With seemingly impossible budgetary issues facing the City of San Carlos, it may be time to start thinking outside the box with regard to tax revenue. The one thing that we can all agree on is that we all pay plenty to live here, and the thought of San Carlos residents paying additional sales and/or parcel taxes is not appealing to the majority. What if there were a way to generate additional tax revenue from those who are moving into San Carlos? A city transfer tax on real estate transactions would do just that.
Many cities have chosen this option and been successful. The nearest city to San Carlos to succeed with this measure is the City of San Mateo. Currently, any real estate transaction requires a payment of $5.50 per $1,000 transferred. On a $1,000,000 purchase, the city transfer tax would be $1,000,000/1,000 = 1,000. 1,000 x $5.50 = $5,500. With 250 transactions a year, the additional revenue is $1,375,000 (assuming that $1,000,000 is the average sales price).
In the City of San Mateo, the default is to have the buyer and seller split the city transfer tax. However, this is negotiable and depending on how the city transfer tax is written, the presumption could stay with the buyer for the full amount.
Nobody is in favor of new taxes, however, the city transfer tax may be a viable option for the sole reason that it pushes a majority of the expense to those who are not already living here. Any worry about possible effects on real estate valuations in San Carlos are negligible. Having sold many properties in San Mateo, I can tell you that the city transfer tax has never played a role in what buyers are offering on homes. In fact, for many, it’s an afterthought.
The financial crisis in San Carlos is a serious one. Even with the proposed drastic cuts to fire, police and city staff, the City of San Carlos is still going to fall short of a budget that makes sense going forward.
13 Comments
Hi Bob,
I think this is a real third rail option. The challenge I face is that these taxes will do nothing to help local schools (all local tax money for schools is now shipped off to that black hole we call Sacramento) and will only serve to make some potential buyers think twice about purchasing a home in San Carlos because of the additional cost. I do agree that the numbers you talk about are relatively small ($5k against a million dollar home). However, I struggle face is that once a tax like this is in place, it would be far easier for the city to raise the tax when they need additional revenue rather than exercise some fiscal discipline.
I will be interested to hear what others have to say. I am jaded about taxes like this because I lived with it in another state and this kind of tax was brutal on property values.
In addition to San Mateo; San Francisco, Palo Alto, Mt. View, and San Jose also have City transfer taxes.
San Francisco has a sliding scale tax wherein the tax rate goes up as the price of the home goes up.
I agree with Bob, the city transfer taxes have not been an issue in the sales I have brokered in these cities.
Of course, many sellers in San Carlos are also buyers in San Carlos.
One way or another we ALL pay either directly or indirectly when new taxes are implemented or existing taxes increased.
Since most city transfer taxes are split 50/50 between buyer and seller, buyers would be less likely to object to the transfer tax if it was handled the same way as other cities on the Peninsula.
Chris, you are so right once a tax is in place, it rarely if ever goes down or goes away. I have not seen many (any?) government agencies ever let go of an existing revenue source.
I am generally against new or increased taxes as I feel they slow or impede economic growth in the private sector, which at the end of the day will determine the health, vitality, and desirability of our area.
But implementing a City transfer tax might be an option to consider.
A parcel tax might be a hard pill to swallow for both buyer and seller. However, a majority of citizens may accept it if it has a specific end date or if financial conditions warrant its continuance. Whether it is an ordinance or measure it should spell out what the funds will specifically benefit, such as police, fire, parks/rec, roads etc. Not a general fund which seem to be used as a discretionary bank account.
Bob,
I appreciate you making a suggestion that could actually help solve our budgetary problems and could actually pass. As for impact, if the $1Million home buyer were to roll their half of the tax into a 30yr loan ($800K@ 5%), the monthly payment would go from $4300 to $4312. Thus, I can understand how this would not affect home values. I think it is a good idea. What would need to happen to make it a reality?
JB
Bob,
While I appreciate the exercise, this discussion is fruitless. This post was the topic of conversation between myself, the Asst. City Manager, and the City Attorney. San Carlos is a General Law City, which unfortunately can not institute a transfer tax. The cities you have used as examples are all Charter Cities which can institute a transfer tax. So while it does work for some, it is not an option for us.
Thank you,
Andy Klein
Why can’t San Carlos convert to a charter city? Since it seems that is the only way the city has to create new revenue sources, it seems appealing.
I agree. Anytime an organization like a school or a town can take greater control of its own finances, etc. the greater the ownership within that community.
It works great for charter schools–look at the well run charter schools in this area. Why not consider a charter city? There must be risks. I wonder what they are?
Carline & Chris,
There are risks with becoming a charter city. Besides being an incredibly lengthy process, there would be some negative consequences as well. Becoming a charter city could open the door to binding arbitration. This would mean that the unions could be awarded higher compensation by an arbitrator, essentially bypassing the city council. This alone could eat-up all the added revenue recieved through a transfer tax.
