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City mulls tax hike

In a move that could give the city additional options in floating a sales tax measure past voters in 2014, the Petaluma City Council on Monday unanimously backed two proposed Constitutional Amendments related to funding transportation projects.

Both amendments call for a reduction in the percentage of votes needed to approve tax increases to fund transportation projects from the current 67 percent threshold, down to 55 percent. The amendments leave the classification of transportation projects up to local jurisdictions, but would most likely include street paving, road repair, interchange projects, bicycle and pedestrian walkways and any other transportation-related improvements.

The move comes on the heels of the city's mid-year budget review, which showed that as Petaluma continues planning for future expenditures — including much-needed road repair — it will be faced with ever-increasing employee retirement costs chewing up larger chunks of the city's general fund budget.

Indeed, because of recent spikes in these costs, the city is now projecting a $330,000 deficit rather than a $1.4 million surplus in the general fund budget by 2016.

According to City Finance Director Bill Mushallo, most of the new deficit comes from the city needing to replenish employee retirement funds that have been depleted faster than expected. These are funds maintained by Petaluma, not by CalPERs, to cover costs like health benefits. The city built up these funds over time by making annual payments and had a large enough balance by 2007 to quit making payments during the economic recession when revenue streams flattened. While the city was expecting these funds to last longer, Mushallo said that they have already run low and will need to be replenished. This is due to costs increasing faster than expected.

In addition to the city's public employee retirement fund, CalPERS is projecting an increase in the city's yearly bill. In the current fiscal year, Petaluma is scheduled to dedicate approximately 14 percent of its general fund budget to CalPERS payments. The city will pay more than $6.2 million to CalPERS this year, from several different city funds including the General Fund. The percent of the general fund being used for these payments will increase next year to 15.3 percent. By the year 2016, that amount is projected to rise to more than 16 percent, whereas a decade ago, Petaluma only paid 5.8 percent. Mushallo said that the costs are projected to rise annually.

At a recent City Council meeting, City Manager John Brown said that without some sort of additional revenue stream — like a sales tax increase — the city's expenditures will outpace its income within three years. While some local fiscal watchdogs argue that city spending needs to be cut before any sales tax measure is introduced to the voters, Mushallo pointed out that the city has already cut its budget from $48 million down to $32.5 million, leaving no fat left to trim.

That's where a special tax could come into play. Last year, the City Council debated placing both a general sales tax increase, which requires a simple 50 percent plus one majority to pass, and a specialized sales tax measure, which currently requires a 67 percent majority to pass. The 67 percent threshold has proven difficult to attain. In Petaluma, both a quarter-cent tax increase to fund parks and recreation projects and a $60 parcel tax to maintain current Rancho adobe Fire Protection District service levels failed at the ballot in November, despite getting more than 60 percent of the votes.

Should the state lower the vote threshold for transportation tax measures this year, the city could potentially place a transportation tax on the ballot in November of 2014 that would only require 55 percent of the votes to be approved. Councilmember Mike Healy said that while he will continue to support a general sales tax measure, lowering the transportation tax vote threshold will give the council another option, should they need it.

Councilmember Mike Harris said that he would be much more open to supporting a specialized sales tax to fund road repair, so that the public knows exactly where its tax money is going.


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