The most successful city in Sacramento County is hurting. How Folsom can save itself | Opinion

The Sacramento Bee Editorial Board
·5 min read
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Sacramento County’s shining city on the hill, Folsom, is heading toward structural financial deficits that its spectacular growth will not solve. A citizenry that overwhelmingly rejected a local sales tax in 2018 may get asked to consider another one next year after a divided Folsom City Council directed City Manager Elaine Andersen to present different sales tax options for them to consider in January.

But if simply studying a local sales tax hike can barely pass on a 3-2 vote last week, actually placing one on the Folsom ballot may be a challenge because it would take four votes. More than ever, Folsom leaders have to show the courage to lead as tough choices face a city that has led a charmed existence in Sacramento County until now.

Opinion

With its car dealerships, big box stores and factory outlets, Folsom has long been a sales tax engine, generating revenues for the city annually above the rates of inflation. But that engine has been sputtering in recent years. What used to be sales tax growth at an annual clip of around 6% is now something closer to 2.3%

Folsom residents, said Andersen, are buying more services that are not taxed as opposed to material items that are. Online purchases generate less tax for the city.

Consequently, Andersen believes the good old days of booming sales are now history in Folsom. A slower growth in revenue, combined with never-ending cost pressures (72% of the city budget is salaries) equates to a looming structural problem.

“We have reached a crossroads where we are projecting growing structural deficits beginning in the next fiscal year and increasing from there,” she said at last week’s city council meeting. “If we want to keep doing exactly what we are doing right now, we will be unable to continue to do so.”

By many objective measurements, Folsom is still better off than the rest of the county. The combined income of its residents, for example, has increased from $2.6 billion to $5 billion in just 10 years, according to the city’s latest annual financial report. The percentage of residents with at least a bachelor’s degree has increased from 27% to 30% in the same time span. Its per capita income in 2021 was 43% higher than the average throughout Sacramento County, according to the same city financial report and federal census data.

And on 3,520 acres south of Highway 50, construction will eventually bring the city 11,000 new homes to Folsom.

But the growth won’t help. All those new residents, for example, will require the city to increase its police force by 41% from 2022 levels, according to the city’s latest budget. The fire department, meanwhile, will have to increase by 23%.

“Increases in property tax revenue due to development south of 50 are actually no windfall and no surprise,” Anderson said. “They were always contemplated and built into our planning and projections.”

When it comes to a sales tax increase, Folsom has the same three choices that all California cities have.

The council can propose a general sales tax increase that Folsom could use for all its needs. Such a tax only requires a majority vote. Sacramento took this route, for example, passing a half-cent sales tax in 2018. So did Roseville in 2018, with 60.2% of voters saying yes. But more than 70% of Folsom voters rejected a half-cent general sales tax in 2018. The two council members voting no, Anna Rohrbough and YK Chalamcherla, opposed the council even studying the general sales tax approach.

The second choice is a “special” sales tax dedicated to specific city needs, such as police and/or parks. Ironically in California, it is harder to pass a sales tax that restricts the uses of money (a two-thirds supermajority) than one that does not. Getting two-thirds of voters to agree to tax themselves is a high bar, yet curiously has broader appeal on the council — for now.

The third choice is for the council to do nothing and for a coalition of residents to gather signatures to place a sales tax increase on the ballot. Such a coalition has formed in Folsom, and it believes that only a majority approval is necessary for a special tax using this route. A statewide initiative that has qualified for the same November ballot, however, would require such a “citizens” sales tax measure to achieve the traditional two-thirds supermajority.

Says initiative spokesman Hector Barajas, “Special taxes, whether proposed by a local government or by initiative require a two-thirds vote to pass. If they (Folsom residents) choose to do a citizen special tax and pass it at a majority, they would have to go back to the voters and pass it with a 2/3 vote within the next year.” If Barajas is right, this effort could be a fool’s errand for Folsom.

Raising the local sales tax rate from 7.75% to 8.75% would literally double this revenue source for Folsom. And the city would be solving a lot of its financial problems on the backs of others, given how an estimated 40% of sales tax generated in Folsom comes from shoppers who live outside the city.

But there are no easy choices here and it’s past time for Folsom leaders to give voters a clear choice about the city’s financial future.