May 15 2016

ELECTION OPINION: Piedmont Voters Should Not Approve an Increase in the Parcel Tax

The June 7 election has important consequences for Piedmont. Measure F on the ballot proposes to raise the municipal services tax (aka the parcel tax) by 30%. 

The parcel tax was adopted in 1981 to make up for Piedmont tax revenues reduced by the passage of Prop 13 and is critical to providing the excellent services and amenities we enjoy in Piedmont. The 30% increase is claimed to be needed for long-term maintenance of city facilities and sports fields.

No increase in the tax is needed and residents may vote No on Measure F and still renew the current parcel tax before it expires in June 2017. 

As background, since 2011, finance review committees comprised of Piedmont residents have convened annually to look at city finances and have concluded that three goals must be achieved for Piedmont’s fiscal sustainability:

  • A cap on employee pensions and benefit levels
  • Staffing and organizational changes that reduce the compensation growth rate a facility maintenance plan and reserve fund
  • A facility maintenance plan and reserve fund

The first two goals have yet to be achieved. The last goal has been implemented and is stated as triggering the tax increase to raise $450,000 for annual and deferred maintenance.

 But does the City have to raise taxes to implement facility maintenance?  The answer depends in part on how much city revenues will grow over the next 5 years.  This year’s committee took a conservative approach and assumed the transfer tax – the 1.3% tax paid at time of house sale – will stay flat at $2.8M annually for the next 5 years. History shows the transfer tax has increased at an annual compound rate of 6.45% over its entire 35-year history. In five years the transfer tax is estimated to be $3.8M. 

 The Committee also examined the largest source of City revenue, the property tax, over a 13 year time period. With no down years and a 5.09% annual compound growth rate, this source of revenue is rock solid and is estimated to grow in five years to $13.9M from 2015’s $10.9M.

The Committee’s overly conservative approach of underestimating revenue is unneeded as the City’s reserves are healthy.

Since 2012 the Facility Maintenance Fund has allocated over $1M for maintenance projects and currently has over $1.5M in reserves.  Other maintenance funds, like the Athletic Facilities Preservation and Schoolmates Program Funds, grow annually from user fees and are currently over $400,000. Combining State gas tax receipts and Alameda County Measure B funds, the city receives over $1M annually to maintain our streets and sidewalks. Annual facility maintenance costs are estimated at $450,000; so even with flat revenues there are sufficient funds for maintenance until 2020. Worst case scenarios by tax proponents are rendered mute by the ultimate backstop, the $4.1M General Fund reserve.

The positive revenue will continue and grow, as by 2020 the city will no longer be paying off the Pension Refinance Bonds approved by voters in 2012; this frees up

$1.2M a year to divert to other city needs.  Likewise, the city has an $11M Pension Fund surplus that will not pay out and can be diverted to meeting Piedmont’s rising CalPERS pension obligations, freeing up funds for maintenance and other programs. 

Since 2011, our volunteer finance review committees have proposed caps on benefits to minimize future liabilities.  This year the Committee recommends the city adopt a “cafeteria” benefits plan, a plan that caps benefit levels but gives employees leeway on how they spend their benefit dollars. Wanting more control over health care and benefit costs, many Bay Area cities and agencies have established cafeteria plans. The City has yet to adopt this important cost savings which would save the city $500,000 annually by 2025 and over $1M by 2035. 

The extent to which Piedmont needs to raise the parcel tax for facility maintenance can largely be determined by the cost controls Council achieves in the current contract negotiations.  A tax increase should await resolution of these cost issues so these costs are not passed on to future taxpayers.  

Renewal of the parcel tax at the existing rate should be put on the November 2016 ballot so Piedmont can maintain services until all financial sustainability goals are met.

Garrett Keating, Former City Councilmember and Rick Schiller, Piedmont Resident

Editors’ Note: Opinions expressed are those of the authors. The Piedmont Civic Association does not support or oppose ballot measures. 

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