Belmont sees uncertainty in fiscal outlook

“Our current year-end estimates are coming in lower than budget by about $110,000,” she said during a council meeting Feb. 11. “We started to see this really cool off last year … and it’s not really growing this year.”

Revenue from transient occupancy tax, or hotel tax, has technically grown over the last couple years, but Castaneda said that’s related to a relatively recent voter-approved measure to increase the hotel tax rate from 12% to 14%.

“That’s definitely helped towards the recovery of this revenue source that brought us back to prepandemic levels by fiscal year 2023-24, but it’s important to note here that although we are seeing revenues up, one of the main drivers of that is the rate increase that voters approved. But occupancy rates have not quite recovered yet,” Castaneda said. “ToT is one of the most sensitive revenue sources because it’s reactive and dependent on the health of the economy.”

Like many cities in San Mateo County, Belmont also partially relies on a complicated funding source, which hinges on state reimbursement. In light of a large budget deficit last year, the state held off on its commitment to pay back cities until well after many of them had already made their budget projections.

The funds are related to vehicle license fees paid by residents, which are directed to the state and subsequently reimbursed to cities, typically by the following fiscal year.

But the payback process is not straightforward. Instead of simply giving cities and counties back the amount of vehicle fee revenue collected in their respective jurisdictions, the state uses a reimbursement formula based on jurisdictions’ nonbasic aid school districts, or those that don’t generate enough property taxes to meet their state-mandated minimum school funding needs.

That works out for most counties, which mostly have nonbasic aid schools. And even though San Mateo County has only a few nonbasic aid school districts — meaning most are fully funded via the area’s property taxes — the money from the property-tax-in-lieu-of-VLF is still critical for cities’ general funds, which help pay for numerous projects and services, ranging from housing to police services and infrastructure needs. 

This year’s precarity is further exacerbated by potential freezes in federal funds, as well as the wildfires that devastated parts of Southern California. 

“Our state is also looking at some real deficit this year due to the reduction in property tax from all the houses that burned,” Mayor Julia Mates said. “We should probably do what we’ve been doing and assume we won’t get the VLF just like we did last year and then cross our fingers and work really hard that we do.”