South City eyes parcel tax

General fund deficits are common among many cities throughout the county, especially in light of volatility around a unique revenue source that is in jeopardy. The complicated funding stream is related to vehicle license fees, and Peninsula cities typically receive reimbursement from the state. But the payback has been uncertain as the state also grapples with its own shortfall.

Sales tax revenue in the city is also expected to decrease, while other revenue sources, including franchise fees, are expected to either stay flat or modestly increase. Property tax revenue is projected to increase by $6.7 million.

During a meeting June 11, councilmembers contemplated several ballot measure options to go before voters in the 2026 election that could narrow the structural deficit. According to a presentation, the sales tax would largely affect South City visitors and would exclude many food items and medicine.

“A significant portion of sales tax comes from visitors and nonresidents, so there’s a greater tax base than the South San Francisco residents in paying this sales tax,” Wing-See Fox, managing director for Urban Futures, a city consultant, said during the council meeting. “For instance … with the Costco on El Camino Real, about 47% of visitors are from San Francisco.”

But the council still unanimously opposed another sales tax, partly due to the high tax rate it would put on residents — about 10.375%, and potentially 10.625% if the county opts into a regional transit measure — and its susceptibility to economic volatility.

“Part of my reluctance on the sales tax side is that we just did that with Measure W,” Vice Mayor Mark Addiego said. “And the way you sell [a sales tax] is what we already used that to the public, and I don’t know that we can go back to the well in the same manner.”

Measure W is a half-cent sales tax passed in 2015 that pays for a range of city services.

Councilmembers also agreed that a parcel tax would be most favorable, with the fee structure not on assessed value but on land use and size. For instance, to attain the $14 million revenue goal, staff estimated an average single-family residence could pay around $300 while a larger commercial space could pay up to $5,000 annually.

While the parcel tax is less dependent on market conditions, it also needs a two-thirds majority approval to pass, rather than a simple majority for the sales tax.

A property transfer tax was also discussed, though was not supported by all councilmembers, largely due to its potential volatility as well.

“I like a parcel tax because it can be more progressively structured,” Councilmember James Coleman said. “I do like the idea of a property transfer tax, but this is not a tax that should be used to plug a general fund deficit.”

The council needs to make a decision on the ballot measure by next June, with the deadline to submit the ballot measure in August 2026.