Historically, the District has exercised careful judgment when setting its revenue budget, particularly in response to economic uncertainties. By adopting a cautious approach to revenue growth projections, the District has been able to shield its core services from any negative financial impacts. This conservative approach, combined with a strong commitment to financial discipline, has helped ensure the stability and sustainability of its operations even during volatile times.

 

When forecasting the General Fund revenue budget for the upcoming fiscal year, staff took into account a wide range of factors to ensure the budget remained balanced and adequately funded to support service delivery. This included a thorough review of historical data and trends, which helped inform their estimates. In addition, staff closely considered the economic conditions that are expected to impact the District in the coming year.

 

By adopting a more realistic approach that focuses on providing the best possible estimates, staff has been able to project revenue for FY 2025-26 in a way that allows for a sound financial outlook. This prudent forecasting strategy reflects the District's ongoing commitment to maintaining fiscal responsibility while ensuring that essential services continue to be delivered effectively.

Under the California property tax law, all taxable real and personal property are generally subject to a 1% tax rate on the assessed values. With the passing of Proposition 13 in 1978, the increase in the assessments of real property has been restricted to no more than 2% or the annual change in the Consumer Price Index (CPI), whichever is lower. The exceptions to this 2% limitation were those properties that underwent a change in ownership or newly constructed properties, in which the value is reassessed at its current full market value.

 

The District’s revenue is largely derived from property taxes, which are directly linked to real estate valuations. These valuations have continued to show growth, contributing to a steady revenue stream despite ongoing economic uncertainties. In the face of fluctuating economic conditions, the real estate market has maintained stability, and property values have consistently risen, reinforcing the District’s financial outlook.

 

For the fiscal year 2024-25, the District expects a valuation growth of 4.6%. While this reflects a more moderate increase compared to previous years, it remains positive amidst challenges like inflation, layoffs in the tech sector, and decreased demand for office space, all of which have slowed down broader market activity. Despite these cooling factors, the District remains cautiously optimistic about the future, anticipating continued growth albeit at a slower pace.

 

The District’s long-term prospects for property tax revenue are bolstered by the planned industrial and residential development projects within its service area, which are expected to create new tax bases and drive sustained revenue growth. However, the continuation of this positive trend is not guaranteed and will depend on several unpredictable factors. The recovery of jobs and businesses, the balance of housing supply and demand, and the success of upcoming development projects will play a key role. Additionally, broader economic conditions such as inflation, interest rates, and shifts in the real estate market will influence whether the upward trajectory in property valuations remains intact or faces challenges in the coming years. Long-term growth remains promising, driven by planned industrial and residential developments, although trends will depend on factors such as job recovery, housing demand, and interest rates. Over the past five years, property tax revenue has grown at an average annual rate of 6.3%, and property taxes are expected to account for approximately 92% of total revenue in FY 2025-26.

 

Property Tax Revenue Breakdown by Tax Type:

 

Secured Tax

Secured property tax is calculated based on the assessed value of real property, land, and personal property, such as structures located upon real property that cannot be moved. 

 

The estimated growth in secured property tax for FY 2025-26 is around 3.8%, based on the assessment roll provided by San Mateo County as of March 2025. This growth rate includes an inflation factor of 1.02. The remaining increase in assessed value is driven by properties that have been reassessed after being sold at current market values, as well as new developments added to the District’s property tax roll. While the growth in assessed values doesn't directly translate to a one-to-one increase in property tax revenue, it serves as a strong indicator of the potential rise in revenue for the District.

 

The projected growth rate of 3.8% based on the increase reflected in the preliminary property assessment roll has been applied to the estimated actuals for FY 2024–25. This results in a total budget projection of $77.3 million for FY 2025–26.

 

Unsecured Tax

Unsecured taxes are assessed against movable personal property such as business equipment, boats, and airplanes. The tax is considered unsecured because any tax not paid results in a lien filed against the owner of the property, not the property itself. The property tax rate on unsecured property is based on the previous year’s secured property tax rate.

 

Changes in this category are mainly driven by fluctuations in the value of tenant-owned personal property and business fixtures, such as office machinery and equipment. Luxury items like boats, jet skis, and airplanes are also classified as unsecured property. Over the past few years, the District’s unsecured property tax revenue has shown consistent growth, which can be attributed to the strength of the local business sector as it continues to recover from the pandemic.

 

While the recovery is expected to persist despite ongoing economic uncertainties, factors such as inflation, high interest rates, and significant layoffs in the area could pose challenges to the business sector. Given these potential risks, the FY 2025-26 budget is set at $3.0 million. This figure is based on a 2.7% average increase over the past five years, applied to the estimated revenue for the current year.

