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8.B. - Page 15 of 122 the tax rolls. Other areas of the City remain attractive to developers, and there are a number of existing projects underway, as described further in the Development Fees section below. The residential housing market in Redwood City also remains very desirable. Due to this favorable environment, the current median home sales price in the City is approximately $1.6 million. When a home is sold, property tax is calculated on the new assessed value that is based on the sale price. As home values increase and properties are sold, property tax revenues also increase. The City also receives property tax revenue from the State's Educational Revenue Augmentation Fund (ERAF). ERAF is a mechanism enacted in 1992 by the State Legislature to shift local tax revenues from cities, counties, and special districts to a State-controlled fund. The State uses this fund to reduce its obligation to the schools. The State is now reimbursing local agencies for those prior payments. Budgeted revenue estimates assume a conservative $4.0 million will be received in excess ERAF revenue annually, as the City has long been advised that these funds will not continue, as this revenue is very vulnerable to changing laws and to changing school funding formulas. Due to an unexpected accelerated distribution of these proceeds, and the reduction of the reserves held by the County, actual ERAF revenue will be nearly $10.8 million in FY 2018-19. ERAF projections for FY 2019-20 and beyond are less than the FY 2018-19 mid -year estimate. Sales taxes account for approximately 15.5 percent of the City's General Fund budget. The City is currently experiencing a slowing of sales tax revenue as a result of several factors. Residents are spending more of their disposable income on non-taxable items than before. According to the Bureau of Labor and Statistics, San Francisco Area Economic Summary from January 2019, items such as housing, medical care, insurance, and retirement account for just over 60 percent of average annual spending. Additionally, burgeoning trends toward online purchasing impact the City's sales tax revenue. Goods sold to Redwood City customers from out of state retailers generate use tax revenues, which are remitted to the county pool. In turn, county pool revenues are then distributed to all jurisdictions within the county. Goods sold at physical establishments located in Redwood City generate sales tax revenues, which are remitted directly to the City of Redwood City. Ultimately, increasing online sales will reduce local sales tax revenues. Changing consumer preferences affect City sales tax revenues as well. New automobile leases (rather than purchases) cause the stream of sales tax revenues to be realized over the life of the lease (typically several years) rather than at the time of purchase. Finally, the preferences of younger consumers who are more frequently purchasing "experiences" (generally not taxable), rather than goods, has a negative effect on sales tax revenue. In the last two fiscal years, sales tax revenues were very flat and were expected to decline slightly. However, in November 2018, Redwood City voters approved Measure RR, a one-half percent sales tax increase, effective on April 1, 2019. At the same time, the voters also approved a countywide transportation related one-half percent sales tax, which increases the total sales tax rate in the City from 8.75 percent to 9.75 percent. As a result of the passage of Measure RR, the City is expecting an increase in FY 2018-19 sales tax revenues of approximately $1.5 million for the last quarter of the fiscal year. Beginning in FY 2019-20, annual sales tax revenue is expected to increase by approximately $8.0 million. Currently, the City's sales tax consultant, IIIIIIIIIIIIIIIIM City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 241