High gas prices and a castle helped boost city funds during the
past 12 months, as overall expenses dipped slightly lower than
budgeted in the 2010-2011 fiscal year.
High gas prices and a castle helped boost city funds during the past 12 months, as overall expenses dipped slightly lower than budgeted in the 2010-2011 fiscal year.
City staff reported a 20-percent jump in sales tax revenues over the last fiscal year, as of June 30. That’s the largest year-to-year increase in that category of revenues since 2005, when sales tax receipts to the city climbed by nearly 24 percent from the previous year.
Total sales tax revenues collected in 2010-2011 were about $5.6 million, compared to about $4.7 million in 2009-2010, according to a preliminary financial report prepared by city staff. Local sales tax revenues peaked in 2007, when the city collected about $6.7 million from sales.
Of the 8.25 percent in state, county, city and special district sales taxes, the city collects 1 percent for its general fund to pay for basic services such as police and fire services.
The increase in revenues this year was “well ahead” of forecasts made by city staff a year ago, and is expected to continue through the upcoming year, if not as sharply, Morgan Hill finance director Kevin Riper said.
“Our forecast is for more modest, but still healthy sales tax revenue growth,” Riper said, though he did not know the one-year forecast at press time.
Driving the recent sales tax revenue increase was a hike in gas prices, Riper said. The price of driving fuel peaked in the first three months of 2011, forcing residents and visitors to spend more on the commodity, thus bringing the boost in city revenue.
Other transportation-related sales tax revenues, including those from automobile sales, went up too.
The Ford Store of Morgan Hill’s sales have gone up by 51 percent in the last year, according to owner and president Tim Paulus. And that followed a 30-percent increase from 2009 to 2010.
Paulus owes the increase to a number factors. The Ford Motor Company has thrived in the last year, contrary to the troubles reported by other American auto manufacturers. The company has introduced new products, including a full line of pickup trucks, with higher fuel efficiency that have proven popular among customers.
Plus, Paulus thinks his store’s model has attracted buyers from other markets.
“We’re getting close to the (sales) levels we saw in 2005 and 2006,” Paulus said. “We had sold to a lot of construction people years ago, and that’s the only segment that is not back.”
Most other cities in Santa Clara County reported varying increases in sales tax revenues from the first quarter of 2011 versus the first quarter of 2010, according to a report presented by the city of Gilroy last month. Only one city – Los Gatos – reported a stronger first-quarter gain than Morgan Hill.
Gilroy’s sales tax revenue increased by about 9 percent since the first quarter of 2010, and Santa Clara County’s grew by about 4 percent.
The average increase for the same period for northern and southern California was about 9 percent and 7 percent, respectively, the Gilroy report said.
The trend does not necessarily indicate a full retreat from the doldrums that have brought the entire economy down the past three years, even though perhaps the most troubled sector – construction activity – brought a jump in fees to Morgan Hill’s community development department.
That department saw a 90 percent increase in revenues from development, engineering, building and related fees from the same time a year ago, city staff said. Those revenues for fiscal year 2010-2011 totaled about $2.3 million, compared to about $1.2 the previous year. And that’s about 45 percent higher than was budgeted for the most recent fiscal year.
However, most of the increase can be attributed to three developers who took on substantial projects in the city limits, assistant city manager Leslie Little said.
The American Institute of Mathematics began construction of a new castle-like headquarters in southeast Morgan Hill, and paid more than $300,000 in fees for that project. Plus, D.R. Horton and KB Homes, two residential construction companies that have a nationwide footprint, bought up some projects from local builders in the last year, contributing a significant portion of the fee revenue increase, Little said.
City staff do not see the revenue increase as an ongoing or consistent trend toward more construction activity in the near future, Little said. Building and related permits pulled over the past 12 months, for example, have jumped and dropped erratically month to month. August 2010 saw the highest volume of permits issued with 108, while May 2010 only saw 63 permits issues.
“The bar graph is all over the place,” Little said.
She added that many of the permits pulled in the last year are for projects that went through the competition and entitlement process years ago, but are only just now ready for construction.
The department thus estimates it will receive the same revenue in the coming year as staff projected it would receive last year, Little said.
“We’re still kind of looking for the water line to settle, and haven’t projected tremendous changes in our building, planning and engineering fee collections,” Little said.
The community development fund and its staff are financed solely by fees paid by developers, and does not receive any funding from general tax revenues.
Total general fund expenditures for 2010-2011 came in about 2.5 percent lower than budgeted, at about $25.7 million, according to the preliminary year-end staff report.
The police mitigation fund which is financed by development impact fees also saw some trouble in the last year. Due to the stall in development activity, that fund was short of revenue and had to be subsidized with a general fund loan of about $220,000 that will be repaid, Riper said. The police mitigation fund pays for debt service on the police station on Vineyard Boulevard.
A more unfortunate aspect of city revenues is the fact that property tax revenues dropped more than anticipated a year ago. The city was unable to collect what it budgeted for those revenues, which dropped about 8 percent since 2009-2010, to about $6.5 million.
“It’s still notable given 30 years of steadily increasing property tax revenue” in Morgan Hill, Riper said.