 

Supplemental Senate Bill 813 (SB813)

Supplemental SB813, also known as the Hughes-Hart Educational Reform Act of 1983, originally was designed to close a perceived loophole in Proposition 13 and generate much-needed additional funding for schools. The new law established a “floating lien date” and prevented property owners from delaying the taxation of their properties at higher value assessments.

 

A supplemental tax is the result of a reassessment of real property, effective when there is a change in ownership or new construction is completed. A supplemental assessment is the difference between the enrolled assessed value and the value as of the time of the sale or addition of new construction. The primary driver of this tax is the listing of all property that has undergone a change in ownership (sold) and new construction.

 

Historically, the District's revenue from SB813 has varied from year to year due to its unpredictable nature. While new developments within the District’s jurisdiction are expected, as indicated by the estimated assessed growth rate from the County’s assessment roll, these gains may be offset by the cooling housing market, which is influenced by high interest rates and recent job layoffs in the area. The District has already observed a notable decline in property sales, as reflected in the lower supplemental tax revenues received to date. Overall, both sales volume and median sale prices are down compared to the previous year, signaling a slowdown in the real estate market. As a result, the District budgeted $808 thousand to account for this ongoing market decline.

 

Unitary Tax

Unitary taxes cover such entities as railroads, electric, gas, water, and telecommunication companies. The State Board of Equalization assesses the value of these companies’ operations and establishes a countywide tax rate system. Over the past five years, there has been a steady increase in this tax revenue. For fiscal year 2025-26, the budget is $570 thousand, reflecting the current year's estimated actual amount plus a 12.9% average growth rate over the past five years.

 

Excess ERAF (Educational Revenue Augmentation Fund)

These are the excess contributions that are required to be returned to the taxing entities once there is sufficient funding to fulfill the obligations to the school districts. The District has been receiving excess ERAF contributions since the County of San Mateo’s announcement of the refund in October 2003. These refunds are primarily a result of the local tax base increasing at a rate faster than the increase in the funding limits of the schools and community colleges.

 

Excess ERAF is challenging to predict due to several factors, including potential changes in school funding data, the State's methodology for calculating school districts' required funding, and possible legislative adjustments. Given these unpredictable and complex variables, the budget is projected at $8.5 million for FY 2025-26. This estimate is based on applying a 2.0% tax growth rate, which reflects the property tax assessment percentage limit, to the current year's estimated ERAF rebate.

 

ERAF Shift

One of the most significant fiscal shifts of property tax revenue from the District by legislative action is the ERAF shift.  The State passed into law two tax shifts, ERAF I (FY1992-93) and ERAF II (FY1993-94) which shifts local AB8 property tax revenues from counties, cities, special districts, and redevelopment agencies to K-12 schools and community colleges.

 

ERAF funds are used for schools that do not generate enough property tax to meet the minimum funding requirement determined by the State under Proposition 98. The calculated shift is approximately 12% of property tax revenue from secured, unsecured, and HOPTR. The estimated percentage is based on the figures provided by the County of San Mateo.

 

Homeowner Property Tax Relief (HOPTR)

This revenue is reimbursed by the State to compensate for the loss in property tax revenue resulting from the $7,000 reduction in the taxable value of qualifying owner-occupied homes. Over the past five years, the revenue received by the District has remained relatively stable, with fluctuations ranging between $203 thousand and $218 thousand. For FY 2025-26, the budget is maintained at $205 thousand, the same amount as the previous fiscal year.

 

Redevelopment Property Tax Trust Fund (RPTTF)

Prior to 2011, the State of California allowed local counties and cities to create Redevelopment Agencies (RDAs), which received certain property tax revenues to assist in the economic redevelopment of various geographic areas. There were 13 RDAs established by cities in the County of San Mateo. After the passing of AB 26, which dissolved the RDAs, Successor Agencies were established to fulfill the obligations of the former RDAs. The monies are transferred to trust funds called Redevelopment Property Tax Trust Funds (RPTTF) which are allocated to Successor Agencies. The remaining monies in the RPTTF are then distributed to the local taxing agencies.

 

The amounts the District receives from RPTTF distributions have fluctuated significantly over the past five years. Since the revenue from this category is residual and pass-through, occurring after fulfilling the enforceable obligations for the fiscal year, it is highly unpredictable. Other factors, such as the sale of assets, where proceeds are also distributed to the agencies that funded the former RDAs, can influence the actual distribution each year.

