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Spectrum
- Wednesday, November 8,
2006
Guest Opinion:
What I did last summer -- pondered the cost of new housing
by Bern Beecham
I got
into a little bit of analysis this past summer.
Everyone
knows new housing "doesn't pay its way." We on the City Council
have heard this many times from many people.
But I've
never seen numbers describing the true impact of a new housing unit on the
city's budget. At many of our public hearings on housing, citizens remind
us of the unfairness of new residents moving into our great city without
paying up.
I talked
with top staff in City Hall, trying to find someone who might have time to
look into this question. Many were sympathetic but all had workloads that
would prevent them from getting into this issue without delaying other
significant work. So a memo to colleagues asking for support for such an
analysis was out of the question.
Still, I
wanted to know more accurately how expensive the "new resident
problem" is, because we hear so much about it. So I decided to analyze
it myself. I drafted a "scope of work," reviewed it with staff
and two colleagues, and was off and calculating.
The
common wisdom is that new residents move into this community nearly for
free. It is said they reap the benefits of everything we long-term
residents have bought and paid for over the years without paying for it
themselves.
The first
objective of my analysis was to find out how long it would take for these newbies to catch up with all the payments longstanding
residents have poured into the community over the past 25 or 30 years.
I was
astounded at what I found.
In the
first year of ownership, a new homeowner in 2005 pays to the city more than
three times as much in property-related taxes as all property taxes a
long-time homeowner has paid over the past 30 years ($14,000 versus $4,100
in 2005 dollars). Then every year after that the 2005 homeowner pays 14
times as much property taxes as a long-term homeowner ($1,400 versus $102
in 2006).
We all
pay much more than that in property tax but remember that for every $1,000
you pay Palo Alto gets just $90 -- I'm using what the city receives
in my calculations.
In any
case, a new homeowner is still moving into a wonderful town with great
parks, neighborhood libraries and other amenities that have required major
investments over time.
I asked
staff if they could tell me what the great City of Palo Alto has acquired with our taxpayers' money over the
past 30 years.
Again, I
was surprised. In the past 30 years, we've acquired only four assets with
taxpayer money. A quarter century ago we bought the Terman and Ventura school sites. We lease Cubberley with funds
generated by the utility users tax. And six years
ago, we acquired the two-acre Heritage Park/Roth Building on the site of
the former Palo Alto Medical Foundation.
We've
since traded Terman back to the school district in return for ownership of
part of Cubberley. There are other assets we've acquired (such as the Enid
Pearson/Arastradero Preserve) but they've been paid for mostly with grants
from other sources or, like the new downtown parking garages, by
assessments our businesses have voted to charge themselves.
But what
about ongoing costs of service? Don't new residents use more services than
they pay for? So I looked at where money comes from in our general budget
and where it goes -- or more exactly from whom it comes and to whom it
goes.
The
following analyses exclude user-paid revenues and services (such as
building permit fees, fire service contracts and other sources, about $20
million annually).
Most of
our general fund revenue comes from business. Business taxes (including
sales, hotel and property taxes) provide about 60 percent of our general
fund monies. The remaining 40 percent comes from residents (property and
documentary transfer taxes and some sales tax).
About 78
percent of our budget is spent on residents, or nearly twice the proportion
we residents pay in taxes. It's been clear for a long time that it is our
retailers in town (Stanford Shopping Center, auto dealers, University
Avenue stores, other businesses throughout town) that enable us to have the
services we enjoy.
So
business in general subsidizes residents. But many of us knew that. A
remaining question is whether there's any significant difference in
subsidization between long-standing residents and new.
In very
broad terms, our 26,500 housing units (including rentals) pay on average
about $1,275 per unit a year to our general fund through all forms of
taxes. But the city spends about $2,500 per unit on average for net
residential services (78 percent of our budget, excluding user-paid
services). The difference is subsidized by business.
The
typical Palo Alto homeowner (at the 50th percentile) pays about $375
annually in property taxes to the city. The new (2005) homeowner pays
$1,000 more. While this extra $1,000 yearly from new homeowner helps cover
the $1,225 subsidy, there is still an annual deficit per housing unit. (New
homeowners probably pay a higher portion of sales and utility taxes but I
did not find any reliable data for this.)
This
column isn't meant to endorse or oppose more housing. Rather, I hope it
simply provides a more accurate understanding of how housing, new or
long-standing, affects our city's budget.
Former Mayor Bern Beecham has led the effort
on the City Council in recent years to preserve and enhance the city's tax
base, particularly in the area of sales taxes. He can be e-mailed at
bern@beecham.org.
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