In a bid to build more affordable housing, the City Council voted 8-3 Tuesday to place a property transfer tax on the March 2020 ballot. If voters pass the measure, it would take effect on July 1, 2020.
Council members Dev Davis, Sergio Jimenez and Johnny Khamis cast the dissenting votes, citing concerns about overtaxing residents and the fact that the measure wouldn’t earmark funds specifically for affordable housing.
“There’s no guarantee that this money will ever be spent on homelessness and housing or that these items will continue to be the focus for this revenue over time and other councils,” Davis said from the dais.
General tax measures require a simple majority at the ballot, as opposed to a two-thirds threshold for those that designate revenue for a specific purpose.
The last time the city asked voters in 2018 to approve a tax specifically for affordable housing—by way of Measure V, which would have authorized $450 million in general obligation bonds—it missed the supermajority mark. Now, the city’s giving it another go by lowering the bar to a general tax measure.
During Tuesday’s meeting, Mayor Sam Liccardo said the transfer tax would bring in much-needed funding to realize his goal of building 10,000 below-market-rate homes by 2022. But he joined council members Pam Foley and Lan Diep in proposing exemptions for property values below $2 million, adjusted for inflation. City officials said that would make the measure exclude 98 percent of San Jose homeowners.
Though the tax revenue would go straight to the city’s general fund and could technically be allocated for any purpose, Diep said it’s his “hope and strong belief” that the council would make it an “immediate priority” to spend the money on the city’s most pressing needs. “We tried this in 2018 with Measure V—it fell short,” Diep said. “But that doesn’t mean that we should not, as a council, continue to push for sources of funding for affordable housing.”
Councilwoman Sylvia Arenas said she’s less concerned about the general-versus-specific debate and more focused on polls showing that over 60 percent of voters favor the measure as proposed. “This is what is palatable to them, which is most important,” she said. “So it doesn’t matter whether we want a specific tax or general tax. It’s really what the voters are willing to approve”
Khamis lamented how city, school districts, the county and other local agencies have already passed so many tax measures. Meanwhile, a ballot initiative going before California voters in 2020 aims to overhaul Proposition 13—the 1978 cap on property tax increases—by exempting companies from the perk.
“When will we say we have enough taxes?” Khamis asked.
If voters OK the measure next year, it would levy a 0.75 percent tax on properties valued from $2 million to $5 million, a 1 percent rate on those between $5 million and $10 million and 1.5 percent for transfers on properties over $10 million. The tax would be split evenly between buyers and sellers.
City officials say the tax would generate up to $70 million a year.
At today’s Rules and Open Government Committee, Liccardo, council members Raul Peralez, Foley and Diep will talk about creating a spending plan for the tax. In a joint memo, they suggest allocating 10 percent of the revenue for rental assistance programs for homeless college students, victims of domestic violence, seniors and families. Another 45 percent of revenue would be devoted to building affordable rental housing for extremely low-income households, defined as a family of four earning less than $43,900.
The shared memo also recommends setting aside 35 percent of the transfer tax revenue to build bel0w-market-rate housing for very low-income and low-income families. Under the same proposal, 10 percent of the revenue would be dedicated to housing programs such as rent-restricted forgivable loans for backyard cottages, down payment assistance and first-time homeownership opportunities.