Sales Tax? Parcel Tax? UUT? TOT? Why?

Do you have a question about the Sebastopol Budget? Please email Diana at drich@cityofsebastopol.gov so it can be added to a developing Budget FAQ.

The City Council is considering a number of possible strategies for addressing its structural deficit. The topic was covered in an informational presentation from the Budget Committee on October 17. The focus of that report was on the financial impact of a variety of tax measures, although a number of non-tax ideas were also discussed. Each scenario lays out the annual impact of a variety of tax measures, with the final projection showing the reserve level in fiscal year 2029-30.

The Minimum Goal: $1.7M-$2.6M in New Funding Annually

The City has projected annual shortfalls of $1.7M to $2.6M through 2029-30. This is each year.
A 1/2% Sales Tax will bring in $1.7M-$1.8M annually, the core funding around which we can build a full solution. No other option comes close to this option.
Sources for the above: earlier news postings on the deficit, revenue options.

The Best Goal: $1.7M-$2.6M plus Funding for a Healthy 15% Reserve

Six tax scenarios get the City to a 15% reserve by 2029-30.
A 1/2% sales tax is the key element in the 3 scenarios that meet the 15% goal and don't rely on a new hotel opening:
- 1/2% sales tax + $300 parcel tax (brings in $2.4M (25-26) to $2.6M (29-30).
- 1/2% sales tax + $250 parcel tax (brings in $2.3M (25-26) to $2.5M (29-30).
- 1/2% sales tax + 1.25% utility users tax (brings in $1.9M (25-26) to $2.1M (29-30).
The two that meet the 15% goal with a 1/4% sales tax rely on the opening of a new hotel.
A 1/4% sales tax brings in $806,000 (2025-26) to $896,000 (2029-30).
The options without a sales tax don't stabilize the City's finances. They just slow the decline.

Question #1: Can a 15% reserve be achieved by 2029-30 without the new hotel? Yes.

33% reserve: 1/2% sales tax + $300 parcel tax (Option #1).
28% reserve: 1/2% sales tax + $250 parcel tax (Option #2).
16% reserve: 1/2% sales + 1.25% utility user tax (Option #3).

Question #2: Can a 15% reserve be achieved by 2029-30 with the new hotel? Yes.

45% reserve: 1/2% sales tax + 2% TOT (hotel tax) (Option #4 w/new hotel)
26% reserve: 1/4% sales tax + 2% TOT + 1.25 UUT (Option #7 w/new hotel).
15% reserve: 1/4% sales tax + 2% TOT (Option #10 w/new hotel).

Question #3: Can a 15% reserve be achieved by 2029-30 with NO sales tax increase? No.

Without a sales tax increase the reserve continues to decline no matter what other measures are added. By 2029-30 the reserve balance is anywhere from -16% to -40%, depending on which non-sales tax measures are tried. The trends in these scenarios suggest future declines.(Options #9,11,12,13,14.)
This doesn't change if the new hotel opens in 2026. Even with a new hotel the reserve level continues to decline no matter what other measures are added. By 2029-30 the reserve balance is anywhere from 13% to -4%. The trends in these scenarios suggest future declines. (Options #12,13,14 with new hotel).

Question #4: Can a 15% reserve be achieved with 1/4% Sales Tax + Other Measures but No Hotel. No.

There are only two scenarios that include a 1/4% sales tax increase and achieve the 15% reserve by 2029-30. They both rely on the new hotel opening in 2026. They are listed above.
All scenarios with a 1/4% sales tax and no hotel show a pattern of annual shortfalls through 2029-30, with annual losses depleting reserves. The reserve balance for these options is anywhere from 2% to -21% by 2029-30. The trends in these scenarios suggest future declines. (Options #4,5,6,7,8,10).

Please see the full Preliminary Report on Revenue Enhancement Options Staff Report here. The full agenda and zoom link for the November 7 City Council meeting will be posted here by the Friday before that meeting.