 

Given the limited information available, the fiscal year 2025-26 budget will be based on the five-year average, totaling $6.5 million.

 

This revenue stream is expected to continue in the foreseeable future, and staff is not aware of any developments regarding the complete dissolution of the successor agency to the former RDAs.

In addition to property taxes, the District generates revenue from various other sources, including license and permit fees, service charges, intergovernmental funding, interest earnings, and miscellaneous revenues. These sources are influenced by factors such as property ownership changes, new development, state funding formulas, and economic conditions, and they help support the District’s operations and services.

 

Licenses and Permits

License and permit revenues are collected for services provided by the District’s Fire Prevention Bureau for fire code construction plan reviews, fire code inspections, and various permits and licensing fees.

 

While the new fee schedule implemented in March 2023 was anticipated to generate a roughly 12.4% increase in potential revenue, the District has experienced a slowdown in the volume of inspections and other permit-required activities. As a result, the decline in these activities is expected to offset the increase in fees.

 

The FY 2024-25 fire prevention fees are lower than expected due to a decline in related activities such as inspections, permit applications, and fire safety services. Staff is projecting a 20% reduction in plan submittals for this fiscal year. This decrease can be attributed to a variety of factors, including reduced construction and development projects in the area, fewer permit requests for fire safety measures, and potentially lower demand for inspections tied to fire safety compliance. These activities are typically the primary drivers of fire prevention revenue, so when they slow down, there is less need for the associated services. Additionally, economic factors like high interest rates, which can affect the pace of new developments, and a general cooling in the real estate market may be contributing to this slowdown. As a result, despite the fee increase, the overall volume of activities has not risen as anticipated, leading to a reduction in the projected fire prevention fees for the upcoming fiscal year. The budget for FY 2025-26 is set at $881 thousand.

 

Current Service Charges

The District entered into a contract with SLAC National Accelerator Laboratory to provide fire and emergency services outside the scope of the District’s normal provision for public services. These fixed fees are collected on a monthly basis as stated in the formal contract agreements between the parties. Per the agreement, the revenue to be received by the District is $464 thousand for FY 2025-26. Weed abatement charges forecasted at $15 thousand are also included in this revenue category.

 

Use of Money and Property

Use of money and property revenue is generated from interest earnings and rent from District leased properties. The revenue sources in this category are investment earnings from investments of $5.1 million and training site usage of $20 thousand.

 

The interest revenue generated from the District's core managed account and liquid portfolio (CAMP and LAIF) is projected as follows: For the managed account, the interest revenue is calculated by multiplying the current portfolio’s par value by 4%. For the liquid portfolio, the projected interest earnings are based on the anticipated average holdings for the next fiscal year, multiplied by an expected average interest rate of 3.5%. These reflect the anticipated rate cuts for the upcoming year.

 

Intergovernmental Revenue

The revenue for this category comes from two primary sources: the Joint Power Authority (JPA) paramedic services agreement and deployment reimbursements from Cal-OES. For the fiscal year 2025-26, the total budget is set at $1.1 million, which includes $990 thousand allocated for reimbursement claims and $135 thousand for the paramedic JPA agreement.

 

The deployment reimbursement is particularly difficult to forecast because it varies significantly from year to year, primarily due to the unpredictable nature of deployment activities. These activities depend on factors such as the frequency and scale of emergencies or disasters requiring fire services, which can fluctuate dramatically. As a result, it is challenging to estimate this revenue stream accurately. To address this uncertainty, the budget is based on the average reimbursement received over the past five years, providing a more stable estimate despite the inherent volatility of deployment reimbursements.

 

Miscellaneous Revenues

This consists of miscellaneous revenues from the sale of assets, insurance claims reimbursement, and donations. The FY 2025-26 budget for this revenue stream is $50 thousand.

The General Fund Reserve does not represent an actual cash inflow or outflow to or from the General Fund during the fiscal year. Instead, it reflects the reserves accumulated from prior years, which are earmarked for specific purposes or contingencies. These reserves can serve as a financial buffer to supplement funding for the fiscal year if projected revenues fall short of budgeted expenditures. By utilizing reserve funds in such cases, the District can maintain a balanced operating budget without compromising its financial stability.

 

When reserve funds are budgeted for use, the corresponding amount is allocated to offset planned expenses in the fiscal year. However, it is important to note that this represents the liquidation of accumulated reserves rather than new revenue. For the FY2025-26 budget, the District does not plan to draw on its General Fund Reserve to fund operations. This reflects the District's commitment to aligning operational expenses with current-year revenues and preserving the reserves for future strategic needs or unforeseen circumstances.