City mulls creating a sales tax to offset COVID-19 costs

Terrance Vestal
Managing Editor

After reviewing this fiscal year’s budget adjustments and next fiscal year’s projections, the Bishop City Council at its Tuesday meeting discussed placing a ballot measure on the November ballot to implement a Transactions and Use Tax (TUT), commonly referred to as a local sales tax.
According to city staff, the COVID-19 situation is requiring the city to expend more than $800,000 in reserves due to anticipated decreases in both sales tax and Transient Occupancy Tax (hotel tax) revenues. The closure of Kmart at the beginning of the year also impacted the city’s financial health.
Bishop does not currently have a TUT, but Inyo County has a half-percent TUT, applicable in unincorporated areas and in Bishop, and pays 30 percent of proceeds to Bishop.
City Administrator Ron Phillips said the city has the ability legally to have a TUT up to 1 percent. The state limit is 1.5 percent and since the county has a half percent TUT, the city could adopt a one percent TUT.
Currently, people in Bishop pay a combined sales tax of 7.75 percent and the council discussed an increase from .5 percent or 1 percent or somewhere in the middle. The council is expected to lock down a number at a June meeting to get it on the ballot in November. The measure would have to pass by 50 percent plus 1 in order to be implemented.
Phillips said a .5 percent TUT would bring in, if the economy is in good shape, about $430,000 a year. If the measure was on the ballot in November and passed the city would get about half the amount for this fiscal year and the full amount could be realized in the next fiscal year.
Phillips said an increase in TOT might be more palatable with voters since it is primarily paid by tourists, it only raises $232,000 per 1 percent increase per year. Bishop’s current TOT rate is 12 percent and Mammoth’s rate is 13 percent, which is one of the higher TOT rates in the region.
Phillips said staff is recommending a .5 percent TUT, which would increase the sales tax paid in Bishop from 7.75 percent to 8.25 percent.
Bishop Mayor Laura Smith said the city considered implementing a TUT a few years ago at the same time the Bishop Tourism Improvement District was being developed. The city at the time decided to focus on the BTID, which levies a 2 percent tax on local hotels and motels to help attract more tourists to the area.
Smith said, however, under these circumstances, the TUT would be necessary for the city to maintain the services it provides without having to layoff employees from an already bare-bones staff.
“To me, there hasn’t been a more pertinent time to ask the people to pitch in for help,” Smith said.
Council member Stephen Muchovej said the city is looking at two consecutive years with budget shortfalls of about $800,000. He said he favored a 1 percent TUT rather than a .5 percent TUT because the city might end up having to go before the voters again, who might not want to approve another increase.
Muchovej also brought up other potential revenue generators, such as allowing commercial cannabis activity within the city limits. The county has allowed such and generates significant amounts of revenue through those taxes.
“We could also consider that to diversify the city’s income so we’re not at the whim of a sales tax downturn,” Muchovej said.
None of the other council members seemed to want to go in that direction, however.
Muchovej cited a recent study from the League of California Cities that showed voters were more apt to vote in favor of a whole-number tax increase, such as 1 percent, rather than a fraction amount.
Council member Karen Schwartz said from her years in the retail trade, she has come to understand that sales tax is an expected expense and consumers aren’t going to balk at a 1 percent increase if they want a product.
“That’s what I like about it,” Schwartz said. “Then it’s their choice. I think people really do enjoy the services that the city provides, and enjoy our beautiful parks, they enjoy our nice streets, they enjoy our beautiful flowers, and I can’t imagine that they would not want to pay an extra half a percent to continue to see that.”
Schwartz said she believes voters would be amenable to a 1 percent tax.
Mayor Pro Tem Chris Costello said he believes, with the precautions already in place regarding COVID-119, the area’s economy will bounce back sooner than later. He said he was leaning toward a .5 percent tax because if for whatever reason, voters balk at 1 percent, the city would have nothing to show for it.
Muchovej reiterated that just that evening the council went through a budget workshop during which the council and staff went through to see where else the city could trim.
“And unless we start talking about reducing city staff and services, I feel confident that we’ve done our due diligence in identifying all other aspects to trim from what we currently have,” he said.
City Attorney Dean Pucci said he would return at the council’s June 8 meeting with a formalized proposed ballot measure that would be flexible enough to go with either .5 percent or 1 percent or somewhere in between depending on how the council feels at that time.