Novato sales tax increase proposal headed to ballot

The city, which is facing years of potential deficits, estimates the three-quarter percent hike would generate about $10 million a year.

Novato voters will consider a ballot measure in November for a three-quarter percent sales tax increase to pull the city out of its financial quagmire.

After nearly three hours of discussion, the City Council voted unanimously Tuesday to put the question to the electorate, with a series of guardrails for public oversight of how the funds are used.

Mayor Mark Milberg called the vote the “single most transformative opportunity in Novato’s history.”

“We’re on good footing,” he said. “It’s time to move this great city forward.”

The city’s sales tax is 8.5%. The city estimates that the increase would bring in about $10.3 million a year.

Councilmember Rachel Farac said that as a mother of a 3-year-old and a 4-year-old, she tried to envision what a decade or more looked like the city.

“This is an opportunity to make the future right for our kids as well as our residents who live here today,” she said. “We have been given a lifeline that ensures our city’s vitality and quality of life.”

Among the guardrails the council set into the resolution are accountability measures to ensure that the money is spent responsibly and that the city does not find itself in the same straits again.

The tax increase does not include a sunset provision. Instead, the council 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.

Councilmember Pat Ecklund said that if the increase passes, taxpayers should have the right to know what was being paid for and how.

“Let’s come up with some language we all can agree to,” she said.

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

“We’ve known about this problem for a long time,” said Councilmember Susan Wernick. “This sales tax measure gives me hope that we can all move forward with righting the ship.”

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

City Manager Amy Cunningham said the sales tax increase would provide for infrastructure improvements and maintain city services.

“This is an opportunity to make true and lasting change for the Novato community,” she said.

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

At a presentation two weeks ago, a consultant told the city the deficit was systemic and that 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.

Councilmember Tim O’Connor said other ways the city could make money include the sale or lease of city owned properties, finding new revenue streams and economic development.

“It’s an opportunity tonight to right a 50-year wrong,” he said.

Residents came out to the meeting to support the tax measure, but also criticized the city’s financial management. Jennifer Goldfinger, who said she was a 50-year resident, said “no other income sources can address the underlying structural issue.”

Election Day is Nov. 5. The city has until Aug. 9 to submit the resolution to the county elections office and until Aug. 19 to file its argument in support of the measure.