May 16 2022

OPINION: Tax Growth Projections

The City released the draft budget for 2022-2023 last week and it’s on the May 16 Council agenda. ( City of Piedmont 2022-2023 Budget).

One purpose of the document is to project tax revenue growth for the next 10 years so that City can implement long-term financial planning.  Growth from property tax revenue in Piedmont is pretty stable, increasing 4-5% a year.  Transfer tax revenue, the 1.3% tax assessed on the sale of homes, can be volatile, but contributes more to annual growth than the property tax.   
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As the figure below shows, revenue bounces between $2 and $4M/yr (the exception being the three years of the Great Recession) and shows a steady rate of growth from 2010 to 2020.  Averaged over those 10 years, the transfer tax is $3.4M/yr and the City projects that as a flat growth rate for the next 7 years, leading many city funds into the red. Alternatively, when the transfer tax growth rate is used to project growth (Transfer Tax Projection), transfer tax revenue grows to almost $5M/yr over the same time period.

The City describes 2020-2021 transfer tax revenue ($6.3M) as an outlier, but that remains to be seen.  2021 transfer tax revenue was a record for Piedmont that may well be broken this year. Through the first quarter of the 2021-22 fiscal year, transfer tax revenue was ahead of last year by about 24% and carried over the year that comes to a transfer tax of $7.8M for 2021-2022.  Staff may provide an update on this tax revenue at tonight’s meeting.

So this is good news but will it last?  I don’t know, but it strikes me that averaging over the past 10 years is too conservative an approach that naturally leads the City to seek tax increases to make up for funding it projects it won’t receive when in fact it will.   The City should at least run two financial projections – flat growth and expected growth – to provide City Council with a more balanced report for long-term planning.  Perhaps the Budget Advisory and Financial Planning Committee can request this from staff.

Garrett Keating, Former Piedmont City Council Member

Editors’ Note: Opinions expressed are those of the author.
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