Tax revenue outlook not bright

By Nancy Needham  nancy@theacorn.com

Sales tax revenues for the city of Thousand Oaks are currently down $1.5 million and aren't going to improve any time soon, according to Lloyd de Llamas, a sales tax consultant for HdL Companies, who spoke at a recent City Council meeting. De Llamas was hired by the city to evaluate the tax revenue situation in T.O.

His suggested remedies to declining revenue: Residents should be encouraged to keep shopping in Thousand Oaks, to not send gift cards to other states and to vote against the Land Use/Traffic Initiative on the June 3 ballot.

The initiative, if passed, would require a vote on large developments if studies show the development would increase traffic.

Increasing taxes and broadening the tax base could also improve dropping revenue, de Llamas said. Shoppers in Thousand Oaks pay a countywide sales tax rate of 7.25 percent, while up to 8.75 percent is charged in some California municipalities.

T.O. receives about 23.5 percent of the sales tax in Ventura County. The city is a bit too dependent on auto sales, with almost 30 percent of sales tax revenues coming from auto sales, de Llamas said. "It's not a pretty picture," he said.

He cited statistics showing that from July to September in 2007 the statewide economy was down: New car sales declined 13.3 percent, building materials 13.2 percent, contractor supplies 10.5 percent, fuel and service stations 4.9 percent. Only restaurant sales were up, showing an increase of 3.9 percent.

Economists expect car sales and building materials sales to continue a downward trend, de Llamas said.

Car dealers and retail stores are closing doors and cutting back, while cities are competing to attract taxable businesses into their communities, the consultant said.

Due to the large amount of retailers in the area, the market is becoming saturated, according to de Llamas, citing the new Simi Valley Town Center and the remodeled Westfield Topanga Mall as retail alternatives that might entice shoppers to shop elsewhere.

In addition, he pointed out, the credit bubble has burst, as consumers continued to use the equity in their homes to purchase more and more goods.

"The time of reckoning has come," de Llamas said.

Dependence on a high ratio of auto sales and consumer goods means Thousand Oaks' economy is more elastic than the economy of other cities.

"That means when times are good, you do a lot better, when times are bad, you do a lot worse," de Llamas said.

Retailers have started cannibalizing sales from their own stores by opening other operations in the same sales areas, de Llamas said.

Everybody's running out of customers so they start to reach into each other's pockets: Walgreens is selling DVDs, Starbucks started selling sandwiches and McDonald's now sells gourmet coffee, he said.

The pie is shrinking, and consumer habits are changing. The scarcest commodity is time. People hire others to mow lawns, fix cars, clean houses and watch children.

"Then they go to the gym to work off all that fat from not doing all that other stuff," de Llamas said.

Residents also take classes, spend hours on the Internet and go to spas, he said.

Most of these services aren't taxed. Meanwhile, as baby boomers grow older, they buy less "stuff" and spend more on untaxed services. Cities need to rethink their taxes and increase their tax base, de Llamas said.

In 1960, about 40 percent of household income was spent for services; in 2000, about 60 percent was spent on services, he said.

Part of Thousand Oaks' long-term problem is that the city is using a tax base to finance public services that no longer reflects the actual economy.

Cities across the country continue to increase the rate to keep up with an outmoded and shrinking tax base, de Llamas said.

More sales are being rung up over the Internet. Gift cards are popular, but many of them purchased in T.O. are sent other places. When Grandma in Iowa spends her gift card, Iowa--not California--gets the sales tax, de Llamas said.

The consultant did take into account projected increases in revenue expected to be generated by The Oaks mall improvements. He also expressed optimism that when the affluent residents of Thousand Oaks face tough times, they'll go shopping.

In other cities that de Llamas studied--HdL covers 285 jurisdictions every quarter--he's had to give them more pessimistic projections than what he found in Thousand Oaks.

But the upcoming Land Use Initiative that focuses on traffic could cripple the city's ability to be competitive in getting businesses into the community and will limit opportunities to raise sales tax revenues, he said.

"You are going to lose revenue because of it," he said.

Candis Hong, the city finance director, said the challenges the city faces include economic woes, state and federal budget deficits, a housing market decline, layoffs at Amgen and Countrywide, and declining retail sales. She also pointed out that the city is facing a major expense from the state-required cleanup of storm water that drains from the streets back into the environment.

"This was depressing, but very thorough and understandable," Mayor Jacqui Irwin said.