There are two levels of cost comparison:

  1. From a community standpoint, what will it cost to repair and then maintain our road system?
  2. From an individual standpoint (the tax payer who will be voting for an option), what does each option cost?

Community Cost

Repair: It will cost $80 million to repair Orinda’s roads and storm drains. $35 million has already been committed to. The remaining $45 million can come directly from taxes (in which case it will cost $45 million); or the $45 million can be borrowed (a bond) and then repaid over time as the City suggests; or a combination of the two (as the Roads Action Group recommends). The cost to repay a bond depends on the interest rate and the length of time the repayment takes. The City suggests assuming the interest rate that the first installment of the Measure J bond was borrowed at; a historically low 2.82 percent. This analysis suggests a very conservative (on the high side) five percent. A twenty year term appears to be the accepted and acceptable term. And finally, there is the question of whether the payments should remain level over the term, as in a classic home mortgage, or increase at some rate as revenue increases. This analysis will assume a 2.5% annual increase estimating inflation. In doing so, the payments to repay $45 million will start at $3 million per year and increase over 20 years to $4.8 million and add up to $77 million ($32 million in interest). Assuming about 7,000 households, the total cost per household will range from $6,400 (no borrowing) to $11,000 (all costs borrowed but spread over 20 years).

Maintenance: The CIOC estimates that it will cost $3 million per year to maintain the road system after it is repaired. That is just for roads. Adding $500,000 for storm drains brings the total to $3,500,000 starting in 2023. The City budget allocates about $1 million to roads leaving $2,500,000 needed from new taxes. Assuming a 2.5% inflation rate, that $2,500,000 will increase to $4 million over 20 years and the total needed over those 20 years is $64 million. This equates to $9,000 per household or $350 per year ($1 per day), stated in 2023 dollars adjusted for inflation.

Total Cost: If the taxes were not started until 2023 when the project was complete and the maintenance commenced, the annual cost would be $5,500,000; inflating over time. This is $800 per household in 2023 dollars or $650 per household deflated to 2016 dollars; about $2 per day. The average Orinda home has a market value of $1,400,000. It is increasing with inflation (2.5%) $35,000 per year.

Household / Voter Cost

Different tax options have different costs for each household.

  • For a Parcel Tax, every homeowner pays the same amount but they only pay it while they are living here.
  • For an Ad Valorem Tax, the cost is based on assessed value. For those who have lived here less than 10 years their assessed value is about 85 percent of the market value of their home. For people who have lived her for over 20 years, the assessed value is only about 20 percent the market value. Those with the bottom one third assessed values are paying one sixth the Ad Valorem Tax as the top one third. Plus, they only pay this tax while they are living here.  For the bottom one third who will mostly be gone within ten years and whom are only paying about ten percent of current Ad Valorem Taxes, they will only pay about one percent of the total cost of a new Ad Valorem Tax.
  • For a Sales Tax, most of the tax is generated by vehicle purchases which can be considered a wealth tax but, again, is only collected while living in Orinda.
  • For a Real Estate Transfer Tax, the tax is based on a home’s market value (a wealth tax) and is collected once (for current residents), when the home is sold. The tax rate is the same for everyone (estimated at 0.8 percent, split between buyer and seller, when accompanied by an extension of the current half cent sales tax).

Sales and Parcel Taxes are most appropriate to fund maintenance as they are paid each year while living here. They can also be used to fund repairs and to the extent that they are collected during the repair period (and go directly to fund repairs) and then later are used to repay bonds borrowed to complete the repairs, they are moderately “fair”. 

However, if a Parcel Tax is used to repay a bond in the classic sense only covering debt service, then it puts the vast majority of the cost on the shoulders of our newest residents and future residents.  If the currently proposed (June ballot) $25 million bond was repaid by a Parcel Tax instead of the proposed Ad Valorem Tax, the two thirds of the population, who have super-majority control of the vote who have lived here the longest and will be leaving soonest, will pay less than 20 percent of the total cost, putting the remaining 80 percent on the shoulders of our youngest and future residents.

An Ad Valorem Tax can only be used to repay a bond which funds repair costs and can only start when bond repayments start. That the longest term Orinda homeowners with the lowest assessed values will be paying the lowest Ad Valorem Tax, coupled with the fact that they will be the first to “leave” (and may have already left by the time the tax payments commence), this tax puts virtually the entire burden of repayment on the shoulders of recent Orinda homeowners and future homeowners who are already paying the majority of Orinda’s current $64 million annual Ad Valorem Tax.  An example of who would pay Orinda's proposed (June ballot) $25 million bond shows that the longest term residents (lower 1/3 of assessed value) will only pay one percent of the total cost and the mid 1/3 one third about eight percent of the total.  Therefore, while these two groups control a super majority of the vote, 90 percent of the cost will be borne by our newest residents and future residents.

A Real Estate Transfer Tax, split evenly between the buyer and the seller, can fund both the repairs made necessary by underfunding maintenance in the past and fund on-going maintenance in the future. With total repair costs, including financing costs, about equal to future maintenance costs, the split can be viewed as the outgoing resident (the seller) is funding the repairs and the incoming resident (the buyer) is funding on-going maintenance.