The Perennial Question about Your Property Tax Dollar
One of the issues that is sometimes a mystery to many are where exactly do one's property taxes go? It is often thought that property taxes are collected by the Town and/or the County and then provided to the Town for its use in providing municipal services. That may be true in part, but only a small part.
Each year, the County provides an Assessed Valuation for every parcel in Town. The County then assesses each parcel based on that Assessed Valuation for the basic 1% property tax (called the "General Tax" on your tax bill) and the property owner is required to remit that 1% as well as any other Special Taxes that are assessed by individual agencies.
It is the basic 1% that is divided amongst the various taxing entities, including the Town. Above the 1% are the Special Taxes. These may include special taxes or more commonly called "parcel taxes" imposed by school districts, sanitary districts or other agencies. These taxes are above and beyond your basic 1% General Tax and are typically voted upon by the electorate as part of their approval process. Most parcels in Atherton will have a Special Tax from the Mid-Peninsula Open Space District, Sequoia High School Bond Issue, San Mateo County Mosquito Abatement District, West Bay Sanitary District, and others. The amount of the tax will usually vary based on assessed value or parcel size. The Town used to have a Special Parcel Tax that averaged about $750 per parcel. This tax was assessed for roads, drainage and public safety. This tax was eliminated in 2017 and is no longer assessed.
The 1% General Tax Property Tax is divided up amongst the basic taxing entities in proportion to the rates established under Proposition 13. The Town receives approximately 8 1/2 cents for every dollar a local resident pays in basic property taxes. So, if a property has a Net Assessed Valuation of $6,000,000, the annual basic 1% property tax would be $60,000. Of that $60,000, the Town would receive about $5,100.
The County processes its Assessed Valuation and tax allocation based on your Tax Rate Area. There are about 39 Tax Rate Areas (TRAs) in Atherton. Not all taxing entities receive income from all of the TRAs. Most of the Town is situated in about 6 of the TRAs. The percentage that the Town receives is not under its control and was set by the State after the passage of Proposition 13 in 1978 based on the service levels provided. In addition to the basic percentage, the Town also receives a portion dedicated to ERAF (Educational Revenue Augmentation Fund). ERAF is technically local tax dollars subverted by the State in the 1990s to fund its mandate for local schools. For those counties where basic aid is sufficient for school districts, ERAF is returned, in part, to the agencies from whence it came. It is not a guaranteed source of revenue and all or portions of it may be withheld by the State at any time. More detail on tax agencies can be found here.
The Town does not rely on ERAF as an operational revenue source. The Town uses the services of HdL Consultants to review its annual property tax revenue projections for budgeting purposes. A copy of that Report can be found here. Below is a table that reflects the Property Tax Dollar Breakdown for all agencies that receive a portion of the 1% General Tax.
Excluding ERAF, the table above reflects that the Town receives about $0.0857 cents of $1 dollar for its basic property tax revenue. There are line items in the table for ERAF for the Town and the Fire District; however, ERAF revenue to the Town and District are not guaranteed. ERAF is collected by the County and the Town's share of ERAF are withheld pending a State re-allocation process that typically reduces the full amount. The County receives, including ERAF, about 23.6 cents of your property tax dollar. Menlo Park City Elementary District receives about 16.6 cents; then Sequoia High District at 15.6 cents, then the Fire District at about 13.8 cents, and then the Town at its 8.6 cents.
For the table above, note all of the other agencies that receive a portion of your basic property tax. These include San Mateo Junior College, County Education, County Library, Sequoia Hospital District, County Harbor District and others. Overall, about 31 cents of each tax dollar goes to some form of County services (Library, Harbor, Education, etc.) and another 39 cents goes to schools - about 70 cents of your property tax dollar goes to schools and the County. The remaining 30 cents is divided up amongst the other agencies with the Town receiving about 8.6 cents.
So how does that compare to other agencies in the County?
Some communities impose special assessments, such as landscape and lighting, etc. on top of their basic collection rates. Some communities are "full service" communities that provide water, sanitation, full public safety, or other services. These communities will have a higher General Tax rate regardless of whether they contract for the service or provide it directly. The table below shows the basic weighted general fund share of property taxes for each agency. Atherton is toward the bottom of the pack in terms of its tax collection.
For FY 2020/21, Atherton has 2,614 parcels with a total taxable value of $12,376,059,220. That value is up by about 6% from the prior year. For next year, the Town can anticipate property tax revenue of approximately $10.3 million. The County, at 26.6% could expect to receive approximately $33 million. Property tax is the Town's primary revenue source. It's also important to recognize that nearly every community in the list above Atherton has commercial sales tax as a revenue source in addition to what they receive in basic residential property taxes. Atherton does not. Basic property taxes represent the single largest and the primary revenue source to the Town's operations.
So how do those revenues compare to the operational budget?
In Fiscal Year 2020/21, the Town received a total of $12,048,750 in revenue from property tax sources. These break down as follows:
- Secured Property Taxes - $9,611,026
- Unsecured Property Taxes - $479,795
- SB 813 Redemption - $285,000
- Property Transfer Tax - $421,000
- Property Tax in Lieu of Vehicle License Fee - $1,251,929
Revenue from basic secured property taxes increased by a little over 6% from the prior year. The Town's Operational Budget in Fiscal Year 2020/21 was $15,241,014. The Operational Budget is divided up amongst the 9 different operational areas:
- City Council - $64,117
- Administration - $873,638
- City Attorney - $300,000
- Finance - $790,189
- Planning - $353,383
- Building - $1,145,950
- Police - $8,383,779
- Public Works - $2,441,964
- Interdepartmental - $887,994
The difference between the $12,048,750 in property tax related revenue and the $15,241,014 in basic operational expenditures is made up through various fees, taxes, and permits. Approximately $918,000 comes from Franchise Fees on utilities (gas, garbage, cable). Another $1.4 million comes from Building Permit revenue, and another $680,000 comes from Public Works and Planning Permits. There are other small pockets of revenue sources, but full budget details can be found on the Town's website here
Revenue that comes in over and above the Town's Operational Budget requirements are generally directed to the following priorities:
- Paying down any long term liabilities (debt service, pension or healthcare liabilities)
- Contributing toward the Town's Capital Project Needs (streets, drainage, Park, etc.)
- Maintaining the Town's Mandatory Reserves (35% of the Town's Operating Budget)
The Town meets its basic funding obligations for pensions, healthcare, debt service and its mandatory reserves. There is also an existing priority to eliminate any long-term debt associated with the Town Center Project at the earliest possible time. That leaves Capital Project needs. The strategy for future revenues over expenditures are directly largely to Capital Project and Infrastructure needs in one or more of seven (7) buckets:
Each of the above have identified projects and priorities within. In total, the required need far exceeds the available short term revenue of the Town and the Town traditionally operates on a save-spend process for large capital projects and improvements. On average, excluding the Town Center Project, the Town will expend about $2.5m per year on capital project and infrastructure needs. Prior to 2017, the Town's Special Parcel Tax funded a large percentage of the streets, roads and drainage infrastructure. In order to maintain the same level of funding, the Town must prioritize and allocate any excess General Funds received (revenues over expenditures).
For more information on any of the above, feel free to give me a call or send me an email.