San Carlos weighs $9M surplus

Among the factors behind the city’s jump in revenue was an increase in the city’s property tax revenue of $2.1 million, driven primarily by higher assessed values for properties with new developments and property sales. The city’s sales tax revenue exceeded budget projections by $900,000 due to continued revenue growth from restaurants, hotels, fuel and service stations as well as businesses in the building and construction industries, among others, according to the report.

Because of an increase in the city’s transient occupancy tax from 10% to 12% and the opening of the new Residence Inn by Marriott hotel at 800 E. San Carlos Ave., the city’s transient occupancy tax revenue exceeded what was budgeted by $500,000, according to the report.

Vacant and under-filled positions and a reduction in pension payments after the city made a $7 million one-time payment toward the city’s unfunded pension liabilities in 2018 were among the changes behind the drop in the city’s total operating expenditures. Delays in the start and completion of city initiatives and major development projects and contracted public safety and legal services also contributed to the city’s reduced operating expenditures last year, according to the report.

Officials will consider whether and how much of the city’s $8.9 million surplus to allocate toward several reserves the city maintains, including the city’s economic uncertainty reserve, strategic property reserve, PG&E community endowment, unfunded liabilities reserve and facility and infrastructure reserve.

According to the report, as of June 30, the city’s economic uncertainty reserve stood at $6.6 million, which equates to 17% of the city’s total operating expenses. At nearly $7.2 million as of June, the city’s strategic property reserve has been used in the past to purchase three parcels near the Holly Street/Highway 101 interchange in 2013 that were later sold to a developer in 2016. The Residence Inn by Marriott hotel now stands on the land and is estimated to generate $1 million annually in transient occupancy taxes, according to the report.

Reserves

To offset the city’s pension liabilities, officials several years ago established an unfunded liabilities reserve. A facility and infrastructure reserve was also created to help fund capital projects, including street resurfacing and repairs, fire station renovations, storm maintenance and public safety and wildfire mitigation, according to the report.

Ever since the city reached a settlement with Pacific Gas and Electric in 2017 for the utility’s mishandling communication regarding the safety of a San Carlos natural gas line in 2012, officials have weighed how to best leverage the $6 million collected from PG&E. Initially, officials homed in on establishing a community foundation with $2 million of the settlement funds and the remainder to help boost affordable housing and support a redesign of the Holly Street/Highway 101 interchange.

On Nov. 12, the City Council authorized the transfer of $2 million as an endowment to a foundation to benefit the San Carlos community, but more recent discussions of the PG&E settlement funds have sparked calls for the funds to be used toward mitigating the risk of wildfires in light of recent, major disasters in neighboring counties.

Though officials will consider a staff recommendation to create a public safety and wildfire reserve and transfer into it $3 million of the $12.3 million in the city’s facility and infrastructure reserve, Olbert hoped the nearly $9 million surplus could spark a more broad discussion about how the city is tracking against its General Plan, which he said was updated some 10 years ago.

Questions about General Plan

With a wave of commercial development coming online in the city and a growing housing shortage, Olbert wondered if the city’s sizable surpluses in recent years could be an indication that the development city officials may have hoped for when the General Plan was last revised has to some extent been realized. Because millions of square feet in biotech office buildings have been proposed or are taking shape on the city’s east side, Olbert hoped the city can do something significant to provide housing to offset an influx of workers into the city.

“That’s actually a good time to sit down and say ‘OK, do we want to keep going in that direction?’” he said. “The very success of the plan means that we need to revisit it to make sure we’re OK with it.”

In other business, the council will also consider a request from a developer to approve a change to a 1963 covenant restricting uses at 1785 San Carlos Ave. to medical and dental offices. The proposed amendment allowing multi-family residential uses at the site where medical and dental offices currently stand would also require a potential development on the site to designate at least 20% of the units as below market-rate units, with a portion of the below market-rate units affordable to low-income residents and the remainder available to very low-income residents, according to a staff report.

The council meets 7 p.m. Nov. 25, at City Hall, 600 Elm St.

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