Sunday, October 3, 2010

San Mateo forecasts for slight revenue increases

September 27, 2010, 03:30 AM By Bill Silverfarb Daily Journal staff 
The city of San Mateo is looking at projected revenue over the next eight years to help it decide how to best keep services and employees intact as the economy slowly rebounds.
In forecasting ahead, city staff has tentatively called for less reliance on the property transfer tax, received after a home is sold, which has been the San Mateo’s most volatile funding source over the past four years.

Revenue projections are being examined through 2018-19, when the Measure L quarter-cent sales tax expires, to help the city identify a “new normal” of general fund revenue that keeps the city running.

Measure L will provide about $3 million annually to San Mateo’s general fund but will expire in 2018.

The general fund pays for police, fire, parks and recreation and other essential city services. About 70 percent of the city’s general fund comes from property tax, sales tax, hotel tax and property transfer tax, which have all declined significantly in the past two years, forcing the city to cut millions from its annual budget.

General fund revenue is forecast to increase by an average of 2.5 percent annually over the eight-year period from fiscal year 2011-12 to 2018-19. In contrast, the historical annual average increase has been approximately 5 percent, according to a staff report the City Council will weigh in on at a meeting today.

The current revised budget for FY 2010-11 is $951,280 lower than expected and the 2011-12 revised estimate is $2.9 million lower than expected.

The city may need to cut more from the budget to close the gap in this budget cycle.

Next year’s nearly $3 million shortfall will be addressed during the 2011-12 annual budget process, according to a staff report compiled for the meeting.

The city’s general fund revenue is expected to be approximately $95.6 million in FY 2018-19, the year after Measure L expires.

San Mateo’s most volatile funding source has been the property transfer tax, reaching a high of $10.4 million in FY 2006-07. The number dropped by 70 percent in just two years, however, to $3.3 million in FY 2008-09.

Median home prices in San Mateo have dropped 25 percent since 2007 from a historical high of $781,500 to about $590,000 this year.

The property transfer tax is forecast to reach $5.4 million in 2013-14. This year, the city expects to net about $4 million from the property transfer tax.

After 2014, staff has capped the property transfer tax at $5.4 million regardless of how much the city actually nets from it.

“This policy direction would mean that any future revenue received over the $5.4 million cap would be utilized for other purposes such as increasing reserves for service stability or used for capital projects,” according to the staff report.

Although Councilman Robert Ross had yet to see the staff report, he indicated early support for the property transfer tax cap as did Councilman David Lim.

“My initial reaction is, it is a prudent approach and definitely worth considering,” Lim said. “It is a step in the right direction but, as we adjust to this new economic reality, we have to make sure it does not affect our vital services or put our employees at risk. No one sector of the city can absorb major cuts.”

In 2004, for instance, 1,348 homes were sold in San Mateo. In 2009, however, only 712 homes were sold in San Mateo.

Sales tax and property tax revenue is expected to climb moderately over the next eight years, according to the staff report.

Property tax is expected to increase between 3 percent to 4 percent annually and trending up to 4.5 percent in 2018-19. Sales tax is expected to increase between 2 percent and 3.5 percent and trending up to 4.5 percent in 2018-19, according to the staff report.

The city’s hotel tax is expected to make modest climbs over the next several years by approximately 4 percent and up to 5 percent in FY 2018-19.

The San Mateo City Council will hold a special study session on revenue projections, 5:30 p.m., Monday, Sept. 27, City Hall, 330 W. 20th Ave., San Mateo.

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