The Sebastopol City Council plans to ask voters this fall for a hand in putting the city on stronger financial footing, through two tax measures expected to share ballot space with a proposed hike in the county sales tax, city officials said.
The entire package has council members fretting about voters' appetite for new taxes in a city that already has the highest sales tax rate in Sonoma County by a quarter-percent.
But the council has decided nonetheless to seek approval for an additional quarter-cent increase in the city sales tax, as well as an extension of an existing utility user tax.
"We know Sebastopolians support their community," Mayor Robert Jacob said.
Previous revenue enhancement measures have drawn strong support from local citizenry, city officials said, but the county's plans - still unclear - complicate the debate over which mechanisms will enable Sebastopol to successfully raise funds.
State law caps city and county sales tax collection at 2 percent combined in a given municipality. It's already 1.5 percent in Sebastopol, meaning the city and county would have to find a way to split the remaining 0.5 percent allowable, Sebastopol Administrative Services Director Karen Cano said.
If the county were to propose and win approval for half a cent, for instance, the city could expect to lose out entirely, even if local voters gave them the go-ahead, she and City Attorney Larry McLaughlin said.
Then there's the question of how many taxes voters are willing to approve, given what's likely now to be a ballot with two different sales tax increases and the utility user tax.
"How many times do we go back to the same well?" Councilman Patrick Slayter said during a discussion of the issue at the council's regular Tuesday meeting.
The council voted 4-1 to move forward with plans for the two tax proposals. Councilman John Eder opposed, believing, he said, that officials needed to explore their options and the likelihood of success more thoroughly.
"What we don't want to do is to put them both on the ballot and have them both fail," Eder said.
The issue of new taxes arises in part because of the Jan. 1, 2015, expiration of a 4 percent tax on natural gas and electricity that voters approved in November 2008 knowing it would sunset after six years.
The utility tax generates about $330,000 annually that will now have to be offset by revenue increases or budget cuts, officials said. The city's total operating budget this year is $12.1 million.
Even if the utility tax were renewed as-is, the earliest the extension could go into effect is April of next year, setting the city up for an unavoidable loss of several months' worth of utility tax receipts.
But even with a full year's revenue, officials said, the city would need to find another funding source to reach desired staffing levels, address deferred maintenance and road repair, and retire lingering debt as the community emerges from recession.
The city needs an estimated $1.2 million a year to reach those goals, Jacob said. The target is achievable, he said, if and when two new hotels proposed in town come online.
But new tax initiatives also are necessary, he said, and council members debated a variety of options including raising the utility user tax to at least 5 percent, the average rate in California; "modernizing," or extending the tax to services like cell phones, cable TV, wireless Internet and other utilities; proposing an increase in the sales tax; or some combination of those paths.
The city last raised its sales tax by a half-cent, with backing from 71 percent of the voters, in November 2012. It is expected to generate close to $1.1 million in revenue this fiscal year.
The city also has a quarter-cent tax on the books, approved in 2004, contributing to a total 9 percent sales tax for purchases made within city limits.
Much of Sebastopol's sales tax - an estimated 80 percent - is paid by nonresidents who come into town to shop, thus enabling the city to spread the burden for city upkeep beyond city limits, said Councilman Michael Kyes, who serves with Jacob on the council's budget subcommittee.
The city might consider shifting all its revenue needs onto sales tax were it not for apparent plans on the part of the county to seek a sales tax hike, as well, though city officials said they aren't privy to what the county intends to do.
Assistant County Administrator Peter Rumble said the plans are still unformed, hinging on investigation and analysis still underway by administrative staff.
"We're doing what work we need to do to come forward with a recommendation to the board, and if the board says at that time, 'Yeah, we want to go,' then we will," Rumble said.
But the county wants and plans "to work collaboratively with the cities to make sure that we can move something forward that benefits everybody in the community," Rumble said.
That leaves the city guessing somewhat and hoping the county does not seek more than a quarter-cent increase, leaving room for the city to propose its own quarter-percent sales tax hike, along with extending the utility tax.
"I think it's an elegant solution that's getting us close to where we want to be," Kyes said.
You can reach Staff Writer Mary Callahan at 521-5249 or mary.callahan@pressdemocrat.com.
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