San Jose Passes Spending Plan for 2020 Transfer Tax Measure

Raymond Ramsey lived on the streets for the better part of a decade before moving into Second Street Studios earlier this year.

The permanent supportive housing complex marked the first of its kind in San Jose, offering chronically homeless people like Ramsey a chance to get back on their feet. But the cost of building apartments like Second Street Studios is steep—the city of San Jose kicked in $14 million to fund the development a couple years back. And with a multitude of priorities pulling at the city’s purse string, San Jose needs another revenue stream to meet the demand for more affordable housing and services for the homeless.

Last week the San Jose City Council voted 8-3 to place a real property transfer tax on the March 2020 ballot. The tax would be assessed on homes priced above $2 million and would generate $70 million annually, according to city officials.

With the measure heading toward the ballot box, the council on Tuesday voted 9-2 to approve a spending plan authored by Mayor Sam Liccardo and council members Raul Peralez, Lan Diep and Pam Foley. Council members Johnny Khamis and Sergio Jimenez cast the dissenting votes.

Ten percent of the funds would be set aside for homelessness prevention and rental assistance, 45 percent would be pegged for permanent supportive and affordable rental housing for extremely low-income households and 35 percent would go to rent subsidies for households making between 30 to 80 percent of the area median income. The remaining 10 percent would be earmarked for below-market-rate for-sale housing and to help moderate-income earners with down payments when buying their first home.

“This will go a long way towards build the kind of housing in which we reside,” Ramsey said at a Tuesday afternoon press conference in front of Second Street Studios. “I’m sure if it passes, the measure will change many lives for the better, the way mine changed when we moved in this year.”

During the council meeting, Liccardo emphasized that the spending plan was a “political guardrail” since the tax would go into the city’s general fund and could ultimately be used for something else with council approval.

Piggybacking off of that notion, Khamis, who has been adamantly against the measure, criticized the tax’s general nature. “I know that we’re doing this to inspire people to get behind the tax ... but saying it’s going to homelessness doesn’t necessarily mean it’s going to housing or homelessness,” he argued.

Jimenez—who also voted no last week to placing the tax on the ballot—expressed concern that the spending plan didn’t focus on ways to help unhoused individuals while they waited for a stable place to live.

“What we hear often [is] you’re taxing here, you’re taxing here, but we don’t see any sort of product coming out of that,” Jimenez said.

While he agrees that some money should be dedicated to getting homes built, he said he believes that it should also fund initiatives such as tiny homes, navigation centers or hotel vouchers. “The interim step between homelessness to housing consistently seems to get lost,” the District 2 councilman added.

Ramsey agrees with Jimenez’s assessment.

Hours before the vote, he spoke on behalf of Second Street Voices—the permanent supportive housing community’s fledgling advocacy group.

“It is critical that our decision makers be held accountable and that the revenue from the tax is actually spent on affordable housing and the homeless,” Ramsey said. “We also demand that the mayor and council invest a portion of these funds to provide more overnight warming locations, significantly increasing our stock of temporary stay shelter beds and explore establishing sanctioned encampments to avoid the unsafe conditions that many encampments have currently.”

The California primary election takes place on March 3, 2020. For more information about local races, campaign fundraising, how to register to vote and more, visit the Santa Clara County Registrar of Voters website at sccvote.org.

Grace Hase is a staff writer for San Jose Inside and Metro Silicon Valley. Email tips to [email protected]. Follow her on Twitter at @grace_hase.

6 Comments

  1. Since the City Council has approved the spending before they have the money, I encourage council members to advance the City $70 million out of their own wallets.

    Should the voters reject the tax measure, well . . . that would suck for council members..

    But voters would have a burst of SCHADENFREUDE like they haven’t seen since the recall of Gray Davis.

  2. Vote NO!

    from the only website dedicated to free market perspectives on Silicon Valley politics.

    (and now you can follow us on twitter, too: @svopportunity)

    http://www.opportunitynowsv.org

    Is new property transfer tax plan a blank check?

    On December 10, the SJ City Council approved a directional plan which aims to allocate to affordable housing monies raised from a proposed new property transfer tax. The plan has no guarantees that the monies will actually be spent on housing and has no guardrails to make sure the money isn’t misspent on overpriced new dwellings. Pierluigi Oliverio of the Silicon Valley Taxpayers’ Association explains.

