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On the Nov. 3 ballot, Portola Valley voters will decide whether to make the town a charter town and authorize a real property transfer tax. If approved, Measure N would establish a tax of $10 per $1,000 of a property’s sale price. Placed on the ballot by the Town Council, it aims to provide Portola Valley with a reliable stream of revenue to address the town’s ongoing budget deficit. The Almanac invited representatives on both sides of Measure N to make their cases. This is the argument against it; read the argument in favor of N here.
By William Urban and Danna Breen
New taxes should only be levied when absolutely necessary. Portola Valley’s effort to close a $700,000 annual structural budget deficit has morphed into an excessive, $2 million-plus new annual revenue grab, in order to fund an extra annual $1.3 million-plus in annual spending that has not been fully reviewed and vetted by the Portola Valley Finance Committee or Town Council. Despite the town’s stated values of community and equitable taxpayer treatment, the council has directed the entire tax at homeowners who are selling real estate.
Only the 2% to 3% of residents who are selling properties each year would pay a 1% sales tax, or $45,000 or more for a median-priced home sale, while the non-selling 97% to 98% residents pay nothing while still capturing 100% of the benefits. Buyers who share the cost of the tax would also face a significant jump in annual property tax when their properties are reassessed at the purchase price.
One fairness principle of taxation policy is matching the incidence of a tax to those who benefit from the revenue — all those living here, not those selling and leaving Portola Valley. Taxes supporting general town-wide purposes should be shared. That’s not what this tax does. Over the next 10 years, only the departing or arriving 20% to 25% of total town residents would exclusively bear the burden of a collective $20 million-plus of new taxes.
Another fairness principle: Assess taxes among those best able to bear them. Proponents apparently view resident property sales as liquidity events demonstrating greater wealth and ability to pay than non-sellers. Wrong. Selling creates no wealth, nor is it a wealth-revealing event. It’s an exchange of real property for cash of equivalent value. Would other liquidity events that most of us will experience, like annual 401(k) or IRA required minimum distributions, Social Security benefits, private pension payments, or sales of securities justify new local taxes?
This tax is financially equivalent to giving the town a mortgage on your house equal to 1% of its value. No monthly payments are due — it’s worse. The mortgage amount actually increases with your home’s appreciation and is due on sale. Your home equity immediately drops by that amount. You can’t simply price your home 1% higher, not in a competitive marketplace with homes selling in neighboring towns without transfer taxes.
The town has no data or mandate to assess home-sellers’ wealth, net home equity, or income as a basis for a transfer tax. There are no exemptions for sellers purchasing a replacement property in town, subjecting them to a second transfer tax, plus a tax basis step-up to purchase price. The buyer of their former property also suffers a tax basis step-up. There are no exemptions for those suffering forced distressed sales due to fire or natural disaster.
The Town Council directed the Finance Committee to research and develop alternative tax proposals, but then specifically told them not to make any recommendation on the amount or type of tax. No documented spending proposal or schedule justifying the tax was vetted. Even the targeted 1% tax rate is miscalculated. A Finance Committee analysis found a smaller 0.75% tax rate would raise equivalent revenue if inflation was properly applied to recent five-year sales history, instead of the outdated 15-year sales history, not adjusted for inflation, used by the Town Council in setting the 1% rate.
Dismiss the council’s hints they’ll learn and adjust tax provisions after passage — that rarely happens, and the current Town Council cannot legally bind future councils.
Ignore alarmist predictions of loss of town autonomy if charter town status and this tax measure fail. Financial collapse is not a credible risk, as evidenced by town’s broadly publicized financial projections through the 2030 fiscal year. Disincorporation hasn’t happened anywhere in California since 1973, and then only for a single Southern California town.
Reject this measure, Portola Valley. Better, fairer alternatives have already been identified by your Finance Committee.
William Urban is a 24-year member of the Portola Valley Finance Committee, and a member since 2016 of two Citizen’s Oversight Committees for bond and parcel taxes for Portola Valley School District. Danna Breen is chair of Architecture Site Control Commission.
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