Bill To Correct Tax Inequity In Santa Clara County Won’t Pass This Year

Senate Bill 629 was introduced by Calif. Senator Jim Beall in February, to return about $2 million in lost property tax revenue to the cities of Cupertino, Saratoga, Monte Sereno and Los Altos Hills.

The issue began when Proposition 13 was passed by Calif. voters in 1978, a part of which froze property taxes as they were, causing cities with low tax rates at the time to have to keep them that way.

In general, property taxes give state and local governments a “stable and reliable” source of revenue, according to the Tax Policy Center, an organization comprised of national experts in tax, budget and social policy. As property values rise over time, so does revenue, according to the Center.

But in almost a third of Santa Clara County, this revenue is fixed at a low rate.

The four cities of Cupertino, Saratoga, Monte Sereno and Los Altos Hills are the only cities in the state of California that are allocated less than 7 percent of the tax revenue they generate, according to a statement from Beall’s office released in April.

This rate does not affect the amount homeowners pay, but rather how much each city receives.

Property taxes are paid by landowners to each county, which take a portion and give the remaining revenue to the state. The state then returns about 7 percent to the cities across the state.

By contrast, Cupertino, Saratoga, Monte Sereno and Los Altos Hills have been allocated only between 4 to 5.5 percent for more than three decades.

Attempts at mitigating the inequity have passed the state legislature over the years. In 1989, the legislature passed a measure to correct the original inequities, giving cities “Tax Equity Allocation (TEA).” But other legislation soon afterward caused the cities’ rates to go back down.

Subsequent attempts at reform have not fully addressed the problem for these four cities.

Beall’s measure was supported by the city governments of Monte Sereno, Saratoga, Cupertino and the town of Los Altos Hills.

The bill passed the Senate Committee on Governance and Finance 6-0 back in April. But as of May, the Senate Appropriations Committee held the legislation in committee because of costs associated with the bill, said Cris Forsyth, Beall’s chief of staff, in an email statement.

SB 629 cannot move forward in the legislative process this year, he added.

The bill would have required the auditor of Santa Clara County to permanently redirect approximately $2.1 million in property taxes to the four cities of Cupertino, Los Altos Hills, Monte Sereno and Saratoga, starting with the 2014-15 fiscal year, according to the bill’s official fiscal summary.

“By the early 2000s, these four cities protested that the lower limit impeded their ability to provide adequate city services,” states the summary.

Mayor Gary Waldeck of Los Altos Hills said the inequity has indeed limited the town’s ability to provide city services.

“We’d love to provide more services like other cities, but we can’t – we just don’t have enough money,” Waldeck said. “We can’t equal cities like San Jose, or even Mountain View: why? Because the money isn’t there.”

He said the town’s property tax return rate has been at about 5.5 percent for as long as he remembers, as opposed to 7 percent like other cities in the state.

Waldeck added that he was not too surprised by the bill’s failure this year. He said back in 1978, proponents of Proposition 13 may not have expected the four small areas to need the money, but they have since grown to be full-fledged cities.

“It’s been like this since 1978, it’s just the way it is,” Waldeck said. “The fact of the matter is it’s unfair ... and they need to fix that.”

Chuck Page, former mayor and current city councilman in Saratoga, said there are many projects the city would be able to do with the extra money.

“Everything in Saratoga takes a little bit longer than it needs to,” Page said. “There are always places where the money can be spent.”

Page added that legislation to change the situation has often failed in recent years because the state is reluctant to give out money while in such a precarious financial state.