Petaluma City Council faces big issues during busy fall

While the sizzling summer weather cools down, Petaluma’s government is heating up as officials prepare to tackle a slate of critical issues this fall that will shape the city’s future.

As the seven-member body of decision makers returns from a summer hiatus, it will be tasked with crafting policies surrounding recreational marijuana, finding solutions to Petaluma’s housing crunch, advancing infrastructure projects and negotiating employee contracts. The city council also aims to identify new sources of revenue, such as taxes that are expected to land on a June 2018 ballot, to keep the budget afloat without cuts to the vital services on which residents depend.

Fiscal woes

Staring down an impending budget shortfall, spiking pension costs and millions of dollars in unmet infrastructure needs, the city council is exploring two tax measures.

“Revenue is the main thing for the city,” Mayor David Glass said. “Economic revival - there is no number two priority. That’s it. Survival is it.”

Though the measures are still taking shape, voters may be asked to approve a 2 percent increase in the city’s transient occupancy tax, which is charged for stays in hotels and short term rentals. The city is also exploring an increase in the real property transfer tax, which is levied on property and homes sold within the city.

A 2 percent increase to the transient occupancy tax would bring Petaluma’s rate to 12 percent, equal to the highest rates charged in Sonoma County. That could generate an additional $650,000 a year on top of the current $2.75 million in revenues, according to staff projections. Other hotel projects in the pipeline would increase that number.

Petaluma currently charges $2 per $1,000 of value in real property transactions, which will bring in an estimated $1.15 million in this fiscal year. Increasing that tax by $1 would add $635 to the average cost of a home sale while netting $600,000 annually for the city. A $2 bump would add $1,270 to the transaction costs while bringing in $1.2 million, according to the city’s projections.

If nothing changes, the city’s budgetary imbalance is expected to rack up to $37.1 million by fiscal year 2026. Pension costs, mostly tied to former city employees, are anticipated to increase by $1 million each year for the next decade after changes to California Public Employees’ Retirement System at the state level. The city is looking at other ways to reduce those costs, City Manager John Brown said.

At its Sept. 11 meeting, the council is expected to appoint an ad hoc committee to conduct outreach about the city’s fiscal affairs and the potential ballot measures. A town hall meeting about the taxes will likely be held before the year’s end, followed by polling and a final decision about ballot measures ahead of the June 2018 election, Brown said.

Glass said that while those two measures will provide some relief, he would like to explore a broader-reaching solution.

“What’s ideal to me is a measure that gives us the revenue to deal with the issues,” he said. “A quarter cent (general sales tax increase) for 25 years is a number that could deal with that. Increasing TOT is money we’ve left on the table for too long. I don’t have a passion either way about the real estate transfer tax. … We’ll see where it goes.”

The city will also hire a revenue collections officer, a position that’s expected to help bring in more cash, Brown said.

Cannabis a?burning issue

On the heels of the passage of Prop. 64, which legalized recreational marijuana at a statewide level but left some regulatory control in the hands of local governments, the city will be forced to update its policies. It’s a complex and fraught issue for Petaluma, which has long outlawed dispensaries and placed strict limitations on medical cannabis cultivation and delivery.

Marijuana is still illegal under federal law, a regulatory issue of great concern. At a workshop in June, the city council sought more information about issues such as violence in the cannabis sector, permitting, federal implications and how cash flow is handled in a market that can’t legally bank.

The issue will be up for discussion in October, said Brown. He’s trying to reach a middle ground between a divided council, which could take the form of exploring allowing a delivery service or manufacturing business, he said.

“Quite frankly, the range of opinions on what to do is all over the place, so it will be interesting to see how it plays out,” City Councilwoman Kathy Miller said.

Housing for the masses

As rents continue on a drastic upward trajectory and available housing stock dwindles, the city council will hold a Sept. 25 workshop to consider increasing fees charged to developers of major projects who choose not to construct affordable units. A fee hike could funnel more money into the city’s coffers for affordable housing projects, though Brown said the trick will be to find a balance that infuses cash into the city’s budget without giving developers a dose of sticker shock.

“My main concern is that we’re not shutting down the construction of market rate housing,” City Councilman Mike Healy said.

While the vacancy rate in the city’s major apartment complexes is 2.68 percent and the monthly market rate rent for a one bedroom apartment is $1,913, new projects in the pipeline may provide some relief. Projects such as the 199-unit east side Brody Ranch development and four developments along Lakeville Highway will eventually amount to more than 500 single family homes, townhomes and apartments, have been approved or are underway.

The Planning Commission will also consider a 184-unit mixed-use apartment complex on Water Street North in coming months.

“Getting housing built is going to be a priority because we clearly have a shortage,” Miller said.

Plans for pavement

The passage of Senate Bill 1, a massive state infrastructure funding plan fueled by a gas tax increase, could be the ticket to widening the congested Highway 101 corridor through Petaluma, said Miller, who also serves as the Sonoma County Transportation Agency representative.

By Feb. 1, the agency will submit an application seeking a little over $69 million to complete the $85 million project to widen the freeway from Corona Road to the Petaluma River Bridge. Word about the award will come back by mid-May, and the project that’s estimated to take three years to complete could move forward as soon as August 2019, with supplemental funding from Measure M, Miller said.

County officials are also discussing extending or increasing Measure M, a quarter-cent sales tax voters approved in 2004, Miller said. It could be on a 2018 ballot and would provide funding for local roads.

“We’re going to keep plugging away at trying to get roads up to decent level,” Miller said.

The widening of Highway 101 would unlock a key crosstown connection on Rainer Avenue that’s long been a political hot potato. City council closed session negotiations have been held over land needed to construct the connector, another key step to building the long-planned controversial road.

Capital projects

Various public works projects around the city are expected to either kick off or wrap up this fall, including a $3.1 million project to replace an undersized sewer line along Petaluma Boulevard South that will be completed this month, said Deputy Director of Public Works and Utilities Larry Zimmer.

Other substantial projects include a $1.5 million effort to retrofit thousands of street lights across the city to address a backlog of outages. Several projects are in the works at the Ellis Creek Water Recycling Facility that will pave the way for the conversion of waste to fuel for city vehicles.

Other issues

The Ratto Group, which provides recycling and trash services to the city, is in the process of being sold to San Francisco-based Recology. The city is exploring transferring services to the company, which will likely come with rate increases, Brown said.

Contract negotiations are also ongoing with various sectors of public employees, Brown said. The city will also need to nail down a new contract for its public transit operator and is seeking to hire a new transit manager, Brown said.

(Contact Hannah Beausang at hannah.beausang@arguscourier.com.)