The Half Moon Bay City Council declared a fiscal emergency on Tuesday night, laying the tracks for a possible sales tax measure on the November ballot.
Approved unanimously by the City Council, the fiscal emergency status grants the city extra flexibility to balance the budget. According to state Proposition 218 guidelines, a city under a financial emergency can move forward with a tax increase with a simple majority of voter support. Under other circumstances, a tax measure would require a difficult two-thirds “supermajority.”
The financial red flag came as elected officials approved the city’s budget for next year. The new budget draws on approximately $504,000 from the city’s general fund reserves.
The City Council took a special vote to grant a one-time exemption to longstanding reserve policy, which normally requires Half Moon Bay to save 30 percent of its revenues for a rainy day.
City leaders described the plan as the least troubling of a series of unpleasant options.
“You’ll be spending one-time money for ongoing costs,” warned City Manager Michael Dolder. “This isn’t something you want to do, and in fact, it’s not fiscally sustainable.”
But the city manager recommended the council go forward with the budget emergency because the alternative meant further cuts to city services, which Dolder said the city could not withstand.
Councilman Rick Kowalczyk hesitated in his approval for the financial emergency, saying he thought city staff and his council colleagues were moving forward with the sales tax plan without accurately surveying local opinion. In April, Kowalczyk voted against initial plans to study a sales tax increase, arguing the action would ultimately hurt the local economy.
On Tuesday, Kowalczyk said the city seemed to be pursuing a tax measure before investigating whether voters would approve it.
“To poll the community is one thing, but to poll them with the purpose to raise the sales tax, it mixes our intent and it taints the data,” Kowalczyk said. “I will go to the mat for independent (polling); otherwise, we’re gaming the system.”
The city’s proposal for a half-cent sales tax increase is estimated to generate an additional $700,000 in annual revenues.
Fellow council members said they were still undecided whether the city would advance a sales tax increase. But over the course of an hour of deliberation, they urged Kowalczyk to vote with them to declare a financial emergency. Unanimous support from a municipality is required to lower the two-thirds voter hurdle under a fiscal emergency.
“We’re not going to have a bake sale to save the city, the purpose is to raise funds to keep the municipality operating,” Councilman John Muller said to Kowalczyk. “The decision is between a 50-percent plus one, or a two-thirds majority. That’s the key decision you have to make.”
Kowalczyk eventually voted with the council majority.