A pair of proposed tax increases is being considered by the Petaluma City Council, which continues to wrestle with the daunting task of how to rebuild of the city’s dilapidated street system while also finding money to cover the skyrocketing costs of employee pensions.
The two proposals include raising the transient occupancy tax, which is charged to people staying in hotel rooms or vacation rentals, and increasing the real estate transaction tax charged when property is sold within the city.
Both of these options should be more palatable than a sales tax increase, which Petaluma voters have not favored in recent years. A 2014 ballot measure to increase the sales tax rate by 1 percent was soundly defeated. City officials last year considered placing a three-quarter cent sales tax increase on the ballot specifically for street repairs, but when polling showed it did not have much chance of winning voter approval, the proposal was jettisoned.
The two tax measures gathering steam for next year’s ballot would not raise a significant amount of revenue for the city compared to a sales tax increase, but they would help to cover the burden of rising pension costs. A proposed 2 percent increase in the hotel tax, combined with planned new hotel developments, would add an estimated $1.5 million to the city’s annual $44 million general fund budget.
A $2 increase per $1,000 of property value on real estate transactions would net the city another $1.2 million each year.
To be sure, Petaluma’s infrastructure and staffing needs vastly exceed $2.7 million per year. But while the new revenue from these two proposed taxes would not do much to solve the city’s road repair dilemma, it would help pay for an expected $1 million increase in pension costs each year for the next decade due to changes in the state public employee retirement system. Petaluma’s pension problem, like those in most California cities, is largely due to long retired employees who negotiated contracts decades ago, and there is not a lot that city officials can do about those costs. Having already undertaken some pension reform, which compensates newer employees with a less generous retirement package, the city has few options to further contain these costs other than cutting positions, an ongoing practice which has left the police department sorely understaffed.
To fund street repairs, which Petaluma residents have consistently listed as their top infrastructure priority, there could be more state and regional money on the way. The state legislature this year increased the gas tax, which will start funneling money back to local governments for fixing pavement, including $1.3 million annually to Petaluma.
The Sonoma County Transportation Authority, which is made up of the county and its nine cities, is also talking about extending Measure M, the countywide transportation sales tax, on next year’s ballot.
Extending the tax in 2018 would allow officials to issue more bonds and generate the revenue needed to complete key projects like completing the widening of Highway 101 and repairing county and city streets.
The modest transportation tax has been the county’s most important tool for completing road projects.
We support the city exploring the two local tax increases, as well as an extension of Measure M, and look forward to hearing more about these proposals.