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Special Parcel Tax
Special Parcel Tax
A "parcel tax" is a particular type of excise tax that is based on either a flat per-parcel rate or a rate that varies depending upon use, size, and/or number of units on each parcel. A parcel tax based on the value of a property violates Proposition 13's 1% limit on ad valorem property taxes. The California Constitution specifies that only two types of taxes may be imposed on a parcel of property: 1) an ad valorem property tax imposed pursuant to Article VIII and Article XIIIA; and 2) a special tax receiving two-thirds voter approval pursuant to Article XIIIA. Consequently, a parcel tax must be adopted as a special tax.
Parcel taxes are not as common as a revenue source for municipalities and are more common for schools and special districts. This is because schools and special districts typically have a more limited tax authority and do not have the benefit of a varied tax base of commercial, industrial, sales, businesses, building permits, utilities, and other options for revenue diversification that you typically find in a municipality. However, as an entirely residential community without a commercial or industrial base, the Town is in a similar situation to schools and special districts and relies upon the Special Parcel Tax as part of its revenue diversification options. The Town has sought to further diversify its revenue base through changes to the Business License Tax and the consideration of other options such as a Utility Users Tax or Real Property Transfer Tax. The Town does not have the authority to adjust the basic 1% property tax.
While a Special Parcel Tax may be general in its purpose (i.e. it may be structured for "any municipal purpose"), it still requires the two-thirds vote threshold. The Town's Special Parcel Tax, first approved in 1978 is restricted in its use for "streets/roads, drainage, and public safety."
What Does the Parcel Tax Fund?
The Town's Annual Operating Budget reflects the Town's expenditures each year and projections for future years. For the Special Parcel Tax, the most informative portion of the Budget is the Capital Improvement Budget. The Town funds the Capital Improvement Budget in the current year only and then projects the next 4 years of expenditures (projects) and revenue.
The FY 2016/17 Budget included $3,019,339 in capital project expenditures funded by the Special Parcel Tax.
The FY 2017/18 Capital Improvement Budget allocates $2,730,000 in Special Parcel Tax Funds for the following projects:
- $1,000,000 to Drainage Projects (plus $150,000 in other funds)
- $650,000 to Road Maintenance Projects (Annual Slurry Seal Program, Street Overlay Projects, etc.) (plus $350,000 in other funds)
- $100,000 to Bridge Maintenance Projects (plus $125,000 in other funds)
- $575,000 to Bicycle & Pedestrian Improvement Projects (plus $675,000 in other funds)
- $225,000 to El Camino Real Complete Streets Project
- $80,000 to Accessibility Improvement Projects (ADA)
- $100,000 to Quad Gates Project
The above projects total $4,030,000 for FY 2017/18 of which $2,730,000 is funded by the Special Parcel Tax. When necessary, the Town will "save" allocations of the Special Parcel Tax year over year in order to fund projects with larger scopes or cost and will augment funding of projects with grants or revenue from the Town's General Fund. Some of the specific projects for each category noted above are:
- Feasibility/Design for Drainage Improvements on El Camino Real
- Repairs to Concrete Swales and Regrades on Stockbridge Avenue
- Replacement of Failed Culverts at Euclid, Polhemus, Camino al Lago, Parker
- Relining of Drainage Ditches at Stockbridge/Carolina, Serrano and Shearer
- Relining of Side Slopes/Channel Upstream of Alameda de las Pulgas
- Two-inch grind and overlay on various streets throughout Town
- Maintenance Dig Outs on various streets throughout Town
- Cape Seal/Slurry Seal on various streets throughout Town
- Safer Crossings at El Camino Real and Selby Lane
- Safer Crossings/Routes at Encinal Elementary School Intersection(s)
- Middlefield Class II Bike Lanes
- PED Pedestrian Activated Signs at Middlefield and Glenwood
Who Pays the Special Parcel Tax, What Do They Pay and How Is It Collected?
The Special Parcel Tax is an Ordinance that must be approved by the Atherton electorate every four years. The Ordinance sets a Tax Levy on every parcel in Atherton. The City Council must review and approve the levy assessment in each of the four years for which the Tax is approved. Through the annual review, the City Council determines the need for the parcel tax, the amount required to be raised and then sets the amount of the tax based on that need. The approved Ordinance sets the maximum tax rate and the method of assessment. Property owners pay the assessment with their annual taxes in December and April of each year.
The Special Parcel Tax may be used for:
- Police Emergency Response Services and Neighborhood Patrols
- Street Repairs and Maintenance
- Drainage Facility Repairs and Maintenance
By adoption of a Resolution, the City Council determines the total cost of providing the services noted, including any capital projects that qualify and then sets the rate of the parcel tax for the next fiscal year.
Based on the maximum assessment rate, the Parcel Tax provides revenue of $1,860,000 each year to the Town. The City Council determines the allocation to public safety versus qualifying capital projects. The current allocation is 80% or $1,488,000 to qualifying capital projects and $372,000 to public safety.
The Parcel Tax applies to all taxable parcels in Town. The levy or rate is as follows:
- For each dwelling on a parcel with an area of less than 1/4 acre - $450
- For each unimproved parcel with an area of less than 1/4 acre - $225
- For each dwelling on a parcel with an area of 1/4 acre but less than 1/2 acre - $570
- For each unimproved parcel with an area of 1/4 acre but less than 1/2 acre - $285
- For each dwelling on a parcel with an area of 1/2 acre but less than 2 acres - $750
- For each unimproved parcel with an area of 1/2 acre but less than 2 acres - $375
- For each dwelling on a parcel with an area of 2 acres or more - $960
- For each unimproved parcel with an area of 2 acres or more - $480
- For each private club - $10,000
- For each parcel available for tax owned by a utility which services Atherton - $450
- For each parcel available for tax owned by a utility which does not service Atherton - $750
The average parcel in Atherton is approximately 1 acre meaning that most residential property owners pay $750 per year under the Special Parcel Tax framework.
How Does Revenue from the Parcel Tax Compare to Basic Property Taxes and the Town's Annual Budget?
The Town receives $1,860,000 each year from the Special Parcel Tax. Based on current allocations, of that total, 80% or $1,488,000 goes to Capital Projects and 20% or $372,000 may be used for Police Services.
Police Services are funded via the Town's Annual Operating Budget (not capital projects). The Town's Annual Operating Budget is $13,026,133 - excluding Capital Project expenditures (FY 2017/18). Revenue from the Parcel Tax at $372,000 and the Town's primary revenue source, Property Taxes at $9,998,299 total $10,370,299. To make up the $2,655,834 difference plus provide additional funding for capital projects, the Town relies on the Parcel Tax, Business License Tax, Franchise Fees, Fees for Services/Programs, and Grants.
Capital Project expenditures for FY 2017/18 total $13,464,020. The Parcel Tax provides $1,488,000 for qualifying projects each year. The remaining funds come from the Town's General Fund as transfers, the Library Fund, County Measure A, Gas Tax, and County Measure M. The Civic Center Project dominates the expenditures over the next couple of Fiscal Years. Without the Civic Center Project, the Town's annual capital project expenditures average $2.5 million per year.