Municipal Tax Review News! June 8, 2011
A Report from the Chair of the 2011 Municipal Tax Review Committee, Michael Rancer
At its June 8 meeting, the committee reviewed several alternative projections for city revenues and expenditures, looking out as far as the 2019-20 fiscal year.
The first goal was to reach agreement on the most likely revenue picture, with an emphasis on establishing reasonable expectations for growth in property tax income, since that is the city’s largest resource. After looking at growth rates over the past 30 years (driven mainly by reassessments at time of sale plus the Proposition 13 limit of 2% valuation growth annually), the committee adopted an expected growth rate of 4% per year on average through the end of the current decade. Though annual numbers will vary from this figure, they are expected to average about 4% over time. This is a somewhat conservative estimate, but consistent with the less favorable trends of the last 5 years.
The underlying principle of the revenue estimate is that the parcel tax has become an essential component of the city’s fiscal health and that it needs to be reauthorized at next year’s municipal election. However, at this time the committee is tending toward a consensus that the reauthorization should be at approximately the level of the current tax and that no significant increase be proposed. As discussed below, the committee also believes that the next tax should be tied to a set of proposals for expenditure controls, to keep the city’s budget in balance.
The committee then looked at the city’s expenditure commitments over the same time frame. From the analysis it was clear that, even with continuation of the municipal parcel tax, the city does not have sufficient resources to maintain balanced budgets into the future. However, the committee does believe that budgets can be balanced with prudent control of expenditures. The three most important categories are the following:
- Operating subsidies for programs that ought to be self-sustaining through user fees such as the pool or other major new recreation facilities. In general, committee members expressed views that the elimination of such subsidies is essential to the city’s long-term fiscal health.
- Continuing growth in employee benefit programs, which now exceed 50% of the amount spent on salaries. Benefits are about a quarter of the city’s general fund budget. The committee and community greatly value the work done by their public employees. But, as the school district has also concluded, there simply are not the resources for unchecked growth in benefit costs that could be approaching 70% of salaries by the end of the decade. Committee members are coalescing around views that the city must find ways to level off the growth in benefit costs if the budget is to be balanced over the long term.
- Long term needs for capital maintenance and replacement of aging facilities. Committee members generally believe that the city must develop a multi-year financial plan that enhances the viability of its physical infrastructure, scheduling in planned upkeep and timing it to available resources.
With these particular concerns in mind, the committee will, at its next meeting on June 22, refine the list of possible expenditure limitations, leading to specific recommendations as part of its final report. As always, the public is invited to attend committee meetings.
At the June 8 meeting, the committee also reviewed a first draft of a proposed increase in the city’s sewer tax, required to meet recent EPA mandates for clean water discharge into San Francisco Bay. The committee took no action on the draft, asking instead for a staff report back on other options to reduce the financial burden of meeting the federal requirements. Those options will be reviewed at the next meeting.
I appreciate the work of the Committee in confronting the hard choices necessary to balance the City’s budget in light of increasing employee compensation. Given the increases in benefit costs, the City-paid share of health insurance should be capped. The City also must limit its post-employment commitments. The City should not pay the “employee share” of the PERS retirement contributions. Private sector employees have been subject to these limits for many years.