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Cash-strapped El Monte seeks tax on sugary drinks

July 23, 2012 |  7:08 pm

Faced with a crippling combination of low revenue, high labor costs and declining funding from the state, El Monte is moving to declare a fiscal emergency and seek a tax on all sugary beverages sold within the city.

The moves come as the city attempts to stave off the financial problems facing a number of cities across California. So far this summer, three cities -- Stockton, San Bernardino and Mammoth Lakes -- have moved to seek bankruptcy protection, and Compton officials announced the city could run out of cash in a matter of months.

El Monte officials said they are not at the edge of bankruptcy but need tax revenue from sugary drinks as a protection against insolvency down the road. In a sign of growing concern, El Monte’s credit rating was downgraded by Fitch to junk bond status in May.

“People are looking for who’s the next one [to declare bankruptcy]. El Monte is not the next one … not today, not now,” finance director Julio Morales said. “What we’re doing is financial planning. We’re trying to take the right steps.”

The declaration of a fiscal emergency, which El Monte’s council members will consider at a meeting Tuesday, would allow the city to hold a special election this fall for the tax proposal, Morales said. If approved by voters, the tax would collect one cent per ounce of “sugar sweetened” drinks sold. It could generate as much as $7 million in total annual revenue, according to a city report.

The San Gabriel Valley suburb, which has a population of more than 113,000, was hard hit by the economic recession in 2008. Car dealerships that had provided a steady stream of tax revenue struggled. Several folded.

Sales tax revenue has fallen off sharply since, forcing El Monte to reduce its workforce from about 410 employees to 290 this year and eliminate some programs. The city’s reserves have declined drastically, and this year the city lost much of the redevelopment money it had received from the state.

El Monte has also awarded generous benefits to some of its top employees. Former Police Chief Thomas Armstrong, who retired in May 2011, collected nearly $430,000 in his final year with the city through a combination of salary payments and cash-outs of unused time off. Armstrong and two other former police chiefs now receive yearly CalPERS pensions of more than $200,000.

“We’re paying for the sins of our fathers,” Mayor Andre Quintero said in a recent interview. “For years we just did not manage our contracts well. We were giving away the store.”

Quintero, who was elected in 2009, said that although the city is working with labor unions to cut costs, it still needs to find a way to make up for a half-cent sales tax that will expire in 2014.

The sugary drinks tax would fill that funding gap, Quintero said, as well as combat the health problems caused by sodas and sweet beverages, which he likened to cigarettes.

“These drinks have a similar secondary impact. It may not be to the lungs, but it will be obesity and diabetes and dental decay,” Quintero said. “We’re chemically altering our bodies in a way that’s very dangerous.”

El Monte officials modeled the tax after a proposal in Richmond, Calif., as well as similar, unsuccessful plans that failed in Pennsylvania and Hawaii. In New York City, Mayor Michael Bloomberg has called for a ban on the sale of any sugary beverage larger than 16 ounces, sparking an aggressive lobbying campaign from the American Beverages Assn. and protests outside City Hall.

Quintero said he was optimistic such a tax would pass in El Monte, pointing out that a majority of the city’s residents voted in favor of Proposition 29 this year, which would have added a $1 tax to packs of cigarettes. But he is also expecting push-back from soda companies.

“The beverage industry is going to make it controversial,” he said. “They want people to buy their products and, frankly, eat and drink unhealthily because that’s how they make their money.”

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-- Sam Allen

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