Amid budget crisis, Petaluma looks at tax measures

There is broad consensus among Petaluma officials that the city’s budget is beyond threadbare and will require an additional revenue source to maintain public services.

What form the new revenue source takes will be a topic of debate that will likely happen throughout much of next year and into 2020, culminating with a future ballot measure, city leaders said.

With the city’s share of pension costs set to increase in coming years, Petaluma is estimated to have a $100,000 deficit beginning at the end of fiscal year 2020-21, which is forecast to increase to $13.5 million three years later. Without additional revenue, leaders will be forced to dip into the $8.7 million reserve fund, or drastically cut service levels to stave off red ink.

However, with public safety staffing below pre-recession levels and deferred maintenance and infrastructure needs, there is little fat in the budget to trim. Which points to a looming debate on increasing taxes.

“Doing nothing is not an option. It’s like playing the violin while the Titanic sinks,” Mayor-elect Teresa Barrett said. “We need to address this issue.”

Councilman Dave King, who won reelection in November while campaigning on the need to increase revenue, said a discussion will likely happen in 2019, after the city hires a new city manager to replace John Brown, who retired last month. City leaders met with candidates last weekend and have made an offer to the top choice, according to people familiar with the closed door interviews.

King said the city needs to get out in front of a potential tax measure and explain to voters why it is necessary.

“We are in a financial crisis for a variety of reasons,” he said. “We’re not going to be able to provide services, like police and fire, that the public wants without added funding. Pension costs are going to increase. Cost of labor is going to increase. In the long run, we’re strapped.”

In 2014, the last time Petaluma asked voters to increase taxes, Measure Q was defeated with 56 percent voting no. The measure would have raised sales taxes in Petaluma by one cent for general city services. Measure Q divided the city council that year with five members supporting it and Barrett and Mayor David Glass, who is retiring, campaigning against it.

Councilwoman Kathy Miller said the city’s next attempt at a ballot measure should have the backing of the entire council.

“We can’t have people on our council campaigning against a sales tax,” she said. “It would be preferable if they were supportive, but at minimum, they should be neutral.”

City council members interviewed this week said all options will be on the table for discussion, including general and specific sales taxes, property taxes and taxes focused on niche industries like hospitality and real estate. A sales tax increase, while having the broadest impact on residents, would also provide the biggest boost to the city’s budget. Measure Q would have raised an estimated $10 million per year, while a recent 2 percent increase in hotel fees under the city’s new tourism district is expected to net $660,000 annually.

“I don’t see any way around it without a tax increase,” said Councilman-elect Kevin McDonnell. “We need a fair examination of all alternatives. That’s what 2019 is all about. Nothing generates revenue like a sales tax.”

Petaluma is one of five cities in Sonoma County that don’t have a local sales tax beyond the countywide rate of 8.125 percent. Santa Rosa, Healdsburg, Cotati and Rohnert Park have additional citywide sales taxes.

Incoming Councilwoman D’Lynda Fischer said she was pleased to see the passage last month of Measure M, a countywide eighth-cent sales tax increase dedicated for parks. But in general, she said she does not support most sales taxes. She said the city should look at a tax on the sale of homes.

“I’m not a big fan of sales tax measures,” she said. “I think we should look at a real estate transfer tax. It’s a missed opportunity with all the single family homes changing hands.”

In terms of timing, the consensus among council members is to wait to place a measure on the ballot in 2020, which would give leaders more time to craft a measure with public input and pitch it to voters. Logistically, a 2020 election would save the city money since it would be combined with a primary in March or general election in November. The state recently moved the 2020 primary from June to March in order to have a larger influence on the presidential nominating process.

There would be an added benefit of a greater turnout in either 2020 poll, Councilman Mike Healy said.

“If the city called a special election in 2019, the turnout would be lower and the expense would be higher,” he said. “The question is do we go in the March 2020 primary or in November 2020. In either case, turnout would be extraordinary.”

Councilman Gabe Kearney said city leaders need to do a better job of communicating Petaluma’s budget crisis. The city has been adept at stretching its minimal resources - for example, paving streets with new state gas tax money or patching up aging city buildings - that residents may not even notice there is a problem, he said.

“We’ve been doing a good job of putting a Band Aid on our problems for so long, it’s hard for people to understand we need money,” he said. “In two years, we’re in the red.”

(Contact Matt Brown at matt.brown@arguscourier.com.)