EDITORIAL: Atherton dilemma: how to tax EDITORIAL: Atherton dilemma: how to tax (September 15, 2004)

Even though it boasts some of the most expensive properties in the Bay Area, Atherton is far from wealthy when it comes to the city treasury.

In coming weeks, members of the City Council face the unpalatable choice of raising taxes (ouch) or cutting city services (possibly an even bigger ouch). It is not a decision they want to make, but something will have to give soon.

The budget shortfall comes courtesy of the state's money problems, increased pension costs, and a host of other needs. With its revenue coming largely from property taxes and a $750-a-year parcel tax, Atherton is on a tight fixed income, with little prospect of significant revenue growth down the road. In past years, the town has relied on increases in the parcel tax to close spending gaps.

But this year, the decision is not coming easily. In June, the council voted cautiously, but unanimously, to ask voters in November to approve an additional $180 a year parcel tax that would raise another $450,000 a year. The increase would bring Atherton closer to -- but still short of-- its fiscal goal. But then the phone started ringing off the hook, and the council changed its mind, voting 3-2 to stick with simply asking voters to renew the current $750 parcel tax.

By giving up the higher parcel tax, the council now must scramble to find a way to raise money that residents could vote on as soon as next March, the next available election. There are several possibilities, but none are very appealing, and all would in one way or another depend on homeowners to pick up the tab. For example:

** Since about half of its budget is spent on police services, the town could create a special assessment district to pay for law enforcement. Possible revenue: $1.6 million, according to John Johns, the finance director.

** Real estate agents and contractors who do business in Atherton could be subject to a 5 percent tax on their gross revenues, a cost that would almost certainly be passed back to anyone remodeling, buying or selling a home. Possible revenue: $5 million from the $100 million annual construction business and about $750,000 a year from real estate commissions.

** A 6 percent utility-users tax (on telecommunications, energy, water and sewage bills) could raise $1.3 million a year, Mr. Johns estimates.

If it moves to adopt any of these taxes, the screams and shouts from those most affected will be loud and uncomfortable for the council. And in some instances, the taxes could be unfair, charging one group of homeowners (say those who are buying, selling or remodeling) more than others.

Rather than scrounging around for a hidden tax or an exorbitant fee increase, the City Council should go back to its first plan: Simply offer residents a take-it-or-leave-it parcel tax that would affect everyone equally.

Surely, anyone who can afford to live in Atherton and who understands and appreciates the town's excellent record of service would prefer to pay a higher parcel tax of $200 to $300 a year rather than be irritated by a mix of new taxes.

Although market forces have not been all that favorable to some Atherton homeowners, particularly those in the high end, many long-term residents have seen incredible increases in their home values over the last 10 years. The city should make that clear when they tell residents that without a higher parcel tax, town services will be cut back accordingly, which ultimately could impact property values. A higher parcel tax is the best solution. The council had it right the first time.

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