    Opportunity Now (ON): In 2016, Los Angeles residents passed a similar, $1.2bn tax for affordable housing. They are now concerned that the money appears to have been misspent, with tax funds being allocated to “affordable” units that cost more than $500k to build (https://reason.com/video/los-angeles-is-spending-over-1-billion-to-house-the-homeless-its-failing/). Are there are any constraints or metrics in this plan that would provide some type of cost limit or targets to stop something like that from happening in San Jose?

    Pierluigi Oliverio (PLO): No. The spending plan passed at City Council is focused on income levels they want to target and administrative costs. Remember, the city doesn’t build the housing. They give the monies to affordable housing developers, who have to patch together funding from government subsidies, tax credits, etc.

    And the reality of new construction , land, labor (these projects are 100% union), and entitlement costs make these projects very expensive. The way the monies are currently spent acts as a subsidy not just for low income renters, but also for the current housing construction industry. The city’s plan will do nothing to incent cheaper building costs and will not influence the current marketplace to bring real prices down.

    ON: So if the per unit cost of “affordable” housing these tax monies end up going to are north of $500k, there’s nothing in the plan to stop that?

    PLO: Nothing.

    ON: Could they have put those types of cost controls in the plan?

    PLO: Yes. It’s possible to put language into the plan and the initiative itself to say units can only cost this much, square footage should be limited to a certain metric, a certain percent have to be shared facilities or a certain type of less expensive construction. This is the sort of activity that would influence the marketplace, as well as controlling costs. Although if you put a cost limit, say, of $450k/unit into the ballot initiative, you might shock the populace into voting “no” because many people would consider that per unit cost extravagant.

    ON: Does last night’s vote do anything to actually require that the property transfer tax money will go to housing? Our previous interview with Pat Wait of Citizens for Fiscal Responsibility (https://www.opportunitynowsv.org/blog/problem-wit-unrestricted-taxes) suggests that because it’s a General Fund tax, the council can spend it on anything they want.

    PLO: Nothing has changed. It remains a General Fund tax, which means there’s a lower bar for passing it—it only requires 50% approval—and future councils can spend the tax receipts on anything they like. Last night’s plan is directional and aspirational, but it’s just a statement of goals at this particular moment in time. There is no legal requirement for them to spend the monies the way they say they want to. It may require an extra public hearing or two to make the change, but that happens all the time. The Oversight Committee is a misnomer: it has no teeth, they can’t veto a change or require the council to abide by its stated intentions.

    And even if they do end up spending some, or even all, of this money on affordable housing, it’s a losing battle. They will never be able to raise enough money to put a dent in the problem. The solution has to be to dramatically lower the cost of building new housing, which means changing land use regulations, labor costs, CEQA, and the factors that drive up the price of new housing.

    ON: So this money that’s supposed to go to housing could actually be spent on employee pensions?

    PLO: Usually, money spent on affordable housing come from restricted funds, not general funds. So here’s the problem they are likely to face: As pension costs rise, the ability to maintain this verbal promise of how the money will be spent will come under pressure. The City is legally required to fulfill its pension obligations, it’s not legally required to spend this money on housing. So they will be in a bind: Are they going to tell the people of San Jose that, because pension costs have increased, we have to lay off police officers to fund expensive low income housing? I bet most people won’t think that is acceptable. The last general tax increase in 2016 was a sales tax increase and in that first fiscal year it raised $30 million. However in the same fiscal year pension costs went up $38 million, surpassing the general tax new revenue.

    ON: Back in 2018, didn’t the voters reject a tax proposal to raise money for affordable housing? It was a targeted tax proposal.

    PLO: That proposal was for a targeted tax, which means it needed 2/3 approval to pass. It didn’t get 2/3ds.

    ON: So this time, they are offering a General Tax focused on the same thing. What’s the difference?

    PLO: A General Tax only requires 50% approval.

    ON: But they are saying this is targeted for affordable housing.

    PLO: There is nothing in this ballot proposal that would ensure the monies will go for affordable housing. The proposal is for a General Fund tax.

    ON: Wait, so they are promoting this tax that’s targeted on housing (which requires 2/3ds approval), but in reality it’s a General Fund tax (which only requires 50% approval), which they can spend on anything. Did someone just move the goalpoasts? This seems kind of cynical and deceptive.

    PLO: Governments want to raise revenue.

    Follow Opportunity Now on Twitter @svopportunity.

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