Loading...
HomeMy WebLinkAboutAppendix A - RevenuesWorking together to serve, build community and enhance quality of life. Appendix A Revenues Major Revenues Property Tax Revenue Property tax revenues are taxes imposed on real property (land and permanently attached improvements) and tangible personal property (movable property). The tax is based on the assessed value of the underlying property. In order to understand property taxes, it is important to understand assessed value. Proposition 13 calls for a base year assessed value to be established when the property undergoes a change of ownership (typically a sale) or when new construction occurs. After the base year value is established, the value is factored annually for inflation, which is the lesser of the change in cost of living or 2%. The assessed value may also be adjusted by a Proposition 8 factor. Proposition 8 allows a property to be temporarily reassessed at a lower value. It requires that the lower of either the adjusted base year value or the current market value determine a property’s annual assessment. During COVID and the Great Recession, a significant number of property values were written down to market value. When the prices recover, the assessed value is adjusted back up to the lower of the new fair market value or the original base value adjusted annually for inflation. The table below illustrates how assessed value would be calculated for a fictional property. Date Description of Changes in Assesssed Value CCPI Factor Inflation Factor Base Value 1 Fair Market Value (FMV) Assessed Value Percent Change2 1/1/X1 Market Value when Purchased N/A N/A 300,000$ 300,000$ 300,000$ N/A 1/1/X2 Annual 2% inflation applied 2.46%2.00%306,000 335,000 306,000 2.00% 1/1/X3 CCPI inflation rate applied 1.85%2.00%311,670 375,000 311,670 1.85% 1/1/X4 Declining Real Estate Market 2.10%2.00%317,904 290,000 290,000 -6.95% 1/1/X5 Slight Improvement in RE Market 4.37%2.00%324,262 300,000 300,000 3.45% 1/1/X6 Drastic Improvement in RE Market 2.08%2.00%330,747 350,000 330,747 10.25% 1/1/X7 Annual 2% inflation applied 2.08%2.00%337,362 360,000 337,362 2.00% 1/1/X7 Home addition adds $50,000 to base value N/A N/A 380,747 410,000 380,747 12.86% 1/1/X8 CCPI inflation rate applied 1.01%2.00%384,592 437,000 384,592 1.01% 1/1/X9 Annual 2% inflation applied 2.76%2.00%392,284 450,000 392,284 2.00% 1 Base Value is calculated on lessor of CCPI or Inflation Factor 2 Amount of Change from prior year assessment EXAMPLE OFASSESSED VALUE FOR FICTIONAL HOME Property Tax 36% Sales Tax 31% TOT 6% Other Taxes 5% License, Permits & Development Charges 4% Other Service Charges 7% Interfund Charges 7% Other Revenues 4% 2023-24 General Fund Revenue The City receives various forms of property tax revenues each with its own distinct issues and trends as follows: Current Year Secured - Current secured revenues usually make up about 60% of the City’s property tax revenues and are what most people think of when discussing property taxes. Assessed values are established as of January 1 of each year and taxes are paid to the Tax Collector in two installments, due on December 10 and April 10. As the Tax Collector receives the funds, they are then allocated and distributed to the various agencies, including the City. Amounts levied but not collected by the County are distributed to the City under the Teeter Plan at the end of the fiscal year. Property Tax in Lieu of Vehicle License Fees - This revenue source grew out of a state-local budget agreement as part of the State 2004 budget package. Under this arrangement, the Vehicle License Fee (VLF) was reduced to Californians and the reduction in city and county revenues was replaced with a like amount of property taxes. Subsequent to the fiscal year 2004/05 base year, the property tax in lieu of VLF fluctuates in proportion to the gross assessed valuation in the City. Current Year Unsecured - Unsecured property tax is collected on items such as mobile homes that are not on a permanent foundation, machinery and equipment owned by businesses, and personal property such as airplanes and watercraft. Unsecured roll taxes are due on August 31. Current Year Supplemental - This property tax is an extra assessment that occurs when new construction is completed on real property or when a property changes ownership. The assessed value of the property is then increased to the current market value as of the date of the title transfer or completion of construction. Supplemental property tax is the amount due on the difference between the pre-event assessed value and the new market value of the property. Because there is a time lag between the change of ownership or completion of construction and the actual change of assessed value to the tax roll, supplemental property taxes are generally collected six months to a year or more after the event. Redevelopment Property Tax Trust Fund (RPTTF) Distributions- This revenue category was created as a result of the dissolution of Redevelopment in 2012. As part of the dissolution of redevelopment agencies, all revenues and assets of the former Fiscal Year Atascadero % Change in Assessed Value 2003/04 1,964,719,525 9.58% 2004/05 2,166,790,995 10.29% 2005/06 2,424,564,670 11.90% 2006/07 2,796,694,310 15.35% 2007/08 3,090,464,606 10.50% 2008/09 3,153,920,008 2.05% 2009/10 3,048,359,883 -3.35% 2010/11 2,974,274,420 -2.43% 2011/12 2,905,011,491 -2.33% 2012/13 2,911,262,172 0.22% 2013/14 3,016,930,596 3.63% 2014/15 3,194,259,931 5.88% 2015/16 3,378,519,547 5.77% 2016/17 3,578,899,913 5.93% 2017/18 3,775,528,569 5.49% 2018/19 3,990,810,592 5.70% 2019/20 4,172,031,404 4.54% 2020/21 4,361,659,685 4.55% 2021/22 4,536,122,089 4.00% 2022/23 4,830,807,720 6.50% 2023/24 5,144,472,225 6.49% 2024/25 5,399,557,083 4.96% Total Adjusted Gross Secured and Unsecured Assessed Value in Atascadero * * County of San Luis Obispo Auditor Controller's Office redevelopment agency that are not needed to pay to the required obligations of the former agency must be distributed to the taxing agencies. The City of Atascadero is a taxing agency within the former Atascadero Community Redevelopment Agency and thus is entitled to approximately 18% of the “excess” revenues and assets. The median home price is the midpoint price of homes being sold and is therefore a function of both the value of real estate and number of high-end versus low-end properties being sold. The median home price in San Luis Obispo County has continued to rise, especially over the past several years as people have been able to telecommute, retirees are locating to the area, and people are seeking a more rural type of life. Supply of housing continues to be tight, and therefore, it is unlikely that residential real estate will lose value. The median home price in San Luis Obispo County has continued to rise since the Great Recession. In 2020/21, the pandemic pushed mortgage rates to record and near-record lows. Homes were in high demand not only due to the low interest rates, but also due to shifts in the work environment. Many metropolitan-dwelling employees started looking for houses in rural areas to work remotely as the pandemic caused remote work environments to become more mainstream. Supply in the residential market was limited and with the low mortgage rates, the prices shot up significantly and most homes sold quickly and well over the asking price. With the uptick in property values, most of the temporary Proposition 8 reductions have been removed. Interest rates are impacting the market as the buying power of new home owners is limited and as property owners with low fixed 30-year mortgages who may have otherwise sold to upgrade their homes are now waiting because 1) their buying power is reduced due to both higher interest rates and increased sales prices, and 2) they don’t want to refinance their great low interest rate loan for the higher rates that are currently available. Therefore, even when interest rates begin to lessen, the increase in buyers will likely put upward pressure on home prices. Given that tight supply, it is unlikely that residential real estate will lose value. While 6%+ interest rates are high in the current environment relative to the 2%-3% rate level during the height of the pandemic, they are still moderate when compared to a fifty-year history. Rates peaked in the For the Month of October SLO County Existing Detached Median Home Price * 2002 348,684$ 2003 401,724 2004 492,372 2005 619,949 2006 568,965 2007 584,302 2008 411,956 2009 379,166 2010 371,740 2011 364,540 2012 395,140 2013 440,380 2014 455,660 2015 526,650 2016 538,500 2017 560,000 2018 586,000 2019 627,000 2020 700,500 2021 800,000 2022 815,000 2023 887,620 2024 943,000 SLO County Single Family Residence Median Home Prices * * California Association of Realtors early 1980s at over 18%! Now those were high interest rates. Permit activity is a good indicator of the level of private investment in the community. There is a substantial number of commercial and residential projects in the works, and once built out, will increase the assessed valuation in the City. While 2024 permit applications were down 18% when compared to 2023, there remains a significant amount of commercial and residential projects in the pipeline. These not only will increase the assessed values of these properties, but also demonstrate the confidence of the private investor in Atascadero’s market. Sales Tax Revenue Sales and Use Tax is collected on the sales of tangible property. The City’s sales tax rate is 8.75%. This includes the State’s base sales tax amount of 7.25%, plus Measure D-20 of 1%, and another 0.5% from Measure F- 14. Sales Tax on Internet Purchases Atascadero’s sales tax revenue from State and Countywide pools has increased following the implementation of Assembly Bill 147 (AB 147), which expanded the collection of sales - 500 1,000 1,500 2,000 2,500 Permit Applications Received by Year Property Tax 36% Sales Tax 31% TOT 6% Other Taxes 5% License, Permits & Development Charges 4% Other Service Charges 7% Interfund Charges 7% Other Revenues 4% 2023-24 General Fund Revenue and use taxes from out-of-state sales via the implementation of the landmark U.S. Supreme Court decision in South Dakota v. Wayfair (2018). The Wayfair decision addressed a longstanding problem associated with the rapid growth of online sales, resulting in the under-collection of billions in local sales and use tax revenues across the country. Previous court decisions were based on antiquated catalogue sales disputes that pre-dated the internet and required retailers to have physical nexus with each state prior to imposing an obligation on an out-of-state retailer to collect and remit applicable sales and use taxes from customers for remote sales. In Wayfair, the court reversed those decisions. AB 147 provides important direction in the law for the implementation of Wayfair in California. The bill (1) adds “economic nexus” for retailers with sales for delivery in California that exceed $500,000 to collect and remit sales tax effective April 1, 2019, and (2) defines a “marketplace facilitator” as the retailer responsible for the collection and remittance of sales and use taxes effective October 1, 2019. Marketplace facilitators contract with sellers to sell goods on their on-line platforms. Facilitators generally list products, process payments, collect receipts, and in some cases, take possession of a seller’s inventory, hold it in warehouses, and ship it to the customers. Under the California Department of Tax and Fee Administration rules, the revenue collected under AB 147 is distributed through state and countywide “pools” in proportion to the rest of taxable sales within the county. While the City benefits from the expanded pool revenue, this allocation method puts Atascadero at a disadvantage. Without significant brick and mortar retail locations in the City, many residents either shop in neighboring communities or online for taxable goods. When Atascadero residents shop outside of city limits, Atascadero’s business community and the City organization both lose out on valuable tax dollars. This amount of “lost opportunity” sales tax is not included in Atascadero’s base tax amount and therefore, in turn, lowers the city’s proportionate share of the pools. The allocation of sales tax revenue to jurisdictions has long been considered inequitable and not reflective of what is actually occurring. However, substantive change is difficult and results in winners and losers. In the event that changes did occur to more accurately reflect the purchases of Atascadero residents, the additional funds Atascadero received would reduce the funds that other agencies receive. Often, those agencies with biggest revenues are the current winners and would end up losing revenues if the rules were changed. They have the most money to fight change and are highly motivated to do so. Sales tax overall was up a modest 0.7% in fiscal year 2023/24 versus the prior year.