OPINION: Is a City Tax Increase Appropriate?
“Piedmont is the highest taxed city in the area.”
Letter to the Piedmont City Council regarding increase in Piedmont taxes.
Table 4 of the Budget Advisory and Financial Planning Committee (BAFPC) report provides scenarios of increased property transfer tax (RPTT) revenue based on alternative increases to the tax. The analysis looks backward and provides you with increased revenue the city would have received over the past 10 years had these rates been in place. That’s an understatement and I recommend you give direction to staff to conduct a fourth scenario that forecasts RPTT growth under the current tax rate that will occur based on the growth rate of the past 10 years. This is very easy to do and will provide you with information to select the appropriate tax increase, if indeed one is needed at all.
Three reasons: First, as the BAFPC analysis shows, Piedmont is the highest taxed city in the area and adding more taxes to that burden should be factually considered. Second, the Facilities Maintenance Fund is fully funded. Third, as the Public Works Director said at your last meeting, facilities maintenance is on pace and substantial deferred maintenance has been achieved under current RPTT revenue. As you know, the past 5 years have seen record RPTT receipts even in a period of declining sales so there is good reason to analyze whether the a tax increase is needed.I have some questions for staff:
City Administrator: the BAFPC recommended city staff dialogue with PUSD officials about how increases in city taxes might impact the District’s need for additional funds. Can you elaborate on these discussions?
Finance Director: even in the midst of the pandemic, you recently stated the real estate market is “robust”. Can you elaborate on your projection that revenue will drop by 29% in 20-21, yielding a RPTT of $2.2M. Is that due to a drop in the number of sales or home prices?
Assistant City Clerk; You stated that under the City Charter, a bond initiative might require two votes. Can you elaborate on that and any conclusions? If that were the case, some have suggested a facilities district as a way to avoid 2 votes. I recommend Council abide by the Piedmont City Charter.
Garrett KeatingFormer Member Piedmont City Council
Thank you Garrett Keating for once again providing thoughtful analysis.
The BAFPC consistently forecasts the Transfer Tax annual revenue at $2.8M. This estimate is driven by the Black Swan meltdown of 2007-2008. The reality is that the median transfer tax annual revenue is about $3.5M.
In comparison to 2007-8 the current Pandemic is a flock of black vultures and yet Piedmont home sales remain robust with prices ever increasing and most deals closing at well above asking.
The BAFPC should redo revenue forecasts based on real world revenues. Additional taxes and bond measures are not warranted and seem draconian given the Pandemic we’re all adjusting to.
The recent reports on the Fire and Police Departments structures identify significant issues. Perhaps most worrisome is the seismic risk–if there is a serious earthquake, we will not want ambulances and fire trucks stuck inside a collapsed building. I cannot say if the rough estimates of “fixing” these structures are accurate, and how they would be “fixed” is not determined. However, it seems likely that replacing the elderly buildings, rather than retrofitting them, may be more cost-effective. Whatever the “fix” may be, I am doubtful that current revenue is sufficient to cover the cost, even if applied to pay debt service on bonds. Of course, it would be nice to pay as much as possible without borrowing.
The proposed transfer tax increase is for facility maintenance of existing city facilities. General obligation bonds are proposed to fund fixes to the police and fire buildings. Details and estimates for the “fixes” are ill defined at the moment. Current revenue is likely not sufficient to cover the cost of bonds but reallocation of other funds the city has might lower the cost of borrowing. For example, repurposing the sewer fund to facility maintenance/improvement might provide security for acquiring long-term bonds. Likewise, the pension surplus could perhaps be utilized in some way to offset current borrowing needs. That Pension need is much further out.