8/22/25, 4:03 PM Manage Survey Statistics - Text Report https://www.portolavalley.net/Admin/Components/Form/Statistics/TextStatisticsDetail/?page=6&size=30&formId=67&itemID=93237&id=7646 2/4 August 3, 2024
Portola Valley 2025 Tax Proposals for New Revenue Generation Considerations: Taxpayer Equity
Net After Income Tax Cost to Taxpayers
I am submitting the following considerations to the Town Council as you weigh the alternative choices among tax measures to raise revenues. Although am a member of the Town Finance Committee, these comments are mine alone as an individual resident, and do not necessarily represent the views of the Finance Committee or any of its other members or subcommittees.
I believe these two issues, regarding the fairness and net direct cost of the various proposals to our citizens, may have received insufficient attention in the discussions that I am aware of to date. I would ask you to consider them as you evaluate the choices. I will make some observations about these issues as they relate to what I understand may among the three leading proposals, i.e. new parcel tax, new (or reallocated) utility user tax, and real estat transfer tax (contingent on charter city qualification.) To the extent you consider other revenue measures, I suggest you apply these considerations to those as well in your deliberations.
Parcel Tax
A parcel tax is largely equitable to all taxpayers, as it is allocated across virtually all of the taxable parcels in town in the same dollar amount. To the extent that all citizens and property owners benefit roughly equally from the Town services supported by such a tax, it is broadly equitable. To the exten any exemptions or carveouts are proposed for some taxpayer groups, such as seniors over age 65, or others, it may be considered somewhat less equitable.
A parcel tax tends to cost substantially less out-of-pocket than the stated tax amount, on an after income tax basis, for many more taxpayers as a result o the new Federal tax bill (OBBB). Since it is collected on the annual property tax bill, a parcel tax is eligible for deduction from Federal and California income taxes, provided the taxpayer 1) itemizes deductions, and 2) for Federal deductibility, has total state and local taxes under the new $40,000 SALT deduction limit now in effect for 2025 through 2029 (provided total income is less than $500.000.) The new higher deductibility limits undoubtedly greatly expand, for at least the next five years, the number and percentage of taxpayers now able to deduct a new parcel tax at Federal marginal ordinary income tax rates in the 22% to 35 % range. The additional 9.3% California tax deduction therefore can reduce the combined after income tax burden of a parcel tax by approximately 32% to 44%.
Utility User Tax
An increased, or unchanged UUT is generally equitable across all residents to the extent that virtually all taxpayers consume similar utility services.
However the amount of tax varies with consumption, which is related perhaps more to the size of property and resident lifestyle choices than it does to the amount of Town services received.
Reallocating all or part of the 2% of the current UUT collected for the Open Space to the general fund has no effect on the broad equitability of the current UUT, except to the extent that Open Space advocates feel defunded. A potential risk, however, is that the Open Space fund would have no dedicated new fund flows (except for earnings on the current fund balance.) Recall that a Finance Subcommittee last year argued that the Open Space fund could, under certain emergency circumstances, serve as a back-up reserve to the Town’s general fund reserve. That fact served to support the recommendation to reduce the Town general fund reserve policy from 60% to 25% of budgeted annual expenses, and the Council did this year reduce that reserve requirement to 20%. Reallocating the 2% UUT allocation away from Open Space would reduce the growth of the very backup fund that could backstop the decision to reduce the minimum general fund reserve to 20%. Maintaining even that general fund reserve level may prove challenging in coming years.
No portion of any existing or enlarged UUT tax is income tax deductible, as it works essentially as a non-deductible sales tax on consumption by residents (although business owners may deduct it as a business expense.) Taxpayers bear the full gross dollar cost of the existing UUT as well as any potential increase.
