BREAKING: Norwalk Facing Fiscal Crisis From Utility User Tax Lawsuit

By Brian Hews
Two local residents have put Norwalk city officials on notice that they plan to legally challenge the merits of a long instituted Utility User’s Tax and are demanding millions of dollars of collected revenue be immediately returned to taxpayers.
Residents Alfred Gonzalez and David Reynoso, who reside together at a home on the 10600 block of Downey-Norwalk Road informed Norwalk city council members in a written correspondence back on March 21 they are seeking “immediate cessation” of the controversial UUT.
Gonzalez and Reynoso are being represented by a San Diego based law firm Marks Finch and specifically by the legal groups partner Louis Blum.
Hews Media Group-Community Newspaper was sent a copy of the notification several weeks ago, and published the document on line on Wednesday.
Blum said that Norwalk officials broke federal laws after the Internal Revenue Service ruled in 2006 that the tax does not apply to toll telephone service where the “charge varies only by time and not by distance.”
The challenge to the Norwalk UUT has sent top city administrators including City Manager Michael Egan scrambling during the past several weeks to construct a plan to counter the lawsuit.
On Tuesday, Egan met with reporters throughout Southeast Los Angeles County in his city hall conference room to talk about the situation.
Egan said that the current members of the city council have not made a “formal decision” on how to handle the situation, but that the item will be discussed openly at a Norwalk City Council meeting on July 15.
Egan confirmed that he hired a private Santa Monica based political consulting firm to conduct an aggressive telephone survey to 377 Norwalk voters this past month to weigh voter opinions about a possible November 2014 ballot measure regarding the situation. HMG-CN was provided a copy of the three-page summary of the survey that was conducted by Fairbank, Maslin, Maullin, Metz and Associates.
The firm, also known as FM3, stated in a memo to Egan and other city officials on June 24th that the poll “found significant support for a potential City Utility Users Tax measure to update an existing, outdated ordinance so all taxpayers are treated fairly regardless of the technology used, with no increase in current tax rates.”
The survey indicated that 70 percent of respondents indicated that they would support the measure on the November 2014 ballot. Egan said that the measure would require a simple majority vote of 50 percent, plus one to be approved.
Egan did not want to specifically address the contents or merits of the correspondence of Gonzalez and Reynoso. Nevertheless, he did acknowledge that if the lawsuit prevails, the city of Norwalk could lose at least $2 million annually.
“Everything is on the table. I am not saying that any one department would be hit harder than any other but if this happens, it would be another devastating blow to our city finances,” Egan said.
Gonzalez and Reynoso are stating in their complaint that they are taking their action “on behalf of themselves sand all similarly situated taxpayers in the City of Norwalk.”
Both are “respectfully requesting the immediate cessation of collection of the illegal and unlawful UUT on these services and return of all monies to the persons and entities from whom the UUT was collected on those services. “
Alfred Gonzalez has been a customer of H20 Wireless, Metro PCS and Sprint, while David Reynoso is a customer of Metro PCS and previously Sprint and Nextel.
They claim that Norwalk city officials are “able to determine the identities of all relevant taxpayers and the specific movies due to each of them; however, upon information and belief the total amount exceeds $10,000.”
Egan said he has never heard directly from Gonzalez or Reynoso in the past.
“We have no idea who they are, and have never had any interaction with them here at city hall, as far as we can determine,” Egan said.