Petaluma looking at tax for new revenue

City officials eye sales, hotel tax ballot measures to address funding shortfall and infrastructure needs.|

Petaluma residents may soon be asked again to vote to further tax themselves to keep the city afloat.

Faced with rising pension costs, growing infrastructure needs and the impending threat of a budget shortfall, the Petaluma City Council took the first step Monday to consider its options for placing tax measures on a 2018 ballot. After hashing through what City Manager John Brown billed as “a universe of options” for revenue measures, the council narrowed its immediate focus to discussions on sales tax measures, a bump in transient occupancy taxes for stays in hotels and short term rentals and an increase in business license fees. A parcel tax also emerged as a potential future source of funds.

“This could be a transformative opportunity for us and one that I hope we’re going to embrace in the next two-year period and make Petaluma better than it currently is,” Brown told the council. “That being all said, you’ve got some problems and some deficiencies that need to be met.”

Without a new source of cash flow or cutting the cost of doing business, the city only has two fiscal years left before its spending plan is no longer balanced, putting officials under pressure to lock in a steady revenue source. The city, hard hit by the recession, has already made cuts in “every conceivable way,” including eliminating 20 percent of its workforce, he said. Now, only 305 of the 370 pre-recession positions are filled.

The budget was also pared down while funding for roads, repairs to the downtown fire station, storm water facilities and other critical projects languished, amounting to as much as $466 million in unmet maintenance needs, Brown said. In comparison, the city’s budget for the upcoming fiscal year beginning July 1 will be about $45 million, he said.

Like many other municipalities, the city is also saddled with increases in rate costs from the California Public Employees’ Retirement System, or CalPERS. Though the city has altered CalPERS tiers and adopted a plan that defrayed costs for new employees, it expects to see increases of $1 million each year over the next decade, largely tied to obligations for retirees or those who have left their city posts. Rates are not expected to stabilize to their current levels for 20 years.

The city’s share of public employee benefits of $12.5 million budgeted for the current fiscal year have already increased 64.5 percent from five years ago, according to budget documents.

Sales tax would do the most

A sales tax, Brown said, would be the “single most efficient revenue raiser.” A one-cent increase could nearly double the current $12.5 million expected from sales taxes in the upcoming fiscal year. The council can consider other amounts and durations, with the option to pursue a general tax measure, which requires a simple majority approval and can be used for a variety of purposes, or a special tax for a designated used, such as streets. A specific tax requires a two-thirds approval.

Putting a general sales tax measure on a ballot for an off-cycle election, which would be less crowded than other ballots, would require the city council to unanimously decide to declare an “emergency,” which Brown said is feasible with the current fiscal picture.

The city last year scrapped plans for a 20-year three-quarter-cent special sales tax measure that would have generated the estimated $179 million needed to bring pavement quality throughout the city to acceptable levels after polling showed support was lacking.

Street repair among needs

Funding for the city’s streets, among the worst in the Bay Area, remained a priority, though the city will see some relief from a recently passed gas tax increase that is expected to bring in as much as $1.38 million a year in street-specific funding. County officials will likely ask voters to extend Measure M, a quarter-cent sales tax voters approved in 2004. Groundwork is being laid to place the measure on the November 2018 ballot, potentially looking to increase the tax to a half-cent after the measure expires in 2024, City Councilwoman Kathy Miller said. If passed, it could funnel an estimated $118 million to Petaluma through 2045.

That stops short of fulfilling the city’s needs, and while Miller expressed a desire to improve streets, she said the city should also look to provide pension relief.

City Councilman Mike Healy described the city’s fiscal situation as “apocalyptic,” but said that he’d prefer to wait on a road-specific tax until after Measure M goes to voters. Among the options he preferred was an increase in the businesses license tax, which was last adjusted in 1995 and currently generates $1.3 million in general fund revenue.

Defecit outpaces revenue

Mayor David Glass proposed again exploring a special tax for roads and seeking a general sales tax intended to pay down pension liability, an increase in transient occupancy tax and a parcel tax for fire station repairs.

“Our structural deficit is growing faster than revenue,” he said. “We haven’t hit every single revenue source, but we’ve pretty well tapped out on revenues we can get without going to the public. If it’s possible, we need to find something that puts everything out there with everyone saying ‘OK, this is what the community needs.’”

Councilman Dave King, seemed tepid on bringing slew of taxes to voters over multiple election cycles or trying to solve all the city’s problems with a one-size-fits-all measure. He pointed to the 2014 failure of Measure Q, a general tax measure targeted at roads.

“All the unmet needs – all of them – are staggering, but we’re not taxing anyone here. We’re asking people to tax themselves. We have to pick the things they would be willing to do that for. We need to try to take care of some of these problems, but if we try to take care of all of them, we end up with a big goose egg. Measure Q didn’t make it.”

Hotel tax increase an option

Vice Mayor Teresa Barrett said she’s not prepared to support any measures unless a transient occupancy tax increase is brought forward, a chance to capture what she said has been a missed revenue source drawn from tourists rather than residents. The city’s current rate of 10 percent generates $2.75 million a year, with another $500,000 a year anticipated to flow in from two new hotels.

A 2 percent increase, which would place Petaluma’s rates among the highest in the county, could generate $650,000 a year. The city is still seeking to recoup revenue from short term rental operators, who have flouted the existing tax.

City staff will compile information about options for measures on a March or June 2018 ballot, with the next discussion slated for June or July, Brown said.

“We can do this thing in bites,” he said.

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