FY 2425 2526 Recommended Operating Budget

For FY 24-25, staff anticipates a property tax growth rate of about 6% and increasing to 7% for FY 25-26 as anticipated lower mortgage rates will spur more real estate transactions or change of ownership, which will lead to more properties being reassessed at a higher value. After a year of higher activity than in the past few years, staff anticipates a return to a more normal growth rate of about 6% after FY 25-26. This normal growth rate includes the limit on the increase of property tax by Proposition 13, which is the lower of 2% or the California Consumer Price Index (CPI), as well as property transfers and new properties adding to the assessment value. The projected property tax revenue reflects the lower excess educational revenue argumentation fund (ERAF) by about 30% because of the Governor’s budget proposal for ERAF funding for Charter Schools and the State Controller’s Office audit finding on Marin County’s excess ERAF calculations that could potentially impact our County of Santa Clara’s calculations as well. However, not included in the budget is the potential claw back of approximately 22% of the prior years’ excess ERAF distribution from FY 20 -21 to FY 23-24. This amounts to approximately $2.0 million in potential liability that we have not accounted for. In 1992, to reduce the impact of this mandate on the State general fund, the State required each county to establish an ERAF, where local property tax dollars are taken from the county, cities, and special districts, deposited in ERAF, and used to bring schools up to their minimum funding levels. Importantly, despite its name, ERAF does not increase school funding, it merely offsets the State’s school funding obligations, dollar for dollar. When more local property tax revenue is diverted to ERAF than is needed to meet the minimum funding needs of schools, that funding is deemed to be “excess ERAF” and is returned to those entities that had their property taxes diverted to fund ERAF.

Sales Tax

The sales tax revenue projected for FY 24-25 and FY 25-26, before rebates, is $12.9 million and $13.3 million, respectively. For FY 24-25, this represents an increase of less than 3% from the prior year. However, this is still better than the prior forecast from our sales tax consultant, HdL, of a slight decrease. This latest forecast reflects a gradual descent in financing costs in the back half of 2024 with households continuing a path of placing greater spending priorities on essential items. Overall, consumer spending remains resilient despite high inflation.

BUDGET MESSAGE 17