of what the city could do to redress its slide toward bankruptcy, the only cost reduction approaches she seriously examined consisted of looking at service reductions rather than employee pay reductions.
For the time being, she wrote in a staff report prepared for the council’s consumption in conjunction with the November 21 meeting, the city can continue to function with less money coming in than is going out through the expenditure of money it salted away in the past when the revenue-to-expenditure ratio was reversed. But eventually, the city living beyond its means will need to come to an end.

“While the operating deficits will initially be covered by the city’s existing general fund reserves, long-term operating deficits are projected to exhaust general fund reserves by fiscal year 2028-2029,” Reich projected, saying that the only realistic cuts on spending to be made will come through reducing city services. “The persistent structural budget imbalance is projected to deplete the $73 million currently in the city’s reserves, making the city increasingly vulnerable to emergencies and other unanticipated factors, and threatening its ability to provide essential services,” she wrote. “The city will face significant challenges that may force crucial city services and programs to be reduced or eliminated in the coming years unless additional sources of revenue for the general fund are secured. Protecting Chino’s long-term financial stability is key to maintaining essential city services for residents and businesses, including police, 911 emergency medical response, street repair, clean local drinking water, clean and safe public areas, while addressing homelessness, and maintaining senior, veteran, and youth programming. Considering the gravity and severity of the anticipated fiscal crisis, staff was directed to evaluate potential expenditure reductions as well as existing and potential revenue sources to ensure a city budget that is both operationally and structurally balanced. Should the city remain in the status quo, it will become more difficult to protect the city’s valued quality-of-life programs and maintain vital services. To address higher costs, the city council will be required to prioritize the mandatory services needed to operate the city and may have to drastically reduce, eliminate, or choose among essential functions and services.”
To avoid that, Reich said in the staff report dated November 21, the city should consider during the course of that evening’s meeting putting onto the March 5, 2024 California Primary ballot an initiative seeking city voter approval of a 1 percent sales tax increase applicable within Chino City Limits. Reich confidently predicted that ploy would cure Chino of its financial infirmity. This would, she said, “achieve a structurally balanced city budget.”
Her evaluation of “revenue options to protect Chino’s future and maintain the current standard of service,” Reich said, led her and city staff to “explore… different approaches to generate revenue, with the goal of securing a stable, reliable source of general-purpose funding. The revenue sources considered included user fees, grants, fines and penalties, investment earnings and taxes.”
As to user fees, Reich said, “A city-wide cost-of-service study was recently conducted, and fees were adjusted. However, user fees are designed to cover the cost of providing a particular service and do not provide for general operating revenues.” Referencing grants, Reich offered, “The city identifies and pursues a wide variety of grants to fund projects and services. Most grants, however, provide only one-time funds for specific purposes.” With regard to fines and penalties, according to the city manager, “The levying and collection of fines and penalties is labor intensive and costly, reducing the benefits of potential increases for purposes of increasing revenues.” In assessing investment earnings, Reich said, “The city invests to maximize interest earnings; however, investment earnings are subject to market environments and cannot be relied upon to cover operations.”
This left taxes as the most viable way for the city to come to terms with its financial challenges, Reich said. Of the taxing options the city possesses, Reich said, “Property and parcel taxes are subject to 2/3 voter approval. A transient occupancy tax, also known as hotel tax, would not provide a significant revenue source in Chino.”
Reich thus came to the easily-anticipated conclusion that city officials stood the best chance of getting residents to impose a sales tax increase on themselves so the city could thereby meet its financial goals.
Reich said her “recommendation” was to “increase revenues through sales tax. Given the limited options for increasing revenues to the levels needed to keep up with inflation and the exponentially increasing costs of materials, labor, utilities, and other operational factors, a local sales tax increase provides the best available option to ensure dedicated annual revenue to address the city’s fiscal emergency and ensure that Chino can continue to provide critical essential services. Additionally, a local sales tax measure guarantees that local funds remain in Chino.”
According to Reich, the $28 million in additional revenue the city would realize annually from the 1% increase in the city’s sales tax would cure the city’s ills and then some.
An advantage of imposing a sales tax, also referred to as a sales and transactions use tax, Reich said, is that the State of California would do much of the work for the city in collecting it.
