Novato officials are considering a potential sales tax increase to alleviate the city’s budget deficit.
Officials held a community workshop on Thursday to offer an overview of the city budget and the struggles in recent years to stay out of the red.
Interim City Manager Amy Cunningham said the city has been running an operational deficit for years. Leading the list of potential solutions is a sales tax increase, which the City Council would consider in July for the November ballot.
“The situation is not sustainable and we can only do so much with the limited resources we have available,” Cunningham said.
Property taxes and sales taxes comprise about 70% of the town’s revenue. While the property tax is considered a stable revenue source, the city’s share of the distribution is capped at 7% – the lowest in the county – and cannot be modified.
Instead, officials are eyeing the sales tax as a way to beef up revenue. A rate increase of 0.75% would raise up to $10 million, Cunningham said.
Novato’s current sales tax rate is 8.5%. Officials pointed out it that it trails the 9% rate in Fairfax and Corte Madera and the 9.25% rate in Larkspur, Sausalito, San Rafael and San Anselmo.
Carla Carvalho-Degraff, the city finance director, said that at the start of the year, revenue was set at $47.9 million and expenses at $49.2 million, leaving a $1.3 million deficit. Mid-year adjustments approved by the council widened the deficit to $3.3 million. The updated budget now includes $49.6 million in revenue and $53 million in expenses.
The budget meeting follows the city’s “state of the city” event on March 19, during which the fiscal problems and their impact on capital improvement plans were a focal point.
City officials have pointed to the unreliability of one-time funds as one reason behind the widening deficit.
A series of study sessions and workshops are planned before the budget adoption meeting on June 25.
The city is also circulating a new budget survey to gauge public sentiment on services. The survey will help officials evaluate options for cost reductions and revenue, the city said.
The city is also operating with less staff. In the 2019-20 fiscal year, the city allocated for 208.5 employees. This year, the figure is 197. The numbers have increased somewhat from the lowest point, 2020-21, when the city allocated for 188.5 employees.
Public Works Director Nicholas Nguyen said the city’s draft capital improvement program focused on the highest priority projects. Chief among them are the city’s pavement and road rehabilitation projects. The project is projected to cost $1.7 million, funded by gas taxes and a contribution from the Transportation Authority of Marin.
The city is planning to access funding sources such as federal and state grants to pursue additional projects.
“We’re always looking to streamline our budgeting, funding and accounting practices so we can be as efficient as possible in managing and deploying project funds,” Nguyen said.
The city will discuss the budget at a Finance Advisory Commission meeting on April 5. A City Council study session is set for April 9.