As San Mateo deals with a structural deficit and COVID-19 financial impacts that will reduce its rainy day reserve, the City Council is considering tax increases and billboard advertisements to help raise funds.
At its Oct. 4 study session, the council expressed interest in conducting public polling on local ballot measures for a real property document transfer tax and the transactions and use tax. A real property document transfer tax affects property sold, with the current city rate at 0.5% for all homes sold. San Mateo is considering a tiered approach for homes. Homes sold for less than $2 million would remain at a 0.5% rate, while those sold above would see percentage increases. A transaction and use tax is known as a district or local add-on sales tax. San Mateo voters approved Measure S in November 2015, which extended Measure L, a quarter-cent transactions and use tax. The city has a quarter-cent increase capacity left before reaching the state limit.
Councilmember Amourence Lee was interested in the real property document transfer tax and finding out if there was support from voters for a tiered system. She wanted public polling to evaluate if the increase should be aimed at a lower or higher tier. She noted that the tax rate hadn’t increased in nearly half a century, with the city likely overdue for an increase.
“I think that’s a really compelling amount of tax revenue that could solve for a lot of problems in the city,” Lee said.
Lee’s top two for future polling were the transfer tax and the sales tax. The city plans to do further polling for those two tax options moving forward. City staff said it hopes to put one on a future ballot.
In Fiscal Year 2018-19, the city received $13.9 million in property transfer tax and $9.1 million in 2019-20. The search for revenue is due to concerns about revenue losses during COVID-19 and the city’s structural deficit. The city anticipates spending about $30 million of its rainy day reserve fund from a high of $54 million in 2018-19 to $24 million in 2026-27 due to the pandemic and its structural deficit, according to a city report. The projected annual loss is around $7 million. San Mateo, in response, has eliminated $1 million worth of vacant positions and $3 million in employee compensation concessions.
“Over the next six or seven years, the city will be operating at a deficit. A significant deficit at that, and because of that largely, the city will be drawing on its rainy day reserves,” Finance Director Rich Lee said.
Options presented included a real property document transfer tax adding $6.8 million in revenue, a transition and use tax worth $6.1 million, a utilities users tax adding $5.4 million, and a business tax worth $900,000. All tax options would require a public tax ballot measure.
Deputy Mayor Rick Bonilla agreed with Lee and favored polling for the real property document transfer tax and the sales tax. Councilmember Joe Goethals was open to resident public polling on the feasibility of passing tax ballot measures in San Mateo like the real property document transfer tax.
“It’s worth exploring, and at least see if it would pass or not,” Goethals said.
Mayor Eric Rodriguez was hesitant on most tax increase options but was open to getting public input on the transfer tax, particularly in increasing the tax tier for homes that sell for well over $2 million.
“I think we can get a lot of bang for the buck at higher tiers,” Rodriguez said.
San Mateo is also considering electric billboards on city property or the removal of an existing billboard in exchange for constructing an electronic billboard on city-owned land. The council maintained it was interested in both options.
Goethals noted that while residents might be concerned about more billboards, highway traffic safety laws limit location options. He wanted people to know the city would not be inundated with billboards, with only four to five likely to be allowed. He believed the billboards would mostly only be feasible in commercial areas like parts of Highway 101 and State Route 92 that are not residential.
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