Oct 30 2016

Opinion: Transfer Taxes and Fees Exceeded City Budget Projections Producing City’s Budget Surplus

Piedmont had excess budget revenue of $2.4M confirming tax objectors projections.

“The City is doing very well when it comes to revenue.”

The 2015-2016 City of Piedmont Budget came to a close this month with a report of excess revenue of $2.4M.  Most of this excess came from greater than expected Real Property Transfer Tax (from home sales) and Property Tax (assessed property value) revenues.  Unexpected revenue also came from Planning Department fees (the city raised planning fees this past year) and the city’s Ambulance Service (fees collected from service to non-residents). This excess should come as no surprise –  Transfer Tax revenues have consistently exceeded $3M these past 5 years (the City projects $2.8M) and this year’s property tax revenues grew by 10%, well ahead of the city’s 4.8% projection.  Excess revenues of $2.3M were received in 2014-2015 as well.  The City is doing very well when it comes to revenue.
In discussing this topic, Interim Mayor Wieler chided opponents of Measure F, the June ballot measure raising the parcel tax by 30%, for criticizing staff and City Council for raising taxes, a baseless charge.  Current staff was praised publicly for better fiscal management. And City Council was not criticized for raising taxes but was questioned for raising taxes when tax revenues were so strong.  It really just boils down to how the city projects revenues – using the past 10-year averages, the city’s projections consistently under-report revenue.  Using 25-year revenue trends, more accurate revenue estimates are achieved. For example, using the 25-year transfer tax growth trend, opponents to Measure F projected the 2015-2016 revenue would be $3.3M; actual revenue was $3.13M.  Assessed property tax ($11M) is the real hidden jack pot – there is an expected revenue windfall as Prop 13 properties in Piedmont are sold and reassessed.   The 25-year average growth rate in property tax is 5% but this year’s increase was 10%. That one-year permanent up tic in property tax alone raises almost as much as Measure F will when it goes into effect next year.  There are down years in the real estate market that can present budget challenges but the city consistently maintains a reserve fund of $4M.  Transfer Tax revenues for 2016-2017 are 25% ahead of last year.
In his comments, the Interim Mayor also claimed credit for these $2.4M “savings,” however most “savings” were achieved without any of his doing. The Interim Mayor can’t claim credit for the Piedmont housing market nor ambulance calls and planning revenues naturally going up when the fees are raised. If the Interim Mayor wants to save the City money, he and Council should implement the cafeteria benefits plan recommended by the 2015 Budget Advisory and Financial Planning Committee. A cafeteria plan is a flexible benefits plan being adopted by municipalities to address underfunded long-term benefit obligations (http://www.ci.piedmont.ca.us/html/govern/staffreports/2014-01-06/cafeteria_consultant.pdf). 
Current contract negotiations will tell whether the City achieves the needed savings.
Garrett Keating, Former Piedmont City Council member and Rick Schiller, Piedmont Resident
Editors Note: Opinions expressed are those of the authors.  

4 Responses to “Opinion: Transfer Taxes and Fees Exceeded City Budget Projections Producing City’s Budget Surplus”

  1. Thanks for the explanation and background. My main thought about the windfall of unexpected transfer taxes is that such numbers should not be used for future planning. The economy and real estate appreciation is volatile. Personally it looks to me like we are heading for another bubble, like 2008.

  2. If this bears out, does anyone expect the Council to NOT assess the full amount of the Municipal Services Parcel Tax? Signed: Wishful Thinker

  3. As the Oct. 3, 2016 minutes state: “City Administrator Benoit stated savings and income exceeding the amount Transfers
    budgeted resulted in net year end revenue of approximately $2.42 million.” Adequate reserves are of course required. The issue here is City Hall stating a 30% parcel tax increase is needed, generating about $550,000 additional annually, and the City has over four times that additional tax with the 30% increase yet a year away.

    Both the transfer tax and the 800 pound Gorilla Property tax came in 10% higher rather then the flat 5% predictions of the BAFPC. No matter how you slice it, there is $2.4M extra. Obviously City Hall and the BAFPC resulted in rather than good process driven, in putting an increased parcel tax before voters. As the ballot argument did not state the 30% increase and the Piedmont Post denied any space for opposition viewpoint, it is little wonder Piedmont voters were fooled into thinking the increase was needed.

    The litmus test of good government will occur June 2017 when the Council has to decide at what amount to levy the parcel tax or forego it entirely. Wishful Thinker likely has it right.

  4. Michael, that is essentially what the 2011 MTRC said – assume and budget for a Transfer Tax of $2.8M and treat the surplus as one-time revenues to be put into long-term facility maintenance. Since that year, the Transfer Tax had averaged over $3.5M. Given the probability that Prop 13 transfers will increase and property tax base rise accordingly, the increase in the Parcel Tax was not needed

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