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Positive sign: Property tax flat lines
2013 expected to end 5-year skid, $2.6M net annual loss
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Property tax in Manteca is now expected to flat line for 2013.

That could translate into an improvement to the general fund bottom line of up to $400,000 when compared to the proposed 2012-13 fiscal year municipal budget.

Finance Director Suzanne Mallory shared the good news Thursday with the City Council during a budget workshop. Originally, the San Joaquin County Assessor’s Office advised the city to brace for a 4 percent decline in Manteca property values. That is reflected in the $8,423,880 in projected property tax revenues in the proposed budget. Revenue from property taxes in 2012 are expected to hit $8,852,000. If things don’t change for 2013 as is now expected Manteca’s property tax revenue will be closer to $8.8 million than $8.4 million.

It would provide Manteca with a much needed cushion on the revenue side of the stressed general fund that pays for day-to-day government operations such as police, fire, parks, streets, and general government.

Should it materialize it would end a five-year decline in property tax revenue from a peak of $11 million in 2009. Property tax receipts this year slipped below 2006 levels.

A spot check of the Manteca market shows that resale housing in the under $120,000 segment has been bouncing back in the past year in terms of price. As existing home sales jump in price so do the assessed values of homes that aren’t for sale.  That means property owners who have enjoyed a decrease in tax assessments over the past four years may start seeing their tax bill increase.

Sales tax receipts are budgeted to increase 4 percent to $8,698,870 in 2013. It is the third straight year of increasing sales tax for Manteca.

The leveling of property taxes and an uptick in sales tax is clearly an indication that the Manteca economy is improving. It may take years, though, for that upswing to translate into more robust government tax receipts.

Manteca has fared better than most other cities since the housing bubble burst. In terms of property tax, Manteca had major retail such as Bass Pro Shops, JC Penney, and Costco that were being finished just as the economy started slipping. Bass Pro with its ability to snare more than 97 percent of its sales tax revenue from non-Manteca consumers has been a major factor in Manteca being more resilient than its neighbors.

As for property tax, the fact Manteca for four straight years has led the Northern San Joaquin valley in housing starts has played a role in helping offset some of the loses due to prices dropping from foreclosed home sales. In 2008 and 2009 Manteca built more new housing units than all jurisdictions in San Joaquin and Stanislaus counties combined.

Property and sales taxes are the two biggest revenue sources for the city. In the proposed budget they account for a combined $17,122,600 in general fund revenue or just slightly more than the $17,108,790 the city expects to spend on public safety in the fiscal year that started July 1. Property and sales tax account for roughly 65.5 percent of all money the city collects for day-to-day government operations and public safety.

Contracts direct sales, property tax gains to first cover any cost rises for retirement

New contracts with the city’s bargaining groups direct increased revenue in property and sales taxes to go first to cover any additional retirement costs for city employees enrolled in the California Public Employees Retirement System (PERS).

Contract language calls for half of any net annual increase after that of over one percent in combined property and sales taxes to be split among the employee bargaining groups to determine how they’d like it applied to compensation - salary or benefits - within their units.

Manteca is taking in roughly $17 million a year between property and sales tax. A one percent jump would represent about $170,000.

The contract language was aimed at stabilizing the general fund to eliminate the city’s structured deficit. At the same time it increased job stability for city workers by helping to partially insure the city can handle retirement cost increases as they occur. Pension payments are a major part of the municipal budget. Getting retirement and health costs under control is an essential key to keeping Manteca’s municipal budget on even keel.

The CalPERS board in March lowered the estimated return on investments for 2013 from 7.75 percent to 7.5 percent. It was a smaller drop to the investment return rate than an original projection that it would go down to 7.25 percent. The lower return projection, though, means contributions will have to go up to cover the shortfall.

Due to the variances in employee group contracts, the city has yet to determine exactly what the CalPERS change will cost the city. It is expected to be between 2 and 3 percent of the retirement cost for public safety employees and 1 to 2 percent for other municipal workers.

City leaders have noted the CalPERS move was something that had to be done to make sure the pension system is kept viable. Statewide, the quarter of a percent change means local governments will contribute $300 million more a year into the retirement system starting in 2013.

The increase in city contributions to employee retirement costs that will start in 2013 could end up with minimal or no impact on Manteca’s municipal budget. Should revenue come in higher than projected it could possibly improve the chance of a compensation adjustment upward for municipal employees in 2013.

Municipal employees across the board have seen their overall compensation reduced by an average of 22 percent in the past four years. The police alone forgave $4 million over the course of their contract through 2015. Such employee concessions have allowed Manteca to start down the path toward eliminating the structured deficit or the act of spending more money in a year on day-to-day services than they take in during the year.