FY 2425 2526 Recommended Operating Budget

Major Revenue Assumptions

General Fund (010) FY 24 - 25 and 25 - 26 revenues for the General Fund, including transfers in, are estimated to be $55.7 million and $57.8 million, respectively. Property Tax Property tax is imposed on real property (land and permanently attached improvements such as buildings) and tangible personal property (movable property) located within the State, based on the property value rather than on a fixed amount or benefit. Properties are distinguished as secured and unsecured (property for which the value of the lien is not sufficient to assure payment of the tax). Article XIIIA of the State Constitution limits the real property tax rate to 1 percent of the property ’ s assessed value plus rates imposed to fund indebtedness approved by the voters. Morgan Hill ’ s share of the 1 percent is equivalent to 10 cents for every $1.00 collected from property taxes. With the passage of Proposition 13 in 1978, assessed valuations are limited to a 2 percent increase each year. Property tax revenue for FY 24 - 25 and FY 25 - 26 is $19.4 million and $20.8 million, respectively. On July 1, 2023, the County of Santa Clara Assessor ’ s Office released the assessment roll close for FY 23 - 24. The assessment roll for the County grew 6.65% for FY 23 - 24. The City of Morgan Hill ’ s assessment roll for the same year grew 6.34%. Though showing lower growth than the prior year of 7.60%, the City ’ s growth is

better than the budget of 6.0% The City ’ s total net assessed value for FY 23 - 24 is about $13.1 billion, an increase of about $0.8 billion from the prior year ’ s total net assessed value of about $12.3 billion. The assessment roll growth of 6.34% for the City equates to approximately $800,000 more in property tax revenue. However, continued higher mortgage rates coupled with a low inventory of available homes for sale will likely result in a fewer number of homes sold than in the past years. This will lead to lower supplemental and transfer property tax revenue. 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.

Property Tax

$30

$25

$20 Millions

$15

$10

$5

$0

90 BUDGET SUMMARY