On Tuesday the San Jose City Council voted 7-3 (Khamis, Davis, Foley dissenting) to further study placing three types of property tax increases on March 2020 ballots to fund the development of affordable and homeless-supportive housing. The decision resulted from a poll conducted by the city in early March showing 59 percent support from likely March 2020 voters for a 0.5-percent increase of the city’s real estate transfer tax, raising an estimated $54 million per year.
City Council directed that the transfer tax be investigated further, and that a non-residential parcel tax and a non-residential vacant property tax (vacancy tax) should also be explored. The city’s interest in raising one or more of these taxes in 2020 to fund housing development comes after the $450 million Measure V affordable housing bond measure failed to achieve the required 2/3 support from voters in November 2018.
“We are in a state of crisis where we need to explore a lot of different options and be creative,” said City Council member Magdalena Carrasco. “I’m very disappointed that Measure V did not pass.”
The real estate transfer tax would be paid by the buyer and seller upon the sale of any real property in San Jose, and as envisioned, would be crafted as a general tax for the city’s General Fund. As such, it would require support from 50 percent of voters to pass, and revenues could be spent for any purpose, not only affordable housing. The transfer tax is favored by Mayor Sam Liccardo, who urged “flexibility” and “gathering information” on the concept as fellow council members Johnny Khamis, Dev Davis, and Pam Foley spoke against it.
“The transfer tax will also raise the cost of buying a home. To help homeless residents, I think it’s just robbing Peter to pay Paul,” said council member Dev Davis. “First-time home buyers are young families are going to be the ones who are squeezed the hardest.”
“I don’t feel that a transfer tax is, first, a dependable source of funds, nor one that we should [try to] depend on because it increases the tax burden of someone who wants to buy a home,” stated council member Pam Foley.
“I think we should stop looking at raising revenues, and start living within our means instead of taxing people more and driving people out of San Jose,” inveighed council member Johnny Khamis, who suggested that the city rule out raising any taxes at all in 2020. None of his colleagues agreed.
Only council members Sergio Jimenez and Raul Peralez voiced support for raising tax rates on large corporations, bucking Mayor Liccardo’s staunch opposition. “The updated business tax did not go as far as I had hoped it would,” said Peralez of the city’s 2016 Measure G, which levies miniscule rates of up to $60 per year per employee on the largest businesses, raising a paltry $10 million in annual revenue for the city.
While opposing all sales taxes and initially opposing the real estate transfer tax as well, Jimenez provided the most expansive set of taxation options in his June 3 memo on the topic. In addition to raising the tax rates on large businesses set by Measure G, Jimenez proposed studying a non-residential parcel tax and a vacancy tax.
“A non-residential parcel tax responds to voter concerns about residential property taxes by explicitly exempting homeowners and residential parcels,” stated Working Partnerships Project Manager Priscilla Acuña during public comment. “The city should base a proposal off San Jose’s highly successful 2014 Library Parcel Tax, which 81 percent of voters supported, but go one step further to exempt residential property.”
The City Manager’s staff, led by Chief of Staff Lee Wilcox and Housing Director Jackie Morales-Ferrand, plan to return to the City Council in August with an updated report on the property tax proposals including additional voter survey results.