What should Portola Valley do with tax windfall? What should Portola Valley do with tax windfall? (January 11, 2006)

** Public meeting planned to seek community opinion.

By David Boyce

Almanac Staff Writer

Having received a surprise check for $915,000, the town of Portola Valley is in what some might consider the enviable position of deciding what to do with it.

Actually, the check has raised many of the same thorny issues that arose during the contentious recent election to renew the town's utility tax.

The check represents two years of property tax revenues owed the town by San Mateo County. Similar payments are likely in future years.

Should taxpayers get a refund? Should the town spend the money or save it for a rainy day?

One option is to lower the utility tax rate.

Since the check recognizes the county's obligations under a state law passed 17 years ago, how vigorously should the town pursue payments for the other 15 years?

"I don't see any reason why we're not entitled to the money," says town resident Ed Wells, one of the leaders of the nearly successful drive to overturn the utility tax in the November election.

At the December 14 council meeting, new Councilwoman Maryann Moise Derwin suggested setting aside the $915,000, reserving most of it for emergencies and using some to help fund outreach efforts between town government and residents. Three of her four colleagues agreed in principle; Councilman Richard Merk was absent.

Mr. Wells disagrees. "Why do we need to squirrel this money away when it's such an extreme amount above what's budgeted for this year?"

He said the council has the authority to grant a tax holiday by asking utility companies not to collect user taxes for six months.

The council members have shown a readiness to lower the 5.5 percent utility tax rate, though a detailed discussion will probably have to wait for the 2006-07 budget talks, said Mayor Steve Toben.

For residents interested in the county's payment and its impact on current and future town finances, the council is planning a public discussion, probably on January 25 but possibly on February 8. At that time, the town attorney may also have information on the size of future payments from the county and the town's prospects of winning more reimbursements from past years.

The meetings begin at 8 p.m. in the Historic Schoolhouse at 765 Portola Road.
Getting its share

Under a state law passed in 1988, counties must make up the difference if a town receives less than 7 percent of the property taxes paid by town residents.

Portola Valley gets just 4 percent of such revenue and is one of only four towns in the county that receives less than 7 percent. The town's share is based on a complicated state formula, adopted after the 1978 passage of Proposition 13, that locks in the percentage.

To boost revenues for operating expenses, Portola Valley turned to mechanisms such as the utility tax. The tax, first adopted in 1985 and renewed by voters for the fourth time in November, adds 5.5 percent to water, gas, electricity and telephone bills of residents and businesses. During the 12-month period between July 1, 2005, and June 30, 2006, the town expects about $611,000 from the tax.

If energy prices rise sharply over the winter, that estimate may be low, which could complicate deliberations over how much to lower the tax rate for coming years. The idea is to craft a revenue-neutral response to the new revenue source, said Mr. Toben in an interview.
A timely arrival

The arrival of the check and the questions it raises have a particular resonance in Portola Valley.

The community has just emerged from a bruising election in which some residents opposed renewing the utility tax as a way to protest a proposed $20 million Town Center rebuild project that residents have not had a chance to vote on. Tax opponents argued that revenues meant to pay operating expenses played an improper role in helping create a $3 million reserve to be used for the Town Center project.

Council members did not deny that utility tax revenues helped create the reserve, but they pledged before the election not to use future utility tax revenues that way. The council has backed efforts to fill the $16 million funding gap for the Town Center project with private donations.

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