Affordable housing is a major community concern in Berkeley. To address this, the City Council has placed a $135 million bond measure (Measure O) on this November’s ballot.
Measure O — the largest proposed bond in the history of the city of Berkeley — would be paid for by Berkeley homeowners, many of whom are struggling themselves to make ends meet due to the high cost of living in the Bay Area, including Berkeley’s property taxes. (Editor’s note: Commercial property owners would also be subject to the tax.)
This op-ed presents 10 reasons why Measure O should be rejected.
- The City of Berkeley has no credibility in producing positive results through increased taxation.
Sadly, and inexplicably, our community repeatedly falls victim to increased taxation for seemingly benevolent goals and ends up with nothing meaningful to show for the effort.
Berkeley has an extensive history of ignoring basic municipal needs despite an annual budget of over $424 million and the passage of hundreds of millions of dollars in new levies from the Parks Tax to Measure M for street improvements to Measure T1 for infrastructure (streets, sidewalks, etc.).
The city has a very poor track record with respect to managing its projects. For example, absolutely no streets were paved this year even though there are seven separate taxes (State Transportation Tax, Measure B, Measure BB, Measure M, Capital Improvement Fund, SB1 Gas Tax, and Measure T-1) allocated for this specific purpose and over $8 million available. Why? The Public Works Department put out the call for bids May 10, and no contractors responded. The bid was too late.
Can we really trust the city will do better with another $135 million?
- Measure O lacks clear goals or metrics. There is no well-articulated plan.
Nowhere in Measure O or its supporting arguments does it specifically state how many affordable housing units will be built or how many people can expect housing with the $135 million.
There are no timelines or indication as to how much money will be spent on staffing/administration costs, consultant fees, studies, etc.
- Measure O will fail to make a dent in the housing crisis; it promises far more than it can realistically deliver.
Measure O promises housing to almost all categories of people in Berkeley including even households making >$100,000 (120% area median income or AMI). Specifically, the measure states it will house the homeless, students, veterans, nurses, first responders, people with disabilities, teachers, seniors, and other vulnerable populations.
But housing is a regional issue, one that our city cannot and will not ever be able to solve on its own. We simply do not have the expertise or the resources; and contrary to what the mayor said, there is absolutely nothing “innovative” about Measure O. Our mayor and council should be spending their time and energy lobbying our state legislators to help us and neighboring cities develop a realistic plan for the Bay Area.
There are at least 1,000 homeless individuals in Berkeley (many with serious mental illness and/or drug problems), with more arriving every day. In addition, there are at minimum 10,000 people – if not far more – who would qualify for affordable housing under this measure. As our politicians often proclaim:
“Anyone who works in Berkeley should be able to live in Berkeley…”
“Anyone born in Berkeley should be able to live in Berkeley…”
“Anyone who goes to school in Berkeley should be able to live in Berkeley…”
Even if the city is fortunate enough to receive federal and state matching funds (for a total construction fund of $675 million), Measure O might, in the VERY best-case scenario, provide housing for 850 people or 8.5% of those seeking it.*
- Measure O claims to cost homeowners $135 million – but in fact – it will cost $270 million.
Banks don’t loan money for free. The bank will loan $135 million (principal) at a total cost to homeowners of $270 million (principal plus interest).
Thus, the bank makes $135 million in interest – a loan which homeowners will be paying off every year for the next 36 years (until 2055).
A home is not a liquid asset and many homeowners in Berkeley have modest incomes. This is a fact lost on many supporters of this measure who assume that homeowners are, by definition, wealthy.
- The city says it has “excess” bonding capacity; however, Gov. Jerry Brown and many economists warn that another recession is imminent. Now is not the time to borrow.
Excess bonding capacity (the ability of the city to borrow money based on rising home values and revenues, and declining balances of existing bonds) is not a good reason to borrow $135 million – unless you’re the bank.
Furthermore, Berkeley’s purported excess bonding capacity needs to be viewed alongside its extensive and excessive parcel tax levies.
If there is a recession or another financial crisis like the one 10 years ago, home values will drop, and yet homeowners will be stuck paying their high property taxes, even if they lose their job.