A proposed reallocation of the existing 2% UUT dedicated to Open Space to the general fund, without any increase in the total UUT itself, raises a 8/22/25, 4:03 PM Manage Survey Statistics - Text Report https://www.portolavalley.net/Admin/Components/Form/Statistics/TextStatisticsDetail/?page=6&size=30&formId=67&itemID=93237&id=7646 3/4
To: Portola Valley Town Council, Portola Valley Finance Committee From: Portola Valley Open Space Committee
Date: August 18, 2025
Subject: Committee perspective on addressing the Town’s financial crisis This month the Town Council will make pivotal decisions on the Town’s looming financial constraints. The decisions will include a further narrowing of revenue options to two (from an initial eight, and then three) and finalizing instructions for election/polling consultants to begin work in September on potential revenue measures for the November 2026 ballot.
As an advisory body to the Council, and in our stewardship responsibility to residents, the Open Space Committee has followed closely the deliberations by the Finance Committee and the Council on the Town’s financial landscape. We recognize that restoring financial sustainability is a collective need, and that one candidate for helping to address it is the Open Space Fund’s dedicated revenue, the 2% Utility Users Tax (UUT).
Our committee has worked to envision whether and how the 2% UUT, currently about $350K per year, might contribute to financial sustainability without undermining Portola Valley’s open space commitments—past, present, and future. Any re-direction of the 2% UUT, even temporarily, would impact the Open Space Fund, which has been vital to the Town. However, financial stability is imperative, and we believe that in the context of the Town’s new financial rigor, a 3-year rescue period would enable the finance team to steer the Town to solid terrain.
Depending on the overall revenue target and other uncertainties, one approach we can envision combines:
re-direction of the 2% UUT from the Open Space Fund to the General Fund for no more than three years, followed by automatic reversion to the Open Space Fund an additional revenue option, such as a Parcel Tax increase an Open Space Fund account, separate from the General Fund How the Open Space Fund serves Portola Valley
Acquisition of land for protection and public access has been a core priority in Portola Valley since its founding. Decades of private donations and, since 1997, the voter-approved 2% UUT have provided the treasure that has secured an even greater treasure—nearly 1900 acres of accessible, protected open space that sustains our natural environment and contributes to mental and spiritual wellbeing, recreation, physical fitness, shared family and community experiences, tranquil vistas along the major corridors, and connections to a pastoral past. The Town’s open space connects everyone.
It is this committee’s conviction that the ways in which the Open Space Fund serves the Town will continue to grow. The current Fund balance of about $9M enabled the committee, in coordination with others, to investigate two significant acquisitions in the past 20 months. One is now under consideration by the Town and could simultaneously provide new open space, extend a major regional trail, potentially help address the town’s housing needs, and restore protection to our first town-owned open space, Dorothy Ford Open Space. Another, acquisition of Jelich Ranch, was not viable. We monitor and add to a list of desirable parcels first compiled by inaugural Town Planner George Mader. Such parcels are expensive and become available at unpredictable moments. The Open Space Fund gives the Town a transparently strong financial position to respond quickly.
The Open Space Fund and its revenue serve other needs as well. With increasing invasive species, plant pathogens (e.g., Sudden Oak Death), and climate stresses, there are increasing needs for improvements, repairs, and maintenance on open space lands.
Separate from open space considerations, the Open Space Fund has served as the Town’s de facto Reserve Fund. Inter-fund borrowing is permissible when paid back annually on July 1, and this has given the Council unusual flexibility in approving budget deficits. The Fund also provides a stopgap that could serve the Town during an emergency such as an earthquake.
Earlier this year, the Council took advantage of this possibility when it voted to change longstanding policy and reduce the General Fund Reserve from 60% of annual General Fund expenses down to 20%.
Reversion of the 2% UUT to the Open Space Fund at the end of three years A re-direction of the 2% UUT that is permanent or indeterminate would put at risk all the opportunities, services, flexibility and stopgaps made possible by the Open Space Fund.
