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ELF Financing Strategy San Mateo County ELF Study‐2016 February 21, 2017 Prepared by Brion Economics Team Final Report 17 Mechanisms for Existing Shortfalls The following discusses two mechanisms that could be used to meet existing shortfalls in ELF spaces. Parcel Taxes One way for San Mateo County to address its current shortfall is to adopt a parcel tax which would be earmarked for child care facilities. As discussed above, this would have to be done as a ballot initiative and would require a two‐thirds “yes” vote to pass. Table 5 calculates potential parcel tax revenue. In this example the revenue is estimated to fund 25% or $81.8 million of the total cost of developing the unmet need for child care spaces in San Mateo County as of 2015.16 For simplicity, we assume the parcel tax would be on residential uses only. The total number of residential parcels in the County (single family, multi‐family and vacant residential land) totals about 203,000 as of 2015/2016. The current total residential assessment value in the County is about $133.6 billion. Financing assumptions include 6.0% capitalized interest, 7.0% reserve, and 3.0% issuance costs. A parcel tax with bond financing would generate a total gross bond amount of $97.4 million, including issuance costs. With annual interest costs the total cost of the bond financing would be $169.8 million. The annual payment to fund this level of bond proceeds would equal about $8.5 million per year. The costs divided by existing residential parcels results in an average parcel tax of $42 per parcel per year, as shown in Table 5. Over 20 years this would generate the required $169.8 million (including interest). This potential annual parcel tax represents 0.07% of total current residential assessed value in the County. Sales Tax Add‐On Another potential financing mechanism is an additional sales tax add‐on measure. Table 6 estimates the revenue that a sales tax add‐on of 0.25% for child care facilities could generate. Current retail taxable sales in San Mateo County totaled $10.3 billion in 2014 (most recent data available) and a 0.25% sales tax add‐on would generate an estimated $25.4 million annually after accounting for administrative costs, or $508.8 million over 20 years. Using bond financing to fund 75% of existing child care need in the County, or $245.4 million17, and repaying it through sales tax add‐on revenues, requires an annual repayment of $25.5 million. Sales tax revenues would generate $25.4 million, a shortfall of approximately $290,000 annually. The net bond proceeds supported by the 0.25% sales tax add‐on total $245.1 million. Total payments, including interest, over 20 years are $508.8 million. Based on these figures, the average additional annual cost per household in the County is estimated at $96 or a total of $1,924 over 20 years. 16 Includes 3% administrative costs. 17 Ibid. 8.C. - Page 36