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8.A. - Page 13 of 72 Taxes Overall, property taxes are expected to decrease by $3.8 million in FY 2019-20 when compared to FY 2018-19 actual revenues. This is due to the unexpected receipt of an early distribution of Educational Revenue Augmentation Fund (ERAF) revenue during FY 2018-19 in the amount of $3.6 million. The $3.8 million decrease from FY 2018-19 actual revenues to FY 2019-20 estimated revenues is comprised of an increase of $800,000 in secured and unsecured property taxes and an increase of $500,000 in downtown property taxes, offset by a decrease of $3.9 million in ERAF revenue and a decrease of $1.4 million in property tax in lieu of vehicle license fees. Staff engaged a property tax consultant to prepare a forecast of future revenues, and it is expected that in subsequent years the property tax revenue category will have modest growth annually. This growth is primarily due to increased assessed valuations on improved properties. Although approval of additional development in the downtown area has slowed recently as caps established in the Downtown Precise Plan have been reached, development of this area has been robust in recent years. Typically, it will take approximately 18 to 24 months for new construction or redevelopment to appear on the tax rolls. As a result, the City will continue to see increases in downtown property tax revenues for several years as these new developments are completed, assessed, and included on the tax rolls. 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 $1.5 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. As mentioned above, 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 $4.2 million will be received in excess ERAF revenue annually, as the City has long been advised that these funds will not continue long-term, as this revenue is very vulnerable to changing laws and to changing school funding formulas. The FY 2019- 20 forecasted ERAF revenue is expected to be approximately $7.1 million. ERAF projections for FY 2020- 21 and beyond are estimated to be $4.2 million. Sales tax revenues account for approximately 21.4 percent of the City's General Fund budget. The City is currently experiencing an increase in sales tax revenue as a result of higher than expected district sales tax revenues collected. 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. Due to the lack of historical data, the City conservatively budgeted a sales tax increase due to the additional one-half percent sales tax percent of approximately $8.7 million for FY 2019-20. The City's sales tax consultant, MuniServices, has since revised that estimate as a result of actual sales tax revenues being generated. The revised FY 2019-20 estimate is approximately $10.7 million. Page 13 of 26 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 248