Foreseeing another challenging fiscal year with rising costs outpacing revenue gains, the Orange City Council is considering three different tax measures to put before voters in the fall.
The city’s general fund faces a structural deficit driven by debt, about $17.9 million for bonds, which city staffers hoped to combat with a series of spending cuts, including hiring freezes, “service reductions, deferred capital projects and one-time internal fund transfers,” a city staff report to councilmembers said.
But “these measures are not sustainable long-term solutions,” the report said. “Without additional ongoing revenue, future budget balancing will likely require deeper service reductions, deferred infrastructure investment, and increased pressure on public safety and quality-of-life services.”
The council, during its Tuesday, May 12 meeting, considered revenue options that staffers said would help the city find financial footing, including a sales tax, “transient occupancy tax, utility user tax, vacant property tax, cannabis gross receipts tax, parking operator tax, documentary transfer tax, the potential sale of the city’s water and sewer utility systems, as well as modernizing the city’s business license tax.”
After much discussion, the council whittled that list down to three options before asking staffers to conduct more research before the council decides whether to put those choices to voters.
Councilmembers expressed interest in increasing the city’s transient occupancy tax, or a tax on hotel beds, from 10% to up to 15% for hotels with more than 10 rooms and asked staffers to solicit feedback from local hoteliers.
The existing 10% tax on hotel beds is on track to bring about $6.3 million into city coffers by the end of this fiscal year, and a 1% increase to that rate could bring in just over $600,000 annually, according to city estimates.
“We are the closest thing to Disneyland, and I can’t believe this hasn’t been touched,” Councilmember Kathy Tavoularis said, arguing that Orange should mirror Anaheim’s 15% bed tax. “The $3 million more a year is needed.”
Councilmembers also decided to explore another sales tax; the council asked voters in 2024 to approve a half-cent local sales tax measure, but the idea was narrowly rejected.
This time, councilmembers are raising the idea of a one-cent sales tax with a lifespan of 10 years that would eventually bring $37 million annually to the city’s general fund.
Mayor Dan Slater, who in recent months has been driving the sales tax discussion, outlined prerequisites to be met before sales tax funds could be spent, including first requiring a balanced annual budget, addressing excessive overtime costs in the fire and police departments, funding road maintenance and creating a fiscal sustainability plan.
“If we can convince the taxpayers that we’re going to wisely spend this money and that these are the priorities, then I think that the citizens will say yes,” Slater said.
The council also decided to at least consider opening the door to “commercial cannabis-related activities” and to impose a 1% tax on retail cannabis sales.
The city prohibits cannabis businesses, including dispensaries, delivery services, manufacturing, testing laboratories and cultivation.
“Councilmember Dumitru and I toured a cannabis sales location in Laguna Woods. That’s the first cannabis facility I’ve ever been in,” Slater said. “I don’t use it, but it was the most well-run operation I have ever seen, and it was clean, it was safe. There were no security issues, and it generates over $1 million a year for the city.
“So if we had three or four quality cannabis locations, I don’t know how we could go wrong if we put all the rules in place and did it right.”
City staffers were asked to return to the council at a later date after further research, including potential polling, public outreach and cost analysis on those revenue options.
The deadline to place a measure on the November ballot is July 14.