The County's primary General Fund revenues showing vulnerability
The County’s primary General Fund revenues are generally meeting our budget expectations, except for two which are expected to fall short this year. The FY 2022-23 budget for Sales Tax has been reduced by $1.1 million and for Cannabis Business Taxes by $1.5 million. Chart D provides a 5-year review of the General Fund major general purpose revenue and the Cannabis Business taxes.
Property tax is one of the most stable and dependable revenue bases. The upside of the 1978 cap on annual growth is that rarely do property values decline below their current market value, as assessed value can only grow at a max of 2% per year. As shown in Chart D, our Property Tax revenues have grown steadily within the constitutional 2% annual growth cap plus the amount of supplemental reassessment triggered by property renovations or transfers. Since 2017-18, this collection of revenues has grown from $66.4 million to a preliminary projection of $85.1 million for FY 2023-24.
Sales tax for our County is the general revenue source with the most variability, as it is immediately impacted by economic impacts and/or changes in consumer behavior. Of the unincorporated county’s 9.0% rate, the County is allocated 1.0% as the base rate, 0.25% for transportation funding, and 0.50% from the Measure G local sales tax measure (2018).
Inflation and locally high housing costs have impacted retail spending in our community. Year to date sales tax revenue is falling short of budget by $1,150,000. Factoring in this slowdown and our projection for an economic slowdown in FY 2023-24, we are currently projecting that sales tax will drop by approximately 1%.
As detailed above, staff also continue to be concerned with how the State administers sales tax allocation under pre-internet methodologies, now including removing sales tax from the County for certain online purchases by unincorporated county residents and sending them to other counties across the state. This partially counteracts the historic 2019 implementation (AB 147) of new online sales tax reporting requirements following the 2018 US Supreme Court decision (South Dakota v. Wayfair). AB 147 required remote sellers (like third party sellers on Amazon) to remit sales taxes into county pools across the State.
Transient Occupancy Tax (TOT).
While not subject to the same risks as Sales Tax, TOT can equally be impacted quickly in sudden market or consumer trends. Fortunately, for our region, our tax base is diversified between long-destination trips and weekend travel where visitors can drive from their home location.
As shown in Chart D, TOT revenue has recovered to its pre-pandemic levels and will be improved with the increase effective January 1, 2023, raising rates from the prior 11% to 12% for hotel like stays and 14% for vacation rental like stays. Staff expects our FY 2023-24 revenue to be increased by $2.3 million, which, as the revenue was proposed, has helped reduce the size of the County's projected structural deficit.
Visit California’s September 2022 lodging forecast indicated that the “Central Coast” hotel and travel industry has fully recovered from the pandemic and by 2024 will reach hotel occupancy levels of 74% (over the 49% and 64% in 2020 and 2021) and revenue per room (RevPAR) of $183.30 (up from the $80.60 and $140.10 in 2020 and 2021). This projection and our local trends have strengthened our outlook on TOT revenue growth.
As discussed in depth on February 14, 2023, the County has experienced significant, multi-year delays in COVID and CZU fire reimbursements. Following months of FEMA outreach and support from our Congressional representatives and Board of Supervisors, staff expect that a portion of our $67 million of outstanding claims will be received this year and over the next few years. Our forecast includes the assumption that we would receive up to another $4.5 million this year to reach $5 million, and $14.5 million before the end of FY 2023-24. In our forecast, these first payments would restore our depleted reserves and be used to convert our primary General Fund reserve to be based on expenditure rather than revenue. And, because it is clear we need to continue to anticipate more climate based disaster events, staff will return in June 2023 with policies to strengthen our reserve policies.