Amid double-digit deficit, San Mateo weighing sales tax

The possible revenue measure would impose a quarter-cent sales tax for city residents, though some goods, like prescriptions, would be exempt. The funds would go toward maintaining basic city services — ranging from street repair to emergency response teams — though the council hasn’t finalized language and plans to conduct additional outreach before doing so.

“What you tend to find at the top of the list are public works and public safety,” True North Research President Timothy McClarney said during a council meeting June 15, referring to residents’ most favored types of investments.

The effort comes amid a projected $16.8 operating deficit and budget that was adopted during the council meeting. The shortfall could narrow if the city receives a tenuous $4.6 million reimbursement from the state, though it faces a double digit deficit regardless.

The city’s expenses are expected to increase by about 1.7%. Most of the increases come from rising insurance premiums, personnel costs, contracted services and a $14 million payment toward the city’s unfunded pension liability. The city’s main revenue sources are expected to remain flat, such as sales tax, or see only modest growth.

The fiscal problems aren’t unique to the city, as many jurisdictions are also projecting shortfalls for this upcoming fiscal year, which starts in July.

As a result, many public agencies are weighing whether to add revenue measures to the ballot despite residents facing increased costs, largely a result of inflation, and possible tax fatigue. The city already has the Measure S sales tax, and there are several countywide sales taxes in place, including Measures A, W, K and RR — many of which go toward transit and other services like housing and healthcare. The county is also discussing adding another sales tax measure to the ballot this November and will likely ask voters to extend Measure A in the next couple years.

Residents will also be voting on a regional sales tax measure this November, the Connect Bay Area initiative, which would impose a 14-year, quarter-cent sales tax to help fund transit agencies like Caltrain and BART. Those are in addition to the statewide 7.25% baseline rate.

The city only has about a quarter cent until it reaches the state taxation limit.

A staff report said that because it’s nearing the limit, “it’s important to act now and keep the 1/4 cent of sales tax within the City.” It added that “if another entity places a sales tax measure on the ballot before the City reaches the limit, the City may no longer have the option to add sales tax for local funding.”

Polling results show that perhaps residents are willing to pay the additional tax to ensure city services remain as they are.

“We do see a path to feasibility, but it’s important to note that it will require robust outreach and communications moving forward,” McClarney said.

The council has to decide by the beginning of August whether to officially add a sales tax measure to the November ballot. The measure would need a simple majority to pass.