Hard Times call for light(er) government
Dan Torunian
May 1, 2024
Daniel Torunian
Redwood City leadership is exploring new avenues to offset an ongoing financial deficit by “re- imagining” the city’s services. For those not aware, the Redwood City Council recently hired several consulting firms to help identify additional sources of revenue. Apparently, this is in response to the City Council approving a $334 million budget(1) for the coming fiscal year which will result in an annual budget deficit of $9.2 million for the next eight years. Yes, the next eight years! The council is leveraging these consulting firms to identify strategies to address the deficit which will no doubt result in increasing the cost of city services and implementing obscure tax revenue options. Maybe that is the definition of “reimagining”.
At a time when we are all experiencing the impact of increasing inflation coupled with the soaring cost of living in San Mateo County, is now really the time to be increasing the burden on Redwood City residents? Since 2020 the consumer price index locally has increased approximately 15%(2), while wages have remained relatively flat. Unfortunately, there is no end in sight as we continue to see month over month increases to all key items including food and gas, with many consumers turning to their credits cards just to get by. And, the November ballot will be full of state and county bond measures, which are just taxes under a different name.
Let’s put this in perspective from the point of view of a Redwood City homeowner and speak real numbers. For context, the median value of owner-occupied housing in Redwood City per the 2023 census(3) was $1,777,600 with an average household income of $145,620. With our 1.14% property tax rate, the average Redwood City homeowner is paying more than $20,000 in property taxes annually or a very alarming 14% of their household income! Accounting for Federal (24%) and State (9.3%) taxes would further reduce average income by $34,949 and $13,543 respectively; making the tax total burden a staggering 47% of total income or $68,000 per household.
In addition to the tax burden, we have also seen eye-popping rate increases for electricity, gas water and sewer; making these services some of the most expensive in California. And, let’s not forget that Redwood City sales tax is among the highest in the country and almost 4 percentage points higher than the state average. This means, whatever money lea in your pocket is not going as far as it once did.
City Manager Melissa Stevenson Diaz cited the combination of losses from the COVID-19 pandemic years and the current economic climate for the deficit that is forecasted to run through 2031. Diaz stated that new options to generate revenue could include increasing existing taxes, such as business licenses, property transfer, sales, hotel and utility user taxes. Interestingly, there does not appear to be any discussion of balancing the budget to erase the deficit. This would mean that the Council would need to operate like a business and follow the same discipline as all residents in making the difficult choices in what programs and services to fund (or not). Residents are not allowed to run a deficit unless you want to pay your credit card provider an interest rate of 27.90%(4).
The combination of soaring inflation, an ever-increasing tax burden and a forecasted eight-year budget deficit is quickly making Redwood City a cost prohibitive place to live and possibly one of the highest cost cities in the state, if not the country. This also further exasperates the ability for young prospective home buyers to enter housing market, a critical component in realizing the American Dream and creating generational wealth.
When times are difficult as these are and families are struggling to make ends meet, local governments would be wise to act in a more empathic manner and look for ways to reduce the financial burden that we all bear rather than looking at options to increase it. It would also be wise to practice a more pragmatic and disciplined approach to financial planning and management.