City of San Mateo exploring tax increases

The city is exploring changing its flat real property transfer tax rate to a tiered structure by introducing a ballot measure for the public to vote on. An RPTT is a tax paid upon transfer or sale of a property and is split between a buyer and seller during residential sales. San Mateo currently has an RPTT rate of 0.5% for residential and commercial buildings, with the city polling options for increases for properties over $2.5 million, $3 million, $5 million and $10 million. Most San Mateo properties fall under a lower tier and would not be affected by changing transfer tax rates. The current San Mateo median sale price for a single-family home is $1.84 million and $880,000 for a condo.

At its May 16 meeting, the City Council heard survey results conducted last month of 678 registered voters about their support for various options for a real property transfer tax and sales tax increase. According to survey results, 59% supported a quarter-cent sales tax increase, and 51% favored switching the transfer tax to a tiered rate of $2.5 million. However, support decreased for both measures after people learned more and heard arguments for or against the measure. Following arguments against the tax increases, 54% supported a sales tax increase, and 49% agreed with switching the transfer tax to a tiered rate, according to a staff report. However, support for a transfer tax increase became 61% if the lowest tier was $3 million, which spurred the council to look at a transfer tax increase tier beginning at $10 million. A $10 million transfer tax threshold would generate around $4.8 million. San Mateo estimates a new .25% sales tax increase would generate around $6.5 million to $7 million in revenue each year. The current sales tax rate is 9.625% in San Mateo.

Deputy Mayor Diane Papan and Councilmember Eric Rodriguez were against a sales tax due to the current economic outlook of inflation. However, both supported a simplified transfer tax at a threshold of $10 million.

“I think this is a time when we have to be very careful, especially taxes that would hit those that are of lesser means, and I just don’t want to be part of that,” Papan said.

“Out of all the times to put a tax like that on the ballot, I don’t think right now is the best time,” Rodriguez said. “Especially when so many families and small businesses are struggling with high prices for just about everything.”

Mayor Rick Bonilla and councilmembers Goethals and Amourence Lee supported pushing for a sales tax increase. They cited the strong polling numbers and the need to help fund needed capital improvement projects. The council agreed to explore a transfer tax increase. Goethals joined others to suggest raising the real property transfer tax tiered rate from $2.5 million to $10 million.

While the city expects to end the current fiscal year with a budget surplus, it plans to draw from reserves over the next four years. The city expects to restore reserve levels to pre-pandemic levels by 2032. It also noted a portion of revenue in the budget is buoyed by federal funding to help pandemic recovery, which will not last. The city also has several infrastructure projects that need improvements, but it has not identified sufficient financing. Capital improvement projects include Marina Library improvements, implementing a green fleet by 2030, infrastructure funding, recreation facilities, and bicycle and pedestrian projects.

The tax measures must be put on a ballot for voter approval, with opportunities in November 2022 and 2024. True North Research President Dr. Timothy McLarney, whose firm conducted the survey, said a sales tax increase is feasible for a November 2022 vote. However, he cautioned that a transfer tax increase was more of a challenge. A transfer tax increase is more difficult to explain on a ballot measure, with a certain amount of confusion associated with it, McLarney said.

“I’m not saying it can’t be done, but it is a steeper hill to climb,” McLarney said. “The chances of it being successful aren’t the same level as the sales tax.”

curtis@smdailyjournal.com

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