San Jose Holds All the Aces

The city of San Jose had been taxing telecommunications services and charging a fee on monthly phone bills for the 911 emergency dispatch systems. Now court rulings indicate both may need voter approval.

This could place $48 million in revenue at risk, a serious danger for a city already struggling with a chronic budget deficit.

The card alternative
So today the city will decide whether to ask voters to lower these two taxes that most people pay and increase a tax on the city's cardrooms, which few residents patronize.

Mayor Reed wants to lower the taxes by 10 percent to persuade voters to keep paying them. The mayor is offering a sweetener as well - expanding gambling capacity - in hopes of buying off the club operators, who are threatening to launch an anti-tax campaign that would defeat the city's entire tax package and dramatically deepen its budget problems.

The clubs have the city over a barrel. But if San Jose is going to reverse its anti-gambling positions and allow this expansion, it has to get more in return than Reed proposes.

Tax figures and table numbers
Tax on cardroom revenue currently yields $12 million a year. City council members voted to raise it from 13 percent to 18 percent without adding more tables. Reed suggests allowing a 23 percent expansion in the number of tables. But this would raise the tax rate only to 15 percent.

The city needs to cut a better deal for such a major concession. Raising the tax by 5 percentage points without more tables would generate an additional $4.5 million. The city has to do better than that if it's going to permit more card tables.

So it comes down to Texas Hold'em with the cardrooms. Under any other circumstance, they wouldn't be getting more tables. We're betting they'll go for the tax increase to secure that advantage.