“The California Department of Tax and Fee Administration collects the sales and use tax from local retailers selling tangible personal property or from the users of tangible personal property purchased from retailers outside of the State of California. California cities currently receive 1% of the total sales tax rate within its jurisdiction, which is known as the Bradley-Burns Uniform Local Sales & Use Tax. Chino’s sales tax rate is currently 7.75%, of which the city receives 1%. The State of California receives 6%, and San Bernardino County receives the remaining 0.75%. The current 1% local Bradly-Burns rate is a general tax and is allocated to all cities in California. It is unrestricted and received into the general fund for general city services.”
Chino should get on the increasing local sales tax bandwagon, Reich reasoned, since doing so is permissible under state law and some other local cities have been able to convince their residents to tolerate such an increase in their jurisdictions. She pointed out that at present Ontario has an 8.75% sales tax, Corona has an 8.75% sales tax, Redlands has an 8.75% sales tax, San Bernardino has an 8.75% sales tax, Montclair has a 9.0% sales tax, Claremont has a 9.5% sales tax, Riverside has an 8.75% sales tax, Murrieta has an 8.75% sales tax and Pomona has a 10.25% sales tax.
“The proposed 1% measure will keep Chino competitive with other cities in the region, many of which already have local sales tax rates equal to or higher than the 8.75% being proposed for Chino,” Reich said. “The additional revenue generated by these cities has allowed them to make important investments in their communities. Ontario, for example, is receiving approximately $100 million more a year as a result of its local sales tax measure. In 2022 alone, 70 cities in California pursued sales tax increases to generate revenues for their communities, with many others expected to consider tax increases in the future.”
Chino would do well to get in on the taxing bonanza now before some other entity such as a hospital district or school district or college district or water district does and deprives the city of its ability to collect further taxes, Reich asserted.
“State law authorizes city and county residents to adopt local transactions and use taxes in addition to the basic Bradley Burns tax,” Reich said. “The local portion of the sales tax that a county and a city within that county can levy together is capped at 2%. The San Bernardino County Transportation Authority currently collects 0.75% per dollar of sales, of which 0.5% has been approved by the voters of San Bernardino, leaving 1.5% available for other local sales taxes. “If the county or other local districts or agencies pass additional local sales tax measures, those would also apply toward the cap. Once the 2% cap is met in Chino, Chino voters would no longer be able to implement a local sales tax measure to support local city services. The City of Chino would, instead, become part of the county funding pool and receive only a portion of those taxes to support its programs.”
The city would, over time, be in a position to utilize the added sales tax revenue to, city officials said, spend $120 million on drinking water and flood control improvements, $38 million for street and sidewalk repairs, $45.8 million for parks maintenance, $6.3 million toward homeless intervention and mental health services, $9.9 million for a police substation, fire station repairs and improvements, improving or maintaining emergency response times, and $3.2 million for city-wide fiber internet services.
The city will seek to put its best foot forward to convince voters to support the tax by labeling the tax initiative the “Public Safety, Roads and Essential Services Measure.”
If it passes in the vote on March 5, it would go into effect with the new fiscal year, which will be initiated on July 1, 2024.
The tax has no sunset provision but could be terminated by a vote of the city’s residents. That would take some doing, as those intent on removing it would either have to convince a future city council to use its authority to put a tax removal ballot measure before voters, which is highly unlikely, or collect the valid signatures of ten percent of the city’s voters to qualify such an initiative for the ballot.
In voting unanimously to request the county registrar of voters to put the initiative on the March 5 ballot, the city council passed a parallel declaration of a municipal fiscal emergency, which allows such a measure to be placed, per the California Constitution, before voters. Such declarations also clear the way for a municipality to seek bankruptcy protection in federal bankruptcy court.
Simultaneous with the City of Chino’s action or shortly thereafter, city officials in neighboring Chino Hills were emboldened to undertake a like proposal to have their residents impose on themselves a one-percent sales tax override.
Officials there are looking at the county’s southwesternmost city’s spending and revenue trends and like Chino and virtually every other municipality in the state, find the prospect of reducing the major expense it has – paying its employees – a tall order. Therefore, going hat in hand to voters to ask them to pay more for the goods they buy in the form of a sales tax add-on, appears to be an attractive option.
Still, getting voters to do that is not an automatic result. Under the California Constitution, those who are to bear the tax must vote by a majority in favor of it. In 2022, while the voters in Ontario did pass a one-cent sales tax measure, voters in Upland turned down a half-cent sales tax increase.
The Sentinel was informed that the Chino Hills City Council will mull such a move at its upcoming December 12 meeting.

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