However, we can envision the Open Space Fund weathering a re-direction of the 2% UUT provided it is automatically restored after three years. If previous ballot measures are any indication, a 3-year re-direction of the 2% UUT with a mandatory reversion to the Open Space Fund may be more consistent with the will of the voters than a permanent shift. It might also increase voter support for a second tax measure, such as a Parcel Tax increase, which would be necessary because the 2% UUT alone would not be sufficient.
A precedent for a reversion approach is the June 2018 ballot measure that reduced the UUT flowing to the General Fund from 5.5% to 4.5% while stipulating an automatic reversion.
The longer term solution belongs to the community as a whole.
The necessity of a separate Account for the Open Space Fund Our collective responsibility to restore the Town’s financial sustainability is matched by a collective responsibility for financial transparency. This is essential for the Open Space Fund given the Town’s multifold reliance on it. Our support for a temporary re-direction of the 2% UUT requires the increased transparency that a separate account would provide.
We appreciate the opportunity to provide input to the Finance Committee and the Council. We hope our perspective is useful to you and, ultimately, the voters in addressing the Town’s financial crisis.
Respectfully,
Betsy Morgenthaler (Chair), Nona Chiariello (Vice Chair), Jackie Magno (Secretary), Terry Lee, Delle Maxwell, Gary Nielsen, Carter Warr
I read Bill Urban’s August 3, 2024 comment to the Town Council and wanted to add some clarifying points to his important thoughts. Although I’m not a CPA, I’ve been a volunteer tax preparer through the IRS for over a decade and I am quite familiar with our tax system. While much of what I discuss below is not directly part of our work, I present it as accurately as I understand it. This public comment does not offer any answers or opinions; I merely wish to describe some additional technical considerations.
I am writing as an individual community member, not as a Planning Commissioner.
Horizontal and Vertical Equity
Bill uses the term “equity” to suggest an equitable distribution of the tax burden among the population for services used. This interpretation implies that each household, with an average of 2.6 people, would use the same amount of town services in proportion to its population. The term “horizontal equity” emphasizes the principle that “equals should be taxed equally.” However, a purely horizontal tax system would be considered regressive.
In today’s world, the term “equity” is often associated with vertical equity, which suggests that “unequal individuals should be taxed unequally.” In this scenario, a homeowner with a modest home on a small lot would pay lower taxes compared to someone with a large, non-modest home on a larger lot. Although our federal tax system is not entirely progressive, it does have different income tiers, resulting in an increase in tax rates as income increases.
Finding a reasonable balance between these competing needs is a challenging task.
Parcel Tax
A fixed parcel tax per property would be both horizontally equitable and regressive. Other options include taxing parcels based on square footage, parcel size, or a formula that combines both. These alternative options would be more progressive than a simple fixed amount per parcel.
SALT Deduction
The SALT deduction limit has been reinstated to the $40,000 limit for the next five years, enabling taxpayers who itemize their deductions to deduct the parcel tax. However, for retired households that have already paid off their mortgages and without earned income, the standard deduction is typically higher than the itemized deduction, rendering the tax deductibility of a parcel tax irrelevant.
Real Estate Transfer Tax
The real estate transfer tax eventually affects every homeowner in town (unless generations of heirs never sell the property). In a simplistic way, the day the tax passes, the value of every home will be reduced by the amount of the tax. Since the transfer tax is based on the value of the home, it is inherently progressive.
Bill uses the term ‘exit toll’ when selling a home. I would use a different analogy: a reverse mortgage. After many years of owing a home and using town services, the homeowner instead of paying a direct tax during those years had a reverse mortgage with the town and is paying that bill due when moving away.
Many homeowners age in place and, even if they enter a long-term facility or move away for their final years, they often choose to rent their home instead of selling it. The home then becomes part of their estate. The federal estate tax exemption for individuals in 2025 is $13.99 million. The exemption is slightly more complicated for a married couple, but to simplify it, if both spouses die in the same year, the exemption would be $27.98 million. Consequently, many of these sellers’ heirs will not pay any capital gains or inheritance tax but only the real estate transfer tax from the estate.
