S.J. wants property transfer tax to fund affordable housing

But opponents say money would go into city’s general fund

In a move aimed at creating more affordable housing in San Jose and expanding services for the city’s homeless population, the City Council decided Tuesday to ask voters to support a new tax on the city’s most expensive properties.

Opponents, however, criticized the proposed ballot measure, pointing out it offers voters little certainty that the money raised by the tax will, in fact, go toward those goals.

In an 8-2 vote, the council agreed to move forward with a March 2020 ballot measure for a new general real property transfer tax — a tax paid by the buyer, seller or split between the two when a property is sold or ownership transfers, with some exceptions such as for inheritance.

Councilmembers Johnny Khamis and Sergio Jimenez both dissented. Councilmember Dev Davis was absent.

If passed by a simple majority of voters in March, the tax will apply to properties worth $2 million or more, which primarily would consist of commercial and industrial properties and only about 5% of residences. Staff will come back on Dec. 3 for council approval of the draft ballot measure question.

A survey funded by the city and conducted by a research firm earlier this month found that at least 60% of San Jose voters polled would support the new real estate trans

fer tax, according to a staff memo.

While proponents of the tax applauded the city for finding a continuous stream of funding for the city’s homeless and housing shortfalls, opponents noted the money raised could go toward any projects that the councilmembers decide to use it for.

Unlike a bond measure, the funds raised from the new transfer tax would flow into the city’s general fund, and officials could not legally restrict the use of the money.

Khamis told his colleagues Tuesday afternoon that he would support the

measure if it was placed on the ballot as a special tax rather than a general tax. His proposal, however, was turned down.

“It makes it sound like we’re going to spend all of this money on housing veterans and homeless people, but this is a general tax,” he said. “It can — and most likely will — be spent on anything in the future.”

The majority of council members supported the general tax instead of a bond measure because it requires support from a smaller percentage of voters and the funds raised could be used for services and programs rather than solely for construction and capital improvements.

“True fiscal responsibility is when you have excess money to spend and you

choose to spend it responsibly,” Councilmember Lan Diep said. “It’s rare to find a revenue source like this, and given the state of affairs in this city, I have to approve the measure.”

The tax would vary based on a property’s transfer value — $3.75 per $500 for $2 million-$5 million properties, $5 per $500 for $5 million-$10 million properties and $7.50 per $500 for properties worth more than $10 million. For the affected properties, the new tax would be placed on top of the city’s current property transfer tax, which is applied to properties at a rate of $3.30 per $1,000.

The city estimates the new tax would generate up to $73 million annually and even $22 million during

a recession year.

Resident Tobin Gilman, who opposed the tax, said it was “misleading” to suggest that it would affect only 5% of property transfers because it does not account for inflation.

“Fifteen to 20 years from now, the median price of a home in San Jose will be $2 million, and that 5% figure will probably be 50% or more,” Gilman said. “So what you’re really considering here is whether or not you want to impose a tax today on future generations of first-time homebuyers and empty-nest seniors that might be considering downsizing and putting their houses on the market.”

San Jose has struggled to find a local cash flow

for affordable housing ever since the state in 2011 ceased operation of redevelopment agencies — the largest ongoing source of revenue for affordable housing in California.

As rents continue to become more unattainable for working-class residents and people are forced into their cars or onto the streets, pleas for more affordable housing and homeless prevention services have grown louder.

The city has a goal of producing 10,000 new affordable apartments by 2023 but is only on track to build about a third of those. Over the past two years, the homeless population in San Jose has grown by 42% — affecting more than 6,000 residents in 2019, according to the 2019 Santa Clara County point-in-time count. More than two-thirds of those residents said the primary reason they were on the streets and unable to pay rent was due to a job loss.

Adrienne Keel, director of programs at the LGBTQ Youth Space, told council members that some of the young people she works with are forced to stay in toxic living situations because they can’t afford rent within the city.

“It’s not realistic that we’re all going to be techwage earners, but I feel like there should be a place for all of us here,” Keel said during the meeting. “And I think that the alternative message is that if you’re not wealthy, you’re not welcome here.”