Title
Report Regarding Options for Revenue Enhancement. (Rich Lee, Assistant City Manager & Wing-See Fox, Urban Futures, Inc.)
Body
BACKGROUND/DISCUSSION
The City's General Fund has a growing structural deficit for the foreseeable future due to expenditures growing at a faster pace than revenues. The current estimate of the structural deficit for the upcoming fiscal year is $14 million. While South San Francisco voters approved an amendment to the City's business license tax in November 2024, the projected additional revenue will not solely resolve the General Fund structural deficit. In order to avoid service level reductions, the City will need to consider additional revenue enhancement.
Revenue Needs and Considerations
To assist the City in evaluating its revenue enhancement options, the City retained the consulting team of Urban Futures, Inc. (UFI) and NBS. Over the past six weeks, the consulting team has worked with City staff to select and analyze four potential revenue enhancement options based on these key considerations:
• Adequacy & Certainty. Sustainable revenue generation of at least $14 million with low volatility and opportunity to grow with City operating expenses.
• Equity & Competitiveness. Appropriate distribution of tax burden and comparable tax rate to surrounding communities.
• Transparency & Voter Approval. Clear structure and likelihood of voter approval.
• Simplicity. Ease of administration and implementation.
Summary of Revenue Enhancement Options
Based on analysis in the attached presentation, the key details for each of the four selected revenue enhancement options are summarized below. The four options are presented in rank order based on how well each satisfies the key considerations listed above. The rates presented for each option are the estimated rates required to generate at least $14 million in the first year of implementation.
1. Transaction and Use Tax (TUT)
• 0.50% increase to current rate (would increase total rate to 10.375%); would be at top-end of the peninsula region.
• Some volatility due to fluctuations in the economy.
• Tax burden spread across residents, businesses, and visitors/commuters.
• High voter approval for TUTs in recent elections (80% for 2024 elections).
• Requires special legislation as South San Francisco is "capped" at 9.875%.
• Potential competition with County Transportation measure in Nov. 2026.
2. Parcel Tax
• Either $770 per parcel (flat amount) or $0.069 per square foot (rate); would be at top-end of the peninsula region.
• Lowest volatility of all options and could include inflationary index.
• Can design with different tiered amounts or rates to improve equity.
• High voter approval for non-school parcel taxes (80%) in recent elections.
• Two-thirds voter approval required (66.7%).
3. Utility User Tax (UUT)
• 7% rate on gas, electric, and telecommunications; would be highest in peninsula region except San Francisco.
• Lower volatility than TUT or Real Property Transfer Tax.
• Can establish different rates for residential vs. commercial users but generally considered regressive tax because utilities are essential services.
• Low voter approval rates for new UUTs (32%) in recent elections.
• Long-term revenue adequacy concerns due to changing utility usage patterns.
4. Real Property Transfer Tax (RPTT)
• $11 per $1,000 of sale price; would be at top-end of the peninsula region.
• Highest volatility of all options (annual revenue range from $6.2M to $26.5M).
• Can design with tiered rates to improve equity.
• Strong voter approval rates (70%) in recent elections (but limited number).
• Requires voter approval of city charter and tax measure.
RECOMMENDATION
UFI and NBS recommend the City continue evaluating both the Transaction and Use Tax (TUT) and Parcel Tax revenue enhancement options due to their combination of adequacy (lower volatility), growth potential, and strong voter acceptance. The next step in the City’s evaluation process would be to conduct community outreach and opinion research on these two options. The TUT option will also require working with state legislators on special legislation to authorize the additional rate before placing the measure on the November 2026 ballot.
FISCAL IMPACT
The cost of developing a ballot measure, including community outreach and opinion research, is estimated at $100,000, which would be paid from the General Fund. If successful, the proposed revenue measure would generate approximately $14 million annually for the General Fund.
ATTACHMENTS
1. Revenue Enhancement Analysis Presentation (May 20, 2025).