Redwood City to scope tax changes

The suggestion came from the council’s Finance and Audit Sub-Committee, seated by Vice Mayor Lissette Espinoza-Garnica and councilmembers Alicia Aguirre and Kaia Eakin, as a way to buffer the city’s budget from anticipated deficits. Current projections indicate the city will experience deficits ranging from about $13 million to $4 million through fiscal year 2030-31.

“The bottom line is Redwood City does not have an exceptionally large budget surplus. I would say suggesting that we do is a little like looking at your paycheck and imagining you could spend the whole thing on Black Friday shopping when actually you know you’re going to have to use it to cover the coming month’s rent, utilities, groceries, gas. So you budget for those things and you only responsibly shop with whatever’s left over from your budget,” Assistant City Manager Michelle Poché Flaherty said during Monday’s council meeting.

City officials have been sounding the alarm on budget instabilities since state and federal COVID-19 aid began to wind down. Staffing levels were frozen during the pandemic to brace for budget woes but officials had also suggested the city may need to consider new revenue streams to buoy finances in the future.

The Finance and Audit Sub-Committee opted against creating new taxes or changing rates for most existing taxes though. Increases to the city’s Utility Users Tax would not generate enough taxes to cover projected deficits, according to a staff report, and Aguirre noted the subcommittee considered other recent utility rate increases when developing its recommendation.

Changing the city’s business license tax to be based on gross receipts could generate between $7 million to $8 million annually while increasing the property transfer tax would generate an additional $5 million to $15 million annually, staff estimates.

Dozens of people spoke out against the study, arguing residents are already under financial strain from increased costs, including recent rate increases, changes to the property transfer tax would negatively impact new homebuyers and seniors looking to downsize and that the city’s tax rates are already among the highest in the county. Instead, they argued the city should consider cutting costs.

“There’s no city in our county that has a 9.875% sales tax and this property transfer tax. This is doubly punitive … and anybody who votes for this will not get their reelection supported,” said Chris Robell, a Redwood City resident and key opponent rallying against the measures, who called the staff’s presentation misleading.

Poché Flaherty noted the city receives $0.55 per $1,000 of assessed property value compared to San Mateo that charges $5 per $1,000, Mountain View and Palo Alto charge $3.30 and Hayward charges $8.50. Redwood City’s current tax rate adds about $935 to the price of a home worth $1.7 million, she said.

As for the city’s business license tax, Poché Flaherty said a study by a consultant found that the tax is regressive and disproportionately affects smaller businesses, and that a change to using gross receipts would lower tax expectations for some businesses.

Mayor Jeff Gee noted the council was not voting on a tax measure but was instead deciding whether to study the issue, a decision Councilmember Diane Howard said would help the body make an informed decision.

The council ultimately agreed to study both issues but the city would not likely pursue both measures at the same time, staff said. Councilmembers asked that staff also study potential tax exemptions for vulnerable groups including seniors and first-time homebuyers and other types of small business protections neighboring cities have adopted.

The body encouraged the public to do its own research on the issue and also noted voters will get the final say on a potential tax measure.

“I’m happy we have the attention of the people in Redwood City because it will come down to the voters. So I’m hoping between now and November, we can come together and decide if something is palatable and be put on the ballot,” Howard said. “I’m not looking to put the brunt of the load on anybody. I’m looking to make it equitable and reasonable and to cover the cost of doing business.”