Recommended FY 2022-2024 Operating Budget and CIP

to continue to benefit from the strong economy with relatively low unemployment and high-paying jobs, resulting in high property tax growth and associated revenues. Morgan Hill’s peak unemployment rate during the pandemic was in April 2020 at 13.6%, and currently stands at 3.5% as of February 2022, better than the state-wide unemployment rate of 5.3% but higher than the County of Santa Clara rate of 3.0%. The fiscal and monetary responses to the pandemic by the U.S. government and the Federal Reserve might have averted the U.S. economy from the catastrophic downturn, but the subsequent consequences, chief among them is inflation, might be playing before us. The latest inflation rate in the U.S. accelerated to 8.5% in March of 2022, the highest since December of 1981. The high inflation can be attributed to strong consumer demand, supply chain issues, and the war on Ukraine by Russia resulting in higher energy and commodity prices. This high inflation is taking a large portion from the City’s growth in tax revenue, which otherwise could have gone toward enhancing the City’s services further. To combat this inflation, the Federal Reserve recalibrated its monetary policy by increasing its benchmark interest rate by 0.25% at its last meeting with further and more aggressive hikes to follow, including ending its asset-purchase program that has provided liquidity to the bond markets. As the Federal Reserve shifts its stance to combat the inflation, economists have warned that the Federal Reserve’s aggressive efforts could tip the economy into recession or worse, the U.S. economy risks a stagflation disaster with inflation remaining elevated and no growth in the economy.

14 BUDGET MESSAGE