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Morgan Hill
April1, 2020

Store closures burden Morgan Hill’s finances

Top sales tax generators close due to COVID-19

The empty parking lots surrounding Morgan Hill’s major retailers paints a distressing picture for the city’s future financial health.

Sales tax is the second largest revenue source for the city’s General Fund at 25 percent. Morgan Hill city officials project to receive nearly $10 million in revenue this fiscal year. Those dollars head into the city’s General Fund, which is used for public safety, recreation, community development and other operations.

But following Santa Clara County’s March 16 order to cease “non-essential” operations to combat the spread of COVID-19, most of Morgan Hill’s top sales tax generators either closed or reduced their hours.

The top 25 revenue generators include gas stations, auto dealerships and big box retailers.

According to budget reports, automotive and transportation stands as the city’s top sales tax industry, generating nearly $600,000 in revenue per quarter.

However, such revenue was declining before the pandemic. According to Morgan Hill’s sales tax report for the third quarter of 2019, slowing vehicle sales resulted in an 11.8 percent decrease over the previous year. Revenue from service stations also declined due to lower fuel prices.

In response to the county’s shelter-in-place order, auto dealerships have limited their sales departments but remain open for vehicle service.

Ford Store Morgan Hill, for instance, is allowing its sales team to work remotely, and will drive a vehicle to a customer’s house for a test drive or purchase.

City Manager Christina Turner said the evolving nature of COVID-19 and its unknown duration make it difficult to quantify the economic impacts.

“While we are still estimating the financial impact of the shelter-in-place order on the city’s General Fund, we are bracing ourselves for a significant hit as hotels and retail stores, automotive sales and gas sales are all going to be greatly affected,” she said.

Recreational programs, which is the city’s third largest revenue source for the General Fund, is expected to be one of the hardest hit categories due to facility closures, according to Turner.

“We continue to explore steps to lessen the impacts to the city’s fiscal sustainability in general and the recreation services program in particular, including the implementation of virtual recreation programs and classes,” she said.

Turner urged the public to continue supporting local businesses for essential needs.

“Our Economic Development team is working with the Chamber of Commerce and Visit Morgan Hill to deploy a survey to our business community to better understand the short and projected impact of this situation,” she said. “In the meantime, we will be adjusting our revenue assumptions for the upcoming budget cycle.”

Morgan Hill is far from being alone in dealing with the impacts of lost sales tax revenue.

The Gilroy Premium Outlets are now closed temporarily. The outlets, which stretch along San Ysidro Avenue, Leavesley Road and Arroyo Circle, consist of nearly 120 stores, such as Forever 21, Nike Factory Store and Levi’s Outlet Store.

Owner Simon Property Group announced the closure on March 17, and the next day said it would close all of its retail properties in the country through March 29, including malls, premium outlets and mills. The Indianapolis, Ind.-based company is billed as the largest shopping mall operator in the country, with more than 200 properties.

Simon has not announced how Gov. Gavin Newsom’s March 19 order to shelter-in-place across the state indefinitely will affect its properties.

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