Novato sales tax increase aims to pull city from financial mire

Novato voters will be asked this fall to approve a three-quarter percent sales tax hike to address the city’s distressed finances.

Known as Measure M, the tax increase on the Nov. 5 ballot would adjust the sales tax rate from 8.5% to 9.25%.

The effort aims to shore up the budget of the city, which has had five years in a row of deficit spending.

The tax increase would require a majority vote to pass and does not include a sunset provision. It is estimated to raise approximately $10.3 million a year in unrestricted general fund dollars.

The measure asks: “Shall the measure continuing locally controlled funding, that the State cannot take away, and maintaining City of Novato’s services, such as: fixing potholes/ streets; maintaining 9-1-1 emergency response, crime/ gang prevention; attracting/retaining small businesses; maintaining parks/recreation facilities; enhancing wildfire prevention; and repair aging storm drains; by establishing a 3/4c sales tax in the City of Novato, until ended by voters, for general government use, providing an additional $10,300,000 annually, with citizens’ oversight, independent annual audits be adopted?”

The measure has earned the support of the City Council, which has asserted it as essential to maintain the delivery of services.

Councilmember Rachel Farac said investing in the community through the tax measure would ensure a brighter future for residents.

“By funding essential services and infrastructure, we are building a stronger, safer, more prosperous city for generations to come,” Farac said.

Mayor Mark Milberg said it would preserve essential services and quality of life.

“It will cure a longstanding structural operating deficit, increase vital capital investment, replenish our reserves and support longer-term economic development effort,” he said. “I am Novato proud to be on this City Council that has taken action to put this before the voters in November.”

Mayor Pro Tempore Tim O’Connor said the strategy of using reserves to backfill deficits is no longer a sustainable strategy.

“Measure M provides Novato with the resources it needs to protect vital city services and maintain our quality of life,” he said. “Without this critical funding, the city will have no choice but to make drastic cuts to many key departments. This includes our police department, parks and recreation and many other vital services.”

Opponents of the tax measure said financial mismanagement by the city is the reason for the budget crisis.

Kingston Cole of the Coalition of Sensible Taxpayers said the measure would bring in twice what the city needs to overcome its deficit.

“We will continue to oppose them,” he said.

Bernie Meyers, a former City Council member, said the city could continue to pull from reserves in coming years without having to cut services or staff. He said the measure should be readdressed in coming years, but with a sunset clause to protect taxpayers.

“They have a financial quagmire, but quagmire hardly covers it,” Meyers said. “I don’t think they are out of money to fund their operations for a sufficiently long time.”

The council has added a stipulation that it would analyze the effect of the tax hike after 10 years, and every five years after that, to consider whether it should continue.

An independent citizens oversight committee would review the funds. The council also included a notation that future city loans could not be made without a four-person majority vote.

Chief among the city’s fiscal problems is its structural budget deficit and the compounding, hollowing effect on dwindling reserves.

Of the 8.5% sales tax rate, only 1.25% comes back to Novato, city officials have said.

The deficit is considered systemic. General fund reserves would be exhausted by the end of the 2026-27 fiscal year.

The city closed the 2023-24 fiscal year last month with a $3.3 million deficit after running deficits the prior three years. The $54.5 million budget for 2024-25, approved two weeks ago, has a $4.3 million deficit.

The city is projecting a $3.3 million general fund deficit in the 2025-26 fiscal year. In following years, the projected deficit is $3.4 million, $3.4 million, $3.7 million and $3.5 million.

Taxes account for about $40 million, or 81%, of Novato’s revenue. Property taxes amount to $19.4 million and sales taxes about $16.2 million.

The city has used its emergency disaster response fund to cover the shortfall in the general fund. The fund’s projected available balance this year is $8.75 million, which would nearly halve the fund to cover the upcoming fiscal year deficit.