And if interest rates rise (which already is happening), the cost of bond repayment will rise commensurately, since the bond money is withdrawn in tranches over time and the bond interest rate is based on the Federal Funds rate.
- This tax will be an added burden for those who can least afford it.
If we want to encourage young and creative families to stay and/or settle in Berkeley — the future on which our city depends — we must be realistic, and welcoming, and not burden them with excessively high new taxes every two years.
In 2017, homeowners paid for six local bonds and nine different parcel taxes/fees. This does not include county, East Bay Regional Park District, BART, AC Transit, BUSD, or the two expanded fees approved this year for stormwater and lighting systems. These taxes disproportionately impact homeowners on fixed incomes and those who have bought homes over the last decade.
Under Measure O (as pointed out by Whoa Mule, a Berkeleyside commenter), retired, low-income (80% AMI) homeowners in Berkeley will be subsidizing persons making $100,000+ incomes (120% AMI). Does this make sense?
- Berkeley already has two affordable housing taxes.
Homeowners in Berkeley have demonstrated their generosity time and time again. In fact, two different taxes for affordable housing were approved in 2016: Measure A1, a $580 million bond on homeowners living in Alameda County; and Measure U1, a business license tax increase on landlords which raises $3.5 million or more every year.
This fall, there will be two state bond measures on the ballot for affordable housing (Proposition 1 and Proposition 2) – money that will flow directly into the City’s coffers if passed.
Therefore, Measure O would be the fourth affordable housing tax paid for by Berkeley homeowners and the fifth affordable housing tax in Berkeley overall. This is an excessive tax burden for homeowners. It is ironic that all these affordable housing measures are making housing unaffordable to the very people who are asked to pay for them.
- No other options were considered by council except to tax homeowners.
There are other options for funding affordable housing that were never considered by the City Council such as a revenue bond or sales tax. Either would save $135 million in interest payments to banks that will have to be paid by homeowners if Measure O passes.
Sales taxes are regressive, but one could argue that Measure O is also regressive given its disproportionate impact on new homeowners. For example, two identical Berkeley bungalows can have vastly different taxes due to their ad valorem; one may pay $1,300 and the other might pay $9,000. One could also argue that all but the most “progressive” tax on income AND assets is basically regressive.
Another option would be for the city to use the accumulated approximately $400 million in investment income derived from unused property taxes for affordable housing. Why doesn’t it? (See page 6 of this report.)
- Mayor Arreguin and Councilwoman Sophie Hahn misled voters in the 2016 election.
Two major proponents of Measure O, Mayor Arreguín and City Councilwoman Sophie Hahn, both stated in a North East Berkeley Association News candidate interview that they did not support higher property taxes and fees on homeowners. It is clear now that this was a bait-and-switch tactic to get elected. In addition, both replied “yes” when asked this question:
“Berkeley’s bond rating could be improved if it had a formal policy to address our unfunded pension obligations. This rating affects the City’s cost to finance new bonds (and hence the cost to taxpayers). If elected, will you promise to address this issue within 90 days of entering office?”
Neither has carried through on their promise.
- Measure O – as presented by Mayor Arreguin – is deceptive.
The Mayor and other authors of this measure are telling homeowners that Measure O will cost them only $97 per year for homes assessed at $425,000. This is grossly inaccurate.
If one reads the fine print (the tax rate statement), the tax will increase for all homeowners in 2025 by 41% from $23.27 to $32.81 per $100,000. While this increase may be insignificant for some, for others it will put them past the tipping point when combined with all their other property taxes.
It is important to remember as well that these amounts do NOT include the compounding automatic annual increases from assessment growth.
The City Council has never acknowledged or discussed the overall tax implications on low-income or middle-income homeowners.
In addition to Measure O, Measure T1 (the 2016 $100 million infrastructure bond) hasn’t appeared on homeowner’s tax bills yet. Finally, if you are a homeowner, your federal tax deductibility is now capped at $10,000 for state/local property and income taxes. Therefore, more recent homebuyers will lose the ability to deduct these taxes resulting in a substantially higher tax burden.
* This estimate is based on building costs of $550K/unit in 2018 dollars and administrative overhead costs of 30%.