The people most impacted by a real estate transfer tax could be individuals who frequently buy and sell homes, who would be subject to this tax multiple times in a decade. On the other hand, homeowners who stay in their homes for much longer periods would pay this fee less frequently. Additionally, the capital gains in any of these transactions could be reduced by the amount of the real estate transfer tax.
Real Estate Tax Multiplier
Another option to consider is applying a real estate tax multiplier to address the inequities caused by Proposition 13. If a seller has held their home for many years and benefited from Proposition 13, a multiplier could be used to recover some of these funds for the town’s benefit. This multiplier would take effect if the seller had been paying property taxes on a significantly lower assessed value compared to the sale price.
The primary purpose of Proposition 13 was to enable homeowners to remain in their homes.
Upon sale, this multiplier would be applied to repay the substantial reverse mortgage owed to the town. Moreover, a multiplier would even out the real estate transfer tax burden for individuals who bought and sold their homes within a relatively short period.
Conclusion
The tax implications of these measures are highly intricate, and I’ve only offered a few additional factors to consider. As I’m not a paid tax professional, it might be beneficial for the town to consult with a tax expert at some point to obtain more comprehensive advice.
Karen Vahtra
August 26, 2025
Dear Town Council Members,
I’m sure you’ve heard about and are so proud of our Alpine Little Leaguers, who had the most successful season ever, and came up just shy of representing us at the Little League World Series. We can’t wait for the parade to honor the players and their families! I, and other Parks & Rec Committee Members, were surprised and disappointed to learn that the $9,600 for Ford Field restroom planning was not approved for the 25-26 fiscal year, and that the project is now on hold due to funding and staffing issues.
There are several important considerations that may have been overlooked when making this decision, and it is important that you review this project with all relevant information in mind. ● On December 16, 2021, the Town submitted a $180,000+ grant request to plan, design, install, and operate a new restroom building, including toilet and sink facilities. As this grant expires on June 30, 2028, delaying this project may result in losing that $180,000 grant. Our understanding is that the project must be completed by that date.
The complexities of this project, from design to approvals to fundraising to sewer hook-ups, etc., take time and unfortunately, Portola Valley is not known for implementing projects quickly. If we table this project until next year, we will face increased pressure and risk losing this significant funding opportunity.
● Fundraising may be impacted as well. The Parks & Rec Committee is committed to fundraising to cover what the grant does not, as well as any increased costs for maintaining the restrooms vs the three (3) existing porta potties. The Town’s expenses will not be impacted. But fundraising will take time and should begin as soon as possible. I am confident we can raise the necessary funds through Little League and private donors, but it won’t happen overnight and certainly not without a commitment from our Town Council.
● With respect to staffing concerns, and to keep staff time to a minimum, would the Council please consider utilizing capable, resident volunteers, as we did for the Ad Hoc Site Evaluation Committee? My Parks & Rec colleagues and I have spent a great deal of time researching potential alternatives, processes and costs, and were set to have an opt-in meeting with the ASCC prior to learning things were put on hold. (As an aside, we were leaning toward a prefab, modular design as it simplifies the process.) By leveraging the expertise within our volunteer community, we can keep staff apprised and utilize the Town’s resources only when absolutely necessary. ● The Parks & Rec Fund currently has $47,000, with $30,000 allocated for the court resurfacing project. The $9,600 design cost could be covered with that account, so any general fund monies remain intact. We would strive to keep those costs lower as well.
Portola Valley should want to have a little league diamond that shows well, not one that has folks complaining about the porta potties and their unkemptness. The $180,000 grant is not chump-change to let fade away. This is an opportunity to enhance a public service for all that enjoy this Priority Conservation Area, hike the Alpine trail, support our little leaguers, and others who visit this area.
I look forward to discussing this further. The Parks & Recreation Committee is 100% committed to this project and finding the best solution. Thank you for your serious consideration and for all you do for our Town.
Karen Askey
Parks & Rec Committee Member