With the prices of high-demand goods declining in recent months from prolonged nationwide inflationary forces, the City of Morgan Hill’s sales tax revenues for the first quarter of 2023 declined by just over 1% from a year earlier.
The decline was driven largely by falling prices of gas, which has dropped 20% nationwide in the last year, and lumber, which has declined by about 60%, according to city staff.
Still, broader sectors of local businesses that generate sales tax for Morgan Hill continue to grow, including autos and transportation, state and county pools, and restaurant and hotel industry groups. Local sectors that showed declining sales in the first quarter this year are fuel and service stations, business and industry and building and construction, says a city staff report.
Overall, the city’s sales tax revenues are down 1.1% from a year prior—the same rate at which the state of California’s sales tax receipts have declined.
Total sales tax revenues collected by the city in the first quarter (January-March) are $2,946,665.
“New vehicle sales and auto supply stores contributed to a slight gain in autos (and) transportation—bucking the statewide trend of decline,” says a finance report compiled by city staff. “Undeterred by higher menu prices, patrons continued to enjoy the experience of dining out at both casual and quick service restaurants. While in-store retail sales varied by sector, shoppers frequented family apparel and specialty stores during the post-holiday shopping season.”
The city’s top 25 sales tax generating businesses in the first quarter were dominated by auto dealerships, gas stations, big-box retailers and grocery stores.
The 1.1% year-over-year decline in sales tax revenues is not likely to impact the city’s budget or City Hall’s ability to pay for public services, according to city staff, who projected a “correction” of rising prices when preparing the fiscal year 2022-23 and 2023-24 budgets more than a year ago.
“Overall for FY 2022-23, sales tax revenue is performing slightly better than budget, therefore there is no effect on the city’s ability to provide services or staffing,” Morgan Hill Economic Development Director Matt Mahood said.
Sales tax revenues go directly to the city’s general fund, which pays for most basic public services including police, fire and EMS, street repairs and parks maintenance.
The city’s 2022-23 budget anticipates about $12.5 million in sales tax revenues for the fiscal year that ended June 30. Sales tax receipts for the second quarter of 2023 (April-June) have not been compiled yet.
Statewide, heavy rainfall and a “slight pullback by consumers” during the post-holiday period resulted in less consumer spending, contributing to California’s 1.1% decline in sales tax revenues, the city staff report adds.
“The building and construction sector was most impacted by wet weather conditions, especially contractors and paint/glass vendors,” says the staff report. “Furthermore, when coupled with year-over-year (YOY) lumber price declines, the sector saw a 9.7% statewide drop.”
Demand for vehicles has also softened statewide, further impacting public revenues. The state’s receipts from auto sales in the first quarter declined by 1.3% from a year earlier, according to city staff.
By the numbers
Sales tax revenues generated in Morgan Hill by local business categories, first quarter 2023:
New motor vehicle dealers: $538,800
Service stations: $307,000
Building materials: $189,400
Casual dining: $171,400
Quick-service restaurants: $132,300
Trailers/RVs: $79,900
Grocery stores: $74,700
Heavy industrial: $64,200
Specialty stores: $59,400
Business services: $46,500
* Source: City of Morgan Hill
