The possibility of a construction and development tax will be up for discussion during the Atherton City Council's Wednesday afternoon, Dec. 4, meeting. Such a tax could have generated anywhere from about $800,000 to $2.5 million annually in past years, according to a town staff analysis.
Among growing municipalities like Atherton, a development tax can provide substantial revenues, according to a town staff report prepared for the Dec. 4 meeting.
"If you really think about us (Atherton), we don't have commercial (businesses), we don't have any utility tax," Vice Mayor Rick DeGolia said during a June council meeting. "What we have is residents and development within those residences, and that construction impacts everybody, and everybody's feeling that impact and it's one of the most common comments we (town officials) all get. So I think people would feel good to support the town with a development tax."
In June, the council instructed staff to schedule further discussion of a possible construction and development tax, derived from work on residential properties.
"Municipalities review revenue alternatives regularly to help diversify revenue to the General Fund and Capital Improvement operations," the staff report says. "The Town's previous review of revenue alternatives, such as Business License Tax, was an important step as the Town continues to explore ways to not be so heavily reliant on property tax revenues."
The tax, the report notes, could be applied to all construction permits based on the valuation of the permit. It would generally be imposed only on new construction, and would be based on the number of units, number of bedrooms or square footage.
Staff notes that because the amount of revenue derived from these taxes would fluctuate from year to year, it should not be used as a source of funding for ongoing operations.
For example, during the 2018-19 fiscal year, a 1% tax on construction projects in town (which were valued at $132 million) would have brought in about $1.3 million.
The staff provides estimates of what 0.5% to 2% taxes on construction in town would net the town.
The council began discussing options to bolster revenue for the town's general fund in 2014, according to the staff report. In 2017, it examined implementing a business license tax, but opted not to go forward with such a tax.
If the development tax is set up as a general tax, it can be enacted only if approved by a majority of voters in a general election, according to staff. This means that the earliest such a tax could be on the ballot would be during the 2020 general election, and ballot language would need to be finalized and approved by the council by next August, according to staff.
A special election would allow for a longer timeline, but would require the measure to be a special tax, meaning that the tax would need to be imposed for a specific purpose, the staff report says. Special taxes also require a two-thirds voter approval to pass.
The staff report can be viewed, here.
The meeting takes place at 4:15 p.m. in Holbrook-Palmer Park's Pavilion, 150 Watkins Ave. in Atherton.