El Monte, Calif., Eyes Soda Tax Amid Fiscal Crisis

The City Council of El Monte, Calif., voted Tuesday to declare a fiscal emergency and place a tax on sugary drinks on the November ballot in an effort to shore up its finances.

The tax could generate $7 million annually and help the city prevent potential insolvency, according to the Los Angeles Times.

The council had to declare the fiscal emergency to get the tax proposal on the ballot.

El Monte, a city of more than 110,000 located about 12 miles from downtown Los Angeles, suffers from a high unemployment rate — 13.6% as of May — and weak tax base. 

In May, Fitch Ratings downgraded $19 million of the city’s lease revenue bonds issued by its financing authority to BB-plus from A-minus because of concerns over El Monte’s willingness to stick to financial agreements.

Fitch put the credit on watch for possible downgrade because the city made comments saying it might choose to violate its bond contract to make the full lease-revenue debt service payment due Aug. 1.

City officials said it would draw on the debt service reserves to cover any deficiency until tax increment is available, according to the rating agency.

The debt is backed by any source of city funds. The lease payments are made for use of the city’s public works yard and its civic center complex.

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