Andy Klein
Sounds like this specific topic is not possible since San Carlos is not a charter city, however I agree with Arn in that I don’t think that new taxes in general are the best way to balance the SC city budget longterm. I support the city in creating new non-tax revenue streams (new business/development,…), which is hard to do quickly. Also, after researching the issue and following the city, state, US Fed (and even the world financial budget issues as best I can), I strongly believe that ACROSS the board, the government needs to cut costs in the largest component of their budget — public employee total compensation costs. Locally, CA, SMC employees, and SC public employees total compensation (base salary+ benefits+overtime,…) has increased over the last 5-10 years much faster than private sector and cost of living increases and are not sustainable longterm. Any one who does not believe this should read the daily news about budget issues in other cities, CA state, Europe,…needing to reduce public employee total compensation). If you want something more local and targeted, read the first 22 pages of the SM grand jury report (http://www.sanmateocourt.org/grandjury/2008/Employee_compensation.pdf) or
The 2008-2009 San Mateo County Civil Grand Jury concludes:
“1. Employee wages and compensation packages are not affordable. The escalating employee costs can and should be reversed in the twenty cities of San Mateo County.
2. Long-term solutions, in addition to stop-gap measures such as temporary wage freezes and furloughs, are needed.
3. Union contracts for new municipal employees can be introduced, reducing the cost to cities for both pension and post-retirement health care plans.
4. For current, as well as newly hired employees, salary increases, total days off, and the ability to accrue and cash out sick leave, can be contained.
5. The practice of basing compensation packages on those of nearby cities contributes to higher employee costs overall.” (keeping up with the Jones’ – instead should be compared to private sector equivalents)
I know SC did respond to the grand jury report and has implemented SOME of the suggestions, but IMO has not gone nearly far enough to make significant longterm fixes (how about increasing retirement to 65 yrs old?,…) I am surprised, as part of the SC budget talks, that we still have not heard any report outs of public information on the ongoing closed session SC city labor negotiations for significant long term total compensation changes. Here is a link to the current SC city union contracts (http://www.cityofsancarlos.org/gov/depts/hr/memorandums_of_understanding_%28mou%29.asp) , review them and compare them to your or equivalent private sector benefits and total compensation. As one example of pension benefits (but there are many more):
– can you retire at 50 or 55 yrs and get full retirement pension benefits of up to 60-90% of your top one year salary (which can be pumped up by overtime, and other additions)? Likely you don’t have any pension. Even if you do, nearly all non union private pensions that I am aware of provide < 33% max of average of last 5 year salary (without overtime or additions) and don't allow you to retire until 55yrs old or later without significant (50% reduction in lifetime annual benefits; reduced 20% at 62 yrs old). These public pension benefits are not affordable with people living to average ages of ~ 80 yrs old. Why do SC city public employees (especially non safety) have the capability to retire at 55 yrs old with full pension benefits for the rest of their lives. They easily could work another 10 years, just like the rest of us in the private sector. The city should go to a self managed 401K type defined contribution system –much more sustainable.
Not until the public becomes more aware, pluggged in, and vocal about reducing these unaffordable benefits, will anything change. There might be small temporary wage concessions, but the unions have become too powerful (politically,…) and will more than make up for any temporary compensation losses when the economy improves (and thus no longterm change or benefit to the budgets unless we make real permanent changes).
We pay the taxes for the city budget and are the customer for the city services; we need to make sure we are getting efficient services for a fair cost. Right now, I think we are paying enough for the city to be able to balance their budgets (with a reserve) without cutting services.
MkS, well said!
We do not have a revenue problem.
We hace a spending problem.
Whilw stock market and housing bubbles hav burst and unemployment has skyrocketed to over 10 percent, govt employees have for the most part continued to receive annual raises and have been exempt for job loss.
I note SF employees have agreed tp no raises. That’s a start.
In truth, there need to be ACTUAL reductions in compensation packages as many countries aroiund the world have instituted.
Time for a change!
Arn
Why are we considering cutting vital services when there are easy savings to be had by cutting one part of the city’s budget that is popular with nobody – building inspectors? Most of the actions of the building dept in inspecting home remodels and other home construction is, in my opinion, utterly pointless. They add no value, and just get in the way. If their actions were limited to dealing with nothing other than issues of public safety, we’d need a lot fewer of them.
MKS hit the nail on the head. The entire CALPERS entitlement pork barrel needs to change from the city level all the way up to the state level. The CALPERS Ponzi scheme is already underfunded by billions and billions of dollars. A change to a defined contribution is sorely needed.
I’ll add my vote to that of MKS, arn, and Dave. Just as there’s no such thing as a free lunch, there’s no such thing as a free (or even a painless) tax. Even if it were possible to initiate a city transfer tax, like all other forms of taxation, in one way or another, the residents would wind up paying. So instead of looking for new and creative ways of taxing the citizens, how about asking the city employees to share in the pain that those of us who work in private industry have had to carry during the course of (and in many cases, prior to) this downturn?
That said, I’d be more than happy to consider paying additional taxes to fund needed and justifiable city services, but only after public employees move to a defined contribution retirement plan, similar to the one I’ve had for the past 20 years (and being employed in private industry, consider myself fortunate to have had).