A revenue measure that will increase taxes is making its way onto the general election ballot in November 2024, with the Mountain View City Council agreeing Tuesday night that more cash is needed to pay for ambitious projects ranging from affordable housing to climate change initiatives.
The city is financially secure with enough funding in its coffers to support existing programs and services. But the city lacks the money needed to pay for critical infrastructure projects and future capital initiatives, according to a study session presented to the council on Sept. 12.
“Building the Mountain View of tomorrow, with bold initiatives and facilities that the city is advancing, will require us to continue to enhance and diversify the city's revenue streams,” said Deputy City Manager Kimberly Thomas.
The public safety administration building, which houses the police department and other emergency services, is in dire need of upgrades and projected to cost $160 million. Other high-priority initiatives, like affordable housing, climate change mitigation, fire station rebuilds and transportation projects also are experiencing funding shortfalls, Thomas said, putting the combined figure at $175 million, which did not include an estimate for the city’s open space and park initiatives.
Assistant City Manager Arn Andrews presented several tax scenarios that could each bring in about $4 to $5 million of additional revenue to the city. While a seemingly modest financial target, this revenue could be held in reserve or used for potential bond offerings, Andrews said, citing the possibility of $80 million in bonding capacity.
Since 1973, the city has adopted five ballot initiatives to increase revenue; its two most recent tax initiatives, the business license tax and cannabis sales tax, both passed in 2018. Given the city’s historically conservative approach to increasing taxes, council members saw the Tuesday study session as a chance to consider the feasibility of a wide range of revenue measures.
The city has to be wary of putting something on the ballot that's doomed to fail. The consensus was that a general tax measure, which requires a majority approval of 50% plus one by voters, was preferable to a special tax measure, which requires a two-thirds majority.
While all council members favored the general tax option, they diverged on exactly what taxes should be brought forward to the public. The study session presented five options for discussion: a transient occupancy tax (TOT) on hotel stays; a property transfer tax; a utility user tax (UUT); a business license tax; and a sales tax.
Council members quickly converged on the transient occupancy tax, which is paid on temporary lodging by visitors. Mountain View last amended its hotel tax in 1991, increasing it from 8% to 10%. Compared to neighboring cities, Mountain View's rate is low, ranking at the bottom while Palo Alto, Los Altos, San Jose and Sunnyvale have rates between 15.5% and 12.5%.
There was less of a consensus around the utility tax, a 3% tax assessed on consumption of utility services that includes telecommunications, electricity and gas. The rates range between 2% and 5% elsewhere in Santa Clara County. Council member Margaret Abe-Koga expressed opposition to the tax, citing public concerns about expensive electricity rates. Vice Mayor Pat Showalter questioned whether it would be possible to parse out the UUT to increase some rates (like gas) and decrease other rates (like electricity) to incentivize alternative energy uses, a proposal that several other council members supported as well.
Council members were also split on whether to increase the city’s property transfer tax, which has been at the rate of $3.30 per $1,000 since it was first adopted in 1973. Council member Lisa Matichak expressed opposition to an increase, citing public concerns about living in an already high-cost area. But other council members were open to the idea of a tiered incremental model, similar to San Jose, which has a higher tax rate for properties that exceed $2 million.
“Mountain View might need a little higher threshold, maybe three or four (million). But something tiered I think could actually produce a healthy amount of revenue,” said council member Lucas Ramirez, adding that the city should ditch the idea if it polled poorly with the public.
Ramirez also brought up the possibility of a parcel tax on commercial office space, similar to East Palo Alto, a proposition that was not presented in the study session but was supported in concept by several other council members.
The proposition to increase the sales tax from 9.125%, received the least support from council members, with most stating that they did not favor a regressive tax. There also was some hesitation to bring forth another business license tax, given the recent passage of a similar tax in 2018. Some council members, like Ramirez, expressed support for a gross receipts tax model if it applied to bigger businesses.
To shore up support for a potentially controversial ballot measure, the city plans to engage in outreach efforts to solicit feedback from the public. It also formed an ad hoc committee and has allocated $250,000 in its budget to hire a consultant agency to assist with the initiative.
Concerned about the public reaction to the proposed revenue measure, council members also wanted to make sure that the community had a full picture of the city’s funding priorities and needs, a request that city staff also supported.
“At the end of the day, if we move forward with a ballot measure, staff wants our council to be successful, we want our community to be successful," Andrews said. "We do have needs, and we do need the revenue. So, it's important that we all move forward in a transparent manner, make sure that we build credibility with our community."