The improving economy might bring a mix of blessings and burdens for local residents and public agencies who are faced with higher costs, but few are complaining so far about trends in 2013 that show an uptick in Morgan Hill’s sales and hotel tax revenues, a jump in home sales prices by more than a quarter, rising health insurance bills, and a lower-than-expected tax bill for thousands of South County property owners next year.
City of Morgan Hill staff recently provided an updated general fund forecast that shows sales tax revenues going up by about $100,000 more than projected at the beginning of the 2013-2014 fiscal year. Revenues from the City’s transient occupancy or hotel tax are expected to be about $300,000 higher than expected for the fiscal year that ends June 30, 2014.
Despite a drop in general fund administrative revenues by about $200,000 and a rise in health insurance costs for City employees of about $100,000, City staff see the revised forecast as positive.
“General economic activity continues to do well,” said Morgan Hill Finance Director Kevin Riper.
The rise in hotel tax revenues is owed to a “combination of higher (room) rates and more occupancy,” Riper continued. “And a lot of that is due to the activities of our recreation activities” at the Outdoor Sports Center and Aquatics Center on Condit Road.
At the beginning of the current fiscal year, City staff projected about $7.9 million in sales tax revenues, and about $1.3 million in hotel tax revenues. These funds are used to pay for basic City services such as public safety and street maintenance.
Last year, the City received about $8.9 million in sales tax (the highest in recent memory) and about $1.2 million in hotel tax revenues.
The largest sales tax revenue category in Morgan Hill is transportation, which includes automobile and recreational vehicles, as well as gasoline sales. From July 2012 to July 2013, the City collected about $2.8 million in sales tax revenue from transportation related sales, according to a City staff report.
The City receives about 1 percent of all local sales from transportation, general retail, food products, construction and business to business.
Along Condit Road in east Morgan Hill are most of the dealerships that generate the plurality of sales tax dollars, with Honda of Morgan Hill just across the freeway off East Dunne Avenue.
NorCal Kenworth has seen its sales “on the up” since the dealership opened in April 2012, according to General Manager Mandeep Johal. The facility sells and leases medium and heavy duty trucks (the kind that pull tractor trailers), and provides service, parts and financing.
“Trucking is one of the pillars of the economy,” and thus its growth is another indication of an improving economy, Johal added.
Financing has “loosened up” in recent months, allowing interested buyers to enter the market, and new state regulations have required truckers to upgrade their vehicles, Johal added.
Between sales and leasing, NorCal Kenworth has distributed more than 100 trucks in the last 12 months, Johal estimated. The average value of a Kenworth truck on his lot is about $100,000.
Next door at the Pan Pacific RV Center on Condit Road, sales are starting to outpace that company’s other two branches in French Camp and Sacramento since the lot became fully developed to accommodate the gamut of RV offerings in 2011, General Manager James Bonin said.
Bonin projects total sales of about $10 million for 2013. He thinks that will climb to around $18 million or more for 2014.
“We’re really excited about 2014,” Bonin said.
The Ford Store of Morgan Hill, which has gained a reputation as one of the busiest Ford dealerships in the Bay Area since it opened in 2005, has benefited from an improving local economy and a shift in the auto market toward more fuel-efficient vehicles like hybrids and plug-in cars, according to owner and president Tim Paulus.
“The economy is coming back nicely, with housing starts and new construction, but when I first built this store Ford was pickups, utilities and Mustangs,” Paulus said. “Now Ford has come with some dramatic cars that are really relevant,” such as the C-Max Energi hybrid.
New vehicle sales at the Ford Store are up 37 percent so far for 2013 over the same period last year, Paulus added. His 2012 sales were up 35 percent over 2011.
Another indicator of the improving economy is the local housing market, where scores of new units are under construction in Morgan Hill, and home sales prices are up 27 percent from last year, according to sources.
Even though many homeowners will see lower than expected property taxes in 2014 due to the low rate of inflation, the Santa Clara County Tax Assessor’s Office is forecasting a “significant” increase in the overall property assessment roll next year, although that increase is about $17 million less than County officials forecast earlier this year.
State law allows for an annual increase in assessed values for unsold and unmodified homes of 2 percent or the rate of inflation, whichever is lower. This year, the rate of inflation is lower at .45 percent, according to the Assessor’s Office.
“It’s good news for taxpayers, and bad news for those that depend on property tax revenues like cities, schools, community colleges, special districts and the County itself,” Assessor Larry Stone said.
Adding to the Countywide property tax roll is an abundance of new construction so far in 2013, including about 13,000 new apartment units, and scores of new office and industrial buildings, Stone added.
The City budgeted for about $8.3 million in property tax revenues at the beginning of the fiscal year, and Riper expects that to drop slightly due to the low inflation rate.
The homes that have sold in Morgan Hill during May to October 2013 have done so at about a 27 percent average higher price than the same period in 2012, according to local Realtor Mike Walters.
The average home sales price in Morgan Hill this year is about $772,000, versus about $610,000 in 2012, according to Walters’ website which cites the MLSListings service as his source.
Walters added he is “concerned” about the rate of home appreciation, but he is still optimistic for 2014.
“The demand continues to outstrip supply,” Walters said. “There are a lot of cash buyers, and foreign buyers, and just fewer units available. The future depends on the interest rates.”
