Atherton drops election on new taxes Atherton drops election on new taxes (December 22, 2004)

** Real estate agents threaten lawsuit.

By Andrea Gemmet

Almanac Staff Writer

Faced with a crowd of incensed real estate agents and the threat of lawsuits from Realtor associations with deep pockets, the Atherton City Council abruptly withdrew from the March 8 ballot a proposed new tax on real estate and construction activities, saying that more time was needed for public input.

The council had pinned its hopes on changes to the town's business license fees to shore up Atherton's finances following the defeat of the special parcel tax at the polls last month.

Atherton, which has few commercial businesses and thus, very little sales-tax revenue, has funded services and infrastructure projects such as road repair with an annual parcel tax, currently $750 for most homeowners.

A four-year renewal of the parcel tax at the current rate garnered only 57 percent of the vote on Election Day, falling far short of the two-thirds required to pass it.

The City Council has been mulling over alternative "revenue enhancement" plans since this summer, and last month settled on changes to Atherton's business license fees. If approved by a simple majority of voters, the higher fees would raise an estimated $2 million annually.

The license fees have been capped at $250 annually for gardeners and most other businesses operating in town, but the fee structure would have been changed to tax construction at 1.23 percent of a project's value and title insurance companies at 0.53 percent of a property's sale price.

Those plans got thrown a curve ball last week when Atherton's legal counsel recommended a last-minute amendment taking title companies out of the equation and replacing them real estate agents, who would pay the 0.53 percent of a property's sales price out of their commissions on the sale.

Atherton faced a December 17 deadline to submit ballot arguments for the March election.

Attorney William Hutton, hired as a consultant by Atherton, advised that there were "significant issues" with the town's jurisdiction over title insurance companies. By taxing real estate agent commissions instead, the town would reduce the risk of legal challenges over the tax being a disguised real property transfer tax, said City Attorney Marc Hynes's report to the council.

That about-face brought out more than 40 people involved in the real estate industry, a number of them Atherton residents, as well as representatives from state and local Realtor associations. A couple of people held up signs protesting taxation without representation.

"We believe the tax is grossly high," said Natalie Cardenas, the government affairs director for Silicon Valley Association of Realtors. "It's unfair to put the burden of providing city services on the backs of our members."

Ms. Cardenas said that the business license fee appeared to actually be an illegal property transfer tax in disguise, and said she believed that changing the content of the resolution at the last-minute before the election would not hold up to a legal challenge.

"This is quite a change from last time," said Jerry Carlson, the president of the Atherton Civic Interest League. "Some of the homework that should've been done, didn't get done."

Sam Goodman, a Realtor and former member of the Atherton Audit Committee, called the tax discriminatory and regressive, and warned of the potential for legal ramifications that could tie up the town up for years.

Of the 21 people who spoke at the meeting, not one was in favor of taxing Realtor commissions.

"If this is put into place, nearly 20 percent of my income would go to the town of Atherton," said Tom O'Dowd, who identified himself as a Realtor and Atherton resident.

Other real estate professionals said the tax could be levied on multiple agents and brokers for the same transaction. Since commissions are negotiable, brokers could pay anywhere from 8.8 percent to 35.3 percent of their commissions, depending on whether they were acting as a dual agent charging 6 percent commission or as a discount listing agent charging 1.5 percent, according to Donald Tasto, a Redwood City-based attorney.

Council members also appeared blindsided by the change in direction, and twice interrupted the meeting to withdraw into closed session with City Attorney Hynes and Mr. Hutton, citing anticipated litigation. Reconvening the meeting for the second time, they quickly accepted Mr. Hynes' offer of a resolution withdrawing from the March 8 special election in order to receive further public comment prior to the June ballot.

Councilman Charles Marsala said he had a number of concerns about the business license tax on real estate agents, including how it would affect for-sale-by-owner properties and discount Internet real estate services.

"Independent business agents find ways to get around things. We'd be monitoring this a lot," Mr. Marsala said.

Councilman Alan Carlson said he agreed that the proposed amendment had come on short notice and should go back for further consideration and comments, but also took an opportunity to remind the crowd in the council chambers of the town's financial straits.

"Since February 2003, this town, which has a budget of about $7.5 or $8 million, has cut its budget by $1.2 million. We've reduced the number of police officers, and the number of employees," Mr. Carlson said. "For people who want to know, 'Where'd the money go?' It went to the state of California."

Several of the Atherton residents who spoke urged the council to drop the real estate tax and make a greater effort to pass a parcel tax renewal measure. The current parcel tax expires June 30, 2005.

"Frankly, I was disappointed in the council's recent tepid attempts to pass the parcel tax," said former Councilman Bob Huber, who offered to help campaign for another parcel tax renewal.

Mr. Carlson had a question for people who complained there wasn't enough publicity for this fall's parcel tax renewal: "Where were they?"
Atherton holiday closures

Atherton town offices on Ashfield Road, including the branch post office, will be closed on Friday, December 24, and Friday, December 31, in observance of Christmas and New Year's.

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