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The Daily Journal

 

July 18, 2008

 

By Heather Murtagh

 

 

Genentech refund hits city

 

 

About one-third of South San Francisco’s estimated tax revenue for the Redevelopment Agency will be lost after the repaying of a portion of the $18.1 million tax refund heading toward Genentech.


South City-based biotech company Genentech was awarded the $18.15 million rebate for taxes dating back to 1994 just a few weeks ago after scheduling errors occurred in the San Mateo County appeals process. Just under half of the refund — $8.895 million — will come from the South San Francisco Redevelopment Agency budget, according to apportionment numbers released by the county this week.


The remaining $9.25 million will come from other taxing agencies including cities, schools and fire and water districts.


For South San Francisco, the refund means regrouping to answer many questions about the already adopted budget. Most importantly, how will the city repay debt when it is taking such a hit?


Finance Director Jim Steele said it was too early to answer the question just yet, having only gotten the numbers on Tuesday. Clearly the repayment will take a large chunk — an estimated third — of the city’s estimated $28 million in tax revenue for the current year.


The city knew it would take a hit but wasn’t aware how large the repayment would be until this week.


“We were a little shocked it was this large,” Steele said.


There’s no word yet on the repayment process — whether it be a single lump sum or over time.


San Mateo County leaders began looking at covering the cost upon learning of the multi-million dollar ruling since it was a county mistake. A closed session conversation was held by the Board of Supervisors last week on the topic.


Efforts are being made to cover the costs at the county level, said Supervisor Jerry Hill.


But, it’s not a done deal.


South City is not the only organization which could feel a financial pinch; schools and cities will also need to return funds.


San Mateo Union and Sequoia high school districts will lose the most — $597,095.01 and $581,993.72 respectively.


School districts can be funded in one of two ways. San Mateo Union High School District, for example, is a basic aid district which relies on local property taxes with less state support. A revenue limit district receives a set amount of money for each student from the state. Basic aid districts will need to cut the cost from this year’s budget. The loss to revenue limit districts, on the other hand, will essentially be covered by the state.


The volatile housing market and softening economy coupled with large rebates, such as the one for Genentech, can quickly change the financial situation for a school district, said Elizabeth McManus, deputy superintendent of business services. In recent years, the San Mateo Union High School District faced rough financial situations. It has since rebuilt a 3 percent reserve, but could easily be in a difficult position if the downward trend continues.


Belmont-Redwood Shores Elementary, a basic aid district, could need to pay back $137,487.25.


On Wednesday, the city of San Mateo learned it would take a $184,500 hit from the tax break.


“It’s definitely money we lose that we didn’t expect to,” Finance Director Hossein Golestan said. “We’ll continue to monitor revenues through the year to see if it will be offset.”


The city plans to adjust its accordingly through the year.


The city has a total budget of $140 million with $80 million budgeted in its general fund. It has $11 million in reserves. Of that, $2 million is being used in this fiscal year to balance a structural deficit. Another $7 million is considered emergency reserves only to be used as “a last resort” in case of something drastic like an earthquake.


The $184,000 will come from the general fund.


Dana Yates contributed to this report.


Heather Murtagh can be reached by e-mail: heather@smdailyjournal.com or by phone: (650) 344-5200 ext. 105.