Pasadena is exploring the possibility of introducing up to five new taxes, with the City Council set to decide Monday on which proposals, if any, will be presented to voters in the upcoming November municipal election. The measures are intended to address a widening structural deficit that city officials warn could impact funding for critical services.
City leaders state that current revenues are insufficient to cover rising expenses and fund priorities such as fire station upgrades, wildfire prevention, road repairs, pedestrian and bicycle improvements, homelessness programs, and economic development initiatives. For the past three fiscal years, the city has relied on one-time funding and reserve money to balance its General Fund budget. In the current fiscal year, the budget shows a gap of approximately $3.8 million between planned spending and revenue, which was covered by $5 million in one-time funds.
Projections indicate that while revenue is expected to grow by 3% to 4% annually, expenses are forecast to increase between 4% and 6%. This disparity is expected to exacerbate the budget shortfall over time.
To mitigate this, city staff have presented five potential tax measures that could collectively generate between $5 million and $30 million annually.
One proposal involves a quarter-cent increase to the local sales tax, which could generate an estimated $11 million per year. Pasadena's current sales tax rate is 10.5%, with an additional increase to 11% scheduled due to Los Angeles County's Measure ER. If approved by city voters, this local increase would utilize the city's remaining local sales tax capacity.
Another option is a parcel tax specifically designated for fire protection and road improvements. A higher-tier version could generate approximately $30 million annually, with property owners paying about 24 cents per developed square foot. For a median 1,600-square-foot home, this would equate to roughly $384 per year. A lower-tier option, focused solely on fire-related projects, is estimated to raise $20 million annually.
The council is also considering a real property transfer tax on property sales, which could potentially raise up to $26 million annually. However, city staff have cautioned that revenue from this tax could fluctuate significantly with the housing market and may face organized opposition.
A fourth proposal would implement a new 10% tax on parking transactions, similar in structure to Pasadena's hotel occupancy tax, with an estimated annual revenue of $5 million.
The final measure under consideration is an overhaul of the city's business tax system. This would replace the current decades-old employee-based structure with a gross receipts model, a system used by other California cities. Staff estimate this change could generate an additional $10 million to $15 million annually, though it may require further public engagement and might not be ready for the current election cycle.
City staff have expressed a preference for the quarter-cent sales tax, citing its potential to provide a stable source of general revenue and its similarity to measures previously approved by local voters. For dedicated project funding, the parcel tax is recommended due to its historical success in gaining public support when tied to specific services like fire protection and infrastructure.
Under California law, general taxes require a simple majority vote for approval, while special taxes dedicated to specific purposes need a two-thirds majority. If the council directs staff to proceed, final ballot language is expected to be prepared before the August 7 filing deadline for the Los Angeles County election.