Measures a1 & a2: transfer tax

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On the ballot in November is a Transfer Tax (Measure A2)  initiative and a Charter City initiative required to levy a transfer tax. It is up to the voters to decide whether to pass these measures. Here is some basic background information, as well as what I think are the most compelling arguments both FOR and AGAINST the measure. Please read all the way to the end of this statement for a complete perspective on the issue.

Background and Financial Outlook

These measures aim to generate additional revenue for city services and infrastructure as traditional funding sources have become strained. 

The city is running an annual deficit of about $3 million/year. In the past two years, the city’s reserve has been reduced from $15.1 million to $11.2 million. At the current rate of spending, the reserve will be gone in three to four years.

Proposed Tax & Charter City Basics

• Sales less than $1 million: No tax
• Sales of $1 million to $5 million: 1.5%
• Sales over $5 million: 3% 

This is not a graduated tax but a uniform rate tax. So, a $1.1 million home would be taxed $16,500, not $1,500. 

Measure A1 proposes a “limited” charter city.” St. Helena will continue to be subject to the general laws of California. The charter would allow the city to impose a transfer tax, but it would not have any other practical effect.

Comparison Information 

• Secured Trust (an escrow company) has a list of California city transfer taxes. When you incorporate the various tiered rate schedules, you find:

                                                                             Lowest Tier                      Highest Tier

                                     Average                            0.7%                                      1.29%

                                     Median                            0.45%                                    0.45%

                                     Range                          0% to 1.5%                       0.11% to 6%

• The League of California Cities provides a list of charter cities in California. Currently, there are 121. 

Considerations (FOR) 

• St. Helena enjoys a strong sense of community and local control over essential services. It is somewhat unique that a small city like St. Helena (population 5,000) manages such a broad array of city-run services. Many smaller cities with similar populations rely on county-run services or partner with other jurisdictions to provide key services like public utilities, fire, and police departments (due to limited financial and human resources). Many residents enjoy independently operated city services. For instance, the library is a cherished community hub, and there are many heart-warming stories of rapid and personalized police responses. 

• The city is playing catch-up with respect to deferred infrastructure maintenance (roads and water/wastewater facilities), which has caused expenses that cannot be avoided. Deferred maintenance typically results in higher costs down the road, as problems worsen over time and require more extensive and expensive repairs than if they had been addressed in a timely fashion.

• Because of Prop 13, homeowners who have held their property for a long time have very low property taxes while receiving the benefits and services of the city. 

• In August, Standard & Poor’s revised the outlook on St. Helena's bonds from stable to negative (while maintaining the city's long-term rating of 'AA+' for its 2022 general obligation debt). The city is at a critical juncture. Immediate action is needed to stabilize its financial position and ensure borrowing costs are not impacted. “Cutting” our way out of this will be challenging. 

Considerations (AGAINST) 

• The city has made no effort or offer to curb expenses - only to impose the transfer tax. Implementing the transfer tax without addressing deeper financial issues gives the city a pass on instilling the much-needed discipline required to manage the city's budget more responsibly and explore cost-saving measures. The city's operations show significant inefficiencies. Staff salaries and headcount continue to rise, yet much of the work is outsourced to consultants. In the face of recruitment challenges, the only solution offered to date is raising salaries. Solutions like more thoughtful workforce development strategies have not been considered or implemented. These tax revenues will go to the general fund where there is wide spending latitude. These funds can be spent on additional salaries and consultants. 

• The transfer tax revenue depends on the real estate market, which can cool. The city is promoting a “stable” revenue stream estimated at $5.3 million annually. However, these figures are based on years during which interest rates were historically extremely low, and housing marketing was quite robust. Title real estate transaction data show that tax revenues for 2022 and 2023 would have been $2.1 and 1.8 million respectively. 

• Not all homeowners have been enjoying low property taxes due to Prop 13. Some homeowners could pay taxes on property they sell at a loss. Unlike a capital gains tax, this tax is based on the transaction value, regardless of profit or loss.

• The tax may deter property sales and result in a drop in property values and less housing mobility. (While it may discourage second homeowners, it may also discourage new residents.) 

Important Point

If passed, the city council can vote to reduce (or even eliminate) the transfer tax. Reducing the tax to be more in line with other cities in the state, along with cost-cutting and implementing some other viable revenue options (e.g., serious pursuit of grant funding, penalties on empty storefronts, some hotel development, a modest increase in short-term rental licenses, economic development beyond hotels and tourism, etc.), could offer a better solution to St. Helena’s fiscal predicament.

Where I stand 

The Transfer Tax is definitely the easy solution to the budget problem. It gets at the unbalanced budget problem - and it does it right away (without having to wait a few years for a new development to be built).  My concern about the transfer tax is that it seems to give the city a pass on looking at any kind of streamlining or cost-cutting. I am disappointed that, along with asking residents to approve a transfer tax, the city did not also commit to implementing cost-cutting measures. Successful businesses and governments are always looking to streamline their operations. Governments should aim to maximize taxpayer dollars by delivering services as efficiently as possible. Streamlining can help reduce bureaucracy, improve service delivery, and ensure that public funds are used responsibly. As a council member, I will advocate for responsible budgeting and cost-cutting measures to ensure that taxpayer dollars are spent wisely, prioritizing efficiency while maintaining